ITEM 1. BUSINESS
(a) General development and narrative description of business
The predecessor to the Registrant was incorporated in 1946 in Illinois. The Registrant was incorporated in 1966 in Delaware and is engaged in one industry segment, namely, providing information to assist clients in their marketing decisions relating primarily to consumer products and services. Effective April 29, 1994, the Registrant acquired the remaining 50% of the common stock of Market Facts of Canada, Ltd.
The Registrant's usual procedure is for its professional research staff to first define the marketing problem in consultation with the client. It then develops questionnaires or instruments to be used to elicit the required information. The remaining procedures involve collecting the data, processing and evaluating the data and finally analyzing the results. In any particular project or program, the Registrant may perform one or more of these functions.
After the problem has been defined, the Registrant submits to the client a proposed research project or program specifically designed for the problem, together with a cost estimate. The proposal typically includes one or more of three basic methods for obtaining the required data, whichever one or combination is most useful and economical under the circumstances. The three basic methods for collecting information from respondents are interviews conducted through the mail, telephone interviews and in-person interviews. The method to be used is determined by the specific marketing problem and numerous other factors, including the type of data to be obtained, the geographical scope of the study, the size of the sample and budget considerations, among others. The type of product or subject to be studied generally is not itself determinative of the method to be used.
Interviews are conducted through the mail using panels of consumers constructed by the Registrant. Currently, there are approximately 500,000 households throughout the continental United States and Canada that participate in the Registrant's proprietary Consumer Mail Panel (CMP) for mail interviews. CMP provides clients with many benefits, including (1) flexibility for conducting national, regional and specific market research studies, (2) research effectiveness by providing large samples at low cost, nationally balanced samples and confidentiality, and (3) economy through cooperative respondents, high response rates and low cost per interview.
The Registrant also gathers data through telephone interviews. In the United States, this data collection method operates under the name of National Telephone Center (NTC). The Registrant's telephone interviewing capabilities provide clients with cost efficient long distance calling services, high speed response and complete national coverage. The Registrant operates over 300 interviewing stations in approximately eight locations throughout Illinois and Canada, using an advanced computer assisted telephone interviewing system. Given the rapid growth in this business, the Registrant has increasingly utilized some outsourcing of this function. Samples include interviewing the general population as well as hard-to-reach individuals and can be drawn on a nationally representative basis or confined to a single market.
In-person interviews conducted by the Registrant are primarily performed by independent field interviewing organizations. This method includes personal interviews either in a central location, such as a shopping center, or on a house-to-house basis. The Registrant also operates a central location interviewing panel, CLIPs, which is a consumer guidance testing facility with computerized interviewing and state-of-the art kitchen.
The Registrant's information gathering capabilities include numerous omnibus products. Data Gage and MiniScreen are CMP's monthly mailing services that permits non-competing clients to share data collection costs while providing responses to specific questions from a nationally representative sample of households. TeleNation is a twice a week national telephone survey that offers clients the ability to collect consumer opinion, attitude and buying pattern data from a nationally representative sample at low cost, with short lead time and rapid turnaround of results. National ShowCase is a weekly mall omnibus survey conducted in the top 20 ADIs that provides clients with rapid turnaround of test results where consumer exposure to stimuli is required.
Research assignments performed by the Registrant include the data collection phase, and in most cases, the data processing requirements. The Registrant maintains three separate functions relating to data processing. They include coding, which reviews and assigns numerical codes to questionnaire responses; data entry, often utilizing imaging technology, which prepares the documents as input for tabulation; and tabulation, where final tabulated reports are processed.
In many projects serviced by the Registrant, data analysis reports are also written. For this service, the research design team who originally drafted the project proposal is used. The Decision Systems group of the Registrant may also be used to further review and dissect the gathered data. This group uses statistical methods such as factor analysis, cluster analysis and analysis of covariance to aid in the general review of the collected data. Several programs are maintained in a computer library to complete these functions with flexibility and efficiency.
While there will always be a need for gathering of raw data, the Registrant believes that one of the fastest growing areas within the market research industry today is data interpretation and analysis. In response, the Registrant has developed or licensed proprietary products and services which provide this capability for clients. BrandVision is a custom continuous tracking product which measures the effect of altering components in the advertising mix. In a BrandVision study, telephone interviews are conducted on a continuous schedule so that changes in consumers' thinking can be quickly spotted and appropriate adjustments made. The Conversion Model, which the Registrant has an exclusive license for in the United States and Canada and has sublicensed to a third party in the European Economic Community, is a product that examines the dimensions that lock consumers to their current product choice and thereby measures consumers' strength of commitment to a given brand and their susceptibility of conversion to another brand. MarkeTest 2000 is a sales forecasting system which combines consumer reactions with brand category data and marketing plans to estimate sales potential for new product concepts, particularly those in the early stages of the product development process. Compete is a PC-based multimedia concept database system which enables clients to query a database of their proprietary concept test results. BehaviorScope is a service which provides insights into consumer behaviors related to usage of products or services and competitors.
(1) Clients
Clients are served on a confidential basis under agreements for individual projects which are negotiated on the basis of estimates prepared by the Registrant. Inasmuch as profits are determined by the difference between actual costs and the bid submitted to the client, the ability of the Registrant to make a profit is partially dependent on accurate estimates of the costs which will be involved in any project or program. Approximately 87% of the Registrant's business during the year ended December 31, 1996 was with clients for whom the Registrant had performed work during the previous year. In 1996, the top five clients accounted for approximately 26% of total revenues with one client, Procter & Gamble, accounting for 10% of revenues. Groupings of clients, which are located primarily in the United States and Canada, are not meaningful as the Registrant's services do not differ by client type.
(2) Backlog
The Registrant recognizes revenue under the percentage of completion method of accounting. Revenues are recognized as services are performed. The Registrant had unrecognized revenue from contracts in process of approximately $21,855,000 and $19,497,000 for the years ended December 31, 1996 and 1995, respectively.
(3) Competition
The business in which the Registrant is engaged is highly competitive. The industry is characterized by a large number of relatively small organizations and a few large concerns with resources greater than those of the Registrant. The Registrant is also subject to indirect competition from the marketing research departments of clients and potential clients, advertising agencies and consulting firms. The Registrant believes it is among the ten largest custom market research firms in the United States as measured by revenue. The Registrant also believes the principal methods of competition are the ability to properly design the market research project; perform and report on the research project in a short period of time; the quality and consistency of information; and price.
(4) Service Marks
The Registrant believes that all registered service marks and propriety marks are important to its business. The marks Autoquest(R), BrandVision(R), Compete(R), Mail Monitor(R), National ShowCase(R) and TeleNation(R) are registered service marks in the United States. The marks BehaviorScope, Consumer Mail Panel, Data Gage, MarkeTest 2000, Market Facts, MiniScreen, National Telephone Center, OmniMax, PatientFacts and ProductQuest are propriety marks of the Registrant.
Market Facts Canada, Ltd. is the registered owner of the following trademarks in Canada: CATI(R), ADPAC(R), ADPAC II(R), NATIONAL FLEXIBUS(R) and TeleNation(R).
(5) Employees
The Registrant has approximately 575 salaried employees and employs part- time help as required. At December 31, 1996, there were approximately 725 part-time employees. The Registrant has never had a work stoppage and believes it has maintained good employee relations. None of the Registrant's employees are represented by a union. A substantial number of employees are skilled personnel trained in the various facets of market research.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
The headquarters of the Registrant are located at 3040 West Salt Creek Lane, Arlington Heights, Illinois in an office building of approximately 120,000 square feet owned by the Registrant. This location also houses the Registrant's computer facility, service departments, mail panel operations and largest sales office. The property is financed through a mortgage loan discussed in Note 5 of the Notes to Consolidated Financial Statements contained in the 1996 Annual Report to Stockholders and is incorporated herein by reference. Other leased sales offices in the United States are located at 902 Broadway, New York, New York; 65 Madison Avenue, Morristown, New Jersey; 16133 Ventura Boulevard, Encino, California; 1650 Tysons Boulevard, McLean, Virginia; One Apple Hill, Natick, Massachusetts; and 201 East Fifth Street, Cincinnati, Ohio. The Registrant has three leased telephone interviewing facilities located at One Rotary Center, Evanston, Illinois; 4260 Westbrook Drive, Aurora, Illinois; and 1010 Lake Street, Oak Park, Illinois.
Canadian operations are headquartered at 77 Bloor Street West, Toronto, Ontario. This location primarily houses mail panel, telephone interviewing and sales operations. In addition, two smaller leased offices are located at 1200 McGill College, Montreal, Quebec and Royal City Centre, 610 - 6th Street, New Westminster, B.C.
Rental expense for the Registrant's leased locations was approximately $1,334,000 in 1996. Some of the Registrant's leases provide for future increases in rental payments to reflect increases in the lessor's taxes, maintenance, and other operating expenses. The Registrant expects that additional investment in facilities will be necessary to support anticipated growth in business. The Registrant also leases some of its computer and office equipment and vehicles. Additional information regarding the Registrant's obligations under leases is contained in Note 9 of the Notes to Consolidated Financial Statements contained in the 1996 Annual Report to Stockholders and is incorporated herein by reference.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Registrant is a party or of which the property of the Registrant is the subject.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Officers are elected annually in April by the Board of Directors for a period of one year or until successors are duly elected and qualified. The executive officers listed above are as of March 3, 1997.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following section of the Registrant's 1996 Annual Report to Stockholders is hereby incorporated by reference:
Dividends and Market Price Statistics - page 1
This referenced section should be read in conjunction with the Consolidated Financial Statements and related Notes (herein incorporated by reference) on pages 7-17 of the 1996 Annual Report to Stockholders.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following section of the Registrant's 1996 Annual Report to Stockholders is hereby incorporated by reference:
Selected Financial Data - page 1
This referenced section should be read in conjunction with the Consolidated Financial Statements and related Notes (herein incorporated by reference) on pages 7-17 of the 1996 Annual Report to Stockholders.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section of the Registrant's 1996 Annual Report to Stockholders is hereby incorporated by reference:
Management's Discussion and Analysis of Financial Condition and Results of Operations - pages 5-6
This referenced section should be read in conjunction with the Consolidated Financial Statements and related Notes (herein incorporated by reference) on pages 7-17 of the 1996 Annual Report to Stockholders.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are listed below:
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page Number -----------
Consolidated Balance Sheets as of December 31, 1996 and 1995 *
For the years ended December 31, 1996, 1995 and 1994:
Consolidated Statements of Earnings *
Consolidated Statements of Stockholders' Equity *
Consolidated Statements of Cash Flows *
Notes to Consolidated Financial Statements *
Independent Auditors' Report *
* Incorporated by reference to the 1996 Annual Report to Stockholders, filed with the Commission pursuant to Rule 12b-23, portions of which are attached.
Independent Auditors' Report on Schedule 7
Schedule:
II Valuation and Qualifying Accounts for the years ended December 31, 1996, 1995 and 1994 8
All other schedules are not submitted because they are not applicable or not required or because the required information is included in the Consolidated Financial Statements and related Notes in the 1996 Annual Report to Stockholders.
INDEPENDENT AUDITORS' REPORT ----------------------------
To the Stockholders and Board of Directors of Market Facts, Inc.:
Under date of February 25, 1997, we reported on the consolidated balance sheets of Market Facts, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, as contained in the 1996 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1996. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP Chicago, Illinois February 25, 1997
MARKET FACTS, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Registrant is included under the caption "Election of Directors" in the Registrant's proxy statement for the Registrant's 1997 Annual Meeting* and is incorporated herein by reference. Information regarding the executive officers of the Registrant is included under a separate caption at the end of Part I hereof, and is incorporated herein by reference, in accordance with General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K. Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 is included under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant's proxy statement for the Registrant's 1997 Annual Meeting* and is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the above is included under the captions "Remuneration of Named Executive Officers", "Stock Options" and "Employment Agreements" in the Registrant's proxy statement for the Registrant's 1997 Annual Meeting* and is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the above is included in the following sections of the Registrant's proxy statement for the Registrant's 1997 Annual Meeting*, which sections are hereby incorporated by reference:
Voting Securities - page 2
Election of Directors - pages 3 - 6
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding the above is included in the following sections of the Registrant's proxy statement for the Registrant's 1997 Annual Meeting*, which sections are hereby incorporated by reference:
Remuneration of Named Executive Officers - pages 7 and 8
Certain Transactions - pages 10 - 13
__________ * to be filed within 120 days after the end of the Registrant's fiscal year.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements as indexed on page 6. (a) (2) Financial Statement Schedule as indexed on page 6.
The consolidated balance sheets as of December 31, 1996 and 1995, and the consolidated statements of earnings, stockholders' equity and cash flows for the years ended December 31, 1996, 1995 and 1994, together with the report of the independent auditors, and management's discussion and analysis of financial condition and results of operations are contained in the Registrant's 1996 Annual Report to Stockholders, portions of which are filed with this Form 10-K and are incorporated herein by reference.
(a) (3) See list of exhibits set forth in the Index on pages 12 and 13. (b) None. (c) See list of exhibits set forth in the Index on pages 12 and 13. (d) Financial Statement Schedule as indexed on page 6.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized.
MARKET FACTS, INC. - ------------------ (Registrant)
By: TIMOTHY J. SULLIVAN ----------------------- Timothy J. Sullivan Senior Vice President, Treasurer and Assistant Secretary (Principal Financial and Accounting Officer)
Dated: March 24, 1997
Pursuant to the requirements 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 and on the dates indicated.
VERNE B. CHURCHILL - ------------------ ------------------ Verne B. Churchill William W. Boyd Chairman of the Board Director and Director
THOMAS H. PAYNE - --------------- ------------------ Thomas H. Payne Henrik Falktoft President, Chief Executive Officer Director and Director
GLENN W. SCHMIDT - ---------------- ------------------ Glenn W. Schmidt Karen E. Predow Executive Vice President, Assistant Treasurer, Director Assistant Secretary and Director
TIMOTHY J. SULLIVAN - ------------------- ------------------ Timothy J. Sullivan Ned L. Sherwood Senior Vice President, Treasurer Director and Assistant Secretary (Principal Financial and Accounting Officer)
LAWRENCE W. LABASH - ------------------ ------------------ Lawrence W. Labash Jack R. Wentworth Senior Vice President Director and Director
SANFORD M. SCHWARTZ - ------------------- Sanford M. Schwartz Executive Vice President, President of Market Facts - New York, Inc. and Director
March 24, 1997
INDEX TO EXHIBITS
__________________
(1) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1994. (2) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1994. (3) Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1992. (4) Incorporated by reference to Registrant's Form 8-A dated July 3, 1996, commission file number 0-04781. (5) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q/A-1 for the quarterly period ended June 30, 1994. (6) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1995. (7) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996. (8) Incorporated by reference to Exhibit No. (b) of Registrant's Schedule 13E-4 dated June 11, 1996, commission file number 5-20859. (9) Incorporated by reference to Exhibit No. (c)(1) of Registrant's Schedule 13E-4 dated June 11, 1996, commission file number 5-20859. (10) Incorporated by reference to Exhibit No. (c)(2) of Registrant's Schedule 13E-4 dated June 11, 1996, commission file number 5-20859. (11) Incorporated by reference to Exhibit No. (c)(3) of Registrant's Schedule 13E-4 dated June 11, 1996, commission file number 5-20859. (12) Incorporated by reference to Exhibit No. 99(c)(4) of Registrant's Schedule 13E-4 dated June 11, 1996, commission file number 5-20859. (13) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996. (14) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996. * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) of Form 10-K.