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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999
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
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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
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 29, 2000 (based on the closing price as quoted by
NASDAQ as of such date) was $216,960,635.
The number of shares of the registrant's common stock, $.01 par value per
outstanding share, as of February 29, 2000 was 29,068,657.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the annual meeting
of stockholders to be held May 19, 2000 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 (referred to
herein as "IRI" or the "Company"), is a leading provider of universal product
code ("UPC"), scanner-based business solutions services to the consumer packaged
goods ("CPG") industry, offering services in the U.S., Europe and other
international markets. The Company supplies CPG manufacturers, retailers and
brokers with information and analysis critical to their sales and marketing
operations. IRI provides services designed to deliver value through an enhanced
understanding of the consumer to a majority of the Fortune 500 companies in the
CPG industry. IRI is also currently exploring ways of integrating the Company's
current off-line research with new on-line research capabilities for CPG clients
as well as leveraging its core capabilities outside the CPG industry.
The Company currently generates approximately 76% of its revenues from
sales and services provided in the U.S. These services center in large part
around the Company's flagship InfoScan(R) service, which tracks consumer
purchasing of products sold in grocery stores, drug stores, mass merchandisers,
convenience stores and other retail outlets across the United States. The
Company also offers a number of other services to CPG manufacturers, including
household-level information collected via consumer panels. One such service is
BehaviorScan(R) which is used for the testing and evaluation of alternative
marketing strategies and tactics for both new and established products. The
Company also offers modeling and other testing services as well as custom
analytic and consulting services to enable clients to address critical business
issues. Closely related to its information services, the Company also markets
various software applications to the CPG industry, including products based on
EXPRESS(R) technology owned by Oracle Corporation ("Oracle"). In July 1995, the
Company sold its EXPRESS technology to Oracle, while retaining certain rights to
market and distribute Oracle EXPRESS software.
The Company provides many of the same business information services in
Europe and other international markets primarily using scanner-based data.
Revenues from the Company's U.S. and International Services were as follows for
the years ended December 31 (in thousands):
1999 1998 1997
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U.S. Services......................................... $416,729 $396,992 $366,678
International Services................................ 129,544 114,331 89,649
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Total....................................... $546,273 $511,323 $456,327
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U.S. AND INTERNATIONAL SERVICES
The Company's U.S. and International Services include InfoScan product
tracking services, related delivery and software product sales, consumer panel
services, analytical and consulting services, BehaviorScan product testing
services and a variety of applications of the Company's census (i.e., all stores
within participating retail chains) scanner databases and the Company's
multi-outlet consumer panel databases.
InfoScan. The Company's principal information service marketed in the
United States and internationally 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 and promotion. IRI currently
collects this information in grocery, drug, mass merchandiser, convenience
store, club store and chain liquor outlets across the United States and is also
exploring collection in other outlets.
InfoScan utilizes data collected from UPC 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
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procures such electronic sales data along with related promotional data from a
sample of national and local market retail stores. The Company also collects
consumer purchase information directly from individual households across the
United States using proprietary in-home scanning devices and/or consumer
identification cards in a store. The consumer purchase information can be used
in a complementary fashion with InfoScan data. The Company processes the
information at its computer facilities and stores it in the Company's
proprietary databases. InfoScan subscribers access the information in the
Company's databases through a variety of means, including the use of analytical
software provided by the Company and the use of reports delivered via the
internet.
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 databases for specified product
categories. InfoScan contracts generally have multi-year terms, usually of three
years or more in the United States.
InfoScan Census. InfoScan Census applications are derived from a product
tracking service based on scanner data collected from all stores within
participating retail chains, as opposed to collection from a sample of such
stores. InfoScan Census offers the CPG industry more complete and accurate data
than sample services, since it has no sampling or projection errors, and its
applications can go beyond traditional market tracking uses. IRI is in the
process of transitioning its U.S. InfoScan core tracking service to an all
census-based projection system.
InfoScan Census revenues come primarily from manufacturers purchasing key
account data, which are sales data for a product category based on all the
stores of a specific retailer. This service enables manufacturers' sales
representatives to negotiate with retail buyers based on a mutually consistent
and accurate measure of retail product movement. 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. Beyond key account information,
census applications 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.
There are presently approximately 15,000 grocery stores, approximately
14,400 drug stores and approximately 3,300 mass merchandisers in the Company's
InfoScan Census U.S. database. The Company has also begun to develop InfoScan
Census services in certain European markets.
InfoScan Data Collection. For the Company's InfoScan sample service, the
Company continuously collects weekly product sales, price and promotional
information from representative retail outlets. Included in the Company's
national and local market samples in the U.S. are approximately 4,500 stores in
the aggregate, including grocery stores, drug stores, mass merchandisers and
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 and other retail
outlets have not. When scanner data are not available, the Company's field
personnel visit stores and obtain sales information via a manual audit of the
stores' product purchases and inventory. Collection practices for weekly product
sales information in the Company's operations in foreign countries are largely
scanner-based, though they vary somewhat on a country-by-country basis, as does
scanner data availability.
The InfoScan U.S. and international databases typically contain product
movement and price information and "causal" data. Causal data consist of
information which may explain changes in product sales, such as price
promotions, 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 full-time and 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, including those related to the Company's test marketing services and
InfoForce(TM) services.
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The Company often pays cash for scanner data covering a sample or census of
retailers' stores. However, the Company also exchanges software, product
movement information and other services to obtain access to data for all stores
within certain grocery stores, drug chains and mass merchandiser stores. The
Company provides its QScan(R) system to U.S. 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 databases of information for products sold in their stores.
The QScan system allows for the processing and analysis of scanner data from all
of the retailer's stores on a weekly basis. Current census retailer contracts
data generally have multi-year terms, usually of three or more years, cancelable
on an annual basis after one or more years with 3 to 6 months notice by either
party. Other data procurement contracts generally run year-to-year and are
cancelable at the end of each year by either party with 60 days notice.
Consumer Panel. The Company also collects consumer purchase information
via its Shoppers' Hotline(R) service from individual households it has recruited
in the United States. The Company provides approximately 55,000 of these
households with hand-held scanners to record their product purchases. Collection
via hand-held scanners enables the Company to ascertain product movement
information from a variety of outlets, including stores that do not have
scanners. In addition to the Company's multi-outlet consumer panel service, the
Company also maintains a separate consumer panel of shoppers from approximately
23,000 households in its BehaviorScan testing markets in connection with the
Company's provision of testing and analytics service. These additional
households present an identification card when shopping at participating grocery
stores, thereby allowing scanners to record specific details of their product
purchases. Household panel information is available in European markets usually
from alliance partners of the Company.
Data Processing. With respect to its operations in the U.S., Great
Britain, France, Italy, the Netherlands and Spain, the Company receives and
processes data at its production center and computer facilities located in Wood
Dale, Illinois. The Company is also in the process of transitioning data
processing in Germany from an outside vendor to its facilities in Wood Dale,
Illinois. The Company's production center operates with numerous platforms
including mainframe, UNIX and Windows NT 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 in the U.S., the Company also provides
electronic on-line access to InfoScan data services. The Company currently
leases its mainframe computers from third party financial institutions.
Data Delivery. Subscriptions to the InfoScan service entitle the Company's
clients to access the Company's databases 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 databases through the Company's on-line service. Clients taking
electronic delivery generally license software from the Company. The Company's
on-line service permits the Company to build, maintain and store
client-subscribed databases which remain resident on the Company's computers.
Clients then access the databases through remote electronic connection. Clients
may also purchase software services from the Company. (See "Software and Related
Products" below for more information on Company revenues derived from software
licensing.) In addition, the Company also provides internet delivery options,
including custom reports via a Company-hosted web site.
Other Client Services. 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 and consumer
panel data, as well as in the use of the Company's analytical software. The
Company also provides numerous analytical and consulting services to both CPG
manufacturers and retailers. 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. Revenues
from analytical and consulting services typically follow from subscriptions to
the Company's InfoScan service and principally relate to analytical use of
InfoScan and panel data. These services are generally billed on a time and
materials basis.
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Software and Related Products. In close association with its retail
tracking services around the world, the Company markets analytical software to
the CPG industry principally for use in accessing, managing and analyzing the
Company's databases. Many of the Company's U.S. and International clients use
the Oracle EXPRESS-based software application, Oracle Sales Analyzer(R), in
order to access, manage and analyze the Company's databases. Oracle EXPRESS is a
software technology designed for working with large and complex databases.
Oracle Sales 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. 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 many Oracle EXPRESS software products. The
Company typically licenses its own applications as well as Oracle Sales Analyzer
in conjunction with a client's InfoScan data subscription.
A principal source of software revenues is the provision of on-line access
services and web delivery services to InfoScan subscribers who access InfoScan
databases residing in the Company's data warehouses. Other software revenues
derive from the license of Oracle software product licenses to InfoScan
subscribers who load InfoScan data on their own computer systems and do not use
the Company's on-line services. Licenses typically require a one-time upfront
license fee upon acceptance of the software and annual maintenance payments for
support and update services thereafter. Oracle is entitled to receive royalties
on certain types of licenses granted by the Company and its distributors;
however, until July 2001, the Company is not required to pay royalties to Oracle
on licenses granted by the Company and its data affiliates to CPG end-users for
use with data provided by the Company or its data affiliates. After July 2001,
the royalty rates owed to Oracle will be subject to renegotiation between the
Company and Oracle.
The Company is in the process of moving to an open systems architecture to
provide alternative options for clients to access its databases. The open
systems architecture is expected to increase accessibility of the Company's
InfoScan data, enable compatibility with clients' existing technical
architectures, improve integration with additional data sources, and facilitate
a seamless interface with emerging Internet-based technologies. Specifically,
the Company plans to complement its existing data access architecture with an
open relational database access architecture based on commonly accepted industry
standards for database access that will enable its clients to use any of a broad
array of third-party tools and/or applications, including Open Database
Connectivity (ODBC) and Object Linking and Editing for Databases (OLE DB).
The Company also markets its proprietary Apollo Space Management System(TM)
software to CPG retailers, wholesalers, manufacturers and brokers in the United
States and internationally for use in managing retail shelf space and software
applications to facilitate enhanced uses of InfoScan data. Apollo software is
designed to assist in the management of retail shelf space, providing a range of
tools for space management and shelf execution, including assortment planning,
data integration and management, category analysis, creation of picture
schematics and web communications and access. The Company also develops and
markets other analytical software applications and technology-based consulting
services for use in the CPG industry, including tools to help clients receive,
analyze, interpret and facilitate enhanced uses of InfoScan data.
Testing Services. The Company provides a number of testing services
primarily for CPG manufacturers. These include controlled retail testing, other
in-store testing, matched market analyses and related special analyses using the
Company's InfoScan and panel databases. 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 databases.
The Company's BehaviorScan service is a test marketing system available in the
United States which enables CPG manufacturers to measure the impact of different
marketing variables on consumer purchase behavior, for both new and existing
products. Typical marketing variables tested in BehaviorScan markets 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
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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, incentive
programs for participating panel households, field personnel costs, cable
television studio operation, computer resources and client service personnel
costs.
Other Services. The Company continues to develop opportunities to leverage
its core competencies. The Company is in the process of entering into several
strategic alliances that include expanded media mix analysis, internet strategy
development and on-line business-to-business and consumer research panels. The
Company is also exploring ways of offering services to both CPG clients and new
client bases that integrate the Company's current off-line research with new
on-line research capabilities.
INTERNATIONAL BUSINESS DEVELOPMENT
Through subsidiaries and joint ventures with other leading marketing
information firms, the Company in 1992 began offering information services in a
number of countries outside of the United States. Specific services offered
depend upon local country competitive conditions and the general retailer
environment. The Company's major European subsidiaries and joint venture
companies rely on the Company's data production facilities in the United States
as well as the Company's know-how and trade secrets to provide InfoScan retail
tracking services. Production for the Company's German operation will be
transferred to the United States in late 2000.
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 market position throughout most of Europe where the
Company's expenditures to establish product tracking services over the last five
years have been most significant.
United Kingdom. The Company's subsidiary in the United Kingdom offers a
retail tracking service under the InfoScan name to the British market. Organized
in 1992 as a joint venture, the Company's initial partners were Taylor Nelson
AGB plc of the United Kingdom and GfK AG of Germany ("GfK"). The Company now
owns substantially all of the joint venture. 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. Pursuant to contractual arrangements, the Company provides data
production services to the subsidiary from the Company's computer facilities in
Wood Dale, Illinois.
France. The Company's subsidiary in France offers scanner-based tracking
services 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. Since 1994, the Company has
funded substantially all of the joint venture's capital requirements and the
Company now owns substantially all of the joint venture interests. Pursuant to
contractual arrangements, the Company provides data production services to the
subsidiary 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.
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. Pursuant to contractual arrangements, the Company provides
production services to IRI InfoScan Italy from the Company's computer facilities
in Wood Dale, Illinois.
Germany. The Company operates a retail tracking service joint venture in
Germany through a subsidiary whose minority shares are held by GfK. From 1993
through 1996, the Company owned a 15% interest in GfK Panel Services GmbH ("GfK
Panel"), then a subsidiary of GfK. During that time, GfK Panel offered both
retail and consumer panel tracking services based on consumer household panel
data, retail audit data, scanner data and provided related consulting studies.
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In February 1997, the retail tracking service and related software
businesses were put into a new joint venture company, IRI/GfK Retail Services
GmbH ("IRI/GfK Retail") in which the Company initially took a 51% ownership
interest and GfK the remainder. Effective January 1, 1999, the Company's funding
requirements per the joint venture agreement increased to 80%. Scanner data are
not available from all major retailers in Germany. The Company is in the process
of transitioning production services for IRI/GfK Retail from GfK's facilities in
Nuremberg, Germany to the Company's facilities in Wood Dale, Illinois. This
transfer is expected to result in service enhancements, as well as reduced
production costs.
In 1997, the Company sold its 15% ownership interest in GfK Panel to GfK.
GfK Panel continues to provide consumer panel and ad hoc research services to
the German market, and GfK Panel and IRI/GfK Retail cooperate in selling and
delivering services to common clients.
Benelux. The Company and GfK operate a joint venture which offers a
scanner-based retail tracking service to the Netherlands market. This
scanner-based retail tracking service became fully-operational in 1994. Until
early 1998, this joint venture was owned 80.1% by GfK and 19.9% by the Company.
In February 1998, the Company increased its ownership to 51% and took over
management responsibilities. It operates under the InfoScan name, and pursuant
to contractual arrangements, the Company provides production services to the
joint venture through the Company's computer facilities in Wood Dale, Illinois.
In 1998, the Company also sold a 9.9% interest in GfK Panel Services
Benelux B.V. and GfK Belgium S.A. reducing its ownership to 10%. Those companies
operate household panel services in the Netherlands and Belgium and continue to
cooperate with the Netherlands joint venture scanner operation in the sale and
delivery of services to common customers.
Spain. IRI began a start-up venture in Spain during April 1998. In November
1998, the Company executed a joint venture agreement with Media Planning, S.A.
to create a new retail tracking business to serve the Spanish market under the
name Information Resources Espana, S.L. ("IRI-Spain"). In January 1999,
IRI-Spain and Dympanel, S.A. signed a cooperation agreement which added
Dympanel, S.A. as a third investor in IRI-Spain. The aforementioned agreements
resulted in the Company, Media Planning, S.A., and Dympanel, S.A. currently
owning 64%, 32% and 4%, respectively, of the capital shares of IRI-Spain. IRI-
Spain began providing InfoScan service to the Spanish market in early 1999,
using the Company's production facilities in Wood Dale, Illinois.
Turkey. Until December 1998, the Company owned and operated a retail audit
business in Turkey which it acquired in 1993. Effective January 1999 the Company
contributed all of the operating assets and liabilities of its Turkish
subsidiary to a Turkish joint venture, Panel-IRI Pazar Arastirma ve Danismanlik
A.S. The business of the joint venture was discontinued in October 1999.
Greece. The Company operates a retail audit business in Greece which it
acquired in 1994. The operation includes collecting, reporting, analyzing and
interpreting national and regional sales data from retail audits.
Sweden. The Company owns an 8% interest in a joint venture formed in 1995
with GfK for the provision of scanner-based product tracking services in Sweden.
The business is managed by GfK.
Eastern Europe, Middle East and North Africa. In 1995, the Company entered
into a strategic 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 agreement, 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. In 1998 IRI acquired a 19.9%
ownership interest in MEMRB, which decreased to 16% in 1999 due to funding from
a new partner. The Company holds an option to increase its ownership interest of
MEMRB to 49%.
Asia and Australia. The Company has a wholly-owned software distribution
subsidiary and a joint venture in Japan with Tokyo-based Mitsui & Co., Ltd., to
provide software and information services, respectively, in Japan. The Company's
ownership in the joint venture, which was formed in 1995, was 60%.
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Effective May 21, 1998, Mitsui & Co., Ltd., increased its ownership to 60% and
the Company's ownership was reduced to 40%. The Company also has wholly-owned
software distribution subsidiaries in Australia and New Zealand.
Latin America. The Company has operations in certain Latin American markets
through joint ventures and subsidiaries in Venezuela, Puerto Rico and Guatemala.
The Company owns 49% 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 in Puerto Rico offers both audit-based product tracking and ad hoc
marketing research services. The Company owns 19.9% of a Guatemalan-based
company that provides research services in Central America. In addition, the
Company has distributors of its proprietary Apollo software products in Peru and
Argentina.
Canada. The Company's Canadian branch office provides software and
consultancy services to both CPG and non-CPG clients in Canada.
Mexico. The Company has a wholly-owned software distribution subsidiary in
Mexico to provide software and consultancy services to both CPG and non-CPG
clients in Mexico.
TRADEMARKS, PATENTS, LICENSES AND SOFTWARE PROTECTION
The Company is the owner of various trademarks, including InfoScan(R),
InfoScan Census(TM), InfoForce(TM), QScan(TM), IRI Software(TM), IRI
Logistics(TM), BehaviorScan(R), APOLLO(TM), CPGNetwork(TM), Attitudelink(TM),
Consumer Knowledge Suite(TM), e-Scan(TM), e-profile(TM), e-response(TM),
e-testing(TM), Shoppers' Hotline(R), Shoppers Hotline Elite(R) EZPrompt(R),
CouponScan(TM), InSite Reporting(TM), XLerate(TM), ReviewNet(TM), The
Partners(TM), Targeter(TM), PromoProphet(TM) and PromotionScan(TM). The Company
also holds certain patents relating to the targetable television technology
utilized in its BehaviorScan service. The patents expire at various dates
through 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 certain of the EXPRESS
software products in the Company's business, including rights to sublicense
software to clients of the Company. The initial term of the license is six
years. The Company also has rights to use various trademarks owned by Oracle,
including Oracle EXPRESS and Oracle Sales Analyzer. After July 2001, the royalty
rates owed to Oracle will be subject to renegotiation between the Company and
Oracle. The Company is in the process of moving to an open systems relational
database architecture to provide alternative options for clients to access its
databases. The open systems architecture is expected to increase accessibility
to the Company's InfoScan data, enable compatibility with clients' existing
technical architectures, improve integration with additional data sources, and
facilitate a seamless interface with emerging Internet-based technologies.
The Company regards its databases 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 products, services and software applications and to leverage
information delivery technologies.
WORKING CAPITAL PRACTICES
The Company invoices its information service clients in accordance with
agreed contract terms. Typical billing cycles are quarterly or monthly for
long-term contracts and payment is typically due within 30 days of receipt of
invoice. Software licenses generally require payment in full upon delivery of
software.
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The Company pays certain retailers cash in accordance with negotiated terms
for providing scanner data for use in the InfoScan service. Payments to other
vendors are normally made in accordance with vendor terms.
CUSTOMERS
The Company had approximately 2,900, 2,400 and 2,300 clients using its
information services in 1999, 1998 and 1997, respectively. Most 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 clients
accounted for approximately 33% of the Company's 1999 revenues.
BACKLOG ORDERS
At December 31, 1999, 1998 and 1997, the Company had committed contract
revenues for information services of approximately $507 million, $392 million
and $335 million, respectively. Backlog revenue to be earned in the immediate
year following December 31, 1999, 1998 and 1997 is $228 million, $200 million
and $191 million, respectively. Contracts generally have terms of three to five
years and not less than one year. 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. Committed
contract revenues include only the non-cancelable portion of a contract.
Variations in the backlog relate to the timing of certain contract renewals and
expirations.
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. 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: quality, reliability, timeliness and
comprehensiveness of analytical services and data provided; flexibility and
innovation in tailoring services to client needs; experience; the capability of
technical and client service personnel; data processing and decision support
software; reputation and price.
Competitive factors played a role in the loss of certain clients in 1998
and 1999. The Company anticipates offsetting this impact through new product and
service offerings including new strategic initiatives, and is focusing on
expanding its current client base. There can be no assurances as to whether or
not the Company will suffer further client losses. Due to the relatively high
fixed cost nature of the Company's database operation, any further erosion in
its revenue base could have a significant impact on profitability.
RESEARCH AND DEVELOPMENT
The Company is continuously developing new products and services. In this
regard, the Company is actively engaged in research and development of new
database analyses and applications, software applications and services and data
delivery systems. Expenditures for research and development for the years ended
December 31, 1999, 1998 and 1997 approximated $24.2 million, $25.9 million and
$21.3 million, respectively. All research and development expenditures were
expensed as incurred.
PERSONNEL
At December 31, 1999, the Company had approximately 4,400 full-time and
2,700 part-time employees worldwide. 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.
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ITEM 2. PROPERTIES
The Company markets and provides its information services and software
support services to U.S. clients from full-service sales offices in San
Francisco and Los Angeles, California; Norwalk, Connecticut; Atlanta, Georgia;
Minneapolis, Minnesota; Fairfield, New Jersey; Winston-Salem, North Carolina;
Cincinnati, Ohio; Fort Washington, Pennsylvania as well as from its corporate
headquarters in Chicago, Illinois and software development headquarters in
Waltham, Massachusetts. The Company markets to international clients through
subsidiaries, joint ventures and/or offices in Australia, Belgium, Canada,
Cyprus, France, Germany, Guatemala, Greece, Italy, Japan, Mexico, the
Netherlands, New Zealand, Puerto Rico, Spain, Sweden, United Kingdom and
Venezuela as well as 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 72,000
Wood Dale, IL................................ Computer facilities 45,000
Regional sales and client service offices.... Sales, client service and analysis 243,000
International offices........................ Sales, client service, computer facilities
and professional staff 249,000
Data collection facilities................... Data collection and client test market
control, cable TV studio facilities,
warehouse 125,000
ITEM 3. LEGAL PROCEEDINGS
On July 29, 1996, IRI filed an action against The Dun & Bradstreet Corp.,
The A.C. Nielsen Company (now a subsidiary of ACNielsen) and IMS International,
Inc. (collectively, "the Defendants") 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. Sections 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 the 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/bundling 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 the Defendants' anti-competitive practices and to
recover damages in excess of $350 million, prior to trebling.
On January 15, 1999, IRI filed an action against Manugistics, Inc.
("Manugistics") in the Circuit Court of Cook County, Illinois, Case No. 99 L
00599. In Count I of its two count action, IRI has alleged that Manugistics has
breached a Data Marketing and Guaranteed Revenue Agreement between IRI and
Manugistics ("Agreement") by failing to pay certain amounts due to IRI
thereunder. The Agreement was entered into by IRI and Manugistics in connection
with the sale by IRI to Manugistics of certain assets relating to the
manufacture, sale and servicing of certain logistics software. IRI has also
alleged that Manugistics committed an anticipatory breach of the Agreement with
respect to certain other amounts not yet due thereunder. IRI now seeks damages
in excess of $15.0 million in connection with these claims. In Count II, IRI has
alleged that Manugistics breached a related Non-Competition and Non-Solicitation
agreement between IRI and Manugistics (the "Non-Competition Agreement"). IRI
seeks unspecified damages to be
9
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determined at trial under this count. On March 2, 1999, Manugistics filed a
Motion to Stay Proceedings and Compel Arbitration. IRI agreed to arbitrate all
claims related to the Agreement and filed an arbitration demand before the
American Arbitration Association on July 9, 1999. IRI's claims against
Manugistics for breach of the Non-Competition Agreement remain pending before
the Circuit Court. Manugistics denies that it owes IRI any damages, claiming a
failure of consideration. IRI vigorously disputes this assertion.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
POSITION WITH COMPANY
NAME AGE AND BUSINESS EXPERIENCE
- ---- --- -----------------------
Joseph P. Durrett.......................... 54 Chairman of the Board of Directors, Chief Executive
Officer and President of the Company since May
1999. President and Chief Executive Officer of
Broderbund Software, Inc. from October 1996 to
December 1998. Member of the Board of Directors of
Broderbund Software, Inc. from October 1996 to
September 1998. President, Chief Operating Officer
and Director of Advo, Inc. from September 1992 to
July 1996. Member of the Board of Directors of
Children's Miracle Network since 1990.
Andrew G. Balbirer......................... 45 Executive Vice President and Chief Financial
Officer of the Company since February 2000. Chief
Executive Officer of Arkidata Corporation from
October 1999 until February 2000. Independent
Consultant from April 1998 to October 1999.
Executive Vice President and Chief Operating
Officer of Metz Baking Company (a division of
Specialty Foods Corporation) from February 1996 to
April 1998. Chief Executive Officer of Mother's
Cake & Cookie Company (a division of Specialty
Foods Corporation) from July 1995 to February 1996.
Chief Financial Officer of Specialty Foods
Corporation from February 1995 to February 1996.
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POSITION WITH COMPANY
NAME AGE AND BUSINESS EXPERIENCE
- ---- --- -----------------------
Edward C. Kuehnle.......................... 46 Group President of IRI North America since November
1999. Division President of Customer Sales and
Service from October 1998 to November 1999. Vice
President of Sales of Pharmacia & Upjohn Consumer
Healthcare from January 1998 to September 1998.
Manager of Strategic Services Group of Coopers &
Lybrand Consulting, LLP from January 1997 to
January 1998. Senior Vice President of Consumer &
Medical Sales of Whitehall Robins Healthcare (a
division of American Home Products Corp.) from July
1995 to October 1996. Executive Vice President of
Marketing & Sales of American Home Foods (a
division of American Home Products Corp.) from July
1994 to July 1995. Senior Vice President of Sales
of American Home Foods from July 1993 to July 1995.
Prior to July 1993, Mr. Kuehnle served in various
senior management sales, marketing, and supply
chain positions at Bristol-Myers Squibb Company.
Timothy Bowles............................. 56 Group President of International Operations of the
Company since May 1999. President of European
Operations from May 1995 to May 1999. Chief
Executive Officer of The MRB Group (a division of
WPP Group, plc, an international research supplier)
from 1987 to May 1995.
Rick Kurz.................................. 59 Division President of Strategic Business
Development and Planning for the Company since June
1999. Chief Strategic Growth Officer and Senior
Vice President of Advo, Inc. from August 1997 to
June 1999. Chief Marketing Officer and Senior Vice
President of Advo, Inc. from April 1994 to July
1997.
Monica M. Weed............................. 39 Executive Vice President and General Counsel of the
Company since November 1998; Corporate Secretary
since February 2000; Assistant Secretary from May
1993 to February 2000; Senior Vice President and
Assistant General Counsel of the Company from
December 1994 to November 1998; Vice President of
the Company from prior to March 1994 to December
1994.
Sheri L. Huston............................ 39 Senior Vice President, Chief Accounting Officer and
Controller of the Company since April 1999. Senior
Vice President of IRI North America Business Group
of the Company with responsibility for Finance from
August 1995 to April 1999. Vice President of
Finance for the Company from early 1993 to August
1995.
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.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER'S MATTERS
The Company's Common Stock has 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
- -------- ------- -------
1998
1st quarter............................................... $16.250 $12.750
2nd quarter............................................... 19.188 15.750
3rd quarter............................................... 19.250 9.750
4th quarter............................................... 13.000 6.938
1999
1st quarter............................................... $11.000 $ 6.438
2nd quarter............................................... 9.628 6.875
3rd quarter............................................... 11.750 7.688
4th quarter............................................... 12.000 8.125
The last sale price on February 29, 2000 was $7.813 per share. As of
February 29, 2000 there were 1,681 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 revolving credit facility and certain lease agreements which limit
the payment of dividends and the purchases or redemption of Common Stock. (See
Note 9 of the Notes to the Consolidated Financial Statements.)
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ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
HISTORICAL RESULTS OF OPERATIONS(1)
Revenue........................................... $546.3 $511.3 $456.3 $405.6 $399.9
====== ====== ====== ====== ======
Restructuring and other charges(2) (3)............ (24.8) -- -- (4.8) (22.8)
====== ====== ====== ====== ======
Defined contribution plan expense(4).............. (7.9) -- -- -- --
====== ====== ====== ====== ======
Operating profit (loss)........................... (32.6) 7.0 14.8 (5.1) (54.9)
====== ====== ====== ====== ======
Net gain (loss) on sale of assets(5).............. -- -- -- (4.6) 41.1
====== ====== ====== ====== ======
Net earnings (loss)............................... $(18.4) $ 3.8 $ 7.7 $ (7.6) $(11.7)
====== ====== ====== ====== ======
Net earnings (loss) per common share -- basic..... $ (.66) $ .13 $ .27 $ (.27) $ (.43)
====== ====== ====== ====== ======
Weighted average common shares -- basic........... 28.0 28.6 28.5 27.8 27.0
====== ====== ====== ====== ======
Net earnings (loss) per common and common
equivalent share -- diluted..................... $ (.66) $ .13 $ .26 $ (.27) $ (.43)
====== ====== ====== ====== ======
Weighted average common and common equivalent
shares -- diluted............................... 28.0 29.0 29.1 27.8 27.0
====== ====== ====== ====== ======
BALANCE SHEET DATA(1)
Total assets...................................... $368.5 $369.3 $366.6 $334.5 $338.5
====== ====== ====== ====== ======
Working capital................................... (11.1) 5.2 24.9 34.6 44.4
====== ====== ====== ====== ======
Long-term debt.................................... 10.8 4.6 .6 7.9 3.8
====== ====== ====== ====== ======
Stockholders' equity.............................. $225.0 $238.5 $241.5 $226.3 $229.8
====== ====== ====== ====== ======
Book value per common share....................... $ 7.74 $ 8.56 $ 8.41 $ 8.12 $ 8.33
====== ====== ====== ====== ======
Dividends paid per common share................... -- -- -- -- --
====== ====== ====== ====== ======
ADDITIONAL FINANCIAL INFORMATION(1)
Deferred data procurement costs................... $130.2 $120.5 $111.8 $ 98.0 $ 96.8
====== ====== ====== ====== ======
Capital expenditures.............................. 31.1 33.7 34.4 18.8 24.5
====== ====== ====== ====== ======
- ---------------
(1) In February 1997, the Company and GfK formed a new company, IRI/GfK Retail,
of which the Company has a 51% ownership interest. IRI/GfK Retail purchased
the German retail tracking business of GfK Panel. Effective January 1, 1999,
the Company's funding requirements per the joint venture agreement increased
to 80%.
In November 1998, the Company executed a joint venture agreement relating to
the newly formed start-up venture in Spain ("IRI-Spain"), resulting in a 60%
ownership interest. The Company currently owns 64% of IRI-Spain.
In February 1998, the Company increased its ownership from 19.9% to 51% in a
joint venture which offers a retail tracking service to the Netherlands
market. In addition, effective May 21, 1998, the Company reduced its
ownership of Information Resources Japan, Ltd. from 60% to 40%.
The consolidation of the various international entities above did not have a
material impact on the consolidated financial results or position of the
Company.
(2) In December 1999, the Company recorded a $19.7 million charge relating to
its restructuring program and a $5.1 million charge resulting from asset
impairments, primarily goodwill at IRI/GfK Retail. (See Notes 1 and 4 of the
Notes to Consolidated Financial Statements)
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(3) The $4.8 million other charge in 1996 principally related to the disposal of
certain cable TV advertising cut-in equipment originally developed for use
in the Company's market testing operation. Other charges in 1995 included a
$12.4 million write-down of assets, principally related to European deferred
data procurement costs, to net realizable value and a $10.4 million charge
principally related to a U.S. facility closing.
(4) In December 1999, the Company adopted the Information Resources, Inc.
Nonqualified Defined Contribution Plan (the "Plan). In December 1999, the
Company made an irrevocable contribution of 877,000 shares of IRI common
stock to the Plan trust, resulting in the $7.9 million charge above which
represents the fair market value of the common stock contribution (see Note
1 of the Notes to Consolidated Financial Statements).
(5) 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 sold to Oracle certain assets, liabilities and related software
application products of its software products business, resulting in a $41.1
million gain.
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 in a very competitive market. The revenue increases have primarily been
achieved through the offering of new products and services, some price increases
and the net effect of client gains and losses. The effect of client gains and
losses have a somewhat delayed effect on reported revenues in the Company's
consolidated financial statements. This lagging effect is due to the long-term
nature of many contracts and the fact that only a portion of such contracts come
up for renewal and therefore are subject to competitive bidding in any
particular year. In addition, because of the relatively high fixed-cost
component of the Company's database operations, small variations in revenue can
have a significant impact on profitability.
In 1992, the Company began introducing its InfoScan tracking service into
Europe. Due to the inherent fixed cost nature of the business and the alleged
anticompetitive business practices and tactics of its major competitor,
ACNielsen, operating losses from the International Services business have been
significant to date. In December 1996, ACNielsen signed a three-year Undertaking
to the European Commission agreeing to halt numerous contractual practices which
the Company believes had hampered the Company's participation in European
markets. During the period that the Undertaking was in effect, the Company
believes that clients have benefitted 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 was removed. The Company's International losses are declining as
revenues have increased in each of the Company's major European countries.
Operations: Consolidated revenues in 1999 increased 6.8% over 1998 while
1998 revenues were 12.1% higher than 1997. 1999 net earnings (loss) were ($18.4)
million ($1.2 million before defined contribution plan expense and restructuring
and other charges), compared to net earnings of $3.8 million in 1998 and $7.7
million in 1997.
The Company considers the aggregation of operating profit (loss), equity
earnings (losses) and minority interests ("Operating Results"), on a geographic
basis to be a meaningful measure of the Company's
14
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operating performance. A comparative analysis of consolidated revenues and
operating results for the years ended December 31, 1999, 1998 and 1997 follows
(in thousands):
1999 1998 1997
-------- -------- --------
Revenues:
U.S. Services....................................... $416,729 $396,992 $366,678
International Services.............................. 129,544 114,331 89,649
-------- -------- --------
Total....................................... $546,273 $511,323 $456,327
======== ======== ========
Operating Results:
U.S. Services....................................... $ 25,672 $ 31,515 $ 38,613
International Services
Operating loss................................... (13,709) (15,689) (19,920)
Minority interests benefit (expense)............. 4,256 342 (304)
Equity in earnings of affiliated companies....... 205 443 444
-------- -------- --------
Subtotal -- International Services.......... (9,248) (14,904) (19,780)
Corporate and other expenses........................ (11,848) (8,856) (3,926)
Restructuring and other charges..................... (24,755) -- --
Defined contribution plan expense................... (7,931) -- --
-------- -------- --------
Operating Results........................... $(28,110) $ 7,755 $ 14,907
======== ======== ========
Revenues from the Company's U.S. services business in 1999 were 5.0% higher
than in 1998, while revenues in 1998 increased 8.3% over 1997. The 1999 revenue
increases were primarily due to expanded use of the Company's services and
products from its existing clients, particularly its retailer specific and panel
databases, as well as a full year of revenue from significant new clients won in
1998. Revenue growth in 1999 was dampened during the year by the effect of
certain client losses, representing approximately 4% of 1998 U.S. services
revenue. Certain client decisions to not renew business with IRI had only a
partial or no effect on IRI in 1999 because the termination dates for such
contracts occurred late in 1999 or will occur in 2000. The impact on 2000 of
these client losses is expected to be about 8% of 1999 U.S. Services revenues.
1998 revenue increases are also attributed to expanded use of the Company's
products and services from existing clients as U.S. market share remained
relatively unchanged from 1997 to 1998.
U.S. operating results before restructuring and other charges and defined
contribution plan expense decreased 18.5% in 1999 due to the 7.0% increase in
expenses outpacing the 5% increase in revenues. The 1999 expense increase was
driven by higher compensation costs and technical consultants used for Y2K and
other development activities, costs of the multi-outlet panel expansion and
costs of movement data for new categories and channels. During the third quarter
of 1999, the Company initiated a comprehensive program named "Project Delta" to
improve productivity and operating efficiencies, which are expected to result in
savings in certain expense categories in 2000 and future periods.
Total International Services revenues in 1999 increased 13.3%, 18% in local
currency, over 1998. Revenues in 1999 reflect the benefit of the November 1998
startup of IRI's majority-owned Spain operation, IRI-Spain. Operating results
for the Company's International businesses were a ($9.2) million loss before the
$4.2 million writeoff of the goodwill related to the German operation in 1999,
38.2% better than the ($14.9) million loss in 1998. The improved International
operating results were principally due to continuing revenue growth of the
Company's major European services, primarily France, the U.K. and Italy. The
International operating results were a ($14.9) million loss in 1998 compared to
a ($19.8) million loss in 1997. The 1998 reduced international losses are
principally due to continued revenue increases in each of the Company's major
European countries.
Corporate and other expenses increased in 1999 and 1998 over prior years
due to higher legal expenses attributable to the Company's antitrust lawsuit
against the Dun and Bradstreet Corporation, ACNielsen Company and IMS
International, Inc., and increased compensation expense in 1998 primarily
related to severance and recruiting costs.
15
17
Year Ended December 31, 1999: Consolidated net losses were $18.4 million
in 1999 compared to net earnings of $3.8 million in 1998. Results in 1999
reflect the $19.6 million after tax effect of: restructuring, other charges, and
the defined contribution plan expense. (See further discussion of restructuring
charges on page 18.) In addition, the results reflect a decrease in operating
earnings in the Company's U.S. business caused by increased employee related
expenses, the multi-outlet panel expansion, Y2K related activities and costs of
new movement data for new categories.
Consolidated revenues increased 6.8% to $546.3 million in 1999. Revenues in
1999 reflect strong market share growth in Europe, specifically in the U.K.,
France and Italy. Revenue growth of 5% in the U.S. came from the expanded use of
the Company's products and services from existing accounts and the annualized
impact of accounts won in 1998, offset by the loss of certain accounts in late
1998 and 1999.
Consolidated cost of information services sold increased by $41.0 million,
or 9.1% to $491.2 million in 1999. Major components of the 1999 increase
included: (a) a $17.2 million increase in compensation expense resulting
primarily from salary and incentive pay increases in the U.S. and growing
European operations; (b) an $8.1 million increase in the amortization of
deferred data procurement costs, principally resulting from expansion of
information services businesses in Europe; and (c) a $7.0 million increase in
operating expenses due to field costs associated with category and channel
expansions.
Consolidated selling, general and administrative expenses increased by $.8
million or 1.5% to $54.9 million for 1999. This increase was primarily
attributable to a $2.9 million increase in legal expenses related to the
Company's antitrust lawsuit against The Dun and Bradstreet Corporation,
ACNielsen Company and IMS International, Inc. The case is currently in the
discovery phase, and the Company anticipates that it will continue to incur a
high level of legal expenses as the case continues to progress toward trial. The
increased legal fees in 1999 were offset by a reduction in costs principally
related to severance, training and recruiting costs as compared to 1998.
Defined contribution plan expense and restructuring and other charges are
discussed on pages 20 and 18, respectively.
Interest and other expenses were $1.5 million for 1999 compared to $1.2
million in 1998. The increase in 1999 is due to a combination of increased
interest rates and bank borrowings as well as foreign currency losses. The
Company's 1999 income tax benefit was higher than the income tax rates computed
using the U.S. Federal statutory rate primarily due to the effects of state
income taxes.
Year Ended December 31, 1998: Consolidated net earnings were $3.8 million
in 1998 compared to net earnings of $7.7 million in 1997. Results in 1998
reflected a decrease in operating earnings in the Company's U.S. business caused
by increased employee related expenses and data collection costs.
Consolidated revenues increased 12.1% to $511.3 million in 1998. Revenues
in 1998 reflected strong market share growth in Europe, specifically in the
U.K., France and Italy. Revenues in 1998 also benefitted somewhat from the
inclusion of the Company's majority-owned operations in the Netherlands,
effective February 1, 1998.
Consolidated cost of information services sold increased by $48.4 million,
or 12.0%, to $450.2 million in 1998. Major components of the 1998 increase
included: (a) a $26.8 million increase in compensation expense resulting
primarily from salary increases in the U.S. and growing European operations; (b)
a $10.5 million increase in the amortization of deferred data procurement costs,
principally resulting from expansion of information services businesses in
Europe; and (c) a $5.8 million increase in operating expenses due to the 1998
consolidation of the Netherlands operation.
Consolidated selling, general and administrative expenses increased by
$14.4 million or 36.4% to $54.1 million for 1998. This increase was primarily
attributable to recruiting, training and severance costs relating to the
reorganization of the Company's U.S. sales, marketing and other operating
functions, legal expenses in the U.S., and worldwide increases in other general
expenses, including compensation. Increased legal expenses relate to the
Company's antitrust lawsuit against The Dun and Bradstreet Corporation,
ACNielsen Company and IMS International, Inc.
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18
Interest and other expenses were $1.2 million for 1998 compared to $.5
million in 1997. The increase in 1998 is due to increased bank borrowings during
1998 primarily resulting from the Company's purchases of Common Stock. The
Company's 1998 income tax expense was higher than the income tax expense
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 Company's current cash resources include its $8.1 million consolidated
cash balance and $50.0 million available under the Company's bank revolving
credit facility. The Company anticipates that it will have sufficient funds from
these sources and internally generated funds from its U.S. operations to satisfy
its cash needs for the foreseeable future. The Company's bank credit agreement
contains covenants which restrict the Company's ability to incur additional
indebtedness.
Cash Flow for the Year Ended December 31, 1999: Consolidated net cash
provided by operating activities was $157.7 million for the year ended December
31, 1999 compared to $159.8 million in 1998. While earnings were lower in 1999,
operating cash flow in 1999 reflected higher non-cash items, amortization and
depreciation, than in 1998. The increase in non-cash elements of operating
expense was offset by an increase in accounts receivable. The Company
implemented in the U.S. a new revenue and billing system in the fourth quarter
of 1999 and expects to improve its accounts receivable position in the near term
as the new system and processes are absorbed by the organization. Consolidated
cash used in net investing activities was ($165.2) million in 1999 compared to
($161.1) million in 1998. Investing activity in 1999 reflects higher
expenditures for data procurement partially offset by lower capital
expenditures. Net cash provided (used) before financing activities was ($7.5)
million in 1999 and ($1.2) million in 1998 primarily due to the higher investing
activities in 1999. Consolidated cash provided (used) by net financing
activities was $5.9 million in 1999 compared to ($8.7) million in 1998. The
Company borrowed $7.0 million under its revolving line of credit during 1999 and
during 1999 purchased $1.2 million of the Company's stock under its stock
purchase plan compared to borrowings of $3.0 million in 1998 and $20.2 million
of stock purchases in 1998.
Cash Flow for the Year Ended December 31, 1998: Consolidated net cash
provided by operating activities was $159.8 million for the year ended December
31, 1998 compared to $151.4 million in 1997. While earnings were lower in 1998,
operating cash flow in 1998 contained greater amortization and depreciation
elements than in 1997. Consolidated cash used in net investing activities was
($161.1) million in 1998 compared to ($147.6) million in 1997. Investing
activity in 1998 reflects higher expenditures for data procurement and software
development. Net cash provided (used) before financing activities was ($1.2)
million in 1998 and $3.8 million in 1997 primarily due to higher investing
activities in 1998. Consolidated cash provided (used) by net financing
activities was ($8.7) million in 1998 compared to $6.4 million in 1997. The
Company borrowed $3.0 million under its revolving line of credit during 1998 and
during 1998 purchased $20.2 million of the Company's stock under its stock
purchase plan.
Financings: On February 9, 2000, the Company amended its $60 million bank
revolving credit facility to revise certain financial covenants and other terms
and conditions of the agreement. The amended facility has floating rate options
at or below prime and commitment fees of up to .35% payable on the unused
portion. The weighted average interest rate at December 31, 1999 was 6.53%.
The financial covenants in the bank credit agreement, as well as in the
lease agreement for the Company's Chicago headquarters, require the Company to
maintain a minimum tangible net worth and to meet certain cash flow coverage and
leverage ratios. The agreements also limit the Company's ability to declare
dividends or make distributions to holders of capital stock, or redeem or
otherwise acquire shares of the Company. Approximately $15.4 million is
currently available for such distributions under the most restrictive of these
covenants. The bank credit agreement contains covenants which restrict the
Company's ability to incur additional indebtedness.
Common Stock Purchase Plan: In November 1997 the Company's Board of
Directors approved a plan to purchase up to two million shares of the Company's
Common Stock from time to time in the open market. Purchases under the plan are
subject to a number of considerations including the market price of the
17
19
Company's Common Stock and general market conditions. As of December 31, 1999,
the Company had purchased and retired 2,000,000 shares under the plan at an
average cost of $12.19 per share of which 138,200 shares were purchased during
1999 at an average cost of $8.87 per share and 1,442,600 shares were purchased
during 1998 at an average cost of $11.96 per share.
Other Deferred Costs: Consolidated deferred data procurement expenditures
were $130.2 million, $120.5 million and $111.8 million for the years ended
December 31, 1999, 1998 and 1997, 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 Company's database. The
increase in deferred data procurement expenditures was primarily related to the
expansion of the Company's International services business and increased
retailer payments in the U.S. Deferred data procurement expenditures for the
Company's U.S. services business were $80.7 million, $76.9 million and $71.7
million for the years ended December 31, 1999, 1998 and 1997, respectively. The
Company's International services business deferred data procurement expenditures
were $49.5 million, $43.6 million and $40.1 million for the years ended December
31, 1999, 1998 and 1997, respectively.
NOL & Tax Credit Carryforwards: As of December 31, 1999, the Company had
cumulative U.S. federal taxable net operating loss ("NOL") carryforwards of
$74.1 million which expire primarily in 2009 and 2011. At December 31, 1999 the
Company also had U.S. tax credit carryforwards of $8.3 million, $7.2 million of
which expire between 2000 and 2012, and the remainder of which can be carried
forward indefinitely. Certain of these carryforwards have not been examined by
the Internal Revenue Service and, therefore, are subject to potential
adjustment.
In addition, at December 31, 1999, various foreign subsidiaries of IRI had
aggregate foreign taxable NOL carryforwards of $9.2 million. Approximately $4.0
million of these NOL's may be carried forward indefinitely, while the remaining
$5.2 million expire between 2001 and 2004.
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 in such agreements.
RESTRUCTURING CHARGES
Project Delta: In the third quarter of 1999, the Company initiated a
comprehensive program named Project Delta, the objective of which is to improve
productivity and operating efficiencies to reduce the Company's on-going cost
structure in its U.S. operations. The first phase of Project Delta included the
identification and assessment of potential operating efficiencies in the
Company's various U.S. functional areas and was completed in the fourth quarter
of 1999. The cost reduction program implementation will begin in early 2000 and
the Company expects that annualized cost savings in certain expenses of at least
$15 million will be achievable in the U.S. operations by the end of 2000. As a
result of these planned initiatives, the Company recorded a restructuring charge
of $19.7 million ($11.8 million after tax) in the fourth quarter of 1999. The
key components of this charge include (i) severance related to planned staff
reductions of approximately 10%, or 325, of the Company's full-time U.S. and
Corporate employees; (ii) asset write-offs related to unprofitable activities
that will be discontinued; and (iii) the disposition of excess office space.
18
20
For 1999, the pre-tax restructuring charges included in Restructuring and
Other Charges in the Statement of Operations consists of the following (in
thousands):
1999 ACTIVITY
TOTAL ------------------ DECEMBER 31, 1999
CHARGES CASH NON-CASH ACCRUAL
------- ------ -------- ------------------
Termination benefits.............................. $ 8,391 $ -- $ -- $8,391
Asset write-offs related to discontinued
activities...................................... 8,631 -- 8,631 --
Disposition of excess office space................ 1,498 -- 1,004 494
Other costs of project............................ 1,130 1,130 -- --
------- ------ ------ ------
$19,650 $1,130 $9,635 $8,885
======= ====== ====== ======
Termination Benefits: The Company recorded a charge of $8.4 million for
termination benefits covering 325 full-time U.S. business and Corporate
employees. As of December 31, 1999, the Company has communicated the termination
plan and benefits to all of its affected employees. Expected terminations impact
virtually all areas of the U.S. business including operations, client services,
technology and marketing, as well as Corporate headquarters. Virtually all
termination benefits will be disbursed subsequent to December 31, 1999 and prior
to December 31, 2000.
Asset Write-offs Related to Discontinued Activities: The Company wrote off
$8.6 million of assets related to discontinued activities of the U.S. business.
This charge consists of $4.8 million and $3.8 million relating to certain of the
Company's trade promotion software applications and Card Panel database assets,
respectively.
Based on discounted future cash flow estimates, the Company decided to
discontinue all selling activities relating to its internally developed trade
promotion software. As a result of this decision, the net book value of the
trade promotion software assets were written off in the fourth quarter of 1999.
The Company's consumer panel business had consisted of 55,000 households
that utilize hand-held scanners to record their product purchases
("Multi-outlet") and shoppers from approximately 60,000 households that present
an identification card when shopping at participating grocery stores ("Card
Panel"). In 1999, the Company determined that the need for a Multi-outlet panel
was becoming the minimum standard for panel tracking services. As a result, the
Company decided to continue to expand its Multi-outlet panel and eliminate the
separate Card Panel service. The net book value of the Card Panel database was
written off in the fourth quarter of 1999. The Company continues to collect
consumer panel information from approximately 23,000 households in the Company's
BehaviorScan markets via an identification card for use in connection with the
Company's testing and analytics service in the U.S.
Disposition of Excess Office Space: As a result of planned headcount
reductions and space not currently utilized, the Company has decided to vacate
certain facilities. The Company recorded $1.5 million of charges relating to
office rent and accelerated depreciation on certain fixed assets associated with
these facilities in the fourth quarter of 1999. The majority of the excess space
was related to contraction of the U.S. business headcount.
Other Costs of Project Delta: As part of the Project Delta initiative, the
Company hired the Boston Consulting Group ("BCG") to provide assistance in the
identification and execution of the project objectives. The Company paid $1.1
million in the fourth quarter relating to services rendered by BCG.
Future Restructuring Charges: As a result of Project Delta, the Company
anticipates that it will continue to incur restructuring charges for items that
could not be accrued under EITF Issue No. 94-3 and as a result of future
restructuring plans. The Company also expects it will commence restructuring its
information technology processes and its International operations during the
course of 2000. Although the Company cannot yet estimate the amount of
restructuring costs for these future restructuring programs, the Company does
expect to incur additional costs in 2000 of $14 million to $16 million relating
to the first phase of Project Delta which could not be accrued as of December
31, 1999.
19
21
OTHER CHARGES
Asset Impairment: During 1999 the Company determined, based on an analysis
of undiscounted future cash flows, that goodwill relating to IRI/GfK Retail was
impaired, resulting in a $4.2 million charge which was included in Restructuring
and Other Charges in the Statement of Operations. The Company made a decision in
the fourth quarter of 1999 to transfer production of IRI/GfK Retail from an
external vendor in Germany to the U.S. headquarter facility in order to enhance
its InfoScan offering in Germany and to reduce future production costs. This
decision requires funding in 2000 of approximately $4 million. Additional asset
impairment charges totaled $.9 million in the fourth quarter of 1999.
Nonqualified Defined Contribution Plan: In December 1999, the Company
adopted the Information Resources, Inc. Nonqualified Defined Contribution Plan
(the "Plan"). The Plan was designed to provide designated employees of the
Company with an ownership interest in the equity of IRI in order to align the
interests of those employees with the interests of IRI shareholders and
compensate employees for their past performance. In December 1999, as part of
the Plan, the Company made an irrevocable contribution of 877,000 shares of IRI
common stock to the Plan trust; all shares have been fully allocated to each
individual participant's account. This has resulted in the Company recording an
expense of $7.9 million in the fourth quarter of 1999 which represents the fair
market value of the common stock contribution. The shares of common stock will
vest and generally be distributable on the fourth anniversary of the date upon
which such shares are allocated to the participant's account if the
participant's employment with the Company has not been terminated, with certain
exceptions for termination of employment due to retirement, disability, death or
change in control. Forfeited shares will remain in the Plan and be reallocated
to other participants. Of the $7.9 million expensed in the fourth quarter, $5.5
million, $2.1 million and $0.3 million relate to the U.S. Services,
International Services, and Corporate segments of the business, respectively.
YEAR 2000 ISSUES
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of its planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout the Year 2000 to be prepared
to promptly address any latent Year 2000 matters that may arise. The total cost
associated with the Company Y2K assessment and remediation efforts from 1998
through December 1999 were $6.5 million, of which $4.5 million was spent in
1999.
EUROPEAN CURRENCY CONVERSION ISSUES
In accordance with the 1992 treaty of the European Union, on January 1,
1999, a new single European currency, the Euro, became legal tender. The Euro
will replace the sovereign currencies ("legacy currencies") of the eleven
initial members of the European Union ("participating countries"). On this date,
fixed conversion rates between the Euro and the legacy currencies in those
particular countries were established.
As the Company has operations in several of the participating countries, it
will be affected by issues surrounding the introduction of and transition to the
Euro. The Company's European Executive Committee is charged with formulating and
executing all aspects of the Company's plan concerning the conversion to the
Euro.
The Company does not expect the cost of any system modifications to be
material or result in any material increase in transaction costs. The Company
will continue to evaluate the impact of the Euro, however, based on currently
available information, management does not believe the introduction of the Euro
will have a material adverse impact on the Company's financial condition or
overall trends in results of operations.
20
22
FORWARD LOOKING INFORMATION
All statements other than statements of historical fact made in this Annual
Report on Form 10-K are forward looking. In particular, statements regarding
industry prospects, our future results of operations or financial position, and
statements preceded by, followed by or that include the words "intends,"
"estimates," "believes," "expects," "anticipates," "should," "could," or similar
expressions, are forward-looking statements and reflect our current expectations
and are inherently uncertain. The Company's actual results may differ
significantly from our expectations for a number of reasons, including risks and
uncertainties relating to customer renewals of service contracts, the timing of
significant new customer engagements, the success of implementing its Project
Delta, competitive conditions, the potential for future client losses, changes
in client spending for the non-contractual services the Company offers, the
release of chain-specific data by European retailers, foreign currency exchange
rates, European currency conversion issues and other factors beyond the
Company's control. These risks and uncertainties are described herein and in
reports and other documents filed by the Company with the Securities and
Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Rates: The Company operates and conducts business
in several foreign countries, primarily Europe, and as a result is exposed to
movements in foreign exchange rates. Exchange rate movements upon consolidation
of the foreign subsidiaries for which the functional currency is not the U.S.
dollar could impact the Company's revenues, expenses and equity. The Company's
net earnings are also exposed to exchange rate movements relating to certain
intercompany transactions between the U.S. and foreign subsidiaries. The Company
does not use derivative financial instruments to manage changes in foreign
currency exchange rates.
Interest Rate Risk: A 1% fluctuation in interest rates would not have a
significant impact on the operating results of the Company.
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.............................. 22
Consolidated Balance Sheets at December 31, 1999 and 1998... 23
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... 24
Statement of Changes in Stockholders' Equity and
Comprehensive Income for the years ended December 31,
1999, 1998 and 1997....................................... 25
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... 26
Notes to Consolidated Financial Statements.................. 27
(b) Supplementary Data
Summary of Quarterly Data................................... 42
Financial statement schedule is included on page 46 preceding the signature
pages of this report (see Item 14).
21
23
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Information Resources, Inc.
We have audited the accompanying consolidated balance sheets of Information
Resources, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, changes in stockholders' equity
and comprehensive income and cash flows for each of the three years in the
period ended December 31, 1999. Our audits 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
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. 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 9, 2000
22
24
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
--------------------
1999 1998
--------- --------
(IN THOUSANDS)
CURRENT ASSETS
Cash and cash equivalents................................. $ 8,077 $ 11,149
Accounts receivable, net.................................. 94,125 87,637
Prepaid expenses and other................................ 8,569 9,223
--------- --------
Total Current Assets.............................. 110,771 108,009
--------- --------
Property and equipment, at cost............................. 204,535 177,443
Accumulated depreciation.................................... (123,550) (97,940)
--------- --------
Net Property and Equipment........................ 80,985 79,503
Investments................................................. 9,624 9,792
Other assets................................................ 167,100 171,989
--------- --------
$ 368,480 $369,293
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of capitalized leases.................. $ 55 $ 521
Accounts payable.......................................... 49,616 43,640
Accrued compensation and benefits......................... 23,838 20,925
Accrued property, payroll and other taxes................. 4,813 4,486
Accrued expenses.......................................... 11,475 11,287
Accrued restructuring costs............................... 8,885 --
Deferred revenue.......................................... 23,163 21,940
--------- --------
Total Current Liabilities......................... 121,845 102,799
--------- --------
Long-term debt.............................................. 10,764 4,575
Deferred income taxes....................................... 2,269 14,017
Other liabilities........................................... 8,627 9,450
STOCKHOLDERS' EQUITY
Preferred stock -- authorized 1,000,000 shares, $.01 par
value; none issued..................................... -- --
Common stock -- authorized 60,000,000 shares, $.01 par
value; 29,068,657 and 27,867,884 shares issued and
outstanding, respectively.............................. 291 279
Additional paid-in capital................................ 198,863 190,701
Retained earnings......................................... 31,390 49,778
Accumulated other comprehensive income (loss)............. (5,569) (2,306)
--------- --------
Total Stockholders' Equity........................ 224,975 238,452
--------- --------
$ 368,480 $369,293
========= ========
The accompanying notes to consolidated financial statements are
an integral part of these statements.
23
25
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Information services revenues.............................. $ 546,273 $ 511,323 $ 456,327
Costs and expenses:
Information services sold (excluding 1999 defined
contribution plan expense of $6,936).................. (491,247) (450,236) (401,876)
Selling, general and administrative expenses (excluding
1999 defined contribution plan expense of $995)....... (54,911) (54,117) (39,684)
Restructuring and other charges.......................... (24,755) -- --
Defined contribution plan expense........................ (7,931) -- --
--------- --------- ---------
(578,844) (504,353) (441,560)
--------- --------- ---------
Operating profit (loss).................................... (32,571) 6,970 14,767
Interest expense and other, net............................ (1,452) (1,174) (545)
Equity in earnings of affiliated companies................. 205 443 444
Minority interests benefit (expense)....................... 4,256 342 (304)
--------- --------- ---------
Earnings (loss) before income taxes........................ (29,562) 6,581 14,362
Income tax (expense) benefit............................... 11,174 (2,735) (6,700)
--------- --------- ---------
Net earnings (loss)........................................ $ (18,388) $ 3,846 $ 7,662
========= ========= =========
Net earnings (loss) per common share -- basic.............. $ (0.66) $ .13 $ .27
========= ========= =========
Net earnings (loss) per common and common equivalent
share -- diluted......................................... $ (0.66) $ .13 $ .26
========= ========= =========
Weighted average common shares -- basic.................... 28,045 28,578 28,476
========= ========= =========
Weighted average common and common equivalent shares --
diluted.................................................. 28,045 28,986 29,069
========= ========= =========
The accompanying notes to consolidated financial statements are
an integral part of these statements.
24
26
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31,
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE TOTAL
COMMON PAID-IN RETAINED INCOME STOCKHOLDERS'
STOCK CAPITAL EARNINGS (LOSS) EQUITY
------ ---------- -------- ------------- -------------
(IN THOUSANDS)
Balance at December 31, 1996............ $279 $187,213 $ 38,270 $ 566 $226,328
---- -------- -------- ------- --------
Comprehensive income:
Net earnings.......................... -- -- 7,662 -- 7,662
Other comprehensive loss, foreign
currency translation adjustment.... -- -- -- (3,780) (3,780)
--------
Comprehensive income.................. 3,882
Shares issued from employee stock option
plan exercises and other.............. 12 17,269 -- -- 17,281
Shares purchased and retired............ (4) (5,945) -- -- (5,949)
---- -------- -------- ------- --------
Balance at December 31, 1997............ 287 198,537 45,932 (3,214) 241,542
---- -------- -------- ------- --------
Comprehensive income:
Net earnings.......................... -- -- 3,846 -- 3,846
Other comprehensive income, foreign
currency translation adjustment.... -- -- -- 908 908
--------
Comprehensive income.................. 4,754
Shares issued from employee stock option
plan exercises and other.............. 6 9,398 -- -- 9,404
Shares purchased and retired............ (14) (17,234) -- -- (17,248)
---- -------- -------- ------- --------
Balance at December 31, 1998............ 279 190,701 49,778 (2,306) 238,452
---- -------- -------- ------- --------
Comprehensive income:
Net loss.............................. -- -- (18,388) (18,388)
Other comprehensive loss, foreign
currency translation adjustment.... -- -- -- (3,263) (3,263)
--------
Comprehensive loss.................... (21,651)
Restricted stock granted................ 3 361 -- -- 364
Shares issued to Defined Contribution
Plan.................................. 9 7,922 -- -- 7,931
Shares issued from employee stock option
plan exercises and other.............. 1 1,103 -- -- 1,104
Shares purchased and retired............ (1) (1,224) -- -- (1,225)
---- -------- -------- ------- --------
Balance at December 31, 1999............ $291 $198,863 $ 31,390 $(5,569) $224,975
==== ======== ======== ======= ========
The accompanying notes to consolidated financial statements are
an integral part of these statements.
25
27
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)....................................... $ (18,388) $ 3,846 $ 7,662
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Amortization of deferred data procurement costs......... 120,227 112,111 101,625
Restructuring and other charges......................... 23,625 -- --
Defined contribution plan expense....................... 7,931 -- --
Depreciation............................................ 26,968 23,238 20,421
Amortization of capitalized software costs and
intangibles.......................................... 7,295 6,894 6,689
Deferred income tax expense (benefit)................... (11,571) 2,606 6,329
Equity in earnings of affiliated companies and minority
interests............................................ (4,461) (785) (140)
Other................................................... (1,350) (2,864) (3,529)
Change in assets and liabilities:
Decrease (increase) in accounts receivable, net...... (7,717) 9,615 6,514
Decrease (increase) in other current assets.......... 655 560 (2,379)
Increase in accounts payable and accrued
liabilities........................................ 7,688 3,147 8,168
Increase (decrease) in deferred revenue.............. 1,223 1,471 (672)
Other, net........................................... 5,571 3 679
--------- --------- ---------
Total adjustments............................... 176,084 155,996 143,705
--------- --------- ---------
Net cash provided by operating activities....... 157,696 159,842 151,367
CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred data procurement costs........................... (130,212) (120,493) (111,814)
Purchase of property, equipment and software.............. (31,142) (33,731) (34,444)
Capitalized software costs................................ (7,273) (7,167) (3,682)
Proceeds from disposition of assets....................... 524 -- 1,500
Capital contributions from minority interests and other,
net..................................................... 2,890 319 889
--------- --------- ---------
Net cash used by investing activities........... (165,213) (161,072) (147,551)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net bank borrowings (repayments).......................... 6,281 3,000 (5,500)
Net repayments of capitalized leases...................... (480) (810) (2,291)
Purchases of Common Stock................................. (1,225) (20,185) (3,012)
Proceeds from exercise of stock options and other......... 1,299 9,256 17,154
--------- --------- ---------
Net cash provided (used) by financing
activities.................................... 5,875 (8,739) 6,351
EFFECT OF EXCHANGE RATE CHANGES ON CASH................... (1,430) 193 (1,437)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................... (3,072) (9,776) 8,730
Cash and cash equivalents at beginning of year............ 11,149 20,925 12,195
--------- --------- ---------
Cash and cash equivalents at end of year.................. $ 8,077 $ 11,149 $ 20,925
========= ========= =========
The accompanying notes to consolidated financial statements are
an integral part of these statements.
26
28
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF ACCOUNTING POLICIES
BUSINESS
Information Resources, Inc. ("IRI") and its subsidiaries (referred to
herein as "IRI" or the "Company") is a leading provider of universal product
code ("UPC"), scanner-based business solutions services to the consumer packaged
goods ("CPG") industry, offering services in the U.S., Europe and other
international markets. The Company supplies CPG manufacturers, retailers and
brokers with information and analysis critical to their sales, marketing and
supply chain operations. IRI provides services designed to deliver value through
an enhanced understanding of the consumer to a majority of the Fortune 500
companies in the CPG industry.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Information
Resources, Inc. and all wholly-or majority-owned subsidiaries and affiliates.
Minority interests reflect the non-Company owned stockholder interests in IRI
InfoScan Limited (U.K.), IRI/GfK Retail Services GmbH (Germany) ("IRI/GfK
Retail"), effective February 1997, IRI/GfK Retail Services B.V. (the
Netherlands), effective February 1998 and Information Resources Espana, S.L.,
effective November 1998. The equity method of accounting is used for investments
in which the Company has a 20% to 50% ownership interest 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 and the accompanying notes to the consolidated financial
statements to conform to the 1999 presentation.
REVENUE RECOGNITION
Revenues on contracts for retail tracking services, which generally have
terms of three to five years, 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 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. Related software maintenance fees are
recognized as earned over the terms of their respective contracts.
27
29
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESEARCH AND DEVELOPMENT
The Company is continuously developing new products and services. In this
regard, the Company is actively engaged in research and development of new
database analyses and applications, software applications and services and data
delivery systems. Expenditures for research and development for the years ended
December 31, 1999, 1998 and 1997 approximated $24.2 million, $25.9 million and
$21.3 million, respectively. All research and development expenditures were
expensed as incurred.
BENEFITS PLANS
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 $3.0 million, $2.9 million and $2.4 million in
1999, 1998 and 1997, respectively.
In December 1999, the Company adopted the Information Resources, Inc.
Nonqualified Defined Contribution Plan (the "Plan"). The plan was designed to
provide designated employees of the Company with an ownership interest in the
equity of IRI in order to align the interests of those employees with the
interests of IRI shareholders and compensate employees for their past
performance. In December 1999, as part of the Plan, the Company made an
irrevocable contribution of 877,000 shares of IRI common stock to the Plan
trust; all shares have been fully allocated to each individual participant's
account. This has resulted in the Company recording an expense of $7.9 million
in the fourth quarter of 1999 which represents the fair market value of the
common stock contribution. The shares of common stock will vest and generally be
distributable on the fourth anniversary of the date upon which such shares are
allocated to the participant's account if the participant's employment with the
Company has not been terminated, with certain exceptions for termination of
employment due to retirement, disability, death or change in control. Forfeited
shares will remain in the Plan and be reallocated to other participants. Of the
$7.9 million expensed in the fourth quarter, $5.5 million, $2.1 million and $0.3
million relate to the U.S. Services, International Services, and Corporate
segments of the business, respectively.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand 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, 1999 and 1998, the Company had no
significant concentrations of credit risk related to cash equivalents and
accounts receivable.
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. The Company also capitalizes the cost of
internal-use computer software as incurred and amortizes such costs over the
respective estimated useful lives in accordance with SOP 98-1. Leasehold
improvements are amortized over the shorter
28
30
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of their estimated service lives or the terms of their respective lease
agreements. Estimated useful lives are as follows:
Computer equipment and software............................. 3 to 7 years
Market testing and other operating equipment................ 3 to 7 years
Leasehold improvements...................................... 4 to 20 years
Equipment and furniture..................................... 3 to 8 years
OTHER ASSETS
Other assets include deferred data procurement costs, intangible assets and
costs of capitalized software held for sale. Data procurement costs are
amortized over a period of 28 months and include payments and services 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
database. Intangible assets include goodwill, solicitation rights and
non-compete agreements, all of which arose from acquisitions, investments 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
these assets to determine possible impairment by comparing the carrying value to
the undiscounted future cash flows of the related assets. During 1999, the
Company determined, based on this review, that goodwill relating to IRI/GfK
Retail (part of International Services) was impaired, resulting in a $4.2
million charge which was included in Restructuring and Other Charges in the
Statement of Operations. The Company made a decision in the fourth quarter of
1999 to transfer production of IRI/GfK Retail from an external vendor in Germany
to the U.S. headquarter facility in order to enhance its InfoScan offering in
Germany and to reduce future production costs. This decision requires funding in
2000 of approximately $4 million. Based on discounted future cash flow
estimates, the Company decided to discontinue all selling activities relating to
certain of the Company's internally developed trade promotion software. As a
result of this decision, the $4.8 million net book value of the asset was
written off in the fourth quarter of 1999. In 1999, the Company determined that
the need for a Multi-outlet panel was becoming the minimum standard for panel
tracking services. As a result, the Company decided to continue to expand its
Multi-outlet panel and eliminate the Card Panel. As a result, the $3.8 million
net book value of the Card Panel database asset was written off in the fourth
quarter of 1999.
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.
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE AND STOCK-BASED
COMPENSATION
Net earnings (loss) per share is based upon the weighted average number of
shares of common stock outstanding during each year. Net earnings (loss) per
common and common equivalent share -- diluted is based upon the weighted average
number of shares of common stock and common stock equivalents, entirely
comprised of stock options, outstanding during each year. For the year ended
December 31, 1999, all stock options, aggregating 7,451,373 shares, were
excluded from the weighted average shares outstanding calculation because they
were anti-dilutive. For the year ended December 31, 1998, stock options
aggregating
29
31
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3,256,904 shares were excluded from the weighted average shares outstanding
calculation because they were anti-dilutive.
The Company accounts for stock option grants in accordance with provisions
of APB Opinion No. 25, "Accounting for Stock Issued to Employees."
2. SUPPLEMENTAL CASH FLOW INFORMATION
Interest expense paid and income taxes paid during the years ended December
31, were as follows (in thousands):
1999 1998 1997
------ ------ ------
Interest.................................................... $1,731 $1,257 $1,346
Income taxes................................................ 418 1,548 262
Non-cash investing and financing activities are excluded from the
consolidated statements of cash flows. In 1999, the Company contributed 877,000
shares of common stock with a fair market value of $7.9 million to the IRI
Nonqualified Defined Contribution Plan (See Note 1). In 1998 and 1997,
receivables of $1.6 million and $.5 million, respectively, were reclassified to
investment in joint ventures.
3. ACQUISITIONS AND JOINT VENTURES
In November 1998, the Company executed a joint venture agreement with Media
Planning, S.A. to create a new retail tracking business to serve the Spanish
market under the name Information Resources Espana, S.L. ("IRI-Spain"). In
January 1999, IRI-Spain and Dympanel, S.A. signed a cooperation agreement which
added Dympanel, S.A. as a third investor in IRI-Spain. The Company's ownership
interest in IRI-Spain is 64% as of December 31, 1999. IRI-Spain began providing
InfoScan service to the Spanish market in early 1999, using the Company's
production facilities in Wood Dale, Illinois.
Until December 1998, the Company owned and operated a retail audit business
in Turkey, which it acquired in 1993. Effective January 1999, the Company
contributed all of the operating assets and liabilities of its Turkish
subsidiary to a joint venture. The business of the joint venture was
discontinued in October 1999.
Under the terms of a 1995 agreement, the Company has a strategic alliance
with Middle East Market Research Bureau ("MEMRB"), a market research company
based in Cyprus. In 1998 IRI acquired a 19.9% ownership interest in MEMRB, which
decreased to 16% in 1999 due to funding from a new partner. The Company holds an
option to increase its ownership interest of MEMRB to 49%.
The Company and GfK AG of Germany ("GfK") operate a joint venture which
offers a scanner-based product tracking service to the Netherlands market
operating under the InfoScan name. Until early 1998, this joint venture was
owned 80.1% by GfK and 19.9% by the Company. In February 1998, the Company
increased its ownership to 51% and assumed overall management responsibilities.
In 1998, the Company sold a 9.9% interest in GfK Panel Services Benelux
B.V. and GfK Belgium S.A., reducing its ownership to 10%. Those companies
operate household panel services in the Netherlands and Belgium and continue to
cooperate with the Netherlands InfoScan operation in the sale and delivery of
services to common customers.
Effective May 21, 1998, the Company reduced its ownership in Information
Resources, Japan, Ltd., from 60% to 40% by selling a 20% ownership interest to
Mitsui & Co., Ltd.
In February 1997, the Company and GfK organized a new joint venture
company, IRI/GfK Retail. The Company currently has a 51% ownership interest in
IRI/GfK Retail, and GfK owns the remainder. Effective
30
32
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
January 1, 1999, the Company's funding requirement per the joint venture
agreement increased to 80%. IRI/ GfK Retail purchased the German retail tracking
business of GfK Panel Services GmbH ("GfK Panel").
In a separate transaction, the Company sold its previously held 15%
ownership interest in GfK Panel to GfK at no book gain or loss. GfK Panel, a
provider of consumer panel and ad hoc research services, will cooperate with
IRI/GfK Retail in selling and delivering services to customers.
The consolidation of the Company's Netherlands, German and Spain
operations, the exercise of its MEMRB option, the shut-down of the Turkey
operation and the sale of its 20% interest in Information Resources Japan, Ltd.
did not have a material impact on the consolidated financial results or position
of the Company.
4. RESTRUCTURING
Project Delta: In the third quarter of 1999, the Company initiated a
comprehensive program named Project Delta, the objective of which is to improve
productivity and operating efficiencies to reduce the Company's on-going cost
structure in its U.S. operations. The first phase of Project Delta included the
identification and assessment of potential operating efficiencies in the
Company's various U.S. functional areas and was completed in the fourth quarter
of 1999. As a result of these planned initiatives, the Company recorded a
restructuring charge of $19.7 million ($11.8 million after tax) in the fourth
quarter of 1999. The key components of this charge include (i) severance related
to planned staff reductions of approximately 10%, or 325, of the Company's
full-time U.S. and Corporate employees; (ii) asset write-offs related to
unprofitable activities that will be discontinued; and (iii) the disposition of
excess office space.
For 1999, the pre-tax restructuring charges included in Restructuring and
Other Charges in the Statement of Operations consist of the following (in
thousands):
1999 ACTIVITY
TOTAL ------------------ DECEMBER 31, 1999
CHARGES CASH NON-CASH ACCRUAL
------- ------ -------- -----------------
Termination benefits....................... $ 8,391 $ -- $ -- $8,391
Asset write-offs related to discontinued
activities............................... 8,631 -- 8,631 --
Disposition of excess office space......... 1,498 -- 1,004 494
Other costs of project..................... 1,130 1,130 -- --
------- ------ ------ ------
Total............................ $19,650 $1,130 $9,635 $8,885
======= ====== ====== ======
Termination Benefits: The Company recorded a charge of $8.4 million for
termination benefits covering 325 full-time U.S. business and Corporate
employees. As of December 31, 1999, the Company has communicated the termination
plan and benefits to all of its affected employees. Expected terminations impact
virtually all areas of the U.S. business including operations, client services,
technology and marketing, as well as Corporate headquarters. Virtually all
termination benefits will be disbursed subsequent to December 31, 1999 and prior
to December 31, 2000.
Asset Write-offs Related to Discontinued Activities: The Company wrote off
$8.6 million of assets related to discontinued activities of the U.S. business.
This charge consists of $4.8 million and $3.8 million relating to certain of the
Company's trade promotion software applications and Card Panel database assets,
respectively.
Based on discounted future cash flow estimates, the Company decided to
discontinue all selling activities relating to its internally developed trade
promotion software. As a result of this decision, the net book value of the
trade promotion software assets were written off in the fourth quarter of 1999.
The Company's consumer panel business had consisted of 55,000 households
that utilize hand-held scanners to record their product purchases
("Multi-outlet") and shoppers from approximately 60,000
31
33
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
households that present an identification card when shopping at participating
grocery stores ("Card Panel"). In 1999, the Company determined that the need for
a Multi-outlet panel was becoming the minimum standard for panel tracking
services. As a result, the Company decided to continue to expand its
Multi-outlet panel and eliminate the separate Card Panel service. The net book
value of the Card Panel database asset was written off in the fourth quarter of
1999. The Company continues to collect consumer panel information from
approximately 23,000 households via an identification card for limited use in
connection with the Company's BehaviorScan testing service in the U.S.
Disposition of Excess Office Space: As a result of planned headcount
reductions and space not currently utilized, the Company has decided to vacate
certain facilities. The Company recorded $1.5 million of charges relating to
office rent and accelerated depreciation on certain fixed assets associated with
these facilities in the fourth quarter of 1999. The majority of the excess space
was related to contraction of the U.S. business headcount.
Other Costs of Project Delta: As part of the Project Delta initiative, the
Company hired the Boston Consulting Group ("BCG") to provide assistance in the
identification and execution of the project objectives. The Company paid $1.1
million in the fourth quarter relating to services rendered by BCG.
5. INCOME TAXES
As of December 31, 1999, the Company had cumulative U.S. federal taxable
net operating loss ("NOL") carryforwards of $74.1 million which expire primarily
in 2009 and 2011. At December 31, 1999 the Company also had U.S. tax credit
carryforwards of $8.3 million, $7.2 million of which expire between 2000 and
2012, and the remainder of which can be carried forward indefinitely. Certain of
these carryforwards have not been examined by the Internal Revenue Service and,
therefore, are subject to potential adjustment.
In addition, at December 31, 1999, various foreign subsidiaries of IRI had
aggregate foreign taxable NOL carryforwards of $9.2 million. Approximately $4.0
million of these NOL's may be carried forward indefinitely, while the remaining
$5.2 million expire between 2001 and 2004.
Domestic earnings (losses) before income taxes were ($28.9) million, $16.7
million and $31.4 million for 1999, 1998 and 1997, respectively. The foreign
losses before income taxes were ($0.7) million, ($10.1) million and ($17.0)
million for 1999, 1998 and 1997, respectively. A majority of the foreign pre-tax
losses are deducted as partnership losses in IRI's consolidated U.S. Federal
income tax return.
Income tax (expense) benefit relating to earnings (loss) for the years
ended December 31, 1999, 1998 and 1997 consisted of the following components (in
thousands):
1999 1998 1997
------- ------- -------
Current income tax (expense) benefit
Federal................................................... $ -- $ -- $ --
Foreign................................................... (397) (129) (371)
State and local........................................... -- -- --
------- ------- -------
(397) (129) (371)
------- ------- -------
Deferred income tax (expense) benefit
Federal................................................... 9,562 (1,939) (6,366)
Foreign................................................... (593) 21 549
State and local........................................... 2,602 (688) (512)
------- ------- -------
11,571 (2,606) (6,329)
------- ------- -------
Income tax (expense) benefit................................ $11,174 $(2,735) $(6,700)
======= ======= =======
32
34
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has reduced its deferred tax liability by its U.S. federal and
state NOL carryforwards and certain foreign NOL carryforwards in its
consolidated financial statements. The Company expects to realize these future
tax benefits from future recognition of substantial taxable income resulting
from the reversal of $157.3 million of existing net temporary differences.
Significant components of the Company's deferred tax liabilities and assets
were as follows (in thousands):
DECEMBER 31,
-----------------
1999 1998
------- -------
Deferred tax liabilities:
Deferred data procurement costs........................... $51,329 $48,581
Capitalized software costs................................ 3,048 2,385
Acquisition related costs................................. 3,186 4,536
Other..................................................... 5,425 11,767
------- -------
Total deferred tax liabilities.................... 62,988 67,269
Deferred tax assets:
Domestic NOL carryforwards................................ 28,136 25,003
Domestic tax credit carryforwards......................... 8,429 9,571
Foreign NOL carryforwards................................. 3,923 4,409
Reserve for compensation related items.................... 15,612 4,866
Other..................................................... 14,278 18,196
------- -------
Total deferred tax assets......................... 70,378 62,045
Valuation allowance on deferred tax assets.................. (9,659) (8,793)
------- -------
Net deferred tax assets..................................... 60,719 53,252
------- -------
Net deferred tax liability.................................. $ 2,269 $14,017
======= =======
The valuation allowance was increased by $0.9 million in 1999 and $0.1
million in 1998, because it is more likely than not that certain foreign NOL and
tax credit carryforwards may not be fully utilized.
Income tax (expense) benefit differs from the statutory U.S. Federal income
tax rate of 35% applied to earnings (loss) before income taxes for the years
ended December 31, 1999, 1998 and 1997 as follows (in thousands):
1999 1998 1997
------- ------- -------
Statutory tax (expense) benefit......................... $10,347 $(2,303) $(5,027)
Effects of --
State income taxes, net of Federal income tax
effect............................................. 1,691 (447) (333)
Nondeductible meals and entertainment................. (406) (428) (407)
Nondeductible acquisition/organization costs.......... (160) (180) (127)
Foreign losses and taxes.............................. (338) 558 (1,089)
Valuation allowance................................... (713) 400 216
Other non-taxable income (non-deductible expenses).... 753 (335) 67
------- ------- -------
$11,174 $(2,735) $(6,700)
======= ======= =======
33
35
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, were as follows (in thousands):
1999 1998
------- -------
Billed...................................................... $73,605 $71,141
Unbilled.................................................... 24,294 21,258
------- -------
97,899 92,399
Reserve for accounts receivable............................. (3,774) (4,762)
------- -------
$94,125 $87,637
======= =======
Payments received 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.
7. PROPERTY AND EQUIPMENT
Property and equipment at December 31, were as follows (in thousands):
1999 1998
--------- --------
Computer equipment and software............................. $ 117,411 $ 96,302
Market testing and other operating equipment................ 33,619 30,730
Leasehold improvements...................................... 15,961 14,963
Equipment and furniture..................................... 37,544 35,448
--------- --------
204,535 177,443
Accumulated depreciation.................................... (123,550) (97,940)
--------- --------
$ 80,985 $ 79,503
========= ========
8. INVESTMENTS AND OTHER ASSETS
Investments at December 31, were as follows (in thousands):
1999 1998
------ ------
Datos Information Resources, at cost plus equity in
undistributed earnings.................................... $4,926 $5,268
GfK Panel Services Benelux B.V., at cost.................... 1,315 1,272
Middle East Market Research Bureau ("MEMRB"), at cost....... 2,808 2,821
Other....................................................... 575 431
------ ------
$9,624 $9,792
====== ======
34
36
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other assets at December 31, were as follows (in thousands):
1999 1998
-------- --------
Deferred data procurement costs -- net of accumulated
amortization of $141,531 in 1999 and $123,440 in 1998..... $140,285 $138,356
Intangible assets, including goodwill -- net of accumulated
amortization of $15,050 in 1999 and $13,616 in 1998....... 11,659 18,610
Capitalized software costs -- net of accumulated
amortization of $3,149 in 1999 and $3,701 in 1998......... 7,799 9,258
Other....................................................... 7,357 5,765
-------- --------
$167,100 $171,989
======== ========
Commercial software development costs of $7.3 million, $7.2 million and
$3.6 million were capitalized for the years ended December 31, 1999, 1998 and
1997.
9. LONG-TERM DEBT
Long-term debt at December 31, was as follows (in thousands):
1999 1998
------- ------
Bank borrowings............................................. $10,000 $3,000
Capitalized leases and other................................ 819 2,096
------- ------
10,819 5,096
Less current maturities..................................... (55) (521)
------- ------
$10,764 $4,575
======= ======
On February 9, 2000 the Company amended its $60 million bank revolving
credit facility to amend certain financial covenants and other terms and
conditions of the agreement. The amended facility has floating rate options at
or below prime and commitment fees of up to .35% payable on the unused portion,
and a termination date of 2002. The weighted average interest rates at December
31, 1999 and 1998 were 6.53% and 6.25% respectively.
The financial covenants in the bank credit agreement, as well as in the
lease agreement for the Company's Chicago headquarters, require the Company to
maintain a minimum tangible net worth and to meet certain cash flow coverage and
leverage ratios. The agreements also limit the Company's ability to declare
dividends or make distributions to holders of capital stock, or redeem or
otherwise acquire shares of the Company. Approximately $15.4 million is
currently available for such distributions under the most restrictive of these
covenants. The bank credit agreement contains covenants which restrict the
Company's ability to incur additional indebtedness.
Capitalized leases and other primarily consist of leases for computer and
communications equipment expiring through 2000. Maturities of capitalized leases
in 2000 are $0.1 million.
10. CAPITAL STOCK
PREFERRED STOCK PURCHASE RIGHTS
In 1989, IRI adopted a shareholder rights plan which attached preferred
stock rights ("Rights") to each share of its Common Stock. Each Right entitles
the holder to purchase one one-hundredth share of Preferred Stock at an exercise
price of $60. The Rights become exercisable upon the acquisition of a certain
percentage of IRI Common Stock or a tender offer or exchange offer for IRI
Common Stock by a person or group. IRI
35
37
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
may redeem the Rights at $.01 per Right at any time prior to a public
announcement that a person or group has acquired a certain percentage of IRI's
Common Stock. The Rights will expire on October 27, 2007. IRI has authority to
issue one million shares of $.01 par value Preferred Stock.
COMMON STOCK
At December 31, 1999, 1998 and 1997, 29,068,657, 27,867,884 and 28,713,943
shares of Common Stock, respectively, were issued and outstanding. In connection
with the IRI director stock plan, approximately 50,000 shares were reserved for
future issuance at December 31, 1999. In connection with all IRI employee stock
option plans, 11.3 million shares were reserved for issuance at December 31,
1999. These reserved shares were reduced by 7.5 million stock options
outstanding at December 31, 1999, resulting in 0.3 million and 3.5 million stock
options available for grant under the Executive Stock Option Plan and the
Employee Stock Option Plan, respectively.
In November 1997 the Company's Board of Directors approved a plan to
purchase up to two million shares of the Company's Common Stock from time to
time in the open market. Purchases under the plan are subject to a number of
considerations including the market price of the Company's Common Stock and
general market conditions. As of December 31, 1999, the Company had purchased
and retired 2,000,000 shares under the plan at an average cost of $12.19 per
share, including 138,200 shares purchased during 1999 at an average cost of
$8.87 per share and 1,442,600 shares purchased during 1998 at an average cost of
$11.96 per share.
In May 1996, the Company's shareholders approved a stock plan for
non-employee directors (the Directors' 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. The Company
issued 21,215, 8,154, and 9,873 shares in 1999, 1998 and 1997 at a price of
$8.72, $17.38 and $14.36 per share, respectively, under the Directors' Plan.
There are restrictions in IRI's bank revolving credit facility and lease
agreements which limit the payment of dividends and the purchases or redemption
of Common Stock. (See Note 9.)
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.
The following table presents, on a pro forma basis, net earnings (loss) and
net earnings (loss) per share for the years ended December 31, 1999, 1998 and
1997 as if an alternate method of accounting as prescribed
36
38
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
by SFAS No. 123 "Accounting for Stock-Based Compensation" for stock options had
been adopted (in thousands, except per share data):
1999 1998 1997
-------- ------ ------
Net earnings (loss) -- as reported........................ $(18,388) $3,846 $7,662
======== ====== ======
Net earnings (loss) -- pro forma.......................... $(21,687) $ 981 $6,096
======== ====== ======
Net earnings (loss) per common share -- basic -- as
reported................................................ $ (.66) $ .13 $ .27
======== ====== ======
Net earnings (loss) per common share -- basic -- pro
forma................................................... $ (.77) $ .03 $ .21
======== ====== ======
Net earnings (loss) per common and common equivalent
share -- diluted -- as reported......................... $ (.66) $ .13 $ .26
======== ====== ======
Net earnings (loss) per common and common equivalent
share -- diluted -- pro forma........................... $ (.77) $ .03 $ .21
======== ====== ======
The above table is based upon the valuation of option grants using the
Black-Scholes pricing model for traded options with assumed risk-free interest
rates of 5.5%, 5.5% and 6.6% for 1999, 1998 and 1997, respectively; stock price
volatility factor of 61.0%, 55.9% and 46.6% for 1999, 1998 and 1997,
respectively; and an expected life of the options of five years. Using the
foregoing assumptions, the calculated weighted-average fair value of options
granted in 1999, 1998 and 1997 was $5.01, $6.64 and $7.21, respectively. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the input
assumptions can materially affect the fair value estimate, in management's
opinion, the model does not necessarily provide a reliable single measure of the
fair value of its employee stock options.
Transactions involving stock options for the Executive and Employee Stock
Option Plans are summarized as follows:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF OPTIONS PRICE
---------- --------
Outstanding January 1, 1997................................. 8,348,180 $14.26
Granted..................................................... 801,390 14.59
Canceled/Expired............................................ (651,083) 17.06
Exercised................................................... (1,236,864) 12.38
---------- ------
Outstanding December 31, 1997............................... 7,261,623 14.36
Granted..................................................... 1,647,345 12.52
Canceled/Expired............................................ (997,762) 15.89
Exercised................................................... (584,972) 13.88
---------- ------
Outstanding December 31, 1998............................... 7,326,234 13.73
Granted..................................................... 1,461,500 8.80
Canceled/Expired............................................ (1,238,931) 14.58
Exercised................................................... (97,430) 9.85
---------- ------
Outstanding December 31, 1999............................... 7,451,373 $12.68
========== ======
Exercisable December 31, 1999............................... 4,852,097 $13.84
========== ======
37
39
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock options outstanding at December 31, 1999 are as follows:
WEIGHTED OUTSTANDING EXERCISABLE
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------------------ ----------- ----------- ----------- ----------- -----------
$ 6.94-$ 9.35................ 1,931,800 7.55 $ 8.48 510,301 $ 8.90
$ 9.38-$13.875............... 1,906,163 6.31 11.99 1,444,829 12.23
$14.00-$14.25................ 2,718,465 4.81 14.14 2,117,857 14.17
$14.313-$34.00............... 894,945 4.83 18.78 779,110 19.16
--------- ---- ------ --------- ------
$ 6.94-$34.00................ 7,451,373 5.91 $12.68 4,852,097 $13.84
========= ==== ====== ========= ======
11. COMMITMENTS, CONTINGENCIES AND LITIGATION
LEASE AGREEMENTS AND OTHER COMMITMENTS
Future minimum lease payments under all operating leases as of December 31,
1999 are as follows (in thousands):
YEAR ENDING DECEMBER 31, OPERATING LEASE PAYMENTS
------------------------ ------------------------
2000........................................................ $ 27,974
2001........................................................ 22,661
2002........................................................ 16,859
2003........................................................ 14,758
2004........................................................ 12,031
After 2004.................................................. 44,873
--------
Total minimum lease payments................................ $139,156
========
Total rental expense for the years ended December 31, 1999, 1998 and 1997
was $27.4 million, $30.9 million and $36.1 million respectively.
LEGAL PROCEEDINGS
In July 1996, IRI filed an action against The Dun & Bradstreet Corp., The
A.C. Nielsen Company (now a subsidiary of ACNielsen) ("ACNielsen") and IMS
International, Inc. (collectively, "the Defendants") 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. Section 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 the
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/bundling 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 the Defendants' anti-competitive
practices and to recover damages in excess of $350 million, prior to trebling.
38
40
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 15, 1999, IRI filed an action against Manugistics, Inc.
("Manugistics") in the Circuit Court of Cook County, Illinois, Case No. 99 L
00599. In Count I of its two count action, IRI has alleged that Manugistics has
breached a Guaranteed Data Marketing and Revenue Agreement between IRI and
Manugistics ("Agreement") by failing to pay certain amounts due to IRI
thereunder. The Agreement was entered into by IRI and Manugistics in connection
with the sale by IRI to Manugistics of certain assets relating to the
manufacture, sale and servicing of certain logistics software. IRI has also
alleged that Manugistics committed an anticipatory breach of the Agreement with
respect to certain other amounts not yet due thereunder. IRI now seeks damages
in excess of $15.0 million in connection with these claims. In Count II, IRI has
alleged that Manugistics breached a related Non-Competition and Non-Solicitation
Agreement between IRI and Manugistics (the "Non-Competition Agreement"). IRI
seeks unspecified damages to be determined at trial under this count. On March
2, 1999, Manugistics filed a Motion to Stay Proceedings and Compel Arbitration.
IRI agreed to arbitrate all claims related to the Agreement and filed an
arbitration demand before the American Arbitration Association on July 9, 1999.
IRI's claims against Manugistics for breach of the Non-Competition Agreement
remain pending before the Circuit Court. Manugistics denies that it owes IRI any
damages, claiming a failure of consideration. IRI vigorously disputes this
assertion.
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.
12. SEGMENT INFORMATION
The Company develops and maintains databases, 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 Company's business information services are conducted
almost exclusively in the United States and Europe. The Company's operations in
other markets account for approximately 1% of consolidated revenues. Executive
management of the Company routinely evaluates the performance of its operations
against short-term and long-term objectives.
The Company's segment disclosure by geographic areas is consistent with the
management structure of the Company. The executive management of the Company
considers revenues from third parties and the aggregation of operating profit
(loss), equity earnings (losses) and minority interests, ("Operating Results"),
on a geographic basis to be the most meaningful measure of the operating
performance of each respective geographic segment and of the Company as a whole.
39
41
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables and discussion present certain information regarding
the operations of the Company by geographic segment as of December 31, 1999,
1998, and 1997 (in thousands):
Segmented Results:
1999 1998 1997
-------- -------- --------
Revenues:
U.S. Services............................................. $416,729 $396,992 $366,678
International Services.................................... 129,544 114,331 89,649
-------- -------- --------
Total............................................. $546,273 $511,323 $456,327
======== ======== ========
Operating Results:
U.S. Services............................................. $ 25,672 $ 31,515 $ 38,613
International Services:
Operating loss............................................ (13,709) (15,689) (19,920)
Minority interests benefit (expense)...................... 4,256 342 (304)
Equity in earnings of affiliated companies................ 205 443 444
-------- -------- --------
Subtotal -- International Services................ (9,248) (14,904) (19,780)
Corporate and other expenses................................ (11,848) (8,856) (3,926)
Defined contribution plan expense (b)....................... (7,931) -- --
Restructuring and other charges (b)......................... (24,755) -- --
-------- -------- --------
Operating Results................................. (28,110) 7,755 14,907
-------- -------- --------
Interest expense and other, net............................. (1,452) (1,174) (545)
-------- -------- --------
Earnings (loss) before income taxes............... $(29,562) $ 6,581 $ 14,362
======== ======== ========
Identifiable Assets:
1999 1998 1997
-------- -------- --------
U.S. Services............................................... $237,913 $232,851 $237,755
International Services...................................... 120,943 126,650 115,804
Corporate(a)................................................ 9,624 9,792 13,061
-------- -------- --------
Total Identifiable Assets......................... $368,480 $369,293 $366,620
======== ======== ========
- ---------------
(a) Identifiable corporate assets represent investments aggregating $9.6
million, $9.8 million and $13.1 million at December 31, 1999, 1998 and 1997,
respectively. (See Note 8.)
(b) $5.5 million, $2.1 million and $0.3 million of defined contribution plan
expense relates to U.S. Services, International Services and Corporate,
respectively.
$19.7 million, $4.2 million and $.9 million of restructuring and other
charges relates to U.S. Services, International Services and Corporate,
respectively.
40
42
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER CASH FLOW INFORMATION:
UNITED
STATES INTERNATIONAL CORPORATE TOTAL
------- ------------- --------- --------
(IN THOUSANDS)
Capital expenditures
1999.............................................. $23,394 $ 5,413 $2,335 $ 31,142
1998.............................................. 26,976 5,453 1,302 33,731
1997.............................................. 27,293 5,136 2,015 34,444
Depreciation expense
1999.............................................. $18,946 $ 4,686 $3,336 $ 26,968
1998.............................................. 16,556 4,921 1,761 23,238
1997.............................................. 14,745 3,916 1,760 20,421
Data procurement expenditures
1999.............................................. $80,740 $49,472 $ -- $130,212
1998.............................................. 76,940 43,553 -- 120,493
1997.............................................. 71,757 40,057 -- 111,814
Amortization of data procurement expenditures
1999.............................................. $78,508 $41,719 $ -- $120,227
1998.............................................. 74,583 37,528 -- 112,111
1997.............................................. 69,844 31,781 -- 101,625
41
43
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):
1999
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
Revenues................................... $131,745 $137,847 $136,092 $140,589
======== ======== ======== ========
Defined contribution plan.................. -- -- -- (7,931)
======== ======== ======== ========
Restructuring and other charges............ -- -- -- (24,755)
======== ======== ======== ========
Operating profit (loss).................... (1,774) 394 1,921 (33,112)
======== ======== ======== ========
Net earnings (loss)........................ (251) 468 1,328 (19,933)
======== ======== ======== ========
Net earnings (loss) per common share --
basic.................................... (.01) .02 .05 (.71)
======== ======== ======== ========
Net earnings (loss) per common and common
equivalent share -- diluted.............. (.01) .02 .05 (.71)
======== ======== ======== ========
Weighted average common shares -- basic.... 27,865 28,080 28,120 28,185
======== ======== ======== ========
Weighted average common and common
equivalent shares -- diluted............. 27,865 28,098 28,267 28,185
======== ======== ======== ========
1998
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
Revenues................................... $119,190 $129,392 $125,346 $137,395
======== ======== ======== ========
Operating profit (loss).................... 3,286 5,917 (2,341) 108
======== ======== ======== ========
Net earnings............................... 1,910 3,441 (1,538) 33
======== ======== ======== ========
Net earnings per common share -- basic..... .07 .12 (.05) --
======== ======== ======== ========
Net earnings per common and common
equivalent share -- diluted.............. .07 .12 (.05) --
======== ======== ======== ========
Weighted average common shares -- basic.... 28,671 28,860 28,708 28,071
======== ======== ======== ========
Weighted average common and common
equivalent shares -- diluted............. 28,946 29,839 28,708 28,093
======== ======== ======== ========
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
42
44
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 2000 annual meeting of stockholders
scheduled for May 19, 2000. 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 2000
annual meeting of stockholders scheduled for May 19, 2000.
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 2000 annual meeting of stockholders
scheduled for May 19, 2000.
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 2000 annual meeting of stockholders
scheduled for May 19, 2000.
43
45
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.
PAGE
NO.
----
2. Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts; Reserve
for Accounts Receivable..................................... 46
All other schedules are omitted because they are not
applicable, or not required, or because the required
information is included in the financial statements or notes
thereto.
3. Executive Compensation Plans and Arrangements. The following
Executive Compensation Plans and Arrangements are listed as
exhibits to this Form 10-K:
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 Noncompetition
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.
1992 Executive Stock Option Plan, as amended.
1992 Employee Incentive Stock Option Plan.
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.
Information Resources, Inc. Executive Deferred Compensation
Plan effective January 1, 1999.
Consulting Agreement dated as of February 16, 1999, between
the Company and Gian M. Fulgoni.
Employment letter agreement dated April 26, 1995 between the
Company and Gary M. Hill.
Employment letter agreement dated September 23, 1997 between
the Company and James R. Chambers, as amended by letter
agreement dated August 31, 1998.
Employment agreement dated April 30, 1999 between the
Company and Joseph P. Durrett.
Restricted stock agreement dated April 30, 1999 between the
Company and Joseph P. Durrett.
Employment agreement dated May 28, 1999 between the Company
and Rick Kurz.
Information Resources, Inc. 1999 Restricted Stock Plan.
44
46
PAGE
NO.
----
Information Resources, Inc. 1999 Nonqualified Defined
Contribution Plan Trust.
Employment agreement dated March 1, 1999, as amended by
letter agreement dated April 27, 1999, between the Company
and Timothy Bowles.
Employment letter agreement dated September 8, 1999, as
amended by letters dated September 11, 1999 and September
15, 1999, respectively, between the Company and Edward
Kuehnle.
Employment agreement dated February 4, 2000 between the
Company and Andrew Balbirer.
(b) Reports on 8-K:
None
(c) Exhibits
See Exhibit Index (immediately following the signature pages)
45
47
SCHEDULE II
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
RESERVE FOR ACCOUNTS RECEIVABLE
(IN THOUSANDS)
CHARGED
BALANCE AT TO COSTS DEDUCTIONS BALANCE AT
BEGINNING AND (NET WRITEOFFS/ END OF
DESCRIPTION OF PERIOD EXPENSES RECOVERIES) PERIOD
----------- ---------- -------- --------------- ----------
Year ended December 31, 1997..................... $4,337 $1,046 $(1,543) $3,840
Year ended December 31, 1998..................... $3,840 $1,883 $ (961) $4,762
Year ended December 31, 1999..................... $4,762 $ 285 $(1,273) $3,774
46
48
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 28, 2000
INFORMATION RESOURCES, INC.
By: /s/ JOSEPH P. DURRETT
----------------------------------
Joseph P. Durrett
President and 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 28, 2000.
SIGNATURE TITLE
--------- -----
/s/ JOSEPH P. DURRETT Chairman of the Board of Directors,
- -------------------------------------------------------- President,
Joseph P. Durrett Chief Executive Officer and Director
/s/ ANDREW G. BALBIRER Executive Vice President and Chief Financial
- -------------------------------------------------------- Officer
Andrew G. Balbirer [Principal financial officer]
/s/ SHERI L. HUSTON Senior Vice President and Controller
- -------------------------------------------------------- [Principal accounting officer]
Sheri L. Huston
* /s/ JAMES G. ANDRESS Director
- --------------------------------------------------------
James G. Andress
* /s/ WILLIAM B. CONNELL Director
- --------------------------------------------------------
William B. Connell
* /s/ EDWIN E. EPSTEIN Director
- --------------------------------------------------------
Edwin E. Epstein
* /s/ BRUCE A. GESCHEIDER Director
- --------------------------------------------------------
Bruce A. Gescheider
* /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
* /s/ JEFFREY P. STAMEN Director
- --------------------------------------------------------
Jeffrey P. Stamen
47
49
SIGNATURE TITLE
--------- -----
* /s/ RAYMOND H. VAN WAGENER, JR. Director
- --------------------------------------------------------
Raymond H. Van Wagener, Jr.
* /s/ THOMAS W. WILSON, JR. Director
- --------------------------------------------------------
Thomas W. Wilson, Jr.
*By: /s/ JOSEPH P. DURRETT
---------------------------------------------------
Pursuant to a Power of Attorney
48
50
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 filed as Exhibit
3(c) to the Company's Annual Report on Form 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) -- 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
(b) -- 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
(c) -- 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
(d) -- 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(b) 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
(e) -- 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
(f) -- 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
49
51
SEQUENTIAL
EXHIBIT DOCUMENT
NUMBER DESCRIPTION OF DOCUMENT FILING
- ------- ----------------------- ----------
(g) -- 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
(h) -- 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
(i) -- 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
(j) -- 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
(k) -- 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
(l) -- 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
(m) -- 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
(n) -- 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.
(Incorporated by reference. Previously filed as Exhibit
10(gg) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.) IBRF
(o) -- Information Resources, Inc. Amended and Restated 401(k)
Retirement Savings Plan and Trust adopted by the Company
effective May 24, 1995. (Incorporated by reference.
Previously filed as Exhibit 10(hh) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.) IBRF
(p) -- First Amendment to the Information Resources, Inc.
Amended and Restated 401(k) Retirement Savings Plan
effective July 1, 1996. (Incorporated by reference.
Previously filed as Exhibit 10(ii) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.) IBRF
(q) -- Second Amendment to the Information Resources, Inc.
Amended and Restated 401(k) Retirement Savings Plan
effective March 1, 1997. (Incorporated by reference.
Previously filed as Exhibit 10(jj) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.) IBRF
(r) -- Trust Agreement between Information Resources, Inc. and
Fidelity Management Trust Company dated as of July 1,
1996. (Incorporated by reference. Previously filed as
Exhibit 10(kk) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.) IBRF
50
52
SEQUENTIAL
EXHIBIT DOCUMENT
NUMBER DESCRIPTION OF DOCUMENT FILING
- ------- ----------------------- ----------
(s) -- First Amendment to Trust Agreement between Fidelity
Management Trust Company and Information Resources, Inc.
effective March 1, 1997. (Incorporated by reference.
Previously filed as Exhibit 10(11) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.) IBRF
(t) -- Credit Agreement dated October 31, 1997 among 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,
1997.) IBRF
(u) -- Rights Agreement between Information Resources, Inc. and
Harris Trust and Savings Bank, amended and restated as of
October 27, 1997. (Incorporated by reference. Previously
filed as Exhibit 4.2 to the Company's Current Report on
Form 8-A/A dated October 27, 1997 and filed October 28,
1997). IBRF
(v) -- Information Resources, Inc. Executive Deferred
Compensation Plan effective January 1, 1999.
(Incorporated by reference. Previously filed as Exhibit
10(ff) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998). IBRF
(w) -- Consulting Agreement dated as February 16, 1999, between
the Company and Gian M. Fulgoni. (Incorporated by
reference. Previously filed as Exhibit 10(gg) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998). IBRF
(x) -- First Amendment to Credit Agreement dated as of February
10, 1999 between the Company, the Banks Party thereto and
Harris Trust and Savings Bank, as agent for the Banks.
(Incorporated by reference. Previously filed as Exhibit
10(hh) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998). IBRF
(y) -- Employment letter agreement dated April 26, 1996 between
the Company and Gary M. Hill. (Incorporated by reference.
Previously filed as Exhibit 10(ii) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998). IBRF
(z) -- Employment letter agreement dated September 23, 1997
between the Company and James R. Chambers, as amended by
letter agreement dated August 31, 1998. (Incorporated by
reference. Previously filed as Exhibit 10(jj) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998). IBRF
(aa) -- Employment agreement dated April 30, 1999 between the
Company and Joseph P. Durrett. (Incorporated by
reference. Previously filed as Exhibit 10(kk) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999). IBRF
(bb) -- Restricted stock agreement dated April 30, 1999 between
the Company and Joseph P. Durrett. (Incorporated by
reference. Previously filed as Exhibit 10(ll) to the
Company's Quarterly Report Form on 10-Q for the quarter
ended June 30, 1999). IBRF
(cc) -- Employment agreement dated May 28, 1999 between the
Company and Rick Kurz. (Incorporated by reference.
Previously filed as Exhibit 10(mm) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1999). IBRF
(dd) -- Information Resources, Inc. 1999 Restricted Stock Plan.
(Incorporated by reference. Previously filed as Exhibit
99-1 to the Company's Registration Statement filed with
the SEC on February 25, 2000). IBRF
(ee) -- Information Resources, Inc. 1999 Nonqualified Defined
Contribution Plan. (Incorporated by reference. Previously
filed as Exhibit 99-2 to the Company's Registration
Statement filed with the SEC on February 25, 2000). IBRF
(ff) -- Information Resources, Inc. 1999 Nonqualified Defined
Contribution Plan Trust. (Incorporated by reference.
Previously filed as Exhibit 99-3 to the Company's
Registration Statement filed with the SEC on February 25,
2000). IBRF
51
53
SEQUENTIAL
EXHIBIT DOCUMENT
NUMBER DESCRIPTION OF DOCUMENT FILING
- ------- ----------------------- ----------
(gg) -- Second Amendment to Credit Agreement dated as of February
9, 2000 between the Company, the Banks party thereto and
Harris Trust and Savings Bank, as agent for the Banks. EF
(hh) -- Employment agreement dated March 1, 1999, as amended by
letter agreement dated April 27, 1999, between the
Company and Timothy Bowles. EF
(ii) -- Employment letter agreement dated September 8, 1999, as
amended by letters dated September 11 and September 13,
respectively, between the Company and Edward Kuehnle. EF
(jj) -- Employment agreement dated February 4, 2000 between the
Company and Andrew Balbirer. EF
18 -- 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
21 -- Subsidiaries of the Registrant (filed herewith). EF
23 -- Consent of Independent Auditors (filed herewith). EF
24 -- Powers of Attorney (filed herewith). EF
27 -- Financial Data Schedule (filed herewith). EF
52