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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X]
Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934. [Fee Required]
For the fiscal year ended December 31, 1995
or
[_]
Transition report pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934. [No Fee Required]
For the transition period from to
Commission file number: 0-11428
INFORMATION RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2947987
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
150 NORTH CLINTON STREET, CHICAGO, 60661
ILLINOIS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (312) 726-1221
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
COMMON STOCK, $.01 PAR VALUE PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [_]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 29, 1996 (based on the closing price as quoted by
NASDAQ as of such date) was $404,757,581.
The number of shares of the registrant's common stock, $.01 par value per
share outstanding, as of February 29, 1996 was 27,675,732.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the annual
meeting of stockholders to be held May 23, 1996 to be filed pursuant to
Regulation 14A are incorporated by reference into Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
INTRODUCTION
INTRODUCTION. Information Resources, Inc. ("IRI") and its subsidiaries
(collectively "the Company") is a leading provider of information services to
the consumer packaged goods ("CPG") industry. The Company obtains consumer
purchase data from electronic point-of-sale scanners in retail stores and
integrates this scan data with other proprietary data collected by the
Company's field personnel. The Company maintains this data in massive data
warehouses and provides CPG manufacturers, retailers, wholesalers and brokers
with timely, detailed and accurate information regarding consumer purchasing
patterns. The Company's software products assist clients in analyzing and
using the Company's data, enabling them to make more cost effective decisions
in marketing, selling and distributing their products.
The Company derives most of its revenues from its domestic information
services. These services center in large part around the Company's flagship
InfoScan(R) service, which tracks consumer purchasing of products sold in
supermarkets, drug stores, mass merchandisers and convenience stores across
the United States. The Company also offers a number of other services to CPG
manufacturers, such as BehaviorScan (R), for the testing and evaluation of
alternative marketing strategies and tactics. Closely related to its
information services, the Company also markets a family of software products
to the CPG industry based on EXPRESS(R) multidimensional relational software
technology. In July 1995 the Company sold the non-CPG portion of its EXPRESS
business (the "General Software Business") to Oracle Corporation ("Oracle"),
while retaining rights to market and distribute the EXPRESS software.
During the past four years, the Company has been expanding internationally,
establishing information services in Western European and Latin American
countries. Revenues from the Company's Domestic and International information
services, as well as from the General Software Business sold to Oracle
Corporation in mid-1995, were as follows for the periods shown (in thousands):
1995 1994 1993
-------- -------- --------
Domestic Information Services....................... $318,939 $299,068 $267,547
International Information Services.................. 40,779 13,580 7,785
-------- -------- --------
Subtotal.......................................... 359,718 312,648 275,332
General Software Business (sold in July 1995)....... 40,198 63,922 59,212
-------- -------- --------
Total............................................. $399,916 $376,570 $334,544
======== ======== ========
DOMESTIC INFORMATION SERVICES
The Company's Domestic Information Services include InfoScan product
tracking services, related software product sales, analytical and consulting
services, BehaviorScan product testing services and a variety of emerging
applications for the Company's census scanner data bases.
INFOSCAN. The Company's principal information service marketed in the United
States is InfoScan. InfoScan is a product tracking service used by the CPG
industry to monitor and evaluate the market performance of products sold in
retail stores. The InfoScan service provides subscribers with a variety of
information including how much product they and their competitors are selling,
where the products are being purchased, at what price the products are being
sold and under what promotional conditions sales are occurring. This
information helps subscribers make fundamental strategic and tactical
decisions for their businesses in the areas of sales, marketing, pricing,
promotion and logistics.
InfoScan utilizes universal product code ("UPC") information printed via bar
codes on CPG product packaging. Scanners at retail checkouts read the UPC code
and record product sales electronically. On an on-going basis, the Company
procures such electronic sales data (weekly and daily) along with related
promotional data from a sample of national and local market retail stores. The
Company also collects consumer purchase
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information directly from approximately 70,000 individual households across
the United States. The Company processes the information at its computer
facilities and stores it in the Company's proprietary data bases. InfoScan
subscribers access the information in the Company's data bases through a
variety of means, including the use of analytical software provided by the
Company.
Subscriptions to InfoScan by CPG manufacturers are a principal source of
revenue for the Company. Manufacturers subscribe to InfoScan by contracting
with the Company to obtain access to the InfoScan data bases for specified
product categories. InfoScan contracts generally have a multi-year term of
three years or more. After an initial term, InfoScan contracts generally
continue on indefinitely unless canceled with six months prior notice.
In late 1995, the Company transitioned its Towne-Oller division's product
tracking service for health and beauty aid manufacturers into its InfoScan
service. Previously, Towne-Oller had tracked deliveries of health and beauty
care products from retailer and wholesaler warehouses to approximately 30,000
individual drug stores and supermarkets in the United States.
InfoScan Data Collection. For the Company's InfoScan sample service, the
Company continuously collects weekly product sales information from
approximately 4,000 representative retail outlets throughout the United
States. Included in the Company's national and local market samples are 2,700
supermarkets, 525 drug stores, 250 mass merchandisers, and 575 convenience
stores. Contracting retailers typically deliver their scanner data
electronically to the Company's computer facilities in Wood Dale, Illinois.
While most retail stores in the United States have installed scanner equipment
to record product sales information, certain convenience stores have not. When
scanner data is not available, the Company uses its field personnel to visit
stores and manually obtain sales information via a manual audit of the stores'
product invoices.
The InfoScan data bases contain both scanner data and "causal" data. Causal
data consist of information which might explain changes in product sales, such
as retailers' newspaper ads and in-store displays, as well as other promotion
and merchandising data related to the sale of CPG products. The Company
employs a field force of part-time workers to collect causal data. These
employees conduct weekly on-site visits to retail stores participating in the
InfoScan service to collect causal information such as in-store promotions and
displays. Field force personnel perform other services as well, such as those
related to the Company's test marketing services.
The Company's InfoScan service also collects consumer purchase information
from approximately 70,000 individual households in the United States. Shoppers
from approximately 60,000 of these households present an identification card
when shopping at participating supermarkets, thereby allowing scanners to
record specific details of their product purchases. The Company also provides
about 15,000 households with hand-held scanners to record their product
purchases made in retail outlets which either do not have scanners or do not
otherwise participate in the Company's household data collection system.
The Company most often pays cash for retailers' scanner data. However, the
Company also exchanges software and other services to obtain access to data
for all stores within certain supermarket and drug chains. (See "InfoScan
Census--QScan" below.) Typical data procurement contracts run from year to
year and generally are cancelable by either party on 90 days notice.
InfoScan Data Processing. The Company receives and processes data for its
InfoScan service at its production center and computer facilities located in
Wood Dale, Illinois. The Company's production center operates with numerous
mainframe and RISC-based computers as well as proprietary production software
and related technology developed exclusively by the Company to process and
store very large amounts of data. Through direct telecommunication connections
with InfoScan subscribers, the Company also provides electronic on-line access
to InfoScan data services. The Company leases its mainframe computers from
third party financial institutions.
InfoScan Delivery. Subscriptions to the InfoScan service entitle the
Company's clients to access the Company's data bases and receive information
for specific product categories. Because large amounts of data
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are involved, clients usually either take electronic delivery of the data or
obtain electronic access to the Company's data bases through the Company's on-
line service. Clients taking electronic delivery generally license software
from the Company. The Company's on-line service permits clients to build and
store their own data bases which remain resident on the Company's computers.
Clients then access the data bases through remote electronic connection.
Clients also purchase software services from the Company. (See "Software
Products" below for more information on Company revenues derived from software
licensing.)
Client Service. The Company places a major emphasis on the provision of
experienced and knowledgeable client service personnel to assist InfoScan
subscribers in the use and interpretation of InfoScan data as well as the use
of the Company's analytical software. Accordingly, costs of client service
personnel are a significant component of total Company costs to deliver the
InfoScan service.
Analytical and Consulting Services. The Company provides numerous ad hoc
analytical and consulting services to both CPG manufacturers and retailers. Ad
hoc revenues mostly follow from subscriptions to the Company's InfoScan service
and principally relate to analytical use of InfoScan data. These services are
generally billed on a time and materials basis. Client service personnel costs
constitute the principal expenses incurred in providing these services.
Analytical and consulting services are directed at helping clients identify
new marketing opportunities, more effectively manage their marketing mix,
identify appropriate opportunities for product line reductions, and increase
productivity of marketing expenditures through more effective couponing,
advertising and in-store merchandising programs. The Company's Neo, Inc.
subsidiary provides management consulting services focused on sales force
effectiveness, retailer marketing, information utilization and training and
support for selling organizations.
INFOSCAN CENSUS. InfoScan Census is a product tracking service based on
scanner data from all stores within participating retail chains, as opposed to
a representative sample only. InfoScan Census offers the CPG industry more
complete and accurate data than sample services, since it has no sampling or
projection errors.
Currently, InfoScan Census revenues come mainly from manufacturers purchasing
"key account" data, which is sales data for a product category from all the
stores of a specific retailer. This service permits manufacturers' sales
representatives to negotiate with retail buyers based on a mutually consistent
and accurate measure of consumer purchasing. In addition, an evaluation of
differences in brand and product category purchasing across individual stores
within a chain can often pin-point opportunities to effectively build sales--to
the benefit of both manufacturers and retailers. The Company is also developing
a wide variety of uses for InfoScan Census data which go beyond "key account"
information. These include improved management of trade promotions, validation
of "pay-for-performance" promotions, more effective sales force and broker
compensation programs and improved inventory and distribution management. See
"IRI Logistics" below.
There are presently approximately 12,500 supermarket stores and nearly 7,000
drug stores in the Company's InfoScan Census data base.
QScan. The Company provides its QScan(TM) system to retailers in exchange for
their participation in the provision of their all-store data for InfoScan
Census. QScan is an information system designed for retailers needing to manage
their own scanner data more efficiently. The system addresses retailers'
problems of organizing and analyzing their own data bases of information for
products sold in their stores. With a RISC workstation at a retailer's buying
office along with software provided by the Company, the QScan system collects
and processes sales data from all of the retailer's stores on a weekly basis.
Catalina Information Resources ("CIR"). In cooperation with Catalina
Marketing Corporation ("Catalina"), the Company uses Catalina's electronic
network, which reaches approximately 10,000 supermarkets, to retrieve daily
scanner data currently from approximately 4,000 stores. The Company's usage is
targeted to reach 6,000 stores by the end of 1996. CIR data is used to provide
the Company's clients with timely insights into a variety of tactical sales,
marketing and distribution issues.
4
SOFTWARE PRODUCTS. In close association with InfoScan, the Company markets
analytical software to the CPG industry principally for use in accessing,
managing and analyzing the Company's data bases. The Company also markets
space management software for use in managing retail shelf space, software for
the improved management of a manufacturer's promotion expenditures and
software applications to facilitate enhanced uses of InfoScan data, such as
logistics software.
The Company markets the EXPRESS(R) line of software products primarily to
the CPG industry. EXPRESS is a software technology designed for working with
large and complex data bases. In July 1995, the Company sold its EXPRESS
technology and line of software products to Oracle, while retaining ownership
of a limited number of EXPRESS-based sales and marketing software application
products for use in the CPG industry. Through licensing agreements with
Oracle, the Company continues to market and distribute the full line of
EXPRESS software products.
Many of the Company's InfoScan and QScan clients need the EXPRESS-based
software application DataServer Analyzer(TM) in order to access, manage and
analyze the Company's data bases. DataServer Analyzer is a decision support
software application built in EXPRESS and now owned by Oracle. The product
provides users with a range of analytical and reporting tools. The Company
licenses DataServer Analyzer to InfoScan clients normally at the same time as
clients subscribe to InfoScan.
The Company's principal source of software revenues is now on-line services
provided to InfoScan subscribers. These services include licenses to use
various EXPRESS software products, principally DataServer Analyzer. A
secondary source of software revenues derives from issuance of EXPRESS
software product licenses to InfoScan subscribers which load InfoScan data on
their own computer systems and do not use the Company's on-line services.
Licenses typically require a one-time paid-up license fee upon acceptance of
the software and annual maintenance payments for update and support services
thereafter. Oracle is not entitled to receive royalties on most licenses
issued by the Company within the CPG industry until July 1998. At that time,
the Company's license from Oracle becomes royalty bearing at a reduced rate
until 2001 when the license is set to expire unless otherwise mutually
renewed.
InfoScan clients have available from the Company a number of other software
applications for use with scanner data. These include the following:
DataServer Reporter(TM) used by managers to track and analyze sales
performance for territory management; DataServer FastCast(TM) used by sales
and marketing managers to improve the accuracy of their sales forecasts; and
DataServer Partners(TM) used by sales and marketing professionals to develop
profitable product strategies and sales presentations. The Company retained
ownership of DataServer Partners. DataServer Analyzer and DataServer Reporter
were included in the EXPRESS line of products and technology sold to Oracle.
The Company markets FastCast under license from an independent third party.
Prior to the 1995 sale to Oracle, the Company operated a decision support
software business engaged in general application development using the EXPRESS
product line. Following the sale to Oracle, the Company has rights to market,
distribute and provide first line customer support for the full range of
EXPRESS products. However, it is anticipated that further software development
work by the Company will be mainly limited to the development of applications
useful to the CPG industry.
Space Management. The Company markets its proprietary APOLLO Space
Management System software to CPG retailers, wholesalers, manufacturers and
brokers in the United States and overseas. APOLLO software is designed to
assist in the management of retail shelf space. The APOLLO Space Management
System provides a range of tools for space management including APOLLO
VIVID(TM) for producing picture schematics of shelf layouts, APOLLO
TotalStore(TM) for evaluating space utilization, APOLLO BriefCase(TM) for
field sales use, and the National Product Library(TM) which provides a
national data base of product dimensions and product images.
Logistics. The Company has developed logistics software to help
manufacturers and retailers improve the efficiency of product replenishment
across their distribution channels. Currently, the Company is working with a
limited number of manufacturers and retailers to refine initial versions of
the product. The Company's software
5
products and consulting services for retailers are aimed at forecasting
consumer demand at point-of-sale by product item, planning orders based on the
forecast and generating orders based on the plan. Developments for
manufacturers are aimed at the provision of software, census scanner data and
implementation services designed to provide comprehensive supply chain
solutions.
Other Software Products. The Company develops and markets a number of other
software products for use in the CPG industry. These include DataServer
Targeter(TM), which provides sales and marketing organizations with tools to
analyze InfoScan census data on a store-by-store basis and thereby improve the
execution of comprehensive micro-marketing and sales programs. The Company's
Category Manager(TM) is an expert software system designed to facilitate
strategic category planning for retailers and suppliers. TradeWins(TM),
expected to be released during 1996, is a software system designed to help
manufacturers manage their retail trade promotion expenditures in a more
effective manner. The Company owns DataServer Targeter(TM) and TradeWins.
Category Manager(TM) was jointly developed by the Company and The Partnering
Group, Inc.
BEHAVIORSCAN(R) AND OTHER TESTING SERVICES. The Company's BehaviorScan
service is a test marketing system which enables CPG manufacturers to measure
the impact of different marketing variables on consumer purchase behavior.
Typical marketing variables tested in BehaviorScan are television
advertisements, newspaper ads, manufacturers' coupons, free samples, in-store
displays, shelf price and packaging changes. BehaviorScan tests compare the
scanner purchases of a group of consumer panelists exposed to test variables
with the purchases of a control group. A unique feature of the BehaviorScan
system is its ability to deliver alternative television advertising to
different groups of panel households using the Company's patented targetable
television technology. BehaviorScan is currently available in six markets and
is the only such electronic test marketing system in the United States. Major
costs associated with the BehaviorScan system include payments to retailers,
compensation to participating panel households, field personnel costs, cable
television studio operation, computer resources and client service personnel
costs.
The Company also provides a number of other testing services primarily for
CPG manufacturers. These include controlled retail testing, matched market
analyses and related special analyses using the Company's InfoScan data bases.
Controlled retail testing involves testing the placement of new products or
changes in shelf location, price or promotional conditions in retail outlets.
Matched market and other special analyses evaluate the impact of advertising
and other marketing variables and involve custom manipulation and analysis of
the Company's InfoScan data bases.
INTERNATIONAL INFORMATION SERVICES
Through subsidiaries and joint ventures with other leading market information
firms, the Company offers information services in a number of countries outside
of the United States. Specific products offered depend upon local country
competitive conditions, the stage of development of the Company's business and
the availability of scanner data. Most of the Company's major European
subsidiaries and joint venture companies rely on the Company's data production
facilities in the United States and know-how to provide scanner-based product
tracking services.
The Company's only significant competitor offering product tracking services
internationally is the A.C. Nielsen Company ("Nielsen"). (See "Competition"
below.) The Company competes with Nielsen in virtually every foreign market
where the Company has established information services. Nielsen maintains a
dominant position throughout most of Europe where the Company's expenditures on
establishing product tracking services have been most significant.
United Kingdom. The Company's subsidiary in the United Kingdom offers a
product tracking service under the InfoScan name to the British market.
Organized in 1992 as a joint venture, the Company's partners are Taylor Nelson
AGB plc of the United Kingdom and GfK AG of Germany ("GfK"). The joint venture
purchased certain assets of a tracking service providing retail audits
primarily of food products in grocery stores. In 1993, the venture expanded its
sample of scanning stores, initiated the collection of causal data and began
offering a fully operational scanning service covering major chains under the
InfoScan name. It also expanded the service
6
to cover stores selling health and beauty aids. Currently the Company is the
only source of retailer scanner-based information on sales of health and
beauty products sold by the Boots the Chemist and SuperDrug chains of drug
stores representing approximately 30% of all sales of these categories sold in
the U.K.
The Company's original ownership percentage in the joint venture, IRI
InfoScan Limited, was 60%. However, because it funded most of the joint
venture's capital requirements, the Company now owns substantially all of the
joint venture interests.
Pursuant to contractual arrangements between the Company and IRI InfoScan
Limited, the Company provides data production services to the joint venture
from the Company's computer facilities in Wood Dale, Illinois.
France. The Company's subsidiary in France offers a scanning-based product
tracking service under the InfoScan name. In 1993, the Company organized a
joint venture with GfK and SECODIP S.A. to acquire the operations of SECODIP's
retail audit business and the business of a former development-stage scanner-
based operation of GfK.
The French joint venture's name is IRI-SECODIP S.N.C. In 1994, the Company
funded most of the joint venture's capital requirements and now owns 89% of
the joint venture interests. In 1995, the Company funded all of the joint
venture's requirements and recorded 100% of the operating results. Pursuant to
contractual arrangements between the Company and IRI-SECODIP S.N.C., the
Company provides data production services to the joint venture from the
Company's computer facilities in Wood Dale, Illinois.
Italy. In 1994, the Company began development of a wholly-owned information
service in Italy. In early 1995, the subsidiary produced its initial reports
to clients. The subsidiary's name is IRI InfoScan Italy. Its basic service
consists of retail sales and promotion tracking using a sample of retail
grocery outlets. Supermarket sales are tracked by means of scanning data,
while sales in smaller, traditional shops are measured by manual audit
techniques. The Company provides production services to IRI InfoScan Italy
from the Company's computer facilities in Wood Dale, Illinois.
Germany. The Company has a 15% ownership interest in GfK Panel Services
GmbH, a subsidiary of GfK. GfK Panel Services GmbH offers both retail and
consumer panel tracking services based on consumer household panel data,
retail audit data and scanner data. It also provides related consulting
studies. Scanner data is not available from all major retailers in Germany,
and use of scanning equipment in the former East Germany is limited.
Therefore, scanner data in Germany, when available, is primarily used for
diagnostic and promotion analysis rather than for provision of a product
tracking service. GfK provides production services to GfK Panel Services GmbH
through GfK's own facilities in Nuremberg, Germany.
Benelux. A joint venture company with GfK offers both a scanner-based
product tracking service and a consumer panel service to the Netherlands
market. This joint venture is owned 80.1% by GfK and 19.9% by the Company. The
scanner-based product tracking service became fully-operational in 1994 and
operates under the InfoScan name. The Company provides production services to
the joint venture through the Company's computer facilities in Wood Dale,
Illinois. The Company also has a 19.9% ownership interest in GfK Panel
Services Benelux B.V. and GfK Belgium S.A. These companies operate household
panel services in the Netherlands and Belgium.
Turkey. In 1993, the Company acquired a retail audit business in Turkey, now
a subsidiary named Panel Information Resources. It conducts its service in a
national sample of supermarkets, large and small grocery stores, pharmacies,
cosmetic shops and other stores. Panel Information Resources also provides
related special consulting services and distributes IRI software products in
Turkey.
Greece. In 1994, the Company acquired a retail audit business in Greece. The
operation includes collecting, reporting, analyzing and interpreting national
sales data from manual audits.
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Sweden. In February 1995, the Company acquired a 19.9% interest in a newly-
formed joint venture with GfK for scanner-based product tracking services in
Sweden. The business is being operated by GfK and offers a fully operational
national scanner based tracking service.
Eastern Europe, Middle East and North Africa. In March 1995, the Company
entered into an alliance with Middle East Market Research Bureau ("MEMRB"), a
market research company based in Cyprus. MEMRB provides market research
throughout 22 countries in the Middle East, Eastern Europe, the Mediterranean,
the Commonwealth of Independent States and North Africa. Under the terms of
the alliance, MEMRB has agreed to cooperate in the adoption of multi-country
technical standards developed by the Company and co-market certain information
and software products with the Company. The Company has an option to acquire
up to a 49% ownership interest in MEMRB.
Japan. In mid-1995, the Company formed a joint venture in Japan with Tokyo-
based Mitsui & Co., Ltd. The purpose of the joint venture is to provide
software and information services in Japan. The Company initially contributed
approximately $2.0 million for a 60% ownership interest in the joint venture.
Canada. The Company is currently considering the establishment of a scanner-
based product tracking service for the Canadian market. To date, most of the
Company's efforts in Canada have been directed at removing barriers to entry
established by Nielsen. Beginning in 1986, Nielsen entered into a series of
exclusive contracts with leading retailers in Canada which prevented those
retailers from providing scanner or causal data to the Company, or most any
other entity except Nielsen. In August 1995, the Canadian Competition Tribunal
ordered Nielsen not to enforce contracts with Canadian retailers for exclusive
access to their scanner and causal data. The Tribunal also prohibited Nielsen
from entering into long-term tracking service contracts with manufacturers and
ordered Nielsen to provide the Company with historical data under certain
circumstances. All existing Nielsen customer contracts, and all contracts
entered into for 18 months from the date of the order, were made terminable by
the customer upon eight months' notice.
The Company is currently attempting to secure scanner data from retailers on
terms that will permit the Company to offer an InfoScan service in Canada on a
profitable basis.
Latin America. The Company has operations in the certain Latin American
markets through joint ventures and acquisitions in Venezuela, Puerto Rico and
Guatemala. The Company owns 49.9% of the Venezuelan joint venture, Datos
Information Resources, which provides audit-based product tracking as well as
ad hoc and software services to the Venezuelan market. The Company's wholly-
owned subsidiary, IRI Puerto Rico, is the largest full-service market research
company in Puerto Rico, offering both audit-based product tracking and ad hoc
services. The Company is also initiating activities in Mexico preparing a
possible launch of an InfoScan service in that market.
TRADEMARKS, PATENTS, LICENSES AND SOFTWARE PROTECTION
The Company is the owner of various trademarks, including InfoScan(R),
InfoScan Census(TM), QScan(TM), IRI Software(TM), IRI Logistics(TM),
BehaviorScan(R), APOLLO(TM), DataServer Partners(TM), DataServer Targeter(TM),
TradeWins(TM), Logistics Partner(TM), Shoppers' Hotline(TM), EZPrompt(R),
CouponScan(TM), PromotionScan(TM) and Customer Marketing Resources(TM). The
Company also holds certain patents relating to the targetable television
technology utilized in its BehaviorScan service. The patents expire at various
dates between 1999 and 2005. Loss or infringement of these patents would
likely not have a material adverse effect upon the Company's revenues.
As a result of the sale of the EXPRESS technology and line of software
products to Oracle in July 1995, the Company no longer owns a large portion of
the software that is used in the delivery of InfoScan data. The Company
secured a license back from Oracle assuring the continued use of the EXPRESS
software in the Company's business, including rights to sublicense the
software to clients of the Company. The initial term of the license is six
years. Unless renewed, it will expire in 2001. The Company also has rights to
use various
8
trademarks owned by Oracle, including EXPRESS(R), DataServer(TM), DataServer
Analyzer(TM) and DataServer Reporter(TM).
The Company regards its data bases as proprietary and, in addition to
copyright protection, relies upon trade secret laws, limitations on access to
its computer source codes, confidentiality agreements with clients and internal
nondisclosure safeguards to protect its rights to proprietary interests. The
Company's own computer software is also proprietary and bears appropriate
copyright notices.
Because of the rapid pace of technological change in the computer industry,
trademark, patent or copyright protection is of less significance than the
knowledge and experience of the Company's personnel and their ability to
develop and market new systems or software products.
WORKING CAPITAL PRACTICES
The Company invoices its information service clients in accordance with
agreed contract terms. This procedure normally requires quarterly billing, and
payment is typically due within 30 days of receipt of invoice. However, in
specially negotiated circumstances, the Company sometimes grants delayed
billings terms. In other circumstances, the Company sometimes discounts its
invoices for advanced payments. Software licenses generally require payment in
full upon acceptance of software.
The Company pays retailers cash in accordance with negotiated terms for
providing scanner data for use in the InfoScan sample service. Payments to
other vendors are normally made in accordance with vendor terms.
CUSTOMERS
The Company had approximately 1,300, 900 and 800 clients using its
information services in 1995, 1994 and 1993, respectively. Many of the
Company's clients are CPG manufacturers in the United States or in foreign
countries where the Company offers its services. No client of the Company
accounted for revenues in excess of 10% of the Company's total revenues. The
Company's top ten customers accounted for approximately 33% of the Company's
1995 revenues.
BACKLOG ORDERS
At December 31, 1995, 1994 and 1993, the Company had committed contract
revenues for information services of approximately $235 million, $161 million
and $152 million respectively. Older InfoScan contracts generally require a
minimum one-year client commitment. Contracts continuing beyond the initial
commitment are generally cancelable at any time by the client on six months
prior written notice. More recent contracts generally include commitments of
three years or more. Committed contract revenues include only the noncancelable
portion of a contract. The portion of these committed contract revenues
expected to be earned subsequent to 1996 is approximately 46%.
COMPETITION
Numerous firms supply marketing and advertising research products and
services to CPG manufacturers and retailers. However, the Company and Nielsen
are the only two firms which provide national scanner-based product tracking
services in the United States to such manufacturers and retailers. The United
States market for product tracking services is nearly evenly divided between
the Company and Nielsen. However, Nielsen is far larger than the Company in
terms of worldwide revenues. It is also a principal subsidiary of the Dun &
Bradstreet Corporation, a United States based company with 1995 revenues of
$5.4 billion, giving it access to far greater financial resources than the
Company. In the product tracking services markets across Europe, Nielsen is the
Company's only competitor and also currently maintains a dominant market
position in most European countries.
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In January 1996, Dun & Bradstreet Corporation announced plans to split off
Nielsen into an independent public company.
Principal competitive factors include: innovation, quality, reliability and
comprehensiveness of analytical services and data provided; flexibility in
tailoring services to client needs; experience; the capability of technical and
client service personnel; data processing and decision support software;
reputation; price; and geographical coverage.
RESEARCH AND DEVELOPMENT
The Company is continuously developing new business products and services. In
this regard, the Company is actively engaged in research and development of new
software services and new data base analyses and applications. Expenditures for
research and development for the years ended December 31, 1995, 1994 and 1993
approximated $37.4 million, $35.1 million and $31.0 million, respectively.
Included in these expenditures were $9.9 million, $11.7 million and $10.2
million of software development costs that were capitalized. Expenditures not
capitalized were expensed as incurred.
PERSONNEL
At December 31, 1995, the Company had approximately 4,000 full-time and 2,500
part-time employees. The Company depends to a significant extent on its skilled
technical personnel. Its future success will depend to a large degree upon its
ability to continue to hire, train and retain its professional staff.
ITEM 2. PROPERTIES
The Company markets and provides its information services and software
support services to domestic clients from full-service sales offices in New
York, New York; San Francisco and Los Angeles, California; Cincinnati, Ohio;
Darien, Connecticut; Fairfield, New Jersey; and Toronto, Canada as well as from
its headquarters in Chicago, Illinois and systems development headquarters in
Waltham, Massachusetts. The Company markets to international clients through
subsidiaries and/or offices in Australia, Canada, France, Guatemala, Greece,
Italy, Japan, Mexico, Puerto Rico, Turkey, United Kingdom, Venezuela and
through its various distributors.
Principal leased facilities of the Company are as follows:
APPROXIMATE
FLOOR AREA
LOCATION PRINCIPAL OPERATION (SQ. FT.)
-------- ------------------- -----------
Chicago, IL Corporate headquarters and offices for professional staff 427,000
Waltham, MA Professional staff and computer facilities 45,000
Wood Dale, IL Computer facilities 45,000
Regional sales and cli-
ent service offices Sales, client service and analysis 290,000
Sales, client service, computer facilities and
International offices professional staff 130,000
Data collection facili- Data collection and client test control, cable TV studio 160,000
ties facilities, warehouse
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, IRI and its subsidiaries become involved
as plaintiffs or defendants in various legal proceedings. The claims and
counterclaims in such litigation, including those for punitive damages,
individually in certain cases and in the aggregate, involve amounts which may
be material. However, it is the opinion of the Company's management that the
ultimate disposition of pending litigation will not be material.
10
The Company was involved in a shareholder class action suit filed by certain
shareholders in 1989. In June 1994 a federal district court jury returned a
unanimous verdict in favor of the Company. The plaintiffs appealed such
determination with the United States Court of Appeals for the Seventh Circuit.
In August 1995 the Appeals Court rendered its decision in favor of the
Company. The plaintiffs did not file any further appeals.
In April 1994 certain shareholders filed a class action lawsuit against the
Company, and in October 1994 the Company entered into an agreement to settle
this lawsuit. In March 1995, the settlement was approved by the federal
district court as fair, just, reasonable and adequate to the settlement class,
and the case was dismissed on the merits with prejudice. The settlement
required the payment of $12.5 million, of which $7.3 million was paid by the
Company's insurance carriers. Pursuant to the terms of the settlement
agreement, in December 1995 the Company satisfied its obligations by issuing
211,223 shares of Common Stock and paying $2.6 million in cash to the
settlement class.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION WITH COMPANY AND BUSINESS EXPERIENCE
---- --- ------------------------------------------------------------------
Thomas W. Wilson Jr. 64 Chairman of the Board of Directors of the Company since April
1995. Director of the Company since 1991. Senior Partner of
McKinsey & Company, management consultants, from 1973 until 1990
(retired).
Gian M. Fulgoni 48 Chief Executive Officer since January 1986; Chairman of the Board
of Directors of the Company from February 1991 to April 1995;
Director since 1981; Director of PLATINUM technology, Inc.
Randall S. Smith 44 President of International Information Services Group since
January 1995; Vice President of the Company since 1986;
President--International Operations Division from December 1993
until January 1995; President of European Data Operations
Division from February 1993 until December 1993; President of the
Testing Services Division from prior to March 1991 to January
1993.
Gary M. Hill 48 Executive Vice President and Chief Financial Officer of the
Company since May 1995. Financial consultant from August 1994 to
December 1994. Senior Vice President--Finance of Itel Corporation
from prior to March 1991 to July 1994.
Edward S. Berger 55 Executive Vice President since June 1993; Secretary and General
Counsel of the Company since 1988; Division Senior Vice President
of the Company from February 1991 until June 1993.
John P. McNicholas, Jr. 42 Senior Vice President and Controller of the Company since June
1995; Vice President--Controller of Itel Corporation from May
1992 to March 1995; Controller of Itel Corporation from prior to
March 1991 to May 1992.
All of the foregoing executive officers hold office until the next annual
meeting of the Board of Directors and until their successors are elected and
qualified.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER'S
MATTERS
The Company's Common Stock has been traded on the Nasdaq Stock Market under
the symbol "IRIC" since 1983. The stock currently trades on the National
Market System. Share data has been adjusted for all stock splits and stock
dividends to date.
The high and low closing sales prices for the Company's Common Stock were as
follows:
QUARTERS HIGH LOW
----------- ---- ----
1994 1st quarter $39 1/4 $ 17
2nd quarter 17 13 5/8
3rd quarter 15 1/4 11 11/16
4th quarter 17 11 1/4
1995 1st quarter 15 1/4 12 1/4
2nd quarter 17 7/8 11 11/16
3rd quarter 14 3/8 12 11/16
4th quarter 13 3/8 10 1/8
The last sale price on February 29, 1996 was $14 5/8 per share. As of
February 29, 1996 there were 3,293 record holders of the Company's Common
Stock.
The Company has never paid cash dividends. It is the present policy of the
Company's Board of Directors to retain earnings for use in the Company's
business. Accordingly, the Board of Directors does not anticipate that cash
dividends will be paid in the foreseeable future. There are restrictions in
IRI's loan and certain lease agreements which limit the payment of dividends
and the repurchases or redemption of Common Stock. (See Note 11 of the Notes
to the Consolidated Financial Statements.)
12
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31
------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
HISTORICAL RESULTS OF OPERATIONS
(1)
Revenues (2)....................... $ 399.9 $ 376.6 $ 334.5 $ 276.4 $ 222.7
======= ======= ======= ======= =======
Nonrecurring expenses (3).......... (22.8) -- (3.0) -- --
======= ======= ======= ======= =======
Operating profit (loss)............ (54.9) 5.3 37.9 37.7 25.3
======= ======= ======= ======= =======
Net gain on disposition of assets
(4)............................... 41.1 -- -- -- --
======= ======= ======= ======= =======
Earnings (loss) before cumulative
effect of change in accounting
principle (5)..................... (11.7) (8.9) 22.2 19.2 15.4
======= ======= ======= ======= =======
Cumulative effect on prior years of
change in accounting principle (2)
(6)............................... -- (6.6) 1.9 -- --
======= ======= ======= ======= =======
Net earnings (loss)................ $ (11.7) $ (15.5) $ 24.1 $ 19.2 $ 15.4
======= ======= ======= ======= =======
Earnings (loss) per common and
common equivalent share (2):
Before cumulative effect of
accounting changes.............. $ (.43) $ (.34) $ .82 $ .78 $ .66
Cumulative effect of accounting
changes......................... -- (.26) .07 -- --
======= ======= ======= ======= =======
Net earnings (loss).............. $ (.43) $ (.60) $ .89 $ .78 $ .66
======= ======= ======= ======= =======
Weighted average common and common
equivalent shares................. 27.0 26.1 27.2 24.8 23.4
======= ======= ======= ======= =======
PRO FORMA RESULTS OF OPERATIONS (7)
Revenues........................... $ 359.7 $ 313.3 N/A N/A N/A
======= ======= ======= ======= =======
Net loss before cumulative effect
of change in accounting
principle......................... (29.1) (3.5) N/A N/A N/A
======= ======= ======= ======= =======
Net loss per common and common
equivalent share.................. $ (1.08) $ (.13) N/A N/A N/A
======= ======= ======= ======= =======
BALANCE SHEET DATA (1)
Total assets....................... $ 338.5 $ 346.8 $ 317.3 $ 263.1 $ 202.8
======= ======= ======= ======= =======
Working capital.................... 44.4 66.9 83.4 96.2 60.5
======= ======= ======= ======= =======
Long-term debt..................... 3.8 31.5 3.1 4.7 9.3
======= ======= ======= ======= =======
Stockholders' equity............... $ 229.8 $ 227.2 $ 228.7 $ 186.9 $ 123.3
======= ======= ======= ======= =======
Book value per common and common
equivalent share.................. $ 8.33 $ 8.58 $ 9.00 $ 7.61 $ 5.53
======= ======= ======= ======= =======
Dividends paid per common share.... -- -- -- -- --
======= ======= ======= ======= =======
ADDITIONAL FINANCIAL INFORMATION
(1)
Deferred data procurement costs.... $ 96.8 $ 79.2 $ 68.0 $ 51.9 $ 36.8
======= ======= ======= ======= =======
Capital expenditures............... 24.5 24.0 25.9 20.0 12.2
======= ======= ======= ======= =======
Capitalized software costs......... $ 9.9 $ 11.7 $ 10.2 $ 8.8 $ 6.5
======= ======= ======= ======= =======
- --------
(1) In 1995, the Company purchased 39% of its French joint venture, IRI-
SECODIP, from its joint venture partner increasing IRI's ownership in the
joint venture from 50% to 89%. IRI-SECODIP has been consolidated effective
January 1, 1995. Additionally, in 1992, the Company formed a joint
venture, IRI
13
InfoScan Limited, with GfK AG of Nuremberg, Germany and Taylor Nelson AGB
plc of London to purchase certain assets of the NMRA Retail Audit business
of BGA Audits Limited. The Company then purchased 60% of the joint venture.
IRI InfoScan Limited has been consolidated effective July 1992. Certain
reclassifications have been made in the prior years' consolidated financial
information to conform to the 1995 presentation.
(2) Effective January 1, 1994, the Company changed its method of recognizing
revenue on its information service products whereby revenue is recognized
over the term of the contract on a straight-line basis. Previously, the
Company recognized a portion of the initial contract revenue in the period
between client commitment and either the start of forward data or the test
commencement with the remaining revenue recognized ratably over the
initial contract term. Pro forma revenues and earnings per common and
common equivalent share before cumulative effect of accounting change for
1993, 1992 and 1991 were $334.6 million, $279.2 million and $213.9 million
and $.83, $.85 and $.43, respectively.
(3) Nonrecurring expenses in 1995 included a $12.4 million write-down of
assets, principally accelerated recognition of deferred European data
procurement costs, to net realizable value and a $10.4 million charge
principally relating to the Company's Towne-Oller facility closing and
related severance charge. Nonrecurring expenses in 1993 primarily related
to a loss on the disposition of certain non-strategic assets.
(4) In July 1995 the Company completed the sale to Oracle of certain assets,
liabilities and related software application products of its General
Software Business. (See Note 4 of the Notes to Consolidated Financial
Statements.)
(5) The 1994 results reflected a pre-tax provision of $8.3 million related to
shareholder litigation. (See Note 13 of the Notes to Consolidated
Financial Statements.) The 1992 results reflected a pre-tax provision of
$4.4 million related to patent infringement litigation.
(6) Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109--Accounting for Income Taxes (FAS 109).
(7) On July 27, 1995 the Company completed the sale to Oracle of certain
assets, liabilities and related software application products relating to
the General Software Business. The sale transaction resulted in a pre-tax
gain of approximately $41.1 million. The pro forma condensed consolidated
financial information reflects: (1) recognition of the impact of the sale
of the General Software Business to Oracle; and (2) the decrease of net
interest expense resulting from the assumed payment of bank loans with
proceeds from the sale. The net gain on the sale of the General Software
Business to Oracle is not reflected in the unaudited pro forma condensed
consolidated statement of operations for the periods presented. The pro
forma unaudited condensed consolidated financial information is not
necessarily indicative of the consolidated results of operations as they
might have been if the sale had been consummated on the assumed date. (See
Note 4 of the Notes to Consolidated Financial Statements.)
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW OF OPERATIONS
Over the periods presented, the Company has generated increased revenues
resulting from the continued growth of its Domestic information services and
the startup and significant expansion of its International information
services. The revenue gains in recent years were achieved in spite of an
intensely competitive pricing environment that began in late 1993 and
continued through 1995. Due to the longer-term nature of most client
contracts, pricing changes have a delayed effect on the results of operations
as reported in the Company's consolidated financial statements. This lagged
effect is especially apparent in the Company's Domestic operations because
only a portion of all InfoScan contracts come up for renewal and are subject
to competitive bidding in any particular year. The development of the
Company's International operations has resulted in significant operating
losses which will likely continue until these operations achieve a
substantially higher level of revenues.
In July 1995 the Company completed the sale to Oracle Corporation ("Oracle")
of certain assets, liabilities and related software application products
relating to its on-line analytical processing business, the General Software
Business, previously operated by the Company's software division. The sale
transaction resulted in a pre-tax gain of approximately $41.1 million. Since
this business was not a separate business segment, prior period's consolidated
financial statements have not been restated.
In 1995, IRI increased its ownership in its French joint venture, IRI-
SECODIP, from 50% to 89%. All 1995 consolidated financial information reflects
IRI-SECODIP as a consolidated subsidiary of the Company. All prior period
consolidated financial information reflects IRI-SECODIP as an equity
investment since its purchase by the Company in April 1993.
As a result of the General Software Business sale and the consolidation of
IRI-SECODIP, growth rates derived from reported revenue figures do not reflect
the actual growth rates of the Company's current Domestic and International
information services businesses.
Overall revenues in 1995 increased over 1994, and the Company incurred a
consolidated loss in both years. A number of factors influenced 1995 results,
including: (a) the continued effects of intense price competition in the U.S.
which began in late 1993; (b) the competitive environment in Europe and costs
relating to the development of the Company's International information
services; (c) costs related to building the InfoScan Census data base; (d)
higher client services costs stemming from increased client deliverables
associated with a number of InfoScan contract renewals; (e) the sale of the
Company's General Software Business to Oracle; and (f) special charges
relating to accelerated recognition of deferred European data procurement
costs, the reorganization of the Company's Towne-Oller unit and special
general and administrative charges.
15
Based upon discussions with financial analysts and in part due to the sale
of the General Software Business to Oracle and the consolidation of IRI-
SECODIP beginning in 1995, the Company considers the aggregation of operating
profit (loss), equity earnings (losses) and minority interests ("Operating
Results") to be a meaningful and readily comparable measure of the Company's
relative performance. A comparative analysis of consolidated revenues and
Operating Results for the years ended December 31, 1995, 1994 and 1993 follows
(in thousands):
1995 1994 1993
-------- -------- --------
Revenues
Domestic Information Services.................. $318,939 $299,068 $267,547
International Information Services............. 40,779 13,580 7,785
-------- -------- --------
Subtotal..................................... 359,718 312,648 275,332
General Software Business sold to Oracle....... 40,198 63,922 59,212
-------- -------- --------
$399,916 $376,570 $334,544
======== ======== ========
Operating Results
Domestic Information Services
Operating profit............................. $ 14,224 $ 38,112 $ 50,841
Equity in loss of affiliated companies....... (200) (1,215) (1,511)
-------- -------- --------
Subtotal--Domestic 14,024 36,897 49,330
International Information Services
Operating loss............................... (34,694) (18,056) (7,783)
Equity in earnings (loss) of affiliated com-
panies...................................... 579 (7,958) (539)
Minority interests........................... 304 979 1,582
-------- -------- --------
Subtotal--International...................... (33,811) (25,035) (6,740)
Corporate expenses............................. (3,652) (7,535) (5,590)
Nonrecurring expenses.......................... (22,759) -- (3,005)
General Software Business sold to Oracle oper-
ating profit (loss)........................... (8,044) (7,215) 3,468
-------- -------- --------
Operating Results................................ $(54,242) $ (2,888) $ 37,463
======== ======== ========
Revenue growth from the Company's Domestic business slowed in 1995,
increasing 6.6% over 1994. Revenues from the Company's Domestic business in
1994 increased 11.8% over 1993. Revenues in 1995 and 1994 reflected market
growth and share gains, offset somewhat by the difficult competitive
environment resulting in severe price pressure upon obtaining contract
renewals for existing clients and previous client losses. Domestic Operating
Results decreased $22.9 million, or 62.0% in 1995 compared to 1994. This
decline was due to a 16.3% increase in costs related primarily to increases in
personnel and system capabilities to support current client contracts as well
as to enhance future revenue and achieve operating efficiencies, and $6.7
million of special general and administrative charges, primarily related to a
provision for uncollectible accounts receivable. Domestic Operating Results in
1994 decreased $12.4 million, or 25.2% compared to 1993 due to the effects of
the competitive pricing environment at the time existing customer contracts
were up for renewal. Domestic operating costs increased 20.1% in 1994 in
comparison to 1993 due principally to higher compensation, data procurement,
computer expenses and other costs required to collect data and deliver
services.
In 1995, International information revenues increased significantly over
1994 due to the continuing development of the various European start-up
operations and in part to the consolidation of IRI-SECODIP as of January 1,
1995. International information revenues in 1994 increased 74.4% over 1993.
The increase in International information revenues in 1994 was attributable
primarily to expanded sales in the United Kingdom. The International Operating
Results were a ($33.8) million loss in 1995 compared to a ($25.0) million loss
in 1994, resulting from higher costs in the United Kingdom, the start-up of
the Company's Italian business in late 1994 and the effect of foreign exchange
rates. International Operating Results in 1993 were a ($6.7) million loss. The
higher loss of the International operations in 1994 reflected sharply
increased costs related to the building of businesses in the United Kingdom
and France.
16
Nonrecurring expenses in 1995 included a $12.4 million write-down of assets,
principally accelerated recognition of deferred European data procurement
costs to net realizable value and a $10.4 million charge principally relating
to the Company's Towne-Oller facility closing and related severance charge.
The accelerated recognition of deferred European data procurement costs was
necessary based upon the Company's assessment of the realizability of these
assets in part due to lower than originally expected revenues and operating
results in the Company's startup operations in the United Kingdom and Italy.
The nonrecurring expense relating to the Company's Towne-Oller business was
initiated by the Company's decision to transition Towne-Oller service from the
use of warehouse withdrawal data to InfoScan scanner data and close down of
its New York operation. Amounts charged against the $2.9 million reserve
established for facility operating leases and severance aggregated $.2 million
in 1995. Nonrecurring expenses in 1993 primarily related to a loss on
disposition of certain nonstrategic assets of the Company.
Consolidated revenues in 1995 included seven-months of Operating Results of
the General Software Business sold to Oracle on July 27, 1995 in comparison to
full year results in 1994 and 1993. The revenues of the General Software
Business sold to Oracle increased 8.0% in 1994 in comparison to 1993 due to
increased software application sales and implementation of the Company's
Windows-based products. The Operating Results of the General Software Business
were an ($8.0) million loss in 1995. The Operating Results of the General
Software Business decreased $10.7 million in 1994 in comparison to 1993 due to
expenses outpacing revenue gains caused by the delay in the release of the
Company's Windows-based products.
RESULTS OF OPERATIONS
Year Ended December 31, 1995: Loss before cumulative effect of change in
accounting principle was ($11.7) million in 1995 compared to a loss of ($8.9)
million in 1994. Results in 1995 included several special items including: (a)
a $41.1 million pre-tax gain on sale of a portion of the Company's software
business to Oracle on July 27, 1995; (b) a $22.8 million nonrecurring pre-tax
charge primarily related to the accelerated recognition of deferred European
data procurement costs and the reorganization of the Company's Towne-Oller
unit; and (c) $6.7 million of special charges included in selling, general and
administrative expenses, principally relating to a provision for uncollectible
accounts receivable. Results in 1994 included a pre-tax provision of $8.3
million related to settled shareholder litigation.
Consolidated revenues increased 6.2% to $399.9 million in 1995 compared to
$376.6 million in 1994, due to increases in Domestic InfoScan revenues along
with increases in revenues of the Company's developing International
information operations, partially offset by the effect of the sale of the
General Software Business to Oracle on July 27, 1995. Exclusive of the
disposed business, consolidated revenues were up 15.1% in 1995 in comparison
to 1994. The Company's 1995 Domestic revenue growth also reflected the
continued negative effect of an intense pricing environment which began in
late 1993.
Consolidated costs of information services sold increased $76.5 million or,
28.8% to $341.6 million in 1995. Major components of the 1995 increase
included: (a) a $19.8 million or 14.9% increase in domestic compensation
expense resulting from higher headcount required to service clients and salary
increases; (b) a $23.1 million increase in International compensation expense
resulting from the consolidation of IRI-SECODIP and the continued expansion of
all International operations; (c) a $16.3 million increase in amortization of
deferred data procurement costs, principally arising from expansion of the
information services business in Europe; (d) and a $12.0 million increase in
depreciation and computer expenses required to deliver increasing levels of
InfoScan services in Europe and the U.S. Increases in computer operations were
required to support the Company's Census product initiative and its production
re-engineering and future cost reduction project.
Consolidated results for all periods included the operations of the General
Software Business until sold to Oracle on July 27, 1995. This part of the
software business reported costs of software products sold for the seven
months of 1995 of approximately $41.1 million compared to $60.4 million for
the full year of 1994.
17
Consolidated selling, general and administrative expenses increased $3.6
million or 7.9% to $49.4 million in 1995. Excluding that portion of selling,
general and administrative expenses attributable to the General Software
Business, consolidated selling, general and administrative expenses were $42.3
million in 1995 and $35.0 million in 1994. This $7.3 million increase was
primarily due to $6.7 million of special charges incurred in 1995 principally
related to a provision for uncollectible accounts receivable. In addition,
approximately $2.9 million of the increase in total selling, general and
administrative expenses for 1995 were due to the consolidation of IRI-SECODIP.
Consolidated selling, general and administrative expense in 1994 included a
one-time charge of $1.4 million incurred in connection with the cancelled
acquisition of Asia-based SRG Holdings Limited.
Interest and other expenses for 1995 and 1994 were $2.8 million and $1.6
million, respectively, increasing because of extensive borrowing requirements
in the first half of 1995, which were needed to fund the expansion of the
Company's International information operations in Europe. In July 1995, the
Company repaid its bank borrowings in full.
Equity in earnings (loss) of affiliated companies reflected earnings and
losses from equity investments. The reduction in the equity loss in 1995 was
primarily due to the Company's increased ownership interest in its French
affiliate which, effective January 1, 1995, has been included as a
consolidated subsidiary of the Company.
The Company's 1995 and 1994 income tax benefit, resulting from pretax
losses, was lower than the income tax benefit computed using the Federal
statutory rate due to certain unbenefitted foreign losses, goodwill
amortization and other nondeductible expenses.
Year Ended December 31, 1994: Effective January 1, 1994, the Company changed
its method of recognizing revenue on InfoScan and BehaviorScan products
whereby revenue is recognized over the term of the contract on a straight-line
basis. Previously, the Company recognized a portion of the initial contract
revenue in the period between client commitment and either the start of
forward data or the test commencement with the remaining revenue recognized
ratably over the initial contract term. This change resulted in a ($6.6)
million or ($.26) per share loss in 1994.
Income (loss) from operations before the cumulative effect of change in
accounting principle was a loss of ($8.9) million in 1994 compared to income
of $22.2 million in 1993. Results in 1994 reflected lower operating profits
than 1993 due to the competitive environment in its Domestic operations and
increased operating losses caused by the development of its International
operations in the United Kingdom. In addition, 1994 pre-tax results included a
($9.2) million loss from its equity investments, principally IRI-SECODIP
compared to a ($2.1) million loss in 1993, when operations began. Results in
1994 also included a pre-tax provision of $8.3 million related to shareholder
litigation.
Consolidated revenues increased 12.6% to $376.6 million in 1994 compared to
$334.5 million in 1993 due largely to increases in Domestic InfoScan revenues
along with increases in revenues of the Company's developing International
information operations. Excluding the revenues of the General Software
Business sold to Oracle, consolidated revenues were up 13.6% or $312.6 million
in 1994 compared to $275.3 million in 1993.
Consolidated costs of information services sold increased 24.9% to $265.1
million in 1994 from $212.3 million in 1993. The 1994 increase over 1993
reflected: (a) a $27.4 million increase in compensation expense; (b) a $15.4
million increase in amortization of deferred data procurement costs; and (c)
an $7.9 million increase in depreciation and computer operation expenses.
These expense increases were required to deliver InfoScan services and other
information services, including the Company's operations in the United
Kingdom. Approximately 27% of the overall increase in operating expenses was
attributable to the expansion of the Company's International information
business.
18
Consolidated costs of software products sold was $60.4 million in 1994, up
30.2% from $46.4 million in 1993. Software product expenses increased in 1994
due to higher sales of software applications and the release in 1994 of the
Company's Windows-based products.
Consolidated selling, general and administrative expenses increased 31.0% to
$45.8 million in 1994 from $34.9 million in 1993. Excluding that portion of
selling, general and administrative expenses attributable to the General
Software Business, consolidated selling, general and administrative expenses
were $35.0 million in 1994 and $25.6 million in 1993. The increases in 1994
were attributable to increased spending in recruiting, employee development,
training and professional fees associated with the Company's domestic and
international expansion along with increases in compensation and staffing
costs related to the growth in revenues. Also contributing to the increase in
selling, general and administrative expenses in 1994 was a $1.4 million charge
incurred in connection with the canceled merger with Asia-based SRG Holdings
Limited.
The increase in interest expense and other, net in 1994 was due to bank
borrowings to fund the international expansion. Equity in loss of affiliated
companies increased in 1994 to ($9.2) million, related principally to the
operations of the Company's French joint venture, and which also included a
one-time pre-tax charge of $2.7 million for accumulated losses in excess of
the Company's capital contributions to IRI-SECODIP.
The 1994 tax rate was negatively impacted by the mix of foreign profits and
losses and related corresponding statutory tax rates in various countries
which differ from the Federal statutory rate, and a significant amount of non-
deductible expenses and acquisition costs.
Effective January 1, 1993 the Company adopted Statement of Financial
accounting Standards No. 109--Accounting for Income Taxes. The adoption of
this principle resulted in a $1.9 million or $.07 per share benefit in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements continue to be extensive, primarily caused
by losses incurred in the expansion of its information services in Europe. The
Company's current cash resources include its $24.9 million consolidated cash
balance, $50.0 million bank line of credit and internally generated funds from
its Domestic operations. The Company anticipates that it will have sufficient
funds from these sources to satisfy its capital needs for the foreseeable
future. Bank line availability is subject to compliance with covenants
relating to tangible net worth levels, cash flow coverage amounts, leverage
limitations and quick ratios.
On July 27, 1995, the Company sold its General Software Business to Oracle
for approximately $100 million in cash subject to post-closing adjustment.
Approximately $11.8 million of the sales proceeds were deposited to an
interest-bearing escrow trust account of which $3.8 million was released in
August 1995. The remaining $8.0 million constitutes a general escrow to be
held for approximately one year. The entire amount outstanding under the
Company's existing credit facility was repaid by using a portion of the
proceeds from the sale of the General Software Business. The remainder of the
proceeds was used to pay expenses associated with the sale and for general
corporate purposes.
Cash Flow for the Year Ended December 31, 1995: Consolidated net cash
provided by operating activities was $76.1 million for the year ended December
31, 1995 compared to $77.7 million in 1994. Cash provided by operating
activities decreased due primarily to lower cash earnings from operations
offset by a smaller increase in accounts receivable and other working capital
in 1995. Consolidated cash used for net investing activities was $43.9 million
in 1995 versus $116.4 million in 1994. The decrease in consolidated investing
activities in 1995 was due to the benefit of proceeds received from the sale
of the General Software Business to Oracle, partially offset by increases in
data procurement costs attributable to the expansion of the Company's data
collection efforts in Europe and, to a much lesser degree, the United States.
Net cash provided (used) before financing activities was $32.2 million in 1995
and ($38.8) million in 1994 as 1995 cash flow was benefitted by $92.0
19
million of proceeds from the Oracle transaction. Consolidated cash (used)
provided by net financing activities was ($19.1) million for the year ended
December 31, 1995 in comparison to $30.3 million for the year ended December
31, 1994. The net financing activities reflected bank loan repayments in 1995
made possible by the sale of the General Software Business to Oracle. Net
financing activities in 1994 reflected net bank borrowings of $29.0 million
used to fund the Company's continuing development of its International
information operations.
Cash Flow for the Year Ended December 31, 1994: Consolidated net cash
provided by operating activities was $77.7 million for the year ended December
31, 1994 compared to $73.6 million in 1993. Net cash provided by operating
activities increased slightly due to significantly lower consolidated earnings
offset by smaller increases in accounts receivable and other working capital
in 1994 compared to 1993. Consolidated cash used for net investing activities
was $116.4 million in 1994 versus $125.5 million in 1993. Investing activities
in 1993 reflect a $20.3 million investment relating to European joint
ventures. Investing activities in 1994 reflected $11.2 million higher deferred
data procurement costs compared to 1993 largely due to the Company's
development of its International information operations. Net cash used before
financing activities in 1994 was ($38.8) million in comparison to ($51.9)
million in 1993 as joint venture investment was lower in 1994. Consolidated
net cash provided by net financing activities was $30.3 million in 1994
compared to $18.0 million in 1993. Consolidated net financing activities in
1994 reflected the net drawdown of $29.0 million of bank borrowings to fund
the Company's development of its International information operations.
Consolidated net financings in 1993 reflected $18.0 million of cash proceeds
from the exercise of stock options.
Financings: The Company repaid the entire amount outstanding under its
credit facility in July 1995. The primary use of borrowings has been for the
expansion of the Company's information services in Europe.
In November 1995, the Company replaced its $65.0 million bank credit
facility maturing in 1997 with a new $50.0 million facility maturing in 1998,
with fixed or floating interest rate options at or below prime. Facility fees
of .15% are payable on the bank credit facility, and there are no commitment
fees. The credit facility contains financial covenants which restrict the
Company's ability to incur additional indebtedness or liens on its assets. The
financial covenants also require the Company to meet tangible net worth
levels, cash flow coverage amounts, leverage limitations and quick ratio
minimums.
At December 31, 1995 $50.0 million was available under the bank credit
facility for general corporate purposes.
Other Deferred Costs and Capital Expenditures: Consolidated deferred data
procurement expenditures were $96.8 million, $79.2 million and $68.0 million
for the years ended December 31, 1995, 1994 and 1993, respectively. These
expenditures are amortized over a period of 28 months and include payments to
retailers for point-of-sale data and costs related to collecting, reviewing
and verifying other data (i.e., causal factors) which are an essential part of
the data base. The increase in deferred data procurement expenditures was
principally related to the expansion of the Company's International
information operations. Deferred data procurement expenditures for the
Company's Domestic information business were $64.7 million, $61.6 million and
$53.8 million for the years ended December 31, 1995, 1994 and 1993,
respectively. The Company's International information business deferred data
procurement expenditures were $32.1 million, $17.6 million and $14.2 million
for the years ended December 31, 1995, 1994 and 1993, respectively. Management
expects to continue its development of these businesses in Europe, and
accordingly, the Company's European operations will continue to require
substantial investment in data procurement costs. Based upon currently
projected operating results and cash flows, the Company's assessment is that
the realizability of other assets is not impaired. To the extent that actual
operating results and cash flows are lower than these projections, the Company
may be required to write down a portion of these assets.
Consolidated capital expenditures were $24.5 million, $24.0 million and
$25.9 million for the years ended December 31, 1995, 1994 and 1993,
respectively. Capital expenditures for the Company's Domestic information
services business were $18.6 million, $17.3 million and $23.1 million for the
years ended December 31, 1995, 1994 and 1993, respectively, while related
depreciation expense was $16.1 million, $14.7 million, and $11.9 million,
respectively. The Company's International information services business
capital expenditures were
20
$5.9 million, $6.7 million and $2.8 million for the years ended December 31,
1995, 1994 and 1993, respectively, while depreciation expense was $4.1
million, $2.4 million and $1.5 million, respectively.
Consolidated capitalized software development costs were $9.9 million, $11.7
million and $10.2 million for the years ended December 31, 1995, 1994 and
1993, respectively. Due to the sale of the General Software Business to
Oracle, software development costs are expected to decrease from historical
levels.
NOL Carryforwards: As of December 31, 1995, the Company had cumulative
Federal net operating loss ("NOL") carryforwards of approximately $41.1
million that expire primarily in 2009 and 2010. In addition, at December 31,
1995, various foreign subsidiaries of IRI had aggregate cumulative NOL
carryforwards for foreign income tax purposes of approximately $3.9 million
which are subject to various income tax provisions of each respective country.
Approximately $2.7 million of these foreign NOL's may be carried forward
indefinitely while the remaining $1.2 million expire in 1999 and 2000. A
majority of the European foreign pre-tax losses are deducted as partnership
losses in IRI's consolidated U.S. income tax return in accordance with the
Internal Revenue Code.
Impact of Inflation: Inflation has slowed in recent years and is currently
not an important determinant of the Company's results of operations. To the
extent permitted by competitive conditions, the Company passes increased costs
on to customers by adjusting sales prices and in the case of multi-year
contracts through consumer price index provisions of such agreements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Listed below are the financial statements and supplementary data included in
this part of the Annual Report on Form 10-K:
PAGE
NO.
----
(a) Financial Statements
Report of Independent Certified Public Accountants 22
Consolidated Balance Sheets at December 31, 1995 and 1994 23
Consolidated Statements of Operations for the years ended December 31,
1995, 1994 and 1993 24
Consolidated Statements of Stockholders' Equity for the years ended De-
cember 31, 1995, 1994 and 1993 25
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993 26
Notes to Consolidated Financial Statements 27
(b) Supplementary Data
Summary of Quarterly Data 40
Financial statement schedule is included on page 44 preceding the signature
pages of this report (see Item 14).
21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Information Resources, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Information
Resources, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. 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 consolidated financial position of Information
Resources, Inc. and Subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
As discussed in NOTE 1, effective January 1, 1993, the Company changed its
method of accounting for income taxes and effective January 1, 1994, changed
its method of recognizing revenue.
Grant Thornton LLP
Chicago, Illinois
February 15, 1996
22
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(IN THOUSANDS)
1995 1994
-------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................ $ 24,884 $ 11,792
Accounts receivable, net................................. 95,862 119,851
Escrow receivable........................................ 8,000 --
Prepaid expenses and other............................... 5,169 4,855
-------- --------
Total Current Assets................................... 133,915 136,498
-------- --------
Property and equipment, at cost............................ 136,946 145,537
Accumulated depreciation and amortization................ (76,541) (85,244)
-------- --------
Net property and equipment............................. 60,405 60,293
Investments................................................ 18,791 20,995
Other assets............................................... 125,425 129,008
-------- --------
$338,536 $346,794
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of capitalized leases................. $ 2,317 $ 1,998
Accounts payable......................................... 36,214 19,665
Accrued compensation and benefits........................ 19,812 14,008
Accrued property, payroll and other taxes................ 3,981 4,713
Accrued expenses......................................... 11,571 5,277
Deferred revenue......................................... 15,599 17,733
Other current liabilities................................ -- 6,207
-------- --------
Total Current Liabilities.............................. 89,494 69,601
-------- --------
Long-term debt............................................. 3,760 31,452
Deferred income taxes, net................................. 8,643 12,376
Deferred gain.............................................. 4,047 4,463
Other liabilities.......................................... 2,838 1,701
STOCKHOLDERS' EQUITY
Preferred stock--authorized 1,000,000 shares, $.01 par
value; none issued...................................... -- --
Common stock--authorized 60,000,000 shares, $.01 par
value; 27,587,176 and 26,493,277 shares issued and
outstanding, respectively............................... 276 265
Capital in excess of par value........................... 183,615 169,703
Retained earnings........................................ 45,828 57,506
Cumulative translation adjustment........................ 35 (273)
-------- --------
Total Stockholders' Equity............................. 229,754 227,201
-------- --------
$338,536 $346,794
======== ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
23
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1994 1993
--------- --------- ---------
Revenues:
Information services....................... $ 359,718 $ 312,648 $ 275,332
Software products business sold to Oracle.. 40,198 63,922 59,212
--------- --------- ---------
399,916 376,570 334,544
Costs and expenses:
Information services sold.................. (341,566) (265,115) (212,313)
Software products business sold to Oracle.. (41,142) (60,392) (46,373)
Selling, general and administrative
expenses.................................. (49,374) (45,757) (34,922)
Nonrecurring expenses...................... (22,759) -- (3,005)
--------- --------- ---------
(454,841) (371,264) (296,613)
--------- --------- ---------
Operating profit (loss)...................... (54,925) 5,306 37,931
Net gain on disposition of assets............ 41,126 -- --
Interest expense and other, net.............. (2,752) (1,580) 600
Litigation provision......................... -- (8,275) (432)
Equity in earnings (loss) of affiliated
companies................................... 379 (9,173) (2,050)
--------- --------- ---------
Earnings (loss) before income taxes, minority
interests and cumulative effect of changes
in accounting principle..................... (16,172) (13,722) 36,049
Income tax (expense) benefit................. 4,190 3,822 (15,416)
--------- --------- ---------
Earnings (loss) before minority interests and
cumulative effect of changes in accounting
principle................................... (11,982) (9,900) 20,633
Minority interests........................... 304 979 1,582
--------- --------- ---------
Earnings (loss) before cumulative effect of
changes in accounting principle............. (11,678) (8,921) 22,215
Cumulative effect on prior years of changes
in accounting principle..................... -- (6,594) 1,864
--------- --------- ---------
Net earnings (loss)...................... $ (11,678) $ (15,515) $ 24,079
========= ========= =========
Earnings (loss) per common and common
equivalent share:
Before cumulative effect of accounting
changes................................... $ (.43) $ (.34) $ .82
Cumulative effect of accounting changes.... -- (.26) .07
--------- --------- ---------
Net earnings (loss)...................... $ (.43) $ (.60) $ .89
========= ========= =========
Weighted average common and common equivalent
shares...................................... 26,991 26,056 27,160
========= ========= =========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
24
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
CAPITAL IN CUMULATIVE
COMMON EXCESS OF RETAINED TRANSLATION
STOCK PAR VALUE EARNINGS ADJUSTMENT TOTAL
------ ---------- -------- ----------- --------
Balance at December 31,
1992........................ $245 $139,537 $ 48,254 $(1,148) $186,888
---- -------- -------- ------- --------
Net earnings................. -- -- 24,079 -- 24,079
Shares issued:
Employee stock option plans
and other.................. 9 18,435 -- -- 18,444
Translation adjustment....... -- -- -- (749) (749)
---- -------- -------- ------- --------
Balance at December 31,
1993........................ 254 157,972 72,333 (1,897) 228,662
---- -------- -------- ------- --------
Net loss..................... -- -- (15,515) -- (15,515)
Shares issued:
Employee stock option plans
and other.................. 2 1,926 -- -- 1,928
Acquisitions and joint
ventures................... 9 9,805 688 -- 10,502
Translation adjustment....... -- -- -- 1,624 1,624
---- -------- -------- ------- --------
Balance at December 31,
1994........................ 265 169,703 57,506 (273) 227,201
---- -------- -------- ------- --------
Net loss..................... -- -- (11,678) -- (11,678)
Shares issued:
Employee stock option plans
and other.................. 9 10,420 -- -- 10,429
Acquisitions and joint
ventures................... 2 3,492 -- -- 3,494
Translation adjustment....... -- -- -- 308 308
---- -------- -------- ------- --------
Balance at December 31,
1995........................ $276 $183,615 $ 45,828 $ 35 $229,754
==== ======== ======== ======= ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
25
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
1995 1994 1993
-------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss): $(11,678) $ (15,515) $ 24,079
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Amortization of deferred data procurement
costs....................................... 82,095 65,819 50,464
Depreciation................................. 20,196 17,057 13,428
Amortization of capitalized software costs... 6,701 8,839 4,966
Amortization of intangibles.................. 4,219 3,258 3,035
Deferred income tax provision................ (5,284) (6,270) 6,559
Equity in earnings (loss) of affiliated
companies and minority interests............ (683) 8,194 468
Cumulative effect of change in accounting
principles.................................. -- 6,594 (1,864)
Nonrecurring expenses........................ 22,759 -- 3,005
Net gain on disposition of assets............ (41,126) -- --
Provision for losses on accounts receivable.. 6,295 2,584 542
Other........................................ 1,498 1,326 (74)
Change in assets and liabilities:
Increase in accounts receivable............ (7,593) (22,586) (34,728)
Increase in other current assets........... (3,760) (1,555) (458)
Increase in accounts payable and accrued
liabilities............................... 2,382 9,842 3,100
Increase in deferred revenue............... 672 2,319 4,296
Other, net................................. (552) (2,245) (3,237)
-------- --------- ---------
Total adjustments.......................... 87,819 93,176 49,502
-------- --------- ---------
Net cash provided by operating
activities.............................. 76,141 77,661 73,581
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of assets.......... 92,000 -- --
Deferred data procurement costs.............. (96,808) (79,162) (67,991)
Purchase of property and equipment........... (24,497) (23,953) (25,906)
Capitalized software costs................... (9,887) (11,681) (10,202)
Investments relating to joint ventures....... (4,812) (1,832) (20,287)
Other........................................ 62 210 (1,084)
-------- --------- ---------
Net cash used by investing activities...... (43,942) (116,418) (125,470)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net bank (repayments) borrowings............. (29,000) 29,000 --
Net borrowings (repayments) of capitalized
leases...................................... 1,606 (435) (1,500)
Proceeds from exercise of stock options...... 6,905 1,697 18,024
Other........................................ 1,341 -- 1,486
-------- --------- ---------
Net cash (used) provided by financing
activities................................ (19,148) 30,262 18,010
EFFECT OF EXCHANGE RATE CHANGES ON CASH........ 41 919 (346)
-------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................. 13,092 (7,576) (34,225)
Cash and cash equivalents at beginning of
year........................................ 11,792 19,368 53,593
-------- --------- ---------
Cash and cash equivalents at end of year..... $ 24,884 $ 11,792 $ 19,368
======== ========= =========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
26
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1--SUMMARY OF ACCOUNTING POLICIES
Business
Information Resources, Inc. ("IRI") and its subsidiaries (collectively the
"Company") is a leading provider of information services to the consumer
package goods ("CPG") industry. The Company obtains consumer purchase data
from electronic point-of-sale scanners in retail stores and integrates this
scan data with other proprietary data collected by the Company's field
personnel. The Company maintains this data in massive data warehouses and
provides CPG manufacturers, retailers, wholesalers and brokers with timely,
detailed and accurate information regarding consumer purchasing patterns. The
Company's software products assist clients in analyzing and using the
Company's data, enabling them to make more cost effective decisions in
marketing, selling and distributing their products.
Principles of Consolidation
The consolidated financial statements include the accounts of IRI and all
wholly or majority owned subsidiaries. The minority interests separately
disclosed herein reflects the non-Company owned stockholder interests in IRI
InfoScan Limited (U.K.), Information Resources Japan, Ltd. and IRI-SECODIP,
S.N.C., (France) ("IRI-SECODIP"). The equity method of accounting is used for
investments in which the Company has a 20% to 50% ownership and exercises
significant influence over operating and financial policies. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Accounting 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
reported period. Actual results may differ from estimates.
Reclassifications
Certain reclassifications have been made in the prior years' consolidated
financial statements to conform to the 1995 presentation.
Revenue Recognition and Change in Accounting Principle
Effective January 1, 1994, the Company changed its method of recognizing
revenue on its information service products whereby revenue is recognized over
the term of the contract on a straight-line basis. Previously, the Company
recognized a portion of the initial contract revenue in the period between
client commitment and either the start of forward data or the test
commencement, with the remaining revenue recognized ratably over the initial
contract term. The cumulative effect of this change for periods prior to
January 1, 1994 of $6.6 million (after reduction for the income tax effect of
$4.4 million) is shown separately in the 1994 consolidated statement of
operations. The impact of this change on the consolidated statement of
operations for the year ended December 31, 1993 was not material.
InfoScan products have contract terms of a period which are generally not
less than one year. Contracts are generally categorized into one of two
classes: 1) cancelable at the end of each year by the giving of six months
written notice by either party; or 2) multi-year contracts either non-
cancelable or cancelable only with significant
27
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
penalties generally cancelable by the giving of six months written notice
after the initial multi-year term. Revenue for special analytical services is
recognized as services are performed.
Revenues from the sale of software application products, or products sold
under licensing agreements, are recognized upon delivery when there is a
reasonable basis for estimating collectibility and the Company has no
significant remaining obligations. If there are significant other obligations,
revenues are recognized on the basis of incurred cost to total estimated cost
over the life of the contract. Related software maintenance fees are
recognized as earned over the terms of their respective contracts.
Revenues from market research and consulting projects are recognized as
services are performed. Certain of these projects are fixed-price in nature
and use the percentage-of-completion method for the recognition of revenue.
Revenues for projects that include a timesharing aspect are allocated over the
timesharing period based on the costs incurred to provide the service.
Research and Development
Expenditures for research and development for the years ended December 31,
1995, 1994, and 1993 approximated $37.4 million, $35.1 million and $31.0
million respectively. Included in these expenditures were $9.9 million, $11.7
million and $10.2 million of software development costs that were capitalized
for the years ended December 31, 1995, 1994 and 1993, respectively.
Expenditures not capitalized are charged to expense as incurred.
Benefits Plan
The Company sponsors an employee savings plan that qualifies as a deferred
salary arrangement under Section 401(k) of the Internal Revenue Code. The plan
allows eligible employees to contribute a portion of their pre-tax income in
accordance with specified guidelines. The Company matches a percentage of
employee contributions up to certain limits. The expense recognized for the
401(k) plan totaled approximately $1.5 million, $1.3 million and $1.0 million
in 1995, 1994 and 1993, respectively.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, commercial paper and funds held in money market accounts with a
maturity of three months or less.
Fair Value of Financial Instruments and Credit Risk
The carrying value of the Company's financial instruments, cash and cash
equivalents, investments and debt obligations represent a reasonable estimate
of their fair value. Management believes the estimated fair value of the
Company's investments equal or exceed their carrying value. As of December 31,
1995 and 1994, the Company had no significant concentrations of credit risk
related to cash equivalents and trade receivables.
Property and Equipment
Property and equipment is recorded at cost and is depreciated over the
estimated service lives. For financial statement purposes, depreciation is
provided by the straight-line method. Leasehold improvements are amortized
28
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
over the shorter of their estimated service lives or the terms of their
respective lease agreements for financial statement purposes. Estimated useful
lives are as follows:
Computer equipment............................ 3 to 5 years
Market testing and other operating equipment.. 3 to 7 years
Leasehold improvements........................ 5 to 20 years
Equipment and furniture....................... 3 to 8 years
Other Assets
Other assets include deferred data procurement costs, intangible assets and
capitalized software costs. Data procurement costs are amortized over a period
of 28 months and include actual payments to retailers for point-of-sale data
and causal costs related to collecting, reviewing and verifying other data
(i.e., causal factors) which are an essential part of the data base.
Intangible assets include goodwill, solicitation rights and non-compete
agreements, all of which arose from acquisitions, investment or strategic
alliances. Goodwill is amortized on a straight-line basis over periods from
ten to twenty years. Solicitation rights are amortized on a straight-line
basis over the expected useful lives of six to ten years. Non-compete
agreements are being amortized over periods from five to seven years.
Capitalized costs of computer software held for sale are amortized on a
straight-line basis beginning upon the software's general release date over a
period not to exceed three years. On an ongoing basis, management reviews the
valuation and amortization of other assets to determine possible impairment by
comparing the carrying value to the undiscounted future cash flows of the
related assets. (See Note 10). Based upon currently projected operating
results and cash flows, the Company's assessment is that the realizability of
other assets is not impaired. To the extent that actual operating results and
cash flows are lower than these projections, the Company may be required to
write down a portion of these assets.
Income Taxes and Change in Accounting Principle
Deferred income taxes are recognized at statutory rates to reflect the
future effects of tax carryforwards and temporary differences arising between
the tax bases of assets and liabilities and their financial reporting amounts
at each year end. Deferred income taxes also result from differences between
the fair value of assets acquired in business combinations accounted for as
purchases and their tax bases. Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109--Accounting for Income
Taxes (FAS 109). The effect of the adoption was to record a $1.9 million
cumulative adjustment representing the impact of recognizing tax benefits for
future taxable losses.
Earnings (Loss) per Common and Common Equivalent Share
Earnings (loss) per common and common equivalent share is based on the
weighted average number of shares of common stock and common stock equivalents
(if dilutive) outstanding during each year. The modified treasury stock method
is used to compute the effect of dilution from the exercise of stock options
on earnings (loss) per common and common equivalent share since options
outstanding exceed 20% of the shares of common stock outstanding. In applying
the modified treasury stock method, stock options were not included in 1995
and 1994 as they were anti-dilutive.
Stock Based Compensation
The Company has accounted and will continue to account for stock option
grants in accordance with provisions of APB Opinion No. 25, Accounting for
Stock Issued to Employees.
29
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Adoption of Recent Statement of Financial Accounting Standards
The Company will adopt the recently issued Statement of Financial Accounting
Standards, No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("Standard") on January 1, 1996. The
adoption of this Standard is not expected to have a material impact on the
Company's consolidated financial statements.
NOTE 2--SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid (refunded) for interest and income taxes during the years ended
December 31, was as follows (in thousands):
1995 1994 1993
------ ------ ------
Interest............................................. $4,876 $2,087 $1,055
Income taxes......................................... $ (855) $1,547 $3,935
Excluded from the consolidated statements of cash flows was the effect of
the following non-cash investing and financing activities.
In December 1995, the Company issued shares of Common Stock having a
market value of $2.6 million in connection with the settlement of a 1994
shareholder lawsuit. (See Note 13.) In addition, in 1995, the Company
issued shares of its Common Stock having a market value of $3.5 million in
connection with a strategic alliance agreement and other acquisitions.
In 1994, the Company issued shares of its Common Stock having a value of
$10.5 million to acquire certain businesses and to invest in joint
ventures. (See Note 3.)
In 1995 and 1994, receivables of $1.6 million and $7.4 million,
respectively, were reclassified to investment in joint ventures. In 1993,
receivables of $1.8 million were transferred to investments in satisfaction
of cash contributions that otherwise would have been made to various joint
ventures.
NOTE 3--ACQUISITIONS AND JOINT VENTURES
In March 1995, IRI entered into an alliance with Middle East Market Research
Bureau International ("MEMRB"), a market research company based in Cyprus and
operating in Eastern Europe. In connection with this agreement, IRI issued
Common Stock having a market value of approximately $2.6 million and obtained
an option to acquire up to a 49% ownership interest in MEMRB that expires in
2010. IRI's investment in MEMRB has been accounted for as a cost investment in
the consolidated financial statements.
In September 1994, the Company acquired 19.9% of GfK Panel Services Benelux
B.V., a household consumer panel service operating in the Netherlands, for
approximately $1.9 million. The purchase price included shares of the
Company's Common Stock having a market value of approximately $1.4 million and
a $.5 million interest in its existing joint venture in the Netherlands. Also
in September 1994, the Company issued a promissory note for approximately $.6
million for the acquisition from GfK AG of a 19.9% ownership interest in GfK
Belgium S.A. The Company issued shares of its Common Stock in settlement of
the promissory note in January 1995.
In January 1994, the Company formed a joint venture, Datos Information
Resources, with Datos C.A. of Venezuela to offer market research services and
to promote the licensing of the Company's software and related services in
Venezuela. The Company acquired a 49% interest in the joint venture for shares
of the Company's Common Stock having a market value of approximately $5.8
million.
30
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July 1993, the Company and GfK AG completed the reorganization of their
1988 EuroScan joint venture whereby the Company's ownership interest in the
German joint venture company, GfK Panel Services GmbH, was reduced to 15%. The
Company's net investment made to the joint venture company in connection with
the reorganization was $7.2 million, including transaction costs. The Company
also reacquired certain Western European rights to its InfoScan production
technology for $2.0 million.
In April 1993, the Company acquired a 45% ownership interest in a French
market information business through the formation of a joint venture with
certain European market research companies. By December 31, 1994, the Company
increased its ownership percentage to 50%. The Company's investments in
connection with the joint venture, including its acquisition costs,
approximated $13.0 million. In February 1995, the Company purchased 39% of the
joint venture from SECODIP, increasing the Company's ownership percentage to
89%. IRI-SECODIP has been consolidated since January 1, 1995.
NOTE 4--NET GAIN ON DISPOSITION OF ASSETS
On July 27, 1995, the Company completed the sale to Oracle Corporation
("Oracle") of certain assets, liabilities and related software application
products relating to its on-line analytical processing business (the "General
Software Business") previously operated by the Company's software division.
The sale transaction was consummated pursuant to the terms of an Amended and
Restated Asset Purchase Agreement dated as of June 12, 1995 between the
Company and Oracle and resulted in a pre-tax gain of approximately $41.1
million. The Company retained sales and marketing application products for use
in the consumer packaged goods industry. The Company and Oracle also entered
into certain on-going licensing and support agreements which granted the
Company the right to use, market and sublicense to third parties the
EXPRESS(R) and general purpose DataServer application products sold to Oracle.
In consideration for such assets and liabilities, Oracle paid approximately
$100 million in cash subject to post-closing adjustment. Approximately $11.8
million of the sales proceeds were deposited to an interest-bearing escrow
trust account of which $3.8 million was released in August 1995. The remaining
$8.0 million constitutes a general escrow to be held for one year. A portion
of the sale proceeds were used to repay the Company's bank credit facility.
The remainder of the proceeds was used to pay expenses of the sale and held
for general corporate purposes.
The following information sets forth, for the periods and at the dates
indicated, summarized unaudited pro forma condensed consolidated financial
information for the Company. This financial information is derived from the
historical consolidated financial statements and notes thereto and reflects
the condensed consolidated results of operations as if the following
transactions had occurred on December 31, 1993. The transactions impacting the
pro forma financial information are:
(1) In July 1995, the Company sold its General Software Business to
Oracle for approximately $100 million.
(2) In July 1995, the Company repaid all of its outstanding bank
borrowings using the cash proceeds of the sale.
The pro forma condensed consolidated financial information reflects: (1)
recognition of the impact of the sale of the General Software Business to
Oracle; and (2) the decrease of net interest expense resulting from the
assumed payment of bank loans with proceeds from the sale. The net gain on the
sale of the General Software Business to Oracle is not reflected in the
unaudited pro forma condensed consolidated statement of operations for the
periods presented.
31
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, in accordance with the rules and regulations of the Securities
and Exchange Commission, interest income on the remaining excess cash proceeds
from the sale of the General Software Business after repayment of bank
indebtedness and related expenses has not been reflected in the unaudited pro
forma condensed consolidated statements of operations for the periods
presented. If the remaining excess cash proceeds from sale were invested in
U.S. Treasury securities, pro forma net loss before cumulative effect of
change in accounting principle would be benefited by $.05 and $.07 per share
for the twelve months ended December 31, 1995 and 1994, respectively. The pro
forma unaudited condensed consolidated financial information is not
necessarily indicative of the consolidated results of operations as they might
have been if the sale had been consummated on the assumed date.
The following table presents, on a pro forma basis, a condensed consolidated
statement of operations for the twelve months ended December 31, 1995 and
1994. (In millions, except per share data):
Condensed Consolidated Statement of Operations (Unaudited)
PRO FORMA PRO FORMA
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------- -------------------
Revenues............................ $359.7 $312.6
====== ======
Operating profit (loss)............. (47.0) 12.5
====== ======
Interest expense and other, net..... .1 .3
====== ======
Loss before income taxes, minority
interest and cumulative effect of
change in accounting principle..... (47.6) (4.7)
====== ======
Net loss before cumulative effect of
change in accounting principle..... $(29.1) $ (3.5)
====== ======
Net loss per common and common
equivalent share................... $(1.08) $ (.13)
====== ======
Weighted average common and common
equivalent shares.................. 27.0 26.1
====== ======
NOTE 5--NONRECURRING EXPENSES
Nonrecurring expenses in 1995 included a $12.4 million write-down of assets,
principally accelerated recognition of deferred European data procurement
costs to net realizable value and a $10.4 million charge principally relating
to the Company's Towne-Oller facility closing and related severance charge.
The accelerated recognition of deferred European data procurement costs was
necessary based upon the Company's assessment of the realizability of these
assets in part due to lower than originally expected revenues and operating
results in the Company's startup operations in the United Kingdom and Italy.
The nonrecurring expense relating to the Company's Towne-Oller business was
initiated by the Company's decision to transition Towne-Oller service from the
use of warehouse withdrawal data to InfoScan scanner data and close down its
New York operation. Amounts charged against the $2.9 million reserve
established for facility operating leases and severance aggregated $.2 million
in 1995.
In 1993, the Company recorded a pre-tax charge of approximately $3.0 million
primarily related to the disposition of certain non-strategic assets.
NOTE 6--INCOME TAXES
IRI and its U.S. subsidiaries and partnerships file their Federal income tax
return on a consolidated basis. As of December 31, 1995, the Company had
cumulative Federal net operating loss ("NOL") carryforwards of
32
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
approximately $41.1 million that expire primarily in 2009 and 2010. Certain of
these carryforwards have not been examined by the Internal Revenue Service
and, therefore, are subject to adjustment. In addition, at December 31, 1995,
various foreign subsidiaries of IRI had aggregate cumulative NOL carryforwards
for foreign income tax purposes of approximately $3.9 million which are
subject to various income tax provisions of each respective country.
Approximately $2.7 million of these foreign NOLs may be carried forward
indefinitely, while the remaining $1.2 million expire in 1999 and 2000. The
Company is subject to the alternative minimum tax for financial reporting
purposes resulting in an alternative minimum tax carryforward of $1.3 million
as of December 31, 1995. This amount will be allowed as a credit carryover
against regular tax in the future in the event the regular tax expense exceeds
the alternative minimum tax expense. At December 31, 1995 the Company had
general business tax credit carryforwards of approximately $3.0 million which
expire between 1996 and 2003 and are available to reduce future Federal income
tax liabilities.
Domestic earnings before income taxes, minority interests and cumulative
effect of changes in accounting principle were $27.1 million, $3.4 million and
$38.4 million for 1995, 1994 and 1993, respectively. The foreign loss before
income taxes, minority interests and cumulative effect of changes in
accounting principle was $(43.3) million, $(17.1) million, and ($2.4) million
for 1995, 1994 and 1993, respectively. A majority of the European foreign pre-
tax losses are deducted as partnership losses in IRI's consolidated U.S.
income tax return in accordance with the Internal Revenue Code.
Income tax (expense) benefit relating to earnings (loss) before minority
interests and cumulative effect of changes in accounting principle for the
years ended December 31, 1995, 1994 and 1993 consisted of the following
components (in thousands):
1995 1994 1993
------- ------- --------
Current income tax (expense)
Federal..................................... $ -- $ (385) $ (6,048)
Foreign..................................... (1,094) (976) (989)
State and local............................. -- (1,087) (1,820)
------- ------- --------
(1,094) (2,448) (8,857)
------- ------- --------
Deferred income tax (expense) benefit
Federal..................................... 3,282 3,577 (5,148)
Foreign..................................... 1,181 920 --
State and local............................. 821 1,773 (1,411)
------- ------- --------
5,284 6,270 (6,559)
------- ------- --------
Income tax (expense) benefit.................. $ 4,190 $ 3,822 $(15,416)
======= ======= ========
In accordance with generally accepted accounting principles, the Company has
reflected a reduction of its deferred tax liability for its Federal and state
NOL carryforwards in its consolidated financial statements. The Company's
recognition of Federal and state future tax benefits is due to the expected
utilization of those benefits based upon future receipt of substantial taxable
income, specifically resulting from over $111 million of existing temporary
differences at December 31, 1995, primarily deferred data procurement costs,
capitalized software costs and depreciation, most of which will reverse over
the next three years.
33
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of the Company's deferred tax liabilities and assets
were as follows (in thousands):
DECEMBER 31,
----------------
1995 1994
------- -------
Deferred tax liabilities:
Deferred data procurement costs........................ $37,959 $33,463
Capitalized software costs............................. 3,664 9,057
Property and equipment................................. 2,392 4,276
Other.................................................. 710 713
------- -------
Total deferred tax liabilities....................... 44,725 47,509
Deferred tax assets:
Domestic NOL carryforwards............................. 16,505 16,248
Domestic tax credit carryforwards...................... 4,318 4,216
Foreign NOL carryforwards.............................. 1,492 1,069
Revenue recognition change............................. 2,911 3,651
Litigation reserve..................................... 138 2,495
Lease accounting....................................... 1,239 2,417
Reserve for nonrecurring items......................... 4,472 --
Other.................................................. 9,127 8,515
------- -------
Total deferred tax assets............................ 40,202 38,611
Valuation allowance on deferred tax assets............... (4,120) (3,478)
------- -------
Net deferred tax assets.................................. 36,082 35,133
------- -------
Net deferred tax liability............................... $ 8,643 $12,376
======= =======
The valuation allowance increased $.6 million in 1995 and $1.3 million in
1994, as it is more likely than not that the net operating loss carryforwards
generated by certain Company subsidiaries in these years will not be utilized
to offset taxable income. Income tax expense differs from the statutory U.S.
Federal income tax rate of 35% applied to earnings (loss) before income taxes,
minority interests and cumulative effect of changes in accounting principle
for the years ended December 31, 1995, 1994 and 1993 as follows (in
thousands):
1995 1994 1993
------ ------ --------
Statutory tax (expense) benefit................ $5,660 $4,803 $(12,617)
Effects of--
State income taxes, net of Federal income tax
benefit..................................... 821 643 (1,974)
Nondeductible meals and entertainment........ (502) (372) (141)
Nondeductible acquisition/organization
costs....................................... (719) (231) (345)
Other nondeductible expenses................. (374) (436) --
Foreign taxes................................ (976) (171) 6
Other........................................ 280 (414) (345)
------ ------ --------
$4,190 $3,822 $(15,416)
====== ====== ========
34
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7--ACCOUNTS RECEIVABLE
Accounts receivable at December 31, were as follows (in thousands):
1995 1994
-------- --------
Billed............................................... $ 62,580 $ 58,666
Unbilled............................................. 34,903 59,806
Other................................................ 2,239 4,305
-------- --------
99,722 122,777
Reserve for accounts receivable...................... (3,860) (2,926)
-------- --------
$ 95,862 $119,851
======== ========
Payments in advance of revenue recognition are reflected in the consolidated
financial statements as deferred revenue. Unbilled charges represent revenues
and fees on contracts and other services earned to date for which customers
have not yet been invoiced.
NOTE 8--PROPERTY AND EQUIPMENT
Property and equipment at December 31, were as follows (in thousands):
1995 1994
-------- --------
Computer equipment................................... $ 69,814 $ 70,572
Market testing and other operating equipment......... 18,956 25,231
Leasehold improvements............................... 15,425 15,310
Equipment and furniture.............................. 32,751 34,424
-------- --------
136,946 145,537
Accumulated depreciation and amortization............ (76,541) (85,244)
-------- --------
$ 60,405 $ 60,293
======== ========
NOTE 9--INVESTMENTS
Investments at December 31 were as follows (in thousands):
1995 1994
-------- --------
Datos Information Resources, at cost plus equity in
undistributed earnings.............................. $ 6,399 $ 6,137
IRI-SECODIP, at cost less equity in net losses
(consolidated since January 1, 1995)................ -- 4,664
Other investments, primarily GfK Panel Services
Benelux B.V. and GfK Panel Services GmbH, at cost... 12,392 10,194
-------- --------
$ 18,791 $ 20,995
======== ========
35
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the rules and regulations of the Securities and Exchange
Commission, summarized financial data for all equity investments including
IRI-SECODIP at December 31, 1994 and the year then ended is presented below
(in thousands):
Current assets.......... $ 8,425 Current
Non-current assets...... 12,247 liabilities....... $18,746
------- Non-current
$20,672 liabilities....... 6,913
======= Stockholders'
deficit........... (4,987)
-------
$20,672
=======
Revenues, operating loss and net loss for all equity investments
including IRI-SECODIP for the year ended December 31, 1994 were $18.4
million, ($9.1) million and ($9.1) million, respectively. Revenues,
operating loss and net loss for all equity investments including IRI-
SECODIP for the period from inception in 1993 to December 31, 1993 were
$10.8 million, ($1.5) million and ($1.4) million, respectively.
NOTE 10--OTHER ASSETS
Other assets at December 31 were as follows (in thousands):
1995 1994
-------- --------
Deferred data procurement costs--net of accumulated
amortization of $92,912 in 1995 and $78,408 in 1994.... $ 98,602 $ 87,799
Intangible assets, including goodwill primarily related
to acquisitions--net of accumulated amortization of
$14,026 in 1995 and $9,260 in 1994..................... 13,395 13,903
Capitalized software costs--net of accumulated
amortization of $3,648 in 1995 and $14,255 in 1994..... 9,857 23,357
Other................................................... 3,571 3,949
-------- --------
$125,425 $129,008
======== ========
NOTE 11--LONG-TERM DEBT
Long-term debt at December 31, was as follows (in thousands):
1995 1994
-------- --------
Bank borrowings........................................ $ -- $ 29,000
Capitalized leases..................................... 6,077 4,450
-------- --------
6,077 33,450
Less current maturities................................ (2,317) (1,998)
-------- --------
$ 3,760 $ 31,452
======== ========
The Company repaid the entire amount outstanding under its bank credit
facility in July 1995 using proceeds from the sale of the Company's General
Software Business. (See Note 4.)
In November 1995, the Company replaced its $65.0 million bank credit
facility maturing in 1997 with a new $50.0 million facility maturing in 1998,
with fixed or floating interest rate options at or below prime. Facility fees
of .15% are payable on the bank credit facility, and there are no commitment
fees. The credit facility contains financial covenants which restrict the
Company's ability to incur additional indebtedness or liens on its assets. The
financial covenants also require the Company to meet tangible net worth
levels, cash flow coverage amounts, leverage limitations and quick ratio
minimums.
36
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitalized leases primarily consist of leases for computer and telephone
equipment expiring through 1998. Maturities of capitalized leases and other
long-term debt during each of the years 1996 through 1999 are $2.3 million,
$2.4 million, $1.1 million and $.3 million, respectively.
Certain of the Company's loan and lease agreements include various financial
covenants which require that the Company maintain a minimum tangible net
worth, as defined, and otherwise limit IRI's ability to declare dividends or
make distributions to holders of any share of capital stock, or redeem or
otherwise acquire shares of the Company. Approximately $7.2 million is
available for such distributions under the most restrictive of these
covenants.
NOTE 12--CAPITAL STOCK
Preferred Stock
IRI has authority to issue one million shares of $.01 par value Preferred
Stock in series with the rights and limitation of each series being determined
by the Board of Directors.
Common Stock
At December 31, 1995, 1994 and 1993, 27,587,176, 26,493,277 and 25,416,502
shares of Common Stock, respectively were issued and outstanding.
In December 1995, the Company issued 211,223 shares of Common Stock in
settlement of a shareholder lawsuit. (See Note 13.) In 1995 and 1994 the
Company issued 244,000 and 907,000 shares of Common Stock, respectively, in
connection with a strategic alliance agreement and acquisition of businesses
and joint ventures.
There are restrictions in IRI's loan and lease agreements which limit the
payment of dividends and the repurchases or redemption of Common Stock. (See
Note 11.)
Stock Options
The Company has several stock option plans. The Employee Stock Option Plans
covers most employees other than executive officers and directors.
Substantially all options under these plans have been granted at fair market
value or higher. Most option grants are exercisable in equal annual increments
of 25% beginning on the first anniversary of the grant date and expire ten
years after the date of grant.
IRI also has an Executive Stock Option Plan covering executive officers and
directors which at inception authorized up to 2.5 million stock options. Most
options under this plan were granted at fair market value. Most option grants
are exercisable in equal annual increments of 25% beginning on the first
anniversary of the grant date and expire ten years after the date of grant.
For options granted at less than fair market value, the Company recognizes
compensation expense for the difference between the total option market value
and the total exercise price on the date of grant. Compensation expense is
recognized ratably over the vesting period and approximately $1.8 million,
$3.0 million and $.4 million of compensation expense was recognized in 1995,
1994 and 1993, respectively. The Company had accrued $1.6 million at December
31, 1995 and 1994, respectively, for such expense.
In April 1994, the Board of Directors of the Company cancelled certain
outstanding stock options with exercise prices exceeding $14.25 and replaced
those options with new stock options if the employee agreed to an extension in
the vesting schedule. Executive officers and directors were not eligible to
participate in this program.
37
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transactions involving the plans are summarized as follows:
1995 1994 1993
------------- ------------ ------------
Options outstanding at beginning of
year.............................. 9,708,047 7,295,326 4,777,032
Granted.......................... 2,013,565 6,724,543 3,539,192
Exercised........................ (638,748) (169,926) (870,157)
Cancelled........................ (2,263,619) (4,141,896) (150,741)
------------- ------------ ------------
Options outstanding at end of
year.............................. 8,819,245 9,708,047 7,295,326
============= ============ ============
Available for grant................ 4,970,512 4,772,872 5,695,803
============= ============ ============
Options exercisable at end of
year.............................. 5,196,520 3,199,075 2,810,254
============= ============ ============
Price range of options:
Granted.......................... $10.13-$16.50 $9.93-$25.50 $0.01-$42.75
Exercised........................ $ 0.01-$14.25 $0.01-$33.63 $6.86-$34.25
Cancelled........................ $ 8.13-$31.13 $8.13-$42.75 $8.13-$34.25
Outstanding...................... $ 0.01-$34.00 $0.01-$34.00 $0.01-$42.75
At December 31, 1995 under the Executive Stock Option Plan .5 million
options were available for grant to directors and executive officers of the
Company and under the Employee Stock Option Plan 4.5 million options were
available to non-executive officers. In connection with all IRI employee stock
plans, 13,789,757 shares were reserved for issuance at December 31, 1995.
NOTE 13--COMMITMENTS, CONTINGENCIES AND LITIGATION
1. Lease Agreements and Other Commitments
The Company leases certain property and equipment under operating leases,
including a lease on its Chicago, Illinois headquarters facilities, expiring
at various dates through 2010. The Company's headquarters lease agreement
contains financial and other covenants including restrictions on the payment
of dividends. This lease, which was part of a sale/leaseback transaction in
1990, resulted in a $6.2 million deferred gain which is being recognized over
the lease's initial term. At December 31, 1995 obligations to make future
minimum payments under all operating leases were $131.0 million in the
aggregate and $29.5 million, $25.9 million, $22.7 million, $15.6 million and
$9.5 million for the five years ended December 31, 2000, respectively. Rent
expense for all operating leases was $32.6 million, $29.8 million and $26.3
million for the years ended December 31, 1995, 1994 and 1993, respectively.
2. Legal Proceedings
In the ordinary course of business, IRI and its subsidiaries become involved
as plaintiffs or defendants in various legal proceedings. The claims and
counterclaims in such litigation, including those for punitive damages,
individually in certain cases and in the aggregate, involve amounts which may
be material. However, it is the opinion of the Company's management that the
ultimate disposition of pending litigation will not be material.
The Company was involved in a shareholder class action suit filed by certain
shareholders in 1989. In June 1994 a federal district court jury returned a
unanimous verdict in favor of the Company. The plaintiffs appealed such
determination with the United States Court of Appeals for the Seventh Circuit.
In August 1995 the Appeals Court rendered its decision in favor of the
Company. The plaintiffs did not file any further appeals.
In April 1994 certain shareholders filed a class action lawsuit against the
Company, and in October 1994 the Company entered into an agreement to settle
this lawsuit. In March 1995, the settlement was approved by the federal
district court as fair, just, reasonable and adequate to the settlement class,
and the case was dismissed on the merits with prejudice. The settlement
required the payment of $12.5 million, of which $7.3 million was paid by the
Company's insurance carriers. Pursuant to the terms of the settlement
agreement, in December 1995 the Company satisfied its obligations by issuing
211,223 shares of Common Stock and paying $2.6 million in cash to the
settlement class.
38
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14--GEOGRAPHIC AREA INFORMATION
The Company develops and maintains computer-based proprietary data bases,
decision support software, and mathematical models, primarily for the analysis
of detailed information on purchasing of consumer goods, all within one
industry segment--business information services. This information has been
restated to reflect European operations as a separate geographic area. The
following table presents information about the Company by geographic areas (in
thousands).
1995 1994 1993
-------- -------- --------
Operating revenues(a):
To unaffiliated customers:
United States................................... $329,340 $318,091 $283,918
Europe.......................................... 62,693 48,359 44,308
Other International............................. 7,882 10,120 6,318
Transfers between geographic areas:
United States................................... 4,343 8,802 8,695
Europe.......................................... 1,099 1,938 1,943
Eliminations.................................... (5,441) (10,740) (10,638)
-------- -------- --------
Total operating revenues...................... $399,916 $376,570 $334,544
======== ======== ========
Operating profit (loss)(b)(c):
United States................................... $ (4,922) $ 33,421 $ 47,302
Europe.......................................... (42,983) (17,559) (2,901)
Other International............................. (3,368) (3,021) (880)
Corporate expenses.............................. (3,652) (7,535) (5,590)
-------- -------- --------
Operating profit (loss)....................... $(54,925) $ 5,306 $ 37,931
======== ======== ========
Identifiable assets at December 31(d):
United States................................... $239,069 $253,885 $247,888
Europe.......................................... 84,109 80,051 64,765
Other International............................. 15,358 12,858 4,696
-------- -------- --------
Total identifiable assets..................... $338,536 $346,794 $317,349
======== ======== ========
- --------
(a) Total international revenues, including export sales, were $72.9 million,
$61.9 million and $54.7 million for 1995, 1994 and 1993, respectively.
(b) Operating profit (loss) included results from the General Software
Business sold to Oracle in 1995 and also included nonrecurring expenses of
$22.8 million and $3.0 million in 1995 and 1993, respectively. (See Note
5.) Operating profit (loss) excluded net gain on disposition of assets of
$41.1 million in 1995. (See Note 4.)
(c) Operating profit (loss) excluded litigation provision of $8.3 million and
$.4 million in 1994 and 1993, respectively. (See Note 13.)
(d) Identifiable assets included investments aggregating $18.8 million, $21.0
million and $11.8 million at December 31, 1995, 1994 and 1993. (See Note
9.)
39
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF QUARTERLY DATA (UNAUDITED)
Summaries of consolidated results on a quarterly basis are as follows (in
thousands, except per share data):
1995
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- ------- --------
Revenues............................... $104,795 $109,332 $87,288 $ 98,501
======== ======== ======= ========
Nonrecurring expenses.................. -- -- (22,759) --
======== ======== ======= ========
Operating loss......................... (4,980) (5,033) (44,305) (607)
======== ======== ======= ========
Net gain on disposition of assets...... -- -- 41,126 --
======== ======== ======= ========
Net earnings (loss)................ (3,291) (3,609) (4,802) 24
======== ======== ======= ========
Net earnings (loss) per common and
common equivalent shares.............. $ (.12) $ (.13) $ (.18) $ --
======== ======== ======= ========
Weighted average common and common
equivalent shares..................... 26,615 26,826 27,128 27,394
======== ======== ======= ========
1994
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- ------- --------
Revenues............................... $ 87,678 $ 92,183 $92,915 $103,794
======== ======== ======= ========
Operating profit (loss)................ 4,526 2,141 (1,307) (54)
======== ======== ======= ========
Litigation provision................... (5,000) -- (3,000) (275)
======== ======== ======= ========
Earnings (loss) before cumulative
effect of change in accounting
principle(a).......................... (1,288) 12 (3,104) (4,541)
======== ======== ======= ========
Cumulative effect on prior years of
change in accounting principle........ (6,594) -- -- --
======== ======== ======= ========
Net earnings (loss)................ $ (7,882) $ 12 $(3,104) $ (4,541)
======== ======== ======= ========
Net earnings (loss) per common and
common equivalent share:
Before cumulative effect of
accounting change................... $ (.05) $ -- $ (.12) $ (.17)
Cumulative effect of accounting
change.............................. (.26) -- -- --
-------- -------- ------- --------
Net earnings (loss)................ $ (.31) $ -- $ (.12) $ (.17)
======== ======== ======= ========
Weighted average common and common
equivalent shares..................... 25,579 26,091 26,174 26,380
======== ======== ======= ========
- --------
(a) As a part of the restructuring of the IRI-SECODIP joint venture in 1994,
the Company recognized all losses in excess of the Company's capital
contributions to IRI-SECODIP. As a result, the Company recorded an
additional $2.7 million loss in the fourth quarter.
40
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections entitled "Election of Directors" and "Ownership of Securities"
are incorporated by reference from the definitive proxy statement to be filed
with the Securities and Exchange Commission in connection with the Company's
1996 annual meeting of stockholders scheduled for May 23, 1996. Information
about the Company's executive officers is set forth in Item 4(a) in Part I of
this Report.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" excluding the Board
Compensation Committee Report and the stock price performance graph is
incorporated by reference from the definitive proxy statement to be filed with
the Securities and Exchange Commission in connection with the Company's 1996
annual meeting of stockholders scheduled for May 23, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Ownership of Securities" is incorporated by reference
from the definitive proxy statement to be filed with the Securities and
Exchange Commission in connection with the Company's 1996 annual meeting of
stockholders scheduled for May 23, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions" is incorporated by reference
from the definitive proxy statement to be filed with the Securities and
Exchange Commission in connection with the Company's 1996 annual meeting of
stockholders scheduled for May 23, 1996.
41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this Report:
1. Financial Statements
The consolidated financial statements of the Company are included in
Part II, Item 8 of this Report.
2. Financial Statement Schedules PAGE NO.
--------
(I) Information Resources, Inc. and Subsidiaries
Report of Independent Certified Public Accountants on
Schedules.................................................... 43
Schedule II--Valuation and Qualifying Accounts; Allowance for
Doubtful Receivables......................................... 44
(II) IRI-SECODIP, S.N.C.--1994
Report of Independent Certified Public Accountants........... 47
Balance Sheet at December 31, 1994........................... 48
Statement of Operations for the Year Ended December 31,
1994........................................................ 49
Statement of Stockholders' Deficit for the Year Ended
December 31, 1994........................................... 50
Statement of Cash Flows for the Year Ended December 31,
1994........................................................ 51
Notes to Financial Statements................................ 52
(III) IRI-SECODIP, S.N.C.--1993
The results of operations of IRI-SECODIP, S.N.C were not
material in relation to the consolidated statement of operations
in 1993 and financial statements were omitted.
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.
3. Exhibits
(I) See Exhibit Index (immediately Following the Financial Statement
Schedules attached hereto).
(II) Executive Compensation Plans and Arrangements. The following
Executive Compensation Plans and Arrangements are listed as
exhibits to this Form 10-K:
Employment Agreement dated November 27, 1978 between the Company
and Gerald Eskin.
Employment agreement dated March 15, 1985 between the Company
and Jeffrey Stamen.
Employment agreements dated March 15, 1985 between the Company
and Leonard Lodish.
Noncompetition Agreement dated March 15, 1985 between the
Company and John D.C. Little, Glen Urban, and Leonard Lodish,
respectively.
Letter agreement dated January 17, 1989 between the Company and
Glen Urban.
Form of letter agreement between the Company and John D.C.
Little.
Consulting and Noncompetition Agreement dated January 16, 1987
between the Company and Edwin Epstein.
Agreement effective January 1, 1989 between the Company and
Edwin Epstein, amending the Consulting and Non-competition
Agreement dated January 16, 1987, which Consulting and
Noncompetition Agreement is referred to above.
Letter agreement dated August 7, 1989 between the Company and
Leonard Lodish.
Employment Agreement dated November 16, 1989 between the Company
and James G. Andress.
Amended and Restated Employment Agreement dated March 16, 1994
between the Company and Thomas M. Walker.
1992 Executive Stock Option Plan, as amended.
1992 Employee Incentive Stock Option Plan.
Employment Agreement dated November 4, 1993 between the Company
and George Garrick.
1994 Employee Nonqualified Stock Option Plan.
Form of Information Resources, Inc. Directorship/Officership
Agreement between the Company and its directors, its executive
officers and certain other officers.
Employment Termination Agreement dated as of March 4, 1996,
between the Company and George R. Garrick.
42
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Information Resources, Inc. and Subsidiaries
In connection with our audit of the consolidated financial statements of
Information Resources, Inc. and Subsidiaries referred to in our report dated
February 15, 1996 which is included in Part II of this form, we have also
audited Schedule II for each of the three years in the period ended December
31, 1995. In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.
Grant Thornton LLP
Chicago, Illinois
February 15, 1996
43
SCHEDULE II
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
RESERVE FOR ACCOUNTS RECEIVABLE
(IN THOUSANDS)
BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT
BEGINNING OF CHARGED TO (NET WRITEOFFS/ END OF
DESCRIPTION PERIOD COSTS & EXPENSES RECOVERIES) PERIOD
----------- ------------ ---------------- --------------- ----------
Year ended December 31,
1993................... $2,051 $ 627 $ (428) $2,250
Year ended December 31,
1994................... $2,250 $2,565 $(1,889) $2,926
Year ended December 31,
1995................... $2,926 $6,295 $(5,361) $3,860
44
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Dated: March 25, 1996
Information Resources, Inc.
/s/ Gian M. Fulgoni
By: _________________________________
GIAN M. FULGONI CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENT OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 25, 1996.
SIGNATURE TITLE
*/s/ Thomas W. Wilson, Jr. Chairman of the
- ------------------------------------- Board of Directors
THOMAS W. WILSON, JR.
/s/ Gian M. Fulgoni Chief Executive
_____________________________________ Officer and
GIAN M. FULGONI Director [Principal
executive officer]
/s/ Gary M. Hill Executive Vice
- ------------------------------------- President and Chief
GARY M. HILL Financial Officer
[Principal
financial officer]
/s/ John P. McNicholas, Jr. Senior Vice
- ------------------------------------- President and
JOHN P. MCNICHOLAS, JR. Controller
[Principal
accounting officer]
*/s/ James G. Andress Director
- -------------------------------------
JAMES J. ANDRESS
*/s/ Gerald J. Eskin Director
- -------------------------------------
GERALD J. ESKIN
45
SIGNATURE TITLE
*/s/ Edwin E. Epstein Director
- -------------------------------------
EDWIN E. EPSTEIN
*/s/ John D. C. Little Director
- -------------------------------------
JOHN D. C. LITTLE
*/s/ Leonard M. Lodish Director
- -------------------------------------
LEONARD M. LODISH
*/s/ Edward E. Lucente Director
- -------------------------------------
EDWARD E. LUCENTE
Director
- -------------------------------------
EDITH W. MARTIN
*/s/ George G. Montgomery, Jr. Director
- -------------------------------------
GEORGE G. MONTGOMERY, JR.
*/s/ Jeffrey P. Stamen Director
- -------------------------------------
JEFFREY P. STAMEN
Director
- -------------------------------------
GLEN L. URBAN
/s/ Gian M. Fulgoni
*By: ________________________________
GIAN M. FULGONIPURSUANT TO A POWER
OF ATTORNEY
46
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
IRI-SECODIP, S.N.C.
We have audited the accompanying balance sheet of IRI-SECODIP, S.N.C. as of
December 31, 1994, and the related statements of operations, stockholders'
deficit and cash flows for the period 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, the financial statements referred to above present fairly,
in all material respects, the financial position of IRI-SECODIP, S.N.C. at
December 31, 1994, and the results of its operations and its cash flows for
the period then ended in conformity with generally accepted accounting
principles.
Grant Thornton LLP
Chicago, Illinois
March 24, 1995
47
IRI-SECODIP, S.N.C.
BALANCE SHEET
DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS
Accounts receivable
Customers........................................................ $ 4,923
Related parties.................................................. 43
Other............................................................ 703
--------
5,669
Prepaid expenses and other current assets.......................... 422
--------
Total current assets............................................. 6,091
--------
PROPERTY AND EQUIPMENT
Computer equipment................................................. 2,758
Equipment and furniture............................................ 952
--------
3,710
Accumulated depreciation and amortization.......................... (1,075)
--------
2,635
OTHER ASSETS (NOTE 3)................................................ 6,814
--------
$ 15,540
========
LIABILITIES
CURRENT LIABILITIES
Bank borrowings (NOTE 4)........................................... $ 4,812
Accounts payable................................................... 4,922
Current portion of payables to related parties (NOTE 5)............ 2,099
Accrued expenses (NOTE 6).......................................... 1,899
Deferred revenue................................................... 129
--------
Total current liabilities........................................ 13,861
--------
LONG-TERM PAYABLES TO RELATED PARTIES (NOTE 5)....................... 6,470
OTHER LONG-TERM LIABILITIES.......................................... 163
STOCKHOLDERS' DEFICIT
Capital stock--authorized, issued and outstanding 4,126,792 shares,
4 French Francs par value......................................... 2,954
Accumulated deficit................................................ (7,651)
Cumulative translation adjustment.................................. (257)
--------
Total stockholders' deficit...................................... (4,954)
--------
$ 15,540
========
The accompanying notes to the financial statements are an integral part of
these statements.
48
IRI-SECODIP, S.N.C.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
Revenues.............................................................. $12,414
-------
Costs and expenses
Operating expenses.................................................. 18,358
Selling, general and administrative expenses........................ 2,283
-------
20,641
-------
Operating loss........................................................ (8,227)
Other income (expense)
Interest expense.................................................... (154)
Other--net.......................................................... 182
-------
28
-------
Loss before income taxes.............................................. (8,199)
Income tax expense.................................................... (11)
-------
Net loss.............................................................. $(8,210)
=======
The accompanying notes to the financial statements are an integral part of
these statements.
49
IRI-SECODIP, S.N.C.
STATEMENT OF STOCKHOLDERS' DEFICIT
YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
CUMULATIVE
CAPITAL ACCUMULATED TRANSLATION
STOCK DEFICIT ADJUSTMENT TOTAL
------- ----------- ----------- -------
Balance at January 1, 1994............ $ 778 $ 559 $ (51) $ 1,286
Issuance of 2,875,001 shares.......... 2,176 -- -- 2,176
Foreign currency translation.......... -- -- (206) (206)
Net loss for the year................. -- (8,210) -- (8,210)
------ ------- ----- -------
Balance at December 31, 1994.......... $2,954 $(7,651) $(257) $(4,954)
====== ======= ===== =======
The accompanying notes to the financial statements are an integral part of
these statements.
50
IRI-SECODIP, S.N.C.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................. $(8,210)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization....................................... 880
Amortization of deferred data procurement costs..................... 2,324
Gain on disposal of assets.......................................... (3)
Change in assets and liabilities:
Decrease in accounts receivable.................................... 326
Increase in other current assets................................... (410)
Increase in accounts payable and accrued expenses.................. 1,410
Increase in payables to related parties............................ 4,141
Increase in deferred revenue....................................... 124
-------
Total adjustments.................................................. 8,792
-------
Net cash provided by operating activities......................... 582
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment....................... 25
Purchase of property and equipment................................. (1,247)
Software costs..................................................... (1,032)
Deferred data procurement costs.................................... (5,802)
-------
Net cash used by investing activities............................. (8,056)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings..................................................... 4,671
Proceeds from issuance of common stock............................. 2,176
-------
Net cash provided by financing activities......................... 6,847
-------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................... (90)
-------
NET DECREASE IN CASH.................................................. (717)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................ 717
-------
CASH AND CASH EQUIVALENTS AT END OF YEAR.............................. $ --
=======
The accompanying notes to the financial statements are an integral part of
these statements.
51
IRI-SECODIP, S.N.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1--NATURE OF BUSINESS
IRI-SECODIP, S.N.C. (IRI-SECODIP) was established April 1, 1993 by
Information Resources, Inc. ("IRI"), SECODIP S.A. ("SECODIP") and GfK AG. In
connection with the formation of IRI-SECODIP, IRI (via IRI French Holdings,
Inc.) acquired certain intangible rights from SECODIP some of which IRI then
licensed to IRI-SECODIP. The primary purposes of IRI-SECODIP are to: (i)
develop a scanner-based information business in France, (ii) participate in
the offering of Pan-European products with affiliates of the shareholders, and
(iii) offer retail audit business products.
IRI-SECODIP will require significant working capital as it continues to
develop its business. Operating losses are expected for at least two more
years as a result of the continuing costs to collect and maintain data while
at the same time building its customer business base. Based upon current
expectations, IRI is committed to funding the business development of IRI-
SECODIP. A substantial portion of the Company's assets consists of intangible
as well as other assets whose ultimate realization depends upon the
achievement of forecasted business plans.
NOTE 2--SUMMARY OF ACCOUNTING POLICIES
A summary of significant accounting policies applied in the preparation of
the accompanying financial statements in accordance with U.S. generally
accepted accounting principles follows:
1. Revenue Recognition
IRI-SECODIP recognizes subscription revenues for InfoScan and non-scanner
retail tracking products over the term of the contract on a straight-line
basis. Revenues from market research and consulting projects are recognized as
services are performed.
2. Property and Equipment
Property and equipment is recorded at cost and depreciated over the
estimated service lives on a straight-line basis. Estimated useful lives for
property and equipment are as follows:
Computer equipment......................................... 1 to 4 years
Equipment and furniture.................................... 5 to 10 years
3. Other Assets
Other assets include deferred data procurement costs, capitalized software
and other intangible assets.
Data procurement costs are capitalized as incurred and amortized over
twenty-eight months. Software acquired and to be licensed to customers is
amortized on a straight-line basis over three years.
4. Income Taxes
IRI-SECODIP has elected to be taxed as a corporation. Net losses for tax
purposes can carry forward for five years.
IRI-SECODIP accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109--Accounting for Income Taxes ("FAS
109"). FAS 109 requires an asset and liability approach in accounting for
income taxes. Under this method deferred taxes are recognized at enacted
rates, to reflect the future effects of tax carryforwards and temporary
differences arising between the tax bases of assets and liabilities and their
financial reporting amounts at year end. Due to the losses incurred by IRI-
SECODIP, pursuant
52
IRI-SECODIP, S.N.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
to French tax regulations only a minimal amount of tax provision has been
recorded in the accompanying financial statements.
5. Translation of Financial Statements
The accompanying financial statements and footnotes have been translated
from French Francs, IRI-SECODIP's functional currency, to U.S. dollars. In
accordance with Statement of Financial Accounting Standards No. 52, the assets
and liabilities have been translated at the current exchange rate at December
31, 1994, and the shareholders' deficit section of the balance sheet has been
translated at historical exchange rates. The cumulative translation adjustment
balance represents the difference between the current and historical
translation methods. Operating results are translated at average exchange
rates during the year.
6. Supplemental Cash Flow Information
Cash paid for interest and income taxes during the year ended December 31,
1994 was $71,000 and $7,000, respectively.
NOTE 3--OTHER ASSETS
Other assets at December 31 are as follows (in thousands):
Deferred data procurement costs--net of accumulated amortization
of $2,757........................................................ $ 5,743
Capitalized software costs--net of accumulated amortization of
$352............................................................. 703
Other............................................................. 368
-------
$ 6,814
=======
NOTE 4--BANK BORROWINGS
In April 1994, IRI-SECODIP reached agreement with two French banks (Credit
Lyonnais and Credit Industriel et Commercial de Paris) to obtain a 30.0
million French Francs (approximately $5.6 million) line of credit. IRI-SECODIP
assigned all trade receivables as security for the line of credit. The
shareholders of IRI-SECODIP are jointly and severally liable for the bank
credit line. As of December 31, 1994, IRI-SECODIP had drawn a total of
25,694,000 French Francs (approximately $4,812,000) on the line of credit. At
December 31, 1994, the interest rate is 7.25%. IRI-SECODIP repaid the entire
outstanding balance of its line of credit with the French banks in February
1995. Near term future financing of IRI-SECODIP is dependent upon either
capital contributions or loans from IRI.
NOTE 5--PAYABLES TO RELATED PARTIES
IRI, SECODIP and their affiliates have provided processing, production and
administrative services since inception. In addition, IRI-SECODIP is obligated
to a wholly-owned subsidiary of IRI for an annual license fee of $640,000 for
a period of ten years. The license fees accrued from April 1, 1993 through
December 31, 1994 (as well as the 1995 license fee) are not payable until
January 1, 1996; thereafter, the license fee is due on July 1 of each year.
As of December 31, 1994 IRI had loaned IRI-SECODIP approximately $1,623,000
pursuant to the terms of a revolving loan agreement signed at the time of the
formation of the joint venture in 1993. The loan is unsecured and non-interest
bearing through the maturity date of December 31, 1995. If the revolving loan
is not paid as of the maturity date, then interest shall begin to accrue at an
annual rate of interest equal to the U.S. Prime Rate
53
IRI-SECODIP, S.N.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
plus two percent. At IRI's sole discretion, IRI may request a prepayment of
the loan by IRI-SECODIP. In such case, IRI shall arrange for there to be
substituted for the loan a bank loan made directly to IRI-SECODIP by IRI's
bank. IRI does not intend to call the revolving loan prior to January 1, 1996;
therefore it is classified as long-term.
The following is a summary of amounts owed at December 31, 1994 to specific
related parties for transactions incurred:
CURRENT LONG TERM
------- ---------
(IN THOUSANDS)
IRI....................................................... $ -- $5,161
IRI's affiliates.......................................... 1,336 1,121
SECODIP and affiliates.................................... 763 188
------ ------
$2,099 $6,470
====== ======
NOTE 6--ACCRUED EXPENSES
(IN THOUSANDS)
Accrued expenses at December 31 are as follows:
Accrued payroll and related taxes............................. $1,302
Other......................................................... 597
------
$1,899
======
NOTE 7--CAPITAL STOCK
In 1994, IRI-SECODIP issued 2,875,001 shares for 11,500,004 French Francs or
approximately $2,176,000.
NOTE 8--LEASE COMMITMENTS
IRI-SECODIP leases its office space in Chambourcy, France, from an affiliate
of SECODIP. Under the terms of the lease agreement, office space, together
with related services (e.g., janitorial services, utilities, etc.) and a
specified amount of parking spaces are provided for an annual charge of
approximately 2,612,000 French Francs (approximately $489,000) subject to
periodic cost of living increases. The lease agreement expires in 2002 and is
accounted for as a long-term operating lease.
IRI-SECODIP also leases certain property and equipment under operating
leases expiring at various dates through the year 2002. At December 31, 1994,
obligations to make future minimum payments under these leases (including the
aforementioned office space and parking space lease) for the five years ending
in 1999 are: $594,000; $578,000; $540,000; $538,000; and $538,000.
Minimum rental commitments for the above leases in the aggregate are
$4,042,000.
Rent expense under such operating leases for 1994 was $506,000.
NOTE 9--RESEARCH AND DEVELOPMENT
Expenditures for research and development for the year ended December 31,
1994 approximated $2,800,000. Included in these expenditures was $1,032,000 of
software development costs that were capitalized. Expenditures not capitalized
were charged to expense as incurred.
54
IRI-SECODIP, S.N.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 10--SUBSEQUENT EVENT
In February 1995, IRI French Holdings, Inc. purchased 39% of IRI-SECODIP
from SECODIP (with a put and call option for the remaining 11% owned by
SECODIP) and transferred additional capital of approximately $6,100,000
(32,500,000 French Francs) to IRI-SECODIP. The majority of such funds was
immediately used to repay the then outstanding balance of IRI-SECODIP's bank
line of credit.
55
EXHIBIT INDEX
The following documents are the exhibits to this Report. For convenient
reference, each exhibit is listed according to the number assigned to it in
the Exhibit Table of Item 601 of Regulation S-K.
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT DOCUMENT FILING
------- ----------------------- ---------------
3(a) Copy of the certificate of incorporation of the Com-
pany dated May 27, 1982, as amended. (Incorporated
by reference. Previously filed as Exhibit 3(a) to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988.) IBRF
(b) Copy of the bylaws of the Company, as amended. (In-
corporated by reference. Previously filed as Exhibit
3(b) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988.) IBRF
(c) Copy of amendments to the Certificate of Incorpora-
tion approved by the stockholders on May 16, 1989.
(Incorporated by reference. Previously as Exhibit
3(c) to the Company's Annual Report 10-K for the
fiscal year ended December 31, 1989.) IBRF
(d) Copy of amendments to the bylaws of the Company as
approved by the Board of Directors bringing the by-
laws into conformity with the amendments to the Cer-
tificate of Incorporation approved by the stockhold-
ers May 16, 1989. (Incorporated by reference. Previ-
ously filed as Exhibit 3(d) to the Company's Annual
Report on Form 10-K for the fiscal year ended Decem-
ber 31, 1989.) IBRF
(e) Certificate of Designations of Series A Participat-
ing Preferred Stock, as adopted by the Board of Di-
rectors of the Company on March 2, 1989 and duly
filed with the Secretary of State of the State of
Delaware March 15, 1989. (Incorporated by reference.
Previously filed as Exhibit 3(e) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989.) IBRF
10 Material Contracts
(a) 1982 Incentive Stock Option Plan adopted November 3,
1982, as amended. (Incorporated by reference. Previ-
ously filed as Exhibit 10(a) to the Company's Regis-
tration Statement on Form S-8 filed with the SEC on
December 31, 1988.) IBRF
(b) Information Resources, Inc., Nonqualified Stock Op-
tion Plan effective January 1, 1984, as amended.
(Incorporated by reference. Previously filed as Ex-
hibit 10(b) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1988.) IBRF
(c) Employment Agreement dated November 27, 1978 between
the Company and Gerald Eskin. (Incorporated by ref-
erence. Previously filed as Exhibit 10(e) to Regis-
tration Statement No. 2-81544.) IBRF
(d) Consulting and Noncompetition Agreement dated Janu-
ary 16, 1987 between the Company and Edwin Epstein.
(Incorporated by reference. Previously filed as Ex-
hibit 10(e) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1987.) IBRF
(e) Employment agreement dated March 15, 1985 between
the Company and Jeffrey Stamen. (Incorporated by
reference. Previously filed as Exhibit 10(d) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1985, as amended on Form 8
dated April 29, 1986 and August 25, 1986.) IBRF
E-1
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT DOCUMENT FILING
------- ----------------------- ---------------
(f) Employment agreements dated March 15, 1985 between
the Company and Leonard Lodish. (Incorporated by
reference. Previously filed as Exhibit 10.14 to Reg-
istration Statement No. 2-96940.) IBRF
(g) Noncompetition Agreement dated March 15, 1985 be-
tween the Company and John Little, Glen Urban, and
Leonard Lodish, respectively. (Incorporated by ref-
erence. Previously filed as Exhibit 10.15 to Regis-
tration Statement No. 2-96490.) IBRF
(h) Letter agreement dated January 17, 1989 between the
Company and Glen Urban (Incorporated by reference.
Previously filed as Exhibit 10(1) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989.) IBRF
(i) Form of letter agreement between the Company and
John D.C. Little (Incorporated by reference. Previ-
ously filed as Exhibit 10(m) to the Company's Annual
Report on Form 10-K for the fiscal year ended Decem-
ber 31, 1989.) IBRF
(j) Form of Rights Plan Agreement between the Company
and Harris Trust and Savings Bank. (Incorporated by
reference. Previously filed on Form 8-A Registration
Statement filed with the SEC on March 15, 1989.) IBRF
(k) Agreement effective January 1, 1989 between the Com-
pany and Edwin Epstein, amending the Consulting and
Noncompetition Agreement dated January 16, 1987,
which Consulting and Noncompetition Agreement is re-
ferred to in Exhibit 10(d) hereof. (Incorporated by
reference. Previously filed as Exhibit 19(a) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989.) IBRF
(l) Letter agreement dated August 7, 1989 between the
Company and Leonard Lodish (Incorporated by refer-
ence. Previously filed as Exhibit 3(q) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989.) IBRF
(m) Employment Agreement dated November 16, 1989 between
the Company and James G. Andress (Incorporated by
reference. Previously filed as Exhibit 3(r) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989.) IBRF
(n) Form of 401(k) Retirement Savings Plan and Trust
adopted by the Company effective August 1, 1989.
(Incorporated by reference. Previously filed as Ex-
hibit 3(v) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989.) IBRF
(o) Amended and Restated Employment Agreement dated
March 16, 1994 between the Company and Thomas M.
Walker. (Incorporated by reference. Previously filed
as Exhibit 10(s) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1993.) IBRF
(p) Lease Agreement dated September 27, 1990 between
Randolph/ Clinton Limited Partnership and the Com-
pany (Incorporated by reference. Previously filed as
Exhibit 2.1 to the Company's Current Report on Form
8-K dated September 27, 1990.) IBRF
(q) 1992 Employee Incentive Stock Option Plan (Incorpo-
rated by reference. Previously filed as Exhibit 10
(x) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992.) IBRF
(r) 1994 Employee Nonqualified Stock Option Plan. (In-
corporated by reference. Previously filed as Exhibit
10(y) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.) IBRF
E-2
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT DOCUMENT FILING
------- ----------------------- ---------------
(s) Employment Agreement dated November 4, 1993 between
the Company and George Garrick. (Incorporated by
reference. Previously filed as Exhibit 10(z) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.) IBRF
(t) Credit Agreement dated May 13, 1994, between the
Company and Harris Trust and Savings Bank. Super-
seded by Credit Agreement dated November 3, 1994
filed at Exhibit 10(w). (Incorporated by reference.
Previously filed as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994.) IBRF
(u) Letter regarding change in accounting principle.
(Incorporated by reference. Previously filed as Ex-
hibit 18 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994.) IBRF
(v) Credit Agreement dated November 3, 1994, between the
Company and Harris Trust and Savings Bank. (Incorpo-
rated by reference. Previously filed as Exhibit 10
to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994.) IBRF
(w) Second Amendment to Lease Agreement dated September
27, 1990 between the Company and Randolph/Clinton
Limited Partnership. (Incorporated by reference.
Previously filed as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.) IBRF
(x) 1992 Executive Stock Option Plan, as amended effec-
tive May 24, 1995. (Incorporated by reference. Pre-
viously filed as Exhibit 3 to the Company's Quar-
terly Report on Form 10-Q for the quarter ended June
30, 1995.) IBRF
(y) Amended and Restated Asset Purchase Agreement dated
as of June 12, 1995 by and between the Company and
Oracle Corporation. (Incorporated by reference. Pre-
viously filed as Exhibit 2.1 to the Company's Cur-
rent Report on Form 8-K dated July 27, 1995 and
filed August 11, 1995.) IBRF
(z) 1992 Executive Stock Option Plan, as amended effec-
tive May 24, 1995. (Incorporated by reference. Pre-
viously filed as Exhibit 3 to the Company's Quar-
terly Report on Form 10-Q for the quarter ended June
30, 1995.) IBRF
(aa) Licenses-Back Agreement dated as of July 27, 1995
between the Company and Oracle Corporation. (Incor-
porated by reference. Previously filed as Exhibit B
to the Amended and Restated Asset Purchase Agreement
dated as of July 27, 1995 filed as Exhibit 2.1 to
the Current Report on Form 8-K dated July 27, 1995
and filed August 11, 1995.) IBRF
(bb) Amendment to Credit Agreement dated November 3, 1994
between the Company, the Bank Parties thereto and
Harris Trust and Savings Bank, as agent. Superceded
by Credit Agreement November 10, 1995 filed at Ex-
hibit [10(ee)]. (Incorporated by reference. Previ-
ously filed as Exhibit 10.2 to the Company's Quar-
terly Report on Form 10-Q for the quarter ended June
30, 1995.) IBRF
(cc) Credit Agreement dated November 10, 1995 among the
Company, the Bank Parties thereto and Harris Trust
and Savings Bank, as Agent. (Incorporated by refer-
ence. Previously filed as Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995.) IBRF
(dd) Employment Termination Agreement, dated as of March
4, 1996 between the Company and George R. Garrick
(filed herewith). EF
(ee) Form of Information Resources, Inc.
Directorship/Officership Agreement between the Com-
pany and each of its directors, executive officers
and certain other officers. (Incorporated by refer-
ence. Previously filed as Exhibit 10(x) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.) IBRF
E-3
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT DOCUMENT FILING
------- ----------------------- ---------------
21 Subsidiaries of the Registrant (filed herewith). EF
23 Consent of Independent Certified Public Accountants
(filed herewith). EF
24 Powers of Attorney (filed herewith). EF
27 Financial Data Schedule (filed herewith). EF
E-4