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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. [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
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 NO. 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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
150 NORTH CLINTON STREET, CHICAGO, ILLINOIS 60661
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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 28, 1997 (based on the closing price as quoted by
NASDAQ as of such date) was $404,695,274.
The number of shares of the registrant's common stock, $.01 par value per
outstanding share, as of February 28, 1997 was 28,194,537.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the annual
meeting of stockholders to be held May 22, 1997 to be filed pursuant to
Regulation 14A are incorporated by reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
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
primarily from electronic point-of-sale scanners in retail stores and
integrates this scan data with other proprietary data collected by the
Company. 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 approximately 85% of its revenues from its U.S.
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
application products to the CPG industry based on Oracle EXPRESS(R)
multidimensional relational software technology. In July 1995, the Company
sold the underlying EXPRESS technology to Oracle Corporation ("Oracle"), while
retaining rights to market and distribute Oracle EXPRESS software.
During the past five years, the Company has been expanding internationally,
establishing information services principally in Western Europe. Revenues from
the Company's U.S. and International information services, as well as from the
software products business sold to Oracle in mid-1995, were as follows for the
periods shown (in thousands):
1996 1995 1994
--------- -------- --------
U.S. Services................................. $ 344,612 $317,553 $299,068
International Services........................ 60,991 42,165 13,580
--------- -------- --------
Subtotal.................................. 405,603 359,718 312,648
Software products business sold to Oracle..... -- 40,198 63,922
--------- -------- --------
Total..................................... $ 405,603 $399,916 $376,570
========= ======== ========
U.S. Services
The Company's U.S. 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 (all stores within participating chains) scanner data
bases.
INFOSCAN. The Company's principal information service marketed in the United
States is InfoScan. InfoScan is a 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.
2
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 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,
usually of three years or more.
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 and price information from
approximately 4,200 representative retail outlets throughout the United
States. Included in the Company's national and local market samples are 3,000
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 purchases and inventory.
The InfoScan data bases typically contain both scanner data and "causal"
data. Causal data consist of information which might help explain changes in
product sales, such as, price, 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 often pays cash for scanner data covering a sample of retailers'
stores. 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 clients, the Company also provides electronic on-line access to
InfoScan data services. The Company leases its mainframe computers from third
party financial institutions.
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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 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 analytical
and consulting services to both CPG manufacturers and retailers. These
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 optimization 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 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 "census key account" data, which is sales data for a product
category based on 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 "Logistics" below.)
There are presently approximately 13,000 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 to provide retailers with easy
access to their scanner data. 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 allows for the
processing and analysis of scanner data from all of the retailer's stores on a
weekly basis.
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 a line of software application products based on Oracle
EXPRESS(R) primarily to the CPG industry. Oracle EXPRESS is a software
technology designed for working with large and complex data bases. In July
1995, the Company sold its EXPRESS technology and certain software products to
Oracle, while retaining ownership of certain 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 Oracle EXPRESS software products.
Many of the Company's InfoScan and QScan clients need the Oracle EXPRESS-
based software application, DataServer AnalyzerTM, in order to access, manage
and analyze the Company's data bases. DataServer Analyzer is a decision
support software application built in Oracle EXPRESS and now owned by Oracle.
The product provides users with a range of analytical and reporting tools. The
Company has added specific scanner data modules to the product and now
licenses DataServer Analyzer to InfoScan clients often at the same time as
clients subscribe to the InfoScan data bases.
The Company's principal source of software revenues is on-line access
services provided to InfoScan subscribers who desire to easily and efficiently
access InfoScan data residing on the Company's computers. These services
include licenses to use various Oracle EXPRESS software products, principally
DataServer Analyzer. A secondary source of software revenues derives from
issuance of Oracle 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 entitled to receive
royalties on most licenses granted by the Company and its distributors within
the CPG industry until July 2001. Oracle is not entitled to receive royalties
on certain licenses granted by the Company and its data affiliates to CPG end-
users. After July 2001, the Company and Oracle shall renegotiate the royalty
rates owed to Oracle.
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
Oracle EXPRESS products. However, it is anticipated that further software
development work by the Company is directed toward the development of
applications for specific use in 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.
5
Logistics. The Company has developed logistics software to help
manufacturers and retailers improve the efficiency of product replenishment
across their distribution channels. The Company's software 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 Category
Manager(TM) is an expert software system designed to facilitate strategic
category planning for retailers and suppliers. TradeWins(TM), 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 and TradeWins. The Category Manager 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
purchases of a group of consumers exposed to test variable(s) with the
purchases of a control group of consumers not exposed to the test variable(s).
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 testing involves testing the placement of new products or changes
in advertising, shelf location, price or promotional conditions in different
retail outlets or different markets and involves custom manipulation and
analysis of the Company's InfoScan data bases.
International Services
Through subsidiaries and joint ventures with other leading marketing
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, but generally provide
clients with InfoScan market tracking services based upon a representative
sample of retail scanning stores and proprietary causal data collected by the
Company. 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 InfoScan product tracking services.
The Company's only significant competitor offering product tracking services
internationally is the ACNielsen Company ("ACNielsen"). (See "Competition"
below.) The Company competes with ACNielsen in virtually every foreign market
where the Company has established information services. ACNielsen maintains a
dominant position throughout most of Europe where the Company's expenditures
to establish product tracking services have been most significant.
6
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 Company now
owns substantially all of the joint venture. When first formed, 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 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 in the U.K.
Pursuant to contractual arrangements, 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, IRI-SECODIP S.C.S. 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.
In 1994, the Company funded most of the joint venture's capital
requirements. In 1995 and 1996, the Company funded all of the joint venture's
requirements and recorded 100% of the operating results and now owns
substantially all of the joint venture interests. Pursuant to contractual
arrangements, 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 an information service in
Italy through the formation of a wholly-owned subsidiary, IRI InfoScan Italy.
In early 1995, the subsidiary produced its initial reports to clients. 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. Since 1993, the Company has had a 15% ownership interest in GfK
Panel Services GmbH ("GfK Panel"), a subsidiary of GfK. GfK Panel has been
offering both retail and consumer panel tracking services based on consumer
household panel data, retail audit data and scanner data. It also has provided
related consulting studies. Scanner data are 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, are primarily
used for diagnostic and promotion analysis rather than for provision of a
product tracking service. GfK provides production services to GfK Panel
through GfK's own facilities in Nuremberg, Germany.
Effective February 1, 1997, the Company and GfK organized a new joint
venture company, IRI/GfK Retail Services GmbH ("IRI/GfK Retail"). The Company
has a 51% ownership interest in IRI/GfK Retail, and GfK owns the remainder.
IRI/GfK Retail purchased the German retail tracking business and related
software business from GfK Panel and will now provide those business services
to the German market.
In a separate transaction, the Company sold its 15% ownership interest in
GfK Panel to GfK. GfK Panel will continue to provide consumer panel and ad hoc
research services to the market, and GfK Panel and IRI/GfK Retail will
cooperate in selling and delivering services to appropriate customers.
Benelux. The Company and GfK also operate a joint venture which offers a
scanner-based product tracking 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
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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
which conducts its service in a national sample of supermarkets, large and
small grocery stores, pharmacies, cosmetic shops and other stores, 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
and regional sales data from manual audits.
Sweden. In 1995, the Company acquired a 9.98% 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 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
more than 20 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 1995, the Company formed a joint venture in Japan with Tokyo-based
Mitsui & Co., Ltd to provide software and information services in Japan
whereby the Company obtained 60% ownership in the joint venture.
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 owns 19.9% of a Guatemalan based company called GSI/IRI
that provides research services in Central America.
TRADEMARKS, PATENTS, LICENSES AND SOFTWARE PROTECTION
The Company is the owner of various trademarks, including InfoScan(R),
InfoScan CensusTM, QScanTM, IRI SoftwareTM, IRI LogisticsTM, BehaviorScan(R),
APOLLOTM, DataServer PartnersTM, DataServer TargeterTM, TradeWinsTM, Logistics
PartnerTM, Shoppers' HotlineTM, EZPrompt(R), CouponScanTM, PromotionScanTM and
Customer Marketing ResourcesTM. 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. After July 2001, the Company and Oracle shall renegotiate the royalty
rates owed to Oracle. The Company also has rights to use various trademarks
owned by Oracle, including Oracle EXPRESS(R), DataServer(TM), DataServer
Analyzer(TM) and DataServer Reporter(TM).
8
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 or monthly
billing for long-term contracts and payment is typically due within 30 days of
receipt of invoice. However, in specially negotiated circumstances, the
Company may grant delayed billings terms. In other circumstances, the Company
may discount 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 1,700, 1,300 and 900 clients using its
information services in 1996, 1995 and 1994, 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 35% of the Company's
1996 revenues.
BACKLOG ORDERS
At December 31, 1996, 1995 and 1994, the Company had committed contract
revenues for information services of approximately $265 million, $235 million
and $161 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 1997 is approximately 42%.
COMPETITION
Numerous firms supply marketing and advertising research products and
services to CPG manufacturers and retailers. However, the Company and
ACNielsen are the only two firms which provide national scanner-based product
tracking services in the United States to such manufacturers and retailers.
While the Company generates more revenues than ACNielsen in the United States
market, ACNielsen is far larger than the Company in terms of worldwide
revenues, giving it access to greater financial resources than the Company. In
the product tracking services markets across Europe, ACNielsen currently
maintains a dominant market position in most European countries and is the
Company's only competitor.
Principal competitive factors include: innovation, quality, reliability,
timeliness 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.
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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,
1996, 1995 and 1994 approximated $24.9 million, $37.4 million and $35.1
million, respectively. Included in these expenditures were $5.8 million, $9.9
million and $11.7 million of software development costs that were capitalized.
Expenditures not capitalized were expensed as incurred.
PERSONNEL
At December 31, 1996, the Company had approximately 3,900 full-time and
2,400 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;
Norwalk, Connecticut; Fairfield, New Jersey; and Toronto, Canada as well as
from its headquarters in Chicago, Illinois and software development
headquarters in Waltham, Massachusetts. The Company markets to international
clients through subsidiaries and/or offices in Australia, Belgium, Canada,
France, Germany, Guatemala, Greece, Italy, Japan, Mexico, the Netherlands,
Puerto Rico, Sweden, 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
client service offices. Sales, client service and analysis 263,000
International offices... Sales, client service, computer facilities and professional staff 132,000
Data collection Data collection and client test market control, cable TV studio
facilities............. facilities, warehouse 160,000
ITEM 3. LEGAL PROCEEDINGS
On July 29, 1996, IRI filed an action against The Dun & Bradstreet Corp.,
ACNielsen and IMS International, Inc. in the United States District Court for
the Southern District of New York entitled Information Resources, Inc. v. The
Dun & Bradstreet Corp., et. al. No. 96 CIV. 5716 (the "Action"). IRI alleged
that, among other things, the Defendants violated Sections 1 and 2 of the
Sherman Act, 15 U.S.C. (S)(S)1 and 2, by engaging in a series of anti-
competitive practices aimed at excluding the Company from various export
markets for retail tracking services and regaining monopoly power in United
States market for such services. These practices included: i) entering into
exclusionary contracts with retailers in several countries in order to
restrict the Company's access to sales data necessary to provide retail
tracking services; ii) illegally tying services in markets over which
Defendants' had monopoly power with services in markets in which ACNielsen
competed with the Company; iii) predatory pricing; iv) acquiring foreign
market competitors with the intent of impeding the Company's efforts at export
market expansion; v) tortiously interfering with Company contracts and
relationships with clients, joint venture partners and other market research
companies; and vi) disparging the Company to financial analysts and clients.
By the Action, the Company seeks to enjoin Defendants' anti-competitive
practices and to recover damages in excess of $350 million, prior to trebling.
10
The Action followed legal proceedings by the Canadian Competition Tribunal
and the European Commission against ACNielsen for anti-competitive practices.
On August 30, 1995, following a full hearing, the Canadian Competition
Tribunal issued an Order and Reasons for Order against ACNielsen in In Re: The
D&B Companies of Canada Ltd., concluding that ACNielsen had engaged in "anti-
competitive acts" with the express intent "to exclude potential competitors
generally and the Company specifically" from the Canadian retail tracking
services market. On May 4, 1996, the European Commission issued a "Statement
of Objections" against ACNielsen, following an 18 month investigation,
alleging that ACNielsen had infringed Article 86 of the Treaty of Rome through
several practices undertaken intentionally as part of a strategy to exclude
the Company from the European markets for retail tracking services. On
December 3, 1996, ACNielsen signed an Undertaking to the European Commission
agreeing to halt numerous contractual practices which the Company contended
was part of ACNielsen's intentional and unlawful strategy aimed at preventing
the Company from establishing a competitive position in Europe and eliminating
the Company as a competitor.
In the ordinary course of business, IRI and its subsidiaries become involved
as plaintiffs or defendants in various other 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, based
upon the advice of counsel, that the ultimate disposition of pending
litigation against the Company 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.
Pursuant to the terms of the court approved settlement agreement, in December
1995 the Company satisfied its obligations by issuing 211,223 shares of Common
Stock valued at $2.6 million 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.. 65 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). Director of Aerial Communications Inc.
since October 1996.
Gian M. Fulgoni...... 49 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..... 45 President of International Information Services
Group since January 1995 and President of Operations
Group since February 1996; 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
1992 to January 1993.
Gary M. Hill......... 49 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 1992 to July 1994.
11
NAME AGE POSITION WITH COMPANY AND BUSINESS EXPERIENCE
---- --- ---------------------------------------------
Edward S. Berger........ 56 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.. 43 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 1992 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.
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
-------- ------- ---------
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
1996
1st quarter........................................... 15 5/8 12 3/4
2nd quarter........................................... 15 1/8 12
3rd quarter........................................... 13 1/2 11 1/8
4th quarter........................................... 14 1/4 11 1/8
The last sale price on February 28, 1997 was $14 7/8 per share. As of
February 28, 1997 there were 2,158 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 bank 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
--------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
HISTORICAL RESULTS OF OPERATIONS (1)(2)
Revenues................................ $405.6 $399.9 $376.6 $334.5 $276.4
====== ====== ====== ====== ======
Nonrecurring expenses (3)............... (4.8) (22.8) -- (3.0) --
====== ====== ====== ====== ======
Operating profit (loss)................. (5.1) (54.9) 5.3 37.9 37.7
====== ====== ====== ====== ======
Net gain (loss) on sale of assets (4)... (4.6) 41.1 -- -- --
====== ====== ====== ====== ======
Earnings (loss) before cumulative effect
of change in accounting principle (5).. $ (7.6) $(11.7) $ (8.9) $ 22.2 $ 19.2
Cumulative effect on prior years of
change in accounting principle (2) (6). -- -- (6.6) 1.9 --
------ ------ ------ ------ ------
Net earnings (loss)..................... $ (7.6) $(11.7) $(15.5) $ 24.1 $ 19.2
====== ====== ====== ====== ======
Earnings (loss) per common and common
equivalent share (2):
Before cumulative effect of accounting
changes............................... $ (.27) $ (.43) $ (.34) $ .82 $ .78
Cumulative effect of accounting changes
(6)................................... -- -- (.26) .07 --
------ ------ ------ ------ ------
Net earnings (loss)..................... $ (.27) $ (.43) $ (.60) $ .89 $ .78
====== ====== ====== ====== ======
Weighted average common and common
equivalent shares...................... 27.8 27.0 26.1 27.2 24.8
====== ====== ====== ====== ======
BALANCE SHEET DATA (1)
Total assets............................ $334.5 $338.5 $346.8 $317.3 $263.1
====== ====== ====== ====== ======
Working capital......................... 34.6 44.4 66.9 83.4 96.2
====== ====== ====== ====== ======
Long-term debt.......................... 7.9 3.8 31.5 3.1 4.7
====== ====== ====== ====== ======
Stockholders' equity.................... $226.3 $229.8 $227.2 $228.7 $186.9
====== ====== ====== ====== ======
Book value per common and common
equivalent share....................... $ 8.12 $ 8.33 $ 8.58 $ 9.00 $ 7.61
====== ====== ====== ====== ======
Dividends paid per common share......... -- -- -- -- --
====== ====== ====== ====== ======
ADDITIONAL FINANCIAL INFORMATION (1)
Deferred data procurement costs......... $ 98.0 $ 96.8 $ 79.2 $ 68.0 $ 51.9
====== ====== ====== ====== ======
Capital expenditures.................... 18.8 24.5 24.0 25.9 20.0
====== ====== ====== ====== ======
Capitalized software costs.............. $ 5.8 $ 9.9 $ 11.7 $ 10.2 $ 8.8
====== ====== ====== ====== ======
- --------
(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%. As a result of a disproportionate capital
contribution made in 1996, the Company now owns substantially all of the
joint venture interests. IRI-SECODIP has been consolidated effective
January 1, 1995.
(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 and
1992 were $334.6 million and $279.2 million and $.83 and $.85,
respectively.
(3) The $4.8 million nonrecurring charge in 1996 principally relates to the
disposal of certain cable TV advertising cut-in equipment originally
developed for use in the Company's market testing operations. 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
13
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 December 1996, the Company recorded a $4.6 million charge primarily for
the final settlement of the escrow account related to the sale of a
portion of the Company's software business to Oracle in 1995. In July
1995, the Company completed the sale to Oracle of certain assets,
liabilities and related software application products of its software
products business resulting in a $41.1 million gain. (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).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview: Over the periods presented, the Company has generated increased
revenues resulting from the continued growth of its U.S. services business and
the startup and significant expansion of its International services business.
The revenue gains in recent years were achieved in spite of an intensely
competitive pricing environment that began in late 1993, which continued
through 1995 and moderated somewhat in 1996. Due to the longer-term nature of
most InfoScan 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 U.S. 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 services business has
resulted in significant operating losses which will likely continue until
these operations achieve a substantially higher level of revenues. The
Company's European operations also will continue to require substantial cash
investment. On December 3, 1996, the AC Nielsen Company ("ACNielsen") signed
an Undertaking with the European Commission ("the Commission") agreeing to
halt numerous contractual practices which the Company believes has hampered
the Company's participation in European markets. In May 1996, the Commission
issued a Statement of Objections to ACNielsen regarding various
anticompetitive activities. The Company had contended that those practices
were pursued by ACNielsen as part of an intentional and unlawful strategy
aimed at preventing the Company from establishing a competitive position in
Europe and eliminating the Company as a competitor. As a result of the
Undertaking, the Company believes that clients can now benefit from the
Company's services without risk of financial penalties being imposed by
ACNielsen and that a significant artificial barrier to the Company's efforts
to provide services to the European markets has been removed.
On an ongoing basis, the Company reviews the outlook of its European
services business, including current and near term economic conditions,
expected market growth and the regulatory and competitive environment. Based
upon currently projected operating results and cash flows, the Company's
assessment is that the realizability of its European assets is not impaired.
To the extent that actual operating results and cash flows are lower than
current projections, the Company may be required to write down a portion of
these assets in future periods.
Special Items: In July 1995, the Company completed the sale to Oracle
Corporation ("Oracle") of certain assets, liabilities and software products
relating to its on-line analytical processing business, the software products
business previously operated by the Company's software division. Since this
business was not a separate business segment, prior period's consolidated
financial statements have not been restated. The sale resulted in a pre-tax
gain of $41.1 million in 1995. In December 1996, the Company recorded a ($4.6)
million charge primarily for final settlement of the escrow account related to
the sale.
14
In addition, in 1996 the Company recorded a ($4.8) million nonrecurring
charge primarily due to the disposal of certain cable TV advertising cut-in
equipment originally developed for use in the Company's market testing
operation. In 1995, the Company recorded a nonrecurring charge of ($22.8)
million primarily related to the accelerated recognition of European deferred
data procurement costs and the reorganization of the Company's Towne-Oller
unit. In addition, selling, general and administrative expenses in the third
quarter of 1995 reflect approximately ($6.7) million of special charges,
principally related to a provision for doubtful accounts.
In 1995, IRI increased its ownership in its French joint venture, IRI-
SECODIP, from 50% to 89%. As a result of a disproportionate capital
contribution made in 1996, the Company now owns substantially all of the joint
venture interests. All 1996 and 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.
Operations: While overall revenues in 1996 increased over 1995 and 1994, the
Company incurred consolidated operating losses in all three years. A number of
factors influenced operating results, including: (a) the continued competitive
environment in Europe and costs relating to the development of the Company's
International services business; (b) the effects of strong price competition
on U.S. InfoScan renewals; (c) costs related to building the Company's
InfoScan Census data base and its Omega re-engineering initiatives; (d)
increased client deliverables associated with past InfoScan contract renewals;
(e) increased costs of software development efforts; (f) nonrecurring charges
in 1996 and 1995; and (g) the impact of the sale of a portion of the Company's
software business to Oracle including the net gain (loss) on sale in 1995 and
1996, respectively.
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, 1996, 1995 and 1994 follows (in
thousands):
1996 1995 1994
-------- -------- --------
Revenues:
U.S. Services.................................. $344,612 $317,553 $299,068
International Services......................... 60,991 42,165 13,580
-------- -------- --------
Subtotal..................................... 405,603 359,718 312,648
Software products business sold to Oracle...... -- 40,198 63,922
-------- -------- --------
$405,603 $399,916 $376,570
======== ======== ========
Operating Results:
U.S. Services
Operating profit............................. $ 31,106 $ 15,286 $ 38,112
Equity in loss of affiliated companies....... -- (200) (1,215)
-------- -------- --------
Subtotal--U.S. Services...................... 31,106 15,086 36,897
International Services
Operating loss............................... (29,425) (35,756) (18,056)
Equity in earnings (loss) of affiliated
companies................................... 30 579 (7,958)
Minority interests........................... 986 304 979
-------- -------- --------
Subtotal--International Services............. (28,409) (34,873) (25,035)
Corporate and other expenses................... (1,965) (3,652) (7,535)
Software products business sold to Oracle-
operating loss................................ -- (8,044) (7,215)
Nonrecurring expenses.......................... (4,808) (22,759) --
-------- -------- --------
Operating Results.............................. $ (4,076) $(54,242) $ (2,888)
======== ======== ========
Revenues from the Company's U.S. services business in 1996 were 8.5% higher
than in 1995. Revenues in 1996 reflected market growth, net share gains and
increased InfoScan Census and analytic revenues, partially offset by the
effect of the close-down of the Company's Towne-Oller service during late
1995. Revenues from
15
the Company's U.S. services business in 1995 increased 6.2% over 1994.
Revenues in 1995 reflected market growth and net share gains, offset somewhat
by the difficult competitive environment resulting in severe price pressure
upon obtaining contract renewals for existing clients. U.S. Operating Results
increased $16.0 million in 1996. This increase was due to revenue gains, the
benefit of lower expense growth resulting from the Company's cost containment
initiatives and production process reengineering and the effect of $6.7
million of special charges in 1995. U.S. Operating Results in 1995 decreased
$21.8 million compared to 1994. This decline was due to a 15.4% 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 expenses, primarily related to a provision for uncollectible
accounts receivable.
International service revenues in 1996 increased 44.6% over 1995 primarily
as a result of significant revenue gains in France, the U.K. and Italy due to
an increase in the number of InfoScan clients and expanded usage among
existing clients. International services revenues in 1995 also 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. The International Operating Results were a ($28.4)
million loss in 1996 compared to a ($34.9) million loss in 1995. Results
continue to reflect a difficult competitive pricing environment in Europe, the
ramp-up of Italian operations and high retailer costs in the U.K. The
International Operating Results were a ($34.9) 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 business in Italy in late 1994 and the
effect of foreign exchange rates.
Nonrecurring expenses in 1996 include a ($4.8) million write-off of certain
assets, principally related to the disposal of certain cable TV advertising
cut-in equipment originally developed for use in the Company's market-testing
operations. 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 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 1995 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.
Consolidated results in 1995 included seven-months of Operating Results of
the software products business sold to Oracle on July 27, 1995 in comparison
to full year results in 1994. Operating Results of the software products
business were an ($8.0) million loss and a ($7.2) million loss in 1995 and
1994, respectively.
Net loss on sale of assets in 1996 reflected a ($4.6) million pre-tax charge
primarily for final settlement of the escrow account related to the sale of a
portion of the Company's software business to Oracle in 1995. Net gain on sale
of assets in 1995 of $41.1 million included the pre-tax gain attributable to
the Oracle sale.
Year Ended December 31, 1996: Consolidated net loss was ($7.6) million in
1996 compared to a net loss of ($11.7) million in 1995. Results in 1996
included a ($4.8) million nonrecurring charge principally related to the
disposal of certain cable TV advertising cut-in equipment and a ($4.6) million
charge primarily related to final settlement on the sale of a portion of the
Company's software business to Oracle in 1995. 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; (b) a $22.8 million
nonrecurring charge primarily related to the accelerated recognition of
European deferred 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.
Consolidated revenues increased 12.8% to $405.6 million in 1996, after
adjusting revenues for 1995 to remove that portion of the Company's software
business that was sold to Oracle in July 1995. Including such revenues in the
1995 base results in a 1.4% consolidated revenue increase from 1995 to 1996.
16
Consolidated costs of information services sold increased $27.4 million or
8.0% to $369.0 million in 1996. Major components of the 1996 increase
included: (a) an $11.4 million or 7.4% increase in U.S. services compensation
expense resulting primarily from higher headcount required for software
development and client servicing; (b) a $9.0 million increase in International
services compensation expense resulting from the continued expansion of
operations; and (c) a $5.9 million increase in amortization of deferred data
procurement costs.
Consolidated results for 1995 included the operations of the software
products business unit sold to Oracle in July 1995. This part of the software
business reported costs of software products sold for the seven months of 1995
of approximately $41.1 million.
Consolidated selling, general and administrative expenses decreased $12.4
million or 25.2% to $36.9 million in 1996. Excluding that portion of selling,
general and administrative expenses attributable to the software products
business sold to Oracle, consolidated selling, general and administrative
expenses decreased $5.4 million or 12.6% in 1996 compared to 1995. This
decrease was attributable to the special charges of $6.7 million incurred in
1995 principally related to a provision for uncollectible accounts receivable.
Interest and other expenses for 1996 and 1995 were $1.2 million and $2.8
million, respectively. This decrease was principally due to application of
proceeds from the July 1995 Oracle sale to reduce bank debt.
The Company's 1996 and 1995 income tax benefit, resulting from pretax
losses, was lower than the income tax benefit computed using the U.S. Federal
statutory rate due to certain unbenefitted foreign losses, goodwill
amortization and other nondeductible expenses.
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
products business to Oracle in July 1995; (b) a $22.8 million nonrecurring
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.
Exclusive of the revenues of the disposed business in both years,
consolidated revenues increased 15.1% in 1995 in comparison to 1994, due to
increases in U.S. services revenues along with increases in revenues of the
Company's developing International services business. The Company's U.S.
services revenue growth reflected the continued negative effect of an intense
pricing environment which began in late 1993. Including revenues of the
disposed business, consolidated revenues increased 6.2% to $399.9 million in
1995 compared to $376.6 million in 1994, as the above factors were reduced by
the effect of the sale of the software business to Oracle in July 1995.
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 U.S. services compensation
expense resulting from higher headcount required to service clients and salary
increases; (b) a $23.1 million increase in International services 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 International 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 United States.
Increases in computer operations were required to support the Company's Census
product initiative and its production re-engineering and future cost reduction
projects.
Consolidated results for all periods included the operations of the software
products business until sold to Oracle in July 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 software products
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 canceled
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 services business 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 U.S. Federal
statutory rate due to certain unbenefitted foreign losses, goodwill
amortization and other nondeductible expenses.
LIQUIDITY AND CAPITAL RESOURCES
The expansion of its information services business in Europe has required
extensive cash investment. The Company's current cash resources include its
$12.2 million consolidated cash balance, $44.5 million available under the
bank line of credit and internally generated funds from its U.S. operations.
The Company anticipates that it will have sufficient funds from these sources
to satisfy its cash needs for the foreseeable future. Bank line availability
is subject to compliance with financial covenants relating to operating and
cash flow results, tangible net worth and leverage and quick ratios.
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 capital stock, or redeem or otherwise acquire
shares of the Company. Approximately $3.5 million is available for such
distributions under the most restrictive of these covenants.
In July 1995, the Company sold its software products business to Oracle for
approximately $100 million in cash, including $8.0 million of cash in escrow,
subject to post-closing adjustment. The $8.0 million constituted a general
escrow which was settled in December 1996. In July 1995, the entire amount
outstanding under the Company's existing credit facility was repaid by using a
portion of the proceeds from the sale. 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, 1996: Consolidated net cash
provided by operating activities was $102.1 million for the year ended
December 31, 1996 compared to $76.1 million in 1995. Cash provided by
operating activities increased primarily due to improved operating performance
in 1996. Consolidated cash used in net investing activities was ($121.2)
million in 1996 compared to ($43.9) million in 1995 as the 1995 period
benefitted from the $92.0 million of proceeds received from the sale of the
software products business to Oracle. Net cash provided (used) before
financing activities was ($19.1) million for 1996 and $32.2 million in 1995 as
1995 cash flow was benefitted by $92.0 million of proceeds from the Oracle
transaction. Consolidated cash
18
provided by (used in) net financing activities was $7.1 million in 1996
compared to ($19.1) million in 1995. The 1995 net financing activities
primarily reflect the repayment of bank borrowings using proceeds from the
Oracle sale.
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 a portion of the software products 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 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 software
products 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.
Financings: In 1995, following the sale of a portion of its software
business to Oracle, the Company repaid the entire amount of bank debt
outstanding and entered into a new credit facility. The Company has a $50.0
million bank credit facility maturing in 1998, with fixed or floating interest
rate options at or below prime. Facility fees of .4% 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 certain tangible net worth and operating income
levels and cash flow coverage and working capital ratios. The primary use of
borrowings has been for the expansion of the Company's information services in
Europe.
At December 31, 1996, $44.5 million was available under the bank credit
facility for general corporate purposes.
Other Deferred Costs and Capital Expenditures: Consolidated deferred data
procurement expenditures were $98.0 million, $96.8 million and $79.2 million
for the years ended December 31, 1996, 1995 and 1994, 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 services
business. Deferred data procurement expenditures for the Company's U.S.
services business were $65.6 million, $64.7 million and $61.6 million for the
years ended December 31, 1996, 1995 and 1994, respectively. The Company's
International services business deferred data procurement expenditures were
$32.4 million, $32.1 million and $17.6 million for the years ended December
31, 1996, 1995 and 1994, respectively. Management expects to continue the
development of its 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 its European
assets is not impaired. To the extent that actual operating results and cash
flows are lower than current projections, the Company may be required to write
down a portion of these assets in future periods.
Consolidated capital expenditures were $18.8 million, $24.5 million and
$24.0 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Capital expenditures for the Company's U.S. services business
were $15.2 million, $18.6 million and $17.3 million for the years ended
December 31, 1996, 1995 and 1994, respectively, while related depreciation
expense was $16.0 million, $16.1 million and $14.7 million,
respectively. The Company's International services business capital
expenditures were $3.6 million, $5.9 million
19
and $6.7 million for the years ended December 31, 1996, 1995 and 1994,
respectively, while depreciation expense was $4.2 million, $4.1 million and
$2.4 million, respectively.
Consolidated capitalized software development costs were $5.8 million, $9.9
million and $11.7 million for the years ended December 31, 1996, 1995 and
1994, respectively.
NOL Carryforwards: As of December 31, 1996, the Company had cumulative U.S.
Federal net operating loss ("NOL") carryforwards of approximately $64.8
million that expire primarily in 2009 and 2011. Certain of these carryforwards
have not been examined by the Internal Revenue Service and, therefore, are
subject to adjustment. In addition, at December 31, 1996, various foreign
subsidiaries of IRI had aggregate cumulative NOL carryforwards for foreign
income tax purposes of approximately $6.2 million which are subject to various
income tax provisions of each respective country. Approximately $3.0 million
of these foreign NOLs may be carried forward indefinitely, while the remaining
$3.2 million expire in 2000 and 2001. At December 31, 1996 the Company had
general business tax credit carryforwards of approximately $4.9 million which
expire primarily between 1999 and 2010, and are available to reduce future
Federal income tax liabilities.
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 Auditors (Ernst & Young LLP)...................... 21
Report of Independent Certified Public Accountants (Grant Thornton LLP). 22
Consolidated Balance Sheets at December 31, 1996 and 1995............... 23
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994.................................................... 24
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994....................................... 25
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.................................................... 26
Notes to Consolidated Financial Statements.............................. 27
(b) Supplementary Data
Summary of Quarterly Data............................................... 39
Financial statement schedule is included on page 43 preceding the signature
pages of this report (see Item 14).
20
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Information Resources, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Information
Resources, Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. Our audit also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule 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 consolidated financial position of Information
Resources, Inc. and Subsidiaries at December 31, 1996 and the consolidated
results of their operations and their consolidated cash flows for the year
then ended, in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
February 12, 1997
21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Information Resources, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Information
Resources, Inc. and Subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two 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 the consolidated
results of their operations and their consolidated cash flows for each of the
two years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in NOTE 1, effective January 1, 1994, the Company 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,
1996 1995
-------- --------
(IN THOUSANDS)
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents................................ $ 12,195 $ 24,884
Accounts receivable, net................................. 99,413 95,862
Escrow receivable........................................ -- 8,000
Prepaid expenses and other............................... 6,575 5,169
-------- --------
Total Current Assets................................... 118,183 133,915
-------- --------
Property and equipment, at cost............................ 147,398 136,946
Accumulated depreciation and amortization................ (92,806) (76,541)
-------- --------
Net property and equipment............................. 54,592 60,405
Investments................................................ 18,737 18,791
Other assets............................................... 142,981 125,425
-------- --------
$334,493 $338,536
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current maturities of capitalized leases................. $ 2,805 $ 2,317
Accounts payable......................................... 36,059 36,214
Accrued compensation and benefits........................ 17,660 19,812
Accrued property, payroll and other taxes................ 4,506 3,981
Accrued expenses......................................... 7,015 11,571
Deferred revenue......................................... 15,558 15,599
-------- --------
Total Current Liabilities.............................. 83,603 89,494
-------- --------
Long-term debt............................................. 7,892 3,760
Deferred income taxes, net................................. 9,113 8,643
Deferred gain.............................................. 3,632 4,047
Other liabilities.......................................... 3,925 2,838
STOCKHOLDERS' EQUITY
Preferred stock--authorized 1,000,000 shares, $.01 par
value; none issued...................................... -- --
Common stock--authorized 60,000,000 shares, $.01 par
value; 27,886,406 and 27,587,176 shares issued and
outstanding, respectively............................... 279 276
Capital in excess of par value........................... 187,213 183,615
Retained earnings........................................ 38,270 45,828
Cumulative translation adjustment........................ 566 35
-------- --------
Total Stockholders' Equity............................. 226,328 229,754
-------- --------
$334,493 $338,536
======== ========
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,
1996 1995 1994
-------- -------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
Revenues:
Information services........................... $405,603 $359,718 $312,648
Software products business sold to Oracle...... -- 40,198 63,922
-------- -------- --------
405,603 399,916 376,570
Costs and expenses:
Information services sold...................... (368,951) (341,566) (265,115)
Software products business sold to Oracle...... -- (41,142) (60,392)
Selling, general and administrative expenses... (36,936) (49,374) (45,757)
Nonrecurring expenses.......................... (4,808) (22,759) --
-------- -------- --------
(410,695) (454,841) (371,264)
-------- -------- --------
Operating profit (loss).......................... (5,092) (54,925) 5,306
Net gain (loss) on sale of assets................ (4,600) 41,126 --
Interest expense and other, net.................. (1,182) (2,752) (1,580)
Litigation provision............................. -- -- (8,275)
Equity in earnings (loss) of affiliated
companies....................................... 30 379 (9,173)
-------- -------- --------
Loss before income taxes, minority interests and
cumulative effect of change in accounting
principle....................................... (10,844) (16,172) (13,722)
Income tax benefit............................... 2,300 4,190 3,822
-------- -------- --------
Loss before minority interests and cumulative
effect of change in accounting principle........ (8,544) (11,982) (9,900)
Minority interests............................... 986 304 979
-------- -------- --------
Loss before cumulative effect of change in
accounting principle............................ (7,558) (11,678) (8,921)
Cumulative effect on prior years of change in
accounting principle............................ -- -- (6,594)
-------- -------- --------
Net loss..................................... $ (7,558) $(11,678) $(15,515)
======== ======== ========
Loss per common and common equivalent share:
Before cumulative effect of accounting change.. $ (.27) $ (.43) $ (.34)
Cumulative effect of accounting change......... -- -- (.26)
-------- -------- --------
Net loss..................................... $ (.27) $ (.43) $ (.60)
======== ======== ========
Weighted average common and common equivalent
shares.......................................... 27,755 26,991 26,056
======== ======== ========
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,
CAPITAL
IN
EXCESS CUMULATIVE
COMMON OF PAR RETAINED TRANSLATION
STOCK VALUE EARNINGS ADJUSTMENT TOTAL
------ -------- -------- ----------- --------
(IN THOUSANDS)
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
---- -------- -------- ------- --------
Net loss....................... -- -- (7,558) -- (7,558)
Shares issued:
Employee stock option plans
and other................... 3 3,598 -- -- 3,601
Translation adjustment......... -- -- -- 531 531
---- -------- -------- ------- --------
Balance at December 31, 1996... $279 $187,213 $ 38,270 $ 566 $226,328
==== ======== ======== ======= ========
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,
1996 1995 1994
--------- -------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................... $ (7,558) $(11,678) $ (15,515)
Adjustments to reconcile net loss to net
cash provided by
operating activities:
Amortization of deferred data procurement
costs..................................... 87,944 82,095 65,819
Depreciation............................... 20,204 20,196 17,057
Amortization of capitalized software costs. 4,125 6,701 8,839
Amortization of intangibles................ 3,015 4,219 3,258
Deferred income tax benefit................ (2,938) (5,284) (6,270)
Equity in (earnings) loss of affiliated
companies and minority interests.......... (1,016) (683) 8,194
Cumulative effect of change in accounting
principle................................. -- -- 6,594
Nonrecurring expenses...................... 4,808 22,759 --
Net (gain) loss on disposition of assets... 4,600 (41,126) --
Provision for losses on accounts
receivable................................ 719 6,295 2,584
Other...................................... (3,002) (2,543) 552
Change in assets and liabilities:
Increase in accounts receivable.......... (6,163) (7,593) (22,586)
Increase in other current assets......... (1,334) (3,760) (1,555)
Increase (decrease) in accounts payable
and accrued liabilities................. (3,314) 2,382 9,842
Increase (decrease) in deferred revenue.. (84) 3,578 2,319
Other, net............................... 2,077 583 (1,471)
--------- -------- ---------
Total adjustments...................... 109,641 87,819 93,176
--------- -------- ---------
Net cash provided by operating
activities............................ 102,083 76,141 77,661
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of assets.......... 2,900 92,000 --
Deferred data procurement costs.............. (98,005) (96,808) (79,162)
Purchase of property and equipment........... (18,772) (24,497) (23,953)
Capitalized software costs................... (5,784) (9,887) (11,681)
Investments and net assets acquired in
business acquisitions....................... (950) (4,812) (1,832)
Other........................................ (600) 62 210
--------- -------- ---------
Net cash used by investing activities.. (121,211) (43,942) (116,418)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net bank borrowings (repayments) ............ 5,500 (29,000) 29,000
Net borrowings (repayments) of capitalized
leases...................................... (880) 1,606 (435)
Proceeds from exercise of stock options and
other....................................... 2,445 8,246 1,697
--------- -------- ---------
Net cash provided (used) by financing
activities............................ 7,065 (19,148) 30,262
EFFECT OF EXCHANGE RATE CHANGES ON CASH........ (626) 41 919
--------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................. (12,689) 13,092 (7,576)
Cash and cash equivalents at beginning of
year........................................ 24,884 11,792 19,368
--------- -------- ---------
Cash and cash equivalents at end of year..... $ 12,195 $ 24,884 $ 11,792
========= ======== =========
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, 1996, 1995 AND 1994
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 and affiliates. Minority interests
reflect the non-Company owned stockholder interests in Information Resources
Japan, Ltd., IRI-SECODIP, S.C.S., (France) ("IRI-SECODIP") and IRI InfoScan
Limited (U.K.). 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 1996 presentation.
Revenue Recognition and Change in Accounting Principle
Revenues on contracts for retail tracking services, which generally have
terms not less than one year, are recognized over the terms of the contracts.
Such 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 penalties, generally by the giving of six
months written notice after the initial multi-year term. Revenues for special
analytical services, 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.
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 the ratio 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.
27
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective January 1, 1994, the Company changed its method of recognizing
revenue on its retail tracking 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.
Research and Development
Expenditures for research and development for the years ended December 31,
1996, 1995 and 1994 approximated $24.9 million, $37.4 million and $35.1
million, respectively. Included in these expenditures were $5.8 million, $9.9
million and $11.7 million of software development costs that were capitalized
for the years ended December 31, 1996, 1995 and 1994, 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 $2.0 million, $1.5 million and $1.3 million
in 1996, 1995 and 1994, 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. As of December 31, 1996 and 1995, 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
over the shorter of their estimated service lives or the terms of their
respective lease agreements. 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
28
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 Notes 5 and 10.) Based upon currently
projected operating results and cash flows, the Company's assessment is that
the realizability of its European 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 in future
periods.
Income Taxes
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 arise in business combinations
accounted for as purchases as a result of differences between the fair value
of assets acquired and their tax bases.
Loss per Common and Common Equivalent Share and Stock-Based Compensation
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 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."
Adoption of Recent Statement of Financial Accounting Standards
The Company adopted the 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 did not 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):
1996 1995 1994
------ ------ ------
Interest........................................... $2,103 $4,876 $2,087
Income taxes....................................... $ (735) $ (855) $1,547
Excluded from the consolidated statements of cash flows was the effect of
several 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 1996, 1995 and 1994, receivables of $.7
million, $1.6 million and $7.4 million, respectively, were reclassified to
investment in joint ventures.
29
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 primarily in Eastern Europe, the Middle East and North Africa. In
connection with this agreement, IRI issued Common Stock having a market value
of approximately $2.6 million and obtained a long-term option to acquire up to
a 49% ownership interest in MEMRB. IRI's investment in MEMRB has been
accounted for as a cost investment in the consolidated financial statements.
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%. As a result of a disproportionate capital contribution made
in 1996, the Company now owns substantially all of the joint venture
interests. IRI-SECODIP has been consolidated effective January 1, 1995.
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 and a 19.9% ownership interest in GfK Belgium S.A.
for approximately $.6 million .
In January 1994, the Company acquired for $5.8 million a 49% interest in
Datos Information Resources, a joint venture 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.
NOTE 4--NET GAIN (LOSS) ON DISPOSITION OF ASSETS
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 in 1995 of approximately $41.1
million. The Company retained sales and marketing application products for use
in the consumer packaged goods industry. In consideration for such assets and
liabilities, Oracle paid, subject to post-closing adjustment, approximately
$100 million in cash, including $8.0 million to an interest-bearing escrow
account. 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. In December 1996, the Company
recorded a $4.6 million charge related primarily to the final settlement of
the escrow account.
NOTE 5--NONRECURRING EXPENSES
Nonrecurring expenses in 1996 included a $4.8 million charge principally
related to the planned disposal of certain cable TV advertising cut-in
equipment originally developed for use in the Company's market-testing
operation. 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 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
$1.0 million in 1996 and $.2 million in 1995.
30
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--INCOME TAXES
IRI and its U.S. subsidiaries and partnerships file their U.S. Federal
income tax return on a consolidated basis. As of December 31, 1996, the
Company had cumulative U.S. Federal net operating loss ("NOL") carryforwards
of approximately $64.8 million that expire primarily in 2009 and 2011. Certain
of these carryforwards have not been examined by the Internal Revenue Service
and, therefore, are subject to adjustment. In addition, at December 31, 1996,
various foreign subsidiaries of IRI had aggregate cumulative NOL carryforwards
for foreign income tax purposes of approximately $6.2 million which are
subject to various income tax provisions of each respective country.
Approximately $3.0 million of these foreign NOLs may be carried forward
indefinitely, while the remaining $3.2 million expire in 2000 and 2001. 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, 1996. This amount will be allowed as a credit carryover
against regular tax in the future when the regular tax liability exceeds the
alternative minimum tax liability. At December 31, 1996 the Company had
general business tax credit carryforwards of approximately $4.9 million which
expire primarily between 1999 and 2010, and are available to reduce future
U.S. Federal income tax liabilities.
Domestic earnings before income taxes, minority interests and cumulative
effect of changes in accounting principle were $11.7 million, $27.1 million
and $3.4 million for 1996, 1995 and 1994, respectively. The foreign loss
before income taxes, minority interests and cumulative effect of changes in
accounting principle was ($22.5) million, ($43.3) million, and ($17.1) million
for 1996, 1995 and 1994, 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 U.S. 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, 1996, 1995 and 1994 consisted of the following
components (in thousands):
1996 1995 1994
------ ------- -------
Current income tax (expense)
Federal...................................... $ -- $ -- $ (385)
Foreign...................................... (638) (1,094) (976)
State and local.............................. -- -- (1,087)
------ ------- -------
(638) (1,094) (2,448)
------ ------- -------
Deferred income tax benefit (expense)
Federal...................................... 3,805 3,282 3,577
Foreign...................................... (937) 1,181 920
State and local.............................. 70 821 1,773
------ ------- -------
2,938 5,284 6,270
------ ------- -------
Income tax benefit............................. $2,300 $ 4,190 $ 3,822
====== ======= =======
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 $87 million of existing net temporary
differences at December 31, 1996, primarily deferred data procurement costs,
capitalized software costs, and other items, most of which will reverse over
the next three years.
31
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
were as follows (in thousands):
DECEMBER 31,
----------------
1996 1995
------- -------
Deferred tax liabilities:
Deferred data procurement costs....................... $40,098 $37,959
Capitalized software costs............................ 4,732 3,664
Property and equipment................................ -- 2,392
Other................................................. 5,268 710
------- -------
Total deferred tax liabilities...................... 50,098 44,725
Deferred tax assets:
Domestic NOL carryforwards............................ 25,535 16,505
Domestic tax credit carryforwards..................... 6,210 4,318
Foreign NOL carryforwards............................. 2,440 1,492
Revenue recognition change............................ 2,097 2,911
Reserve for nonrecurring items........................ 664 4,472
Other................................................. 10,583 10,504
------- -------
Total deferred tax assets........................... 47,529 40,202
Valuation allowance on deferred tax assets.............. (6,544) (4,120)
------- -------
Net deferred tax assets................................. 40,985 36,082
------- -------
Net deferred tax liability.............................. $ 9,113 $ 8,643
======= =======
The valuation allowance increased by $2.4 million in 1996 and $.6 million in
1995, as it is more likely than not that the net operating loss and domestic
tax credit 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, 1996, 1995 and 1994 as follows (in thousands):
1996 1995 1994
------ ------ ------
Statutory tax benefit............................ $3,795 $5,660 $4,803
Effects of--
State income taxes, net of Federal income tax
benefit....................................... 45 534 446
Nondeductible meals and entertainment.......... (365) (502) (372)
Nondeductible acquisition/organization costs... (210) (719) (231)
Other non-taxable income (nondeductible
expenses)..................................... 18 (374) (436)
Foreign taxes.................................. (1,150) (976) (171)
Change in valuation allowance.................. 419 -- --
Other.......................................... (252) 567 (217)
------ ------ ------
$2,300 $4,190 $3,822
====== ====== ======
32
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--ACCOUNTS RECEIVABLE
Accounts receivable at December 31, were as follows (in thousands):
1996 1995
-------- -------
Billed................................................. $ 63,102 $62,580
Unbilled............................................... 37,615 34,903
Other.................................................. 3,033 2,239
-------- -------
103,750 99,722
Reserve for accounts receivable........................ (4,337) (3,860)
-------- -------
$ 99,413 $95,862
======== =======
Payments in advance of revenue recognition are reflected in the consolidated
financial statements as deferred revenue. Unbilled accounts receivable
represent revenues and fees on contracts and other services earned to date for
which customers were not invoiced as of the balance sheet date.
NOTE 8--PROPERTY AND EQUIPMENT
Property and equipment at December 31, were as follows (in thousands):
1996 1995
-------- --------
Computer equipment.................................... $ 82,708 $ 69,814
Market testing and other operating equipment.......... 14,291 18,956
Leasehold improvements................................ 15,345 15,425
Equipment and furniture............................... 35,054 32,751
-------- --------
147,398 136,946
Accumulated depreciation and amortization............. (92,806) (76,541)
-------- --------
$ 54,592 $ 60,405
======== ========
NOTE 9--INVESTMENTS
Investments at December 31 were as follows (in thousands):
1996 1995
------- -------
Datos Information Resources, at cost plus equity in
undistributed earnings................................. $ 5,500 $ 6,399
GfK Panel Services GmbH, at cost........................ 5,772 5,772
Other investments, primarily GfK Panel Services Benelux
B.V.................................................... 7,465 6,620
------- -------
$18,737 $18,791
======= =======
Effective February 1, 1997, the Company and GfK AG of Germany ("GfK")
organized a new joint venture company, IRI/GfK Retail Services GmbH ("IRI/GfK
Retail"). The Company has a 51% ownership interest in IRI/GfK Retail, and GfK
owns the remainder. IRI/GfK Retail purchased the German retail tracking
business and related software business from GfK Panel Services GmbH ("GfK
Panel") and will now provide those business services to the German market.
In a separate transaction, the Company sold its 15% ownership interest in
GfK Panel to GfK. GfK Panel will continue to provide consumer panel and ad hoc
research services to the market, and GfK Panel and IRI/GfK Retail will
cooperate in selling and delivering services to appropriate customers.
33
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--OTHER ASSETS
Other assets at December 31 were as follows (in thousands):
1996 1995
-------- --------
Deferred data procurement costs--net of accumulated
amortization of $102,372 in 1996 and $92,912 in
1995................................................ $113,926 $ 98,602
Intangible assets, including goodwill primarily
related to acquisitions--net of accumulated
amortization of $12,171 in 1996 and $14,026 in 1995. 13,940 13,395
Capitalized software costs--net of accumulated
amortization of $5,554 in 1996 and $3,648 in 1995... 11,516 9,857
Other................................................ 3,599 3,571
-------- --------
$142,981 $125,425
======== ========
NOTE 11--LONG-TERM DEBT
Long-term debt at December 31, was as follows (in thousands):
1996 1995
-------- --------
Bank borrowings...................................... $ 5,500 $ --
Capitalized leases................................... 5,197 6,077
-------- --------
10,697 6,077
Less current maturities.............................. (2,805) (2,317)
-------- --------
$ 7,892 $ 3,760
======== ========
The Company has a $50.0 million bank credit facility maturing in 1998, with
fixed or floating interest rate options at or below prime. The weighted
average interest rate at December 31, 1996 was 7.1%. Facility fees of .4% 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 certain tangible net worth and
operating income levels and cash flow coverage and working capital ratios.
Capitalized leases primarily consist of leases for computer and telephone
equipment expiring through 2000. Maturities of capitalized leases and other
long-term debt during each of the years 1997 through 2000 are $2.8 million,
$7.0 million, $.5 million and $.4 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 capital stock, or redeem or otherwise acquire
shares of the Company. Approximately $3.5 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.
34
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common Stock
At December 31, 1996, 1995 and 1994, 27,886,406, 27,587,176, and 26,493,277
shares of Common Stock, respectively were issued and outstanding. At December
31, 1996, .5 million and 4.6 million options were available for grant under
the Executive Stock Option Plan and the Employee Stock Option Plan,
respectively. In connection with all IRI employee and director stock plans,
13.4 million shares were reserved for issuance at December 31, 1996.
In May 1996, the Company's shareholders approved the 1996 Stock Plan for
Non-Employee Directors in Lieu of Cash Retainer (the Director's Plan),
authorizing the issuance of up to 100,000 shares of Common Stock. Under the
Directors' Plan an eligible director is paid annually in shares of Common
Stock in lieu of 75% of the cash retainer otherwise payable for services on
the Board. The number of shares issued is based upon the fair market value of
the Company's Common Stock. In 1996, the Company issued 10,692 shares at a
price of $14.25 per share under the Director's Plan.
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 bank 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 Plan
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 and 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
over the vesting period for the difference between the total fair market value
and the total exercise price on the date of grant. Compensation expense of
approximately $.1 million, $1.8 million and $3.0 million was recognized in
1996, 1995 and 1994, respectively for such options.
In April 1994, the Board of Directors of the Company canceled 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.
In December 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("new Standard"), which establishes an alternative method of
accounting for stock-based compensation plans. The new Standard allows
companies which have stock-based compensation arrangements with employees to
continue to apply existing accounting rules under APB Opinion No. 25,
"Accounting for Stock Issued to Employees", with supplemental pro forma
disclosures.
35
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents, on an (unaudited) pro forma basis, net loss
and net loss per share for the years ended December 31, 1996 and 1995 as if
the alternate method had been adopted (in thousands, except per share data):
1996 1995
---------- --------
Net loss--as reported................................. $ (7,558) $(11,678)
========== ========
Net loss--unaudited pro forma......................... $ (8,673) $(13,956)
========== ========
Loss per share--as reported........................... $ (.27) $ (.43)
========== ========
Loss per share--unaudited pro forma................... $ (.31) $ (.52)
========== ========
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with assumed risk-free interest rates of
5.9% and 6.7% for 1996 and 1995, respectively, stock price volatility factor of
41.4% and an expected life of the options of five years. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing model does not necessarily provide a reliable single measure of the
fair value of its employee stock options. Using the foregoing assumptions, the
weighted-average fair value of options granted in 1996 and 1995 was $5.85 and
$5.66, respectively.
Transactions involving stock options for the Executive and Employee Stock
Option Plans are summarized as follows:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF OPTIONS PRICE
---------- --------
Outstanding December 31, 1993......................... 7,298,239 $ 21.17
Granted............................................... 6,588,162 14.44
Canceled/Expired...................................... (4,145,428) 25.67
Exercised............................................. (169,926) 7.35
---------- --------
Outstanding December 31, 1994......................... 9,571,047 14.83
Granted............................................... 2,042,565 12.89
Canceled/Expired...................................... (2,122,603) 15.93
Exercised............................................. (638,748) 10.20
---------- --------
Outstanding December 31, 1995......................... 8,852,261 14.44
Granted............................................... 430,000 12.90
Canceled/Expired...................................... (645,543) 18.43
Exercised............................................. (288,538) 8.32
---------- --------
Outstanding December 31, 1996......................... 8,348,180 $ 14.26
========== ========
Exercisable December 31, 1996......................... 5,822,941 $ 14.22
========== ========
Stock options outstanding at December 31, 1996 are as follows:
WEIGHTED OUTSTANDING- EXERCISABLE-
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ----------- ------------ ----------- ------------
$ 7.63-$12.75........... 2,022,774 5.20 $10.33 1,431,857 $ 9.62
12.88- 13.50........... 764,513 8.43 13.10 389,260 12.98
13.63- 14.25........... 3,941,619 6.51 14.17 2,852,623 14.18
14.38- 16.50........... 755,000 7.44 14.97 420,622 14.99
17.88- 34.00........... 864,274 6.15 24.27 728,579 23.66
--------- ---- ------ --------- ------
$ 7.63-$34.00........... 8,348,180 6.41 $14.26 5,822,941 $14.22
========= ==== ====== ========= ======
36
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--COMMITMENTS, CONTINGENCIES AND LITIGATION
1. Lease Agreements and Other Commitments
The Company leases certain property and equipment under operating leases
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, 1996 obligations to
make future minimum payments under all operating leases were $140.5 million in
the aggregate and $28.5 million, $24.7 million, $17.4 million, $12.4 million
and $8.1 million for the five years ended December 31, 2001, respectively.
Rent expense for all operating leases was $32.0 million, $32.6 million and
$29.8 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
2. Legal Proceedings
On July 29, 1996, IRI filed an action against The Dun & Bradstreet Corp.,
ACNielsen and IMS International, Inc. in the United States District Court for
the Southern District of New York entitled Information Resources, Inc. v. The
Dun & Bradstreet Corp., et. al. No. 96 CIV. 5716 (the "Action"). IRI alleged
that, among other things, the Defendants violated Sections 1 and 2 of the
Sherman Act, 15 U.S.C. (S)(S)1 and 2, by engaging in a series of anti-
competitive practices aimed at excluding the Company from various export
markets for retail tracking services and regaining monopoly power in United
States market for such services. These practices included: (i) entering into
exclusionary contracts with retailers in several countries in order to
restrict the Company's access to sales data necessary to provide retail
tracking services; (ii) illegally tying services in markets over which
Defendants' had monopoly power with services in markets in which ACNielsen
competed with the Company; (iii) predatory pricing; (iv) acquiring foreign
market competitors with the intent of impeding the Company's efforts at export
market expansion; (v) tortiously interfering with Company contracts and
relationships with clients, joint venture partners and other market research
companies; and (vi) disparaging the Company to financial analysts and clients.
By the Action, the Company seeks to enjoin Defendants' anti-competitive
practices and to recover damages in excess of $350 million, prior to trebling.
The Action followed legal proceedings by the Canadian Competition Tribunal
and the European Commission against ACNielsen for anti-competitive practices.
On August 30, 1995, following a full hearing, the Canadian Competition
Tribunal issued an Order and Reasons for Order against ACNielsen in In Re: The
D&B Companies of Canada Ltd., concluding that ACNielsen had engaged in "anti-
competitive acts" with the express intent "to exclude potential competitors
generally and the Company specifically" from the Canadian retail tracking
services market. On May 4, 1996, the European Commission issued a "Statement
of Objections" against ACNielsen, following an 18 month investigation,
alleging that ACNielsen had infringed Article 86 of the Treaty of Rome through
several practices undertaken intentionally as part of a strategy to exclude
the Company from the European markets for retail tracking services. On
December 3, 1996 ACNielsen signed an Undertaking to the European Commission
agreeing to halt numerous contractual practices which the Company contended
was part of ACNielsen's intentional and unlawful strategy aimed at preventing
the Company from establishing a competitive position in Europe and eliminating
the Company as a competitor.
In the ordinary course of business, IRI and its subsidiaries become involved
as plaintiffs or defendants in various other 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, based
upon advice of counsel, that the ultimate disposition of pending litigation
against the Company will not be material.
37
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. Pursuant to the terms of the court approved settlement
agreement, in December 1995 the Company satisfied its obligations by issuing
211,223 shares of Common Stock valued at $2.6 million and paying $2.6 million
in cash to the settlement class.
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. The following table presents
information about the Company by geographic areas, including operations of the
General Software Business, which was sold to Oracle in 1995, (in thousands).
1996 1995 1994
-------- -------- --------
Operating revenues (a):
To unaffiliated customers:
United States................................. $344,612 $329,340 $318,091
Europe........................................ 54,520 62,693 48,359
Other International........................... 6,471 7,882 10,120
Transfers between geographic areas (b):
United States................................. -- 4,343 8,802
Europe........................................ -- 1,099 1,938
Eliminations.................................. -- (5,441) (10,740)
-------- -------- --------
Total operating revenues.................... $405,603 $399,916 $376,570
======== ======== ========
Operating profit (loss) (c) (d):
United States................................. $ 26,699 $ (4,922) $ 33,421
Europe........................................ (23,864) (42,983) (17,559)
Other International........................... (5,962) (3,368) (3,021)
Corporate expenses............................ (1,965) (3,652) (7,535)
-------- -------- --------
Operating profit (loss)..................... $ (5,092) $(54,925) $ 5,306
======== ======== ========
Identifiable assets at December 31 (e):
United States................................. $230,371 $239,069 $253,885
Europe........................................ 87,380 84,109 80,051
Other International........................... 16,742 15,358 12,858
-------- -------- --------
Total identifiable assets................... $334,493 $338,536 $346,794
======== ======== ========
- --------
(a) Total international revenues, including export sales, were $62.5 million,
$72.9 million and $61.9 million for 1996, 1995 and 1994, respectively.
(b) Transfers in 1995 and 1994 related to the software products business sold
to Oracle in 1995. (See Note 4.)
(c) Operating profit (loss) includes nonrecurring expenses of $4.8 million and
$22.8 million in 1996 and 1995, respectively. (See Note 5.) Operating
profit (loss) excludes net gain (loss) on disposition of assets of ($4.6)
million and $41.1 million in 1996 and 1995, respectively. (See Note 4.)
(d) Operating profit (loss) excludes litigation provision of $8.3 million in
1994. (See Note 13.)
(e) Identifiable assets includes investments aggregating $18.7 million, $18.8
million and $21.0 million at December 31, 1996, 1995 and 1994,
respectively. (See Note 9.)
38
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
SUMMARY OF QUARTERLY DATA (UNAUDITED)
Summaries of consolidated results on a quarterly basis are as follows (in
thousands, except per share data):
1996
--------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
Revenues............................... $ 92,998 $102,955 $101,980 $107,670
======== ======== ======== ========
Nonrecurring expenses(a)............... -- -- -- (4,808)
======== ======== ======== ========
Operating profit (loss)................ (4,474) 771 28 (1,417)
======== ======== ======== ========
Net loss on sale of assets(b).......... -- -- -- (4,600)
======== ======== ======== ========
Net earnings (loss).................... $ (2,247) $ 242 $ 10 $ (5,563)
======== ======== ======== ========
Net earnings (loss) per common and
common equivalent shares.............. $ (.08) $ .01 $ -- $ (.20)
======== ======== ======== ========
Weighted average common and common
equivalent shares..................... 27,653 27,753 27,775 27,837
======== ======== ======== ========
1995
--------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
Revenues(b)............................ $104,795 $109,332 $ 87,288 $ 98,501
======== ======== ======== ========
Nonrecurring expenses(c)............... -- -- (22,759) --
======== ======== ======== ========
Operating loss......................... (4,980) (5,033) (44,305) (607)
======== ======== ======== ========
Net gain on sale of assets(b).......... -- -- 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
======== ======== ======== ========
- --------
(a) The nonrecurring charge in 1996 principally relates to the disposal of
certain cable TV advertising cut-in equipment originally developed for use
in the Company's market testing operations.
(b) The net loss on sale of assets in 1996 is primarily for the final
settlement of the escrow account related to the sale of a portion of the
Company's software business to Oracle in 1995. In July 1995, the Company
completed the sale to Oracle of certain assets, liabilities and related
software application products.
(c) 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.
39
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 "Section 16(a) Beneficial
Ownership Reporting Compliance" are incorporated by reference from the
definitive proxy statement to be filed with the Securities and Exchange
Commission in connection with the Company's 1997 annual meeting of
stockholders scheduled for May 22, 1997. 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 1997
annual meeting of stockholders scheduled for May 22, 1997.
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 1997 annual meeting of
stockholders scheduled for May 22, 1997.
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 1997 annual meeting of
stockholders scheduled for May 22, 1997.
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.
--------
Report of Independent Certified Public Accountants on Schedule.... 42
Schedule II--Valuation and Qualifying Accounts; Allowance for
Doubtful Receivables............................................. 43
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.
40
3. Exhibits
(I) See Exhibit Index (immediately following the signature pages).
(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 Agreement dated March 15, 1985 between the Company and
Leonard Lodish.
Noncompetition Agreements 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 R. 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.
Employment Agreement dated as of August 22, 1996, between the
Company and Randall S. Smith and First Amendment to Employment
Agreement dated November 11, 1996.
41
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 two 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
42
SCHEDULE II
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
RESERVE FOR ACCOUNTS RECEIVABLE
(IN THOUSANDS)
ADDITIONS
BALANCE CHARGED DEDUCTIONS BALANCE
AT TO COSTS (NET AT END
BEGINNING & WRITEOFFS/ OF
DESCRIPTION OF PERIOD EXPENSES RECOVERIES) PERIOD
- ----------- --------- --------- ----------- -------
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
Year ended December 31, 1996............ $3,860 $ 719 $ (242) $4,337
43
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, 1997
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, 1997.
SIGNATURE TITLE
--------- -----
/s/ Thomas W. Wilson, Jr. Chairman of the Board of Directors and
___________________________________________ Director
Thomas W. Wilson, Jr.
/s/ Gian M. Fulgoni Chief Executive Officer and Director
___________________________________________ [Principal executive officer]
Gian M. Fulgoni
/s/ Gary M. Hill Executive Vice President and Chief
___________________________________________ Financial Officer [Principal financial
Gary M. Hill officer]
/s/ John P. McNicholas, Jr. Controller [Principal accounting officer]
___________________________________________
John P. McNicholas, Jr.
*/s/ James G. Andress Director
___________________________________________
James G. Andress
*/s/ Gerald J. Eskin Director
___________________________________________
Gerald J. Eskin
*/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
44
SIGNATURE TITLE
--------- -----
*/s/ Edith W. Martin Director
___________________________________________
Edith W. Martin
*/s/ Jeffrey P. Stamen Director
___________________________________________
Jeffrey P. Stamen
*/s/ Glen L. Urban Director
___________________________________________
Glen L. Urban
/s/ Gian M. Fulgoni
*BY:_________________________________
Gian M. Fulgoni
pursuant to a power of attorney
45
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.
SEQUENTIAL
EXHIBIT DOCUMENT
NUMBER DESCRIPTION OF DOCUMENT FILING
------- ----------------------- ----------
3(a) Copy of the certificate of incorporation of the Company
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.
(Incorporated 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 Incorporation
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 bylaws
into conformity with the amendments to the Certificate
of Incorporation approved by the stockholders May 16,
1989. (Incorporated by reference. Previously filed as
Exhibit 3(d) to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1989.) IBRF
(e) Certificate of Designations of Series A Participating
Preferred Stock, as adopted by the Board of Directors
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.
Previously filed as Exhibit 10(a) to the Company's
Registration Statement on Form S-8 filed with the SEC
on December 31, 1988.) IBRF
(b) Information Resources, Inc., Nonqualified Stock Option
Plan effective January 1, 1984, as amended.
(Incorporated by reference. Previously filed as Exhibit
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
reference. Previously filed as Exhibit 10(e) to
Registration Statement No. 2-81544.) IBRF
(d) Consulting and Noncompetition Agreement dated January
16, 1987 between the Company and Edwin Epstein.
(Incorporated by reference. Previously filed as Exhibit
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
(f) Employment agreements dated March 15, 1985 between the
Company and Leonard Lodish. (Incorporated by reference.
Previously filed as Exhibit 10.14 to Registration
Statement No. 2-96940.) IBRF
(g) Noncompetition Agreement dated March 15, 1985 between
the Company and John Little, Glen Urban, and Leonard
Lodish, respectively. (Incorporated by reference.
Previously filed as Exhibit 10.15 to Registration
Statement No. 2-96490.) IBRF
1
SEQUENTIAL
EXHIBIT DOCUMENT
NUMBER DESCRIPTION OF DOCUMENT FILING
------- ----------------------- ----------
(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. Previously
filed as Exhibit 10(m) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 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 Company
and Edwin Epstein, amending the Consulting and
Noncompetition Agreement dated January 16, 1987, which
Consulting and Noncompetition Agreement is referred 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 reference.
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 Exhibit
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 Company
(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 (Incorporated
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.
(Incorporated 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
(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. Superseded
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 Exhibit
18 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994.) IBRF
2
SEQUENTIAL
EXHIBIT DOCUMENT
NUMBER DESCRIPTION OF DOCUMENT FILING
------- ----------------------- ----------
(v) Credit Agreement dated November 3, 1994, between the
Company and Harris Trust and Savings Bank.
(Incorporated 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 effective
May 24, 1995. (Incorporated by reference. Previously
filed as Exhibit 3 to the Company's Quarterly 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. Previously
filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K dated July 27, 1995 and filed August 11,
1995.) IBRF
(z) 1992 Executive Stock Option Plan, as amended effective
May 24, 1995. (Incorporated by reference. Previously
filed as Exhibit 3 to the Company's Quarterly
Reparation 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.
(Incorporated 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. Superseded by
Credit Agreement November 10, 1995 filed at Exhibit
[10(ee)]. (Incorporated by reference. Previously filed
as Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995.) IBRF
(cc) Credit Agreement dated November 10, 1995 between the
Company, the Bank Parties thereto and Harris Trust and
Savings Bank, as agent. (Incorporated by reference.
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
(Incorporated by reference. Previously filed as Exhibit
10(dd) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.) IBRF
(ee) Form of Information Resources, Inc.
Directorship/Officership Agreement between the Company
and each of its directors, executive officers and
certain other officers. (Incorporated 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, 1994.) IBRF
(ff) Amendment to Credit Agreement dated November 10, 1995
between the Company, the Bank Parties thereto and
Harris Trust and Savings Bank, as agent (filed
herewith). EF
(gg) Employment Agreement dated as of August 22, 1996,
between the Company and Randall S. Smith and First
Amendment to Employment Agreement dated November 11,
1996 (filed herewith). EF
(hh) Information Resources, Inc. Amended and Restated 401(k)
Retirement Savings Plan and Trust adopted by the
Company effective May 24, 1995 (filed herewith). EF
(ii) First Amendment to the Information Resources, Inc.
Amended and Restated 401(k) Retirement Savings Plan
effective July 1, 1996 (filed herewith). EF
3
SEQUENTIAL
EXHIBIT DOCUMENT
NUMBER DESCRIPTION OF DOCUMENT FILING
------- ----------------------- ----------
(jj) Second Amendment to the Information Resources, Inc.
Amended and Restated 401(k) Retirement Savings Plan
effective March 1, 1997 (filed herewith). EF
(kk) Trust Agreement between Information Resources, Inc. and
Fidelity Management Trust. Company dated as of July 1,
1996 (filed herewith). EF
(ll) First Amendment to Trust Agreement between Fidelity
Management Trust Company and Information Resources,
Inc. effective March 1, 1997 (filed herewith). EF
21 Subsidiaries of the Registrant (filed herewith). EF
23 Consent of Independent Auditors (filed herewith). EF
23.1 Consent of Independent Certified Public Accountants
(filed herewith). EF
24 Powers of Attorney (filed herewith). EF
27 Financial Data Schedule (filed herewith). EF
4