ITEM 1. BUSINESS
INTRODUCTION
Information Resources, Inc. and its subsidiaries (collectively 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 United States, 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.
The Company currently generates approximately 75% 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.
Revenues from the Company's U.S. and International Services were as follows for the years ended December 31 (in thousands):
U.S. SERVICES
The Company's U.S. Services include InfoScan product tracking services, related delivery and software product sales, consumer panel services, analytical and consulting services, BehaviorScan product testing services, retail audit services and a variety of applications using 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 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 in the United States generally have multi-year terms, usually of three years or more.
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 for census chains, and its applications can go beyond traditional market tracking uses. Nearly all of IRI's clients' databases in the United States use a census-based projection system.
InfoScan Census revenues also come 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. Other 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 14,800 grocery stores, 14,400 drug stores and 3,000 mass merchandisers in the Company's InfoScan Census U.S. database.
Participating 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, field personnel visit stores and obtain sales information via a manual audit of the stores' product purchases and inventory.
InfoScan Causal Data Collection. 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. For the Company's InfoScan causal data service, the Company continuously collects weekly promotional information from representative retail outlets. Included in the Company's national and local market causal data samples in the U.S. are approximately 4,300 stores in the aggregate, including grocery stores, drug stores, mass merchandisers and convenience stores.
IRI's causal data are collected in the United States by Mosaic InfoForce, L.P., a joint venture company formed during 2000 by IRI and Mosaic Group, Inc., a leading Canadian outsourced marketing services agency with operations in Canada, the United States and Europe. Employees of Mosaic InfoForce, L.P. conduct weekly on-site visits to retail stores participating in the InfoScan service to collect causal information such as in-store promotions and displays. Mosaic InfoForce, L.P. provides additional related services, including custom data collection, custom and syndicated observational audits, and other in-store activities such as light merchandising services.
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, drug 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 data retailer contracts generally have multi-year terms, usually of three or more years, some of which are cancelable either during or after the initial term 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.
InfoScan Advantage. In August 2001, Wal-Mart Stores, Inc. discontinued providing point-of-sale and related data for its U.S. business to all third party data providers, including IRI and The ACNielsen Company. In response, IRI has enhanced its InfoScan service to provide continued insights into Wal-Mart by using IRI's consumer panel data collected directly from Wal-Mart shoppers as a replacement for Wal-Mart's point-of-sale data. This enhanced service, InfoScan Advantage(TM), provides the ability to integrate the Wal-Mart panel data with IRI's InfoScan census-based retail tracking data. IRI began making InfoScan Advantage available to clients beginning in October 2001.
Consumer Panel: The Company also collects consumer purchase and attitudinal information through 65,000 hand held bar-code scanners that it places in households throughout the United States. Collection of purchase data from these bar-code scanners enables the Company to ascertain product movement information from a full spectrum of retail outlets, including stores that either do not have scanners or do not provide point-of-sale data to the Company. In addition to the Company's multi-outlet consumer panel services, the Company also maintains a separate consumer panel of shoppers in its BehaviorScan testing markets in connection with the Company's provision of testing and analytics services. These additional households provide the Company's clients with the means to test and evaluate various marketing programs and the impact of different marketing variables on consumer behavior in a controlled environment prior to a full launch. BehaviorScan households use the same scanner device as the multi-outlet panelists and/or present an identification card when shopping at participating stores, thereby allowing scanners to record specific details of their product
purchases. The Company provides a variety of syndicated and custom databases and analytics utilizing the multi-outlet panel data to provide retailers and manufacturers with insights into consumer purchase behavior. See "Analytical and Consulting Services" below.
Data Processing. With respect to its operations in the United States, United Kingdom, France, Germany, 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'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 or web-based delivery service. Clients taking on-line 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 CPGNetwork(TM), its web-based business intelligence resource that delivers custom reports and relevant industry information via a Company-hosted web site.
Analytical and Consulting Services. The Company emphasizes the provision of experienced and knowledgeable client service personnel to assist clients in the use and interpretation of InfoScan retail tracking data and consumer panel data, as well as in the use of the Company's analytical software. The Company also offers a variety of advanced analytical and consulting services to CPG manufacturers and retailers to evaluate and address critical business decisions. These services are directed at helping clients identify new marketing opportunities, plan and evaluate new or restaged product launches, evaluate the impact of price changes, evaluate opportunities for product line optimization, and evaluate and increase the effectiveness of marketing expenditures. Advanced analytics typically involve the application of sophisticated statistical models to IRI's InfoScan and consumer panel data. These analyses help the clients quantify the sales and profit impact on major sales and marketing decisions. 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.
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. In July 1995, the Company sold its EXPRESS technology and certain software products to Oracle Corporation, while retaining ownership of certain EXPRESS-based sales and marketing software application products for use in the CPG industry. Many of the Company's U.S. and International clients currently use the Oracle(R) EXPRESS-based software application, Oracle(R) Sales Analyzer, 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 is now owned by Oracle. The product provides users with a range of analytical and reporting tools. Through licensing agreements with Oracle, the Company continues to market and distribute certain Oracle EXPRESS software products, including Oracle Sales Analyzer. The Company also licenses its own applications, such as XLerate(TM), 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 revenues are derived from consulting services the Company performs to assist clients with the integration of data into their existing systems.
Oracle is entitled to receive royalties on certain types of Oracle software sublicenses granted by the Company and its distributors; however, prior to July 2001, the Company was not required to pay royalties to Oracle on licenses granted by the Company and its affiliates to CPG end-users for use with data provided by the Company or its affiliates. The Company will be required to pay royalties to Oracle for update and support services provided for sublicenses granted by the Company prior to July 2001, but only to the extent that the Company and the sublicensee elect to receive update and support services from Oracle for such sublicenses after July 2001. IRI has also negotiated new royalty rates to be paid to Oracle for any additional sublicenses of Oracle software products granted by the Company and its distributors to CPG entities during the two-year period beginning July 2001 and for any update and support services provided for such Oracle software products during this same two-year period. Thereafter, Oracle and the Company have agreed to negotiate new royalty rates. For a period of three years from July 2001, the Company also has the right to license certain Oracle
software products, including Oracle Sales Analyzer and Express Server software products, on favorable terms, for the Company's own use and the use of the Company's clients, in connection with the Company's data operations.
The Company's current web offering, CPGNetwork(TM), enables clients to access InfoScan and related data and other personalized content via a web browser. The Company is also developing alternative technologies to deliver its data based on Microsoft(R) technologies. This new delivery platform is expected to increase accessibility to the Company's InfoScan data, improve compatibility with existing technical architectures of the Company's clients and partners, and extend integration with additional data sources. To support the Microsoft technology, the Company is developing a new easy-to-use data retrieval, analysis and reporting suite called InfoPro(TM). InfoPro will allow users to easily access, manipulate and analyze IRI and other data within the familiar environment of the web browser and Microsoft Office(R). InfoPro and CPGNetwork will provide customers a complete end-to-end solution for accessing, analyzing, publishing and integrating IRI and third party data sources.
The Company also markets its proprietary Apollo Space Management System(TM) software to CPG retailers, wholesalers, manufacturers and brokers worldwide to enhance the merchandising understanding and business success of our clients through improved performance at the shelf and throughout the total store. Apollo software is designed to provide store specific solutions and detail to drive improved margin performance. Apollo facilitates an integrated approach which enables customers to drive productivity through integration of IRI data and analytics to assist in the management of retail space, providing a range of tools for space management including assortment planning, data integration and management, category analysis, creation of schematics and web enabled access and distribution.
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 IRI's InfoScan data, consumer panel data and analytics data.
Testing Services. The Company provides a number of in-market testing services primarily for CPG manufacturers, including controlled store testing, matched market testing and BehaviorScan. Controlled store testing involves testing the placement of new products or changes in advertising, shelf location, price or other in-store merchandising conditions in a limited group of test stores. In a matched market test, IRI measures the effects of a client's execution of new marketwide advertising or couponing programs in one or more cities. In both types of testing services, IRI applies statistical analysis techniques to the InfoScan data to measure test results. The Company's BehaviorScan service is a unique test marketing system available in the United States which analyzes consumer purchasing behavior based on exposure to different television advertising plans. BehaviorScan allows CPG manufacturers to measure the impact of different marketing variables on consumer purchase behavior, for both existing and new products, including high-risk new brands and brand restages. 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 proprietary targetable television technology. BehaviorScan is currently available in five U.S. 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.
INTERNATIONAL SERVICES
Through subsidiaries and joint ventures with other leading marketing information firms, the Company in 1992 began offering information services, primarily using scanner-based data, in a number of countries outside of the United States. The Company offers many of the same services internationally as it offers within the U.S., including InfoScan retail tracking services, InfoScan census services, related delivery and software, and analytic and consulting services; however, specific services offered depend upon local country competitive conditions and the general retailer environment. Collection practices for weekly product sales information in the Company's foreign markets are largely scanner-based, although that may vary on a country-by-country basis, depending on scanner data availability. Household panel services are available in European markets from alliance partners of the Company. The Company's major European subsidiaries and joint venture companies, (except, until recently, Germany) 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. In the first quarter of 2002, the Company completed its transition of the German data processing to the Company's data production facilities in the United States.
The Company's only significant competitor offering product tracking services is ACNielsen. (See "Competition" below.) The Company competes with ACNielsen in the markets where the Company has established information services.
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 Sofres plc of the United Kingdom ("TNS") 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. During 2000, the subsidiary acquired a 40% interest in Radar Research Limited ("Radar"), a United Kingdom company that performs testing services in key retailers. TNS owns the remaining 60% of Radar.
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., a wholly owned subsidiary of TNS, 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 data 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. 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 currently owns approximately 74% and GfK owns the balance. During 2001, the Company's funding requirements per the joint venture agreement increased to 100% although GfK will continue to share in certain accounting adjustments through the second quarter of 2002. In 2000, the Company began transitioning data production services for IRI/GfK Retail from GfK's facilities in Nuremberg, Germany to the Company's facilities in Wood Dale, Illinois. This transition was completed in the first quarter of 2002. It 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. The Company currently owns approximately 80% of this company, with GfK owning the balance. In 2001, the Company's funding requirements per the joint venture agreement increased to 100%, although GfK is entitled to 49% of any profits. This company now operates under the name Information Resources GfK B.V. Pursuant to contractual arrangements, the Company provides data 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. reducing its ownership to 10%. The Company's interest was further reduced to 7.6% during 2001 following a capital increase. This company operates household panel services in the Netherlands and Belgium and continues 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., a wholly owned subsidiary of TNS, 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. owning 65%, 32% and 3%, 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.
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.
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. The Company holds an option to increase its ownership interest of MEMRB to 49%.
Asia and Australia. The Company has a joint venture in Japan with Tokyo-based Mitsui & Co., Ltd. to provide information services in Japan. The Company's ownership in the joint venture, which was formed in 1995, was initially 60%. Effective May 1998, Mitsui & Co., Ltd., increased its ownership to 60% and the Company's ownership was reduced to 40%. Until September 2000, the Company also had wholly-owned software distribution subsidiaries in Japan and Australia. The distribution of the Company's proprietary Apollo software products has now been transferred to the joint venture in Japan and an unrelated company in Australia and the businesses of these subsidiaries have been discontinued.
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, Brazil, Chile and Argentina.
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 Apollo(TM), Attitudelink(TM), Attribute Drivers(TM), BehaviorScan(R), Builders(TM) Suite, Choice Drivers(TM), Consumer Knowledge Suite(TM), CouponScan(TM), CPGNetwork(TM), CPGNetwork.com(TM), EZPrompt(R), InfoForce(TM), InfoPro(TM), InfoScan Advantage(TM), InfoScan(R), InfoScan Census(TM), InSite Reporting(TM), IRI Software(TM), Knowledge Group(TM), Mix Drivers(TM), Pilote(TM), Promo Drivers(TM), PromoProphet(TM), PromotionScan(TM), QScan(R), ReviewNet(TM), Reviews Advantage(TM), Sales Web(TM), ScanKey(TM), Shoppers' Hotline(R), Shoppers Hotline Elite(R), Shoppers Hotline EliteNet(TM) and XLerate(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 Company's sale of its EXPRESS technology and line of certain software products to Oracle in July 1995, the Company no longer owns a large portion of the software that is currently 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 expired in July 2001. The Company has negotiated various rights with Oracle to continue to license, sublicense and support Oracle software products beyond July 2001. The Company also has rights to use various trademarks owned by Oracle, including Oracle EXPRESS and Oracle Sales Analyzer. (See "Software and Related Products" above.)
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 granted separate from data contracts generally require payment of license fees in full upon delivery of software. License fees for software licenses granted as part of data contracts are generally received ratably over the term of the data contract.
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 2,600, 2,800 and 2,900 clients using its information services in 2001, 2000 and 1999, respectively. The decline in customers in 2001 is primarily due to invoicing arrangements whereby clients and their affiliates were combined for billing purposes. Most of the Company's clients are CPG manufacturers in the United States or in other 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 32% of the Company's 2001 revenues.
BACKLOG ORDERS
At December 31, 2001, 2000 and 1999, the Company had committed contract revenues for information services of approximately $479 million, $507 million and $507 million, respectively. Backlog revenue to be earned in the immediate year following December 31, 2001, 2000 and 1999 is $237 million, $248 million and $228 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 giving six months written notice by either party, or 2) multi-year contracts either non-cancelable or cancelable only with significant early termination fees, generally by giving 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 that provide national scanner-based product tracking services in the United States to such manufacturers and retailers. In February 2001, VNU N.V. acquired the stock of ACNielsen resulting in a combined company that has access to greater financial resources than the Company and is far larger than IRI in terms of worldwide revenues. In the product tracking services markets across Europe, ACNielsen currently maintains a larger market share in all European countries and is the Company's only competitor. Principal competitive factors include: data quality, reliability, timeliness and comprehensiveness of analytical services and data; 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.
Due to the relatively high fixed cost nature of the Company's operations, erosion of its revenue base could have a significant impact on profitability. From time to time competitive factors such as quality, service and price cause clients to change their providers of retail tracking services. Because of the lag effect between notification by a client of its intent to switch suppliers and actual expiration of its contract, revenue gains and losses are generally not reflected in the financial results until the year following notification of a switch. Therefore, client gains and losses in a given year are a key indicator, but not the only indicator of the following year's performance. Other factors would include availability of new products as well as market conditions for selling non-tracking products such as analytic and store audit services. Certain client decisions in 2001 not to renew business with IRI had a limited or no impact on the Company in 2001 because the termination dates for such contracts occurred late in 2001 or early in 2002. These client losses will adversely impact 2002 results; however, the Company expects to more than offset these losses with the addition of new clients that will begin generating revenue in 2002, as well as from increases in the sales of existing and new products to our current client base.
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, 2001, 2000 and 1999 approximated $11.7 million, $15.8 million and $16.9 million, respectively. All research and development expenditures were expensed as incurred.
PERSONNEL
At December 31, 2001, the Company had approximately 4,000 full-time and 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.
ITEM 2.
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 Bentonville, Arkansas; San Francisco and Los Angeles, California; Norwalk, Connecticut; Atlanta, Georgia; Waltham, Massachusetts; Minneapolis, Minnesota; Fairfield, New Jersey; Winston-Salem, North Carolina; Cincinnati, Ohio; Fort Washington, Pennsylvania as well as from its corporate headquarters in Chicago, Illinois. The Company markets to international clients through subsidiaries, joint ventures and/or offices in Belgium, Canada, Cyprus, France, Germany, Guatemala, Greece, Italy, Japan, Mexico, the Netherlands, Puerto Rico, Spain, United Kingdom and Venezuela as well as through its various distributors.
Principal leased facilities of the Company are as follows:
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On July 29, 1996, IRI filed an action against The Dun & Bradstreet Corp., The A.C. Nielsen Company (now owned by VNU, N.V.) 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 sought to enjoin the Defendants' anti-competitive practices and to recover damages in excess of $350 million, prior to trebling. In procedural rulings, the District Court dismissed IRI's claims for injury suffered from Defendants' activities in foreign markets, where IRI operates through subsidiaries, and denied IRI leave to join such subsidiaries as parties. IRI has appealed these rulings and expects a decision from the United States Court of Appeals for the Second Circuit by mid-2002. The Company continues to vigorously prosecute its claims for injuries in the U.S. and other markets, which the Company believes to be substantial.
As previously reported, in 1999 IRI filed an action against Manugistics, Inc. in the Circuit Court of Cook County, Illinois. In this action IRI was seeking damages for Manugistics' alleged breach of a Data Marketing and Guaranteed Revenue Agreement and a related Non-Competition and Non-Solicitation Agreement. In December 2001, IRI and Manugistics settled their dispute under these agreements. Pursuant to the settlement agreement, Manugistics agreed to pay IRI a total of $8.625 million. Of this amount, $4.75 million is to be paid in cash installments, with the last installment coming due on or before April 1, 2002. To date, Manugistics has paid $3.75 million of this cash amount. Manugistics also agreed to issue shares of its common stock representing the remaining $3.875 million (the "Settlement Shares"). On February 26, 2002, Manugistics issued the Settlement Shares to IRI. All of the Settlement Shares were sold by IRI for $3.875 million, net of commissions on March 1, 2002.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT
All of the foregoing executive officers hold office until the next annual meeting of the Board of Directors and until their successors are elected and qualified.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 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:
The last sale price on February 28, 2002 was $8.74 per share. As of February 28, 2002 there were 1,563 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 purchase or redemption of Common Stock. (See Note 9 of the Notes to the Consolidated Financial Statements.)
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
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(1) In 1997, the Company and GfK formed a new company, IRI/GfK Retail, of which the Company has an approximate 74% ownership interest. IRI/GfK Retail purchased the German retail tracking business of GfK Panel. In 1999, the Company's funding requirements per the joint venture agreement increased to 80% and subsequently increased to 100% in 2001.
In 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 65% of IRI-Spain.
In 1998, the Company increased its ownership from 19.9% to 51% and then to 80% in 1999 in a joint venture which offers a retail tracking service to the Netherlands market. In 2001, the Company's funding requirements increased to 100%, although GfK is entitled to 49% of any profits.
In 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) During 2001, the Company recorded net charges aggregating $15.4 million reflecting $17.4 million of charges relating to its restructuring programs and $2.0 million of other income resulting from the settlement of the dispute with Manugistics. During 2000, the Company recorded charges aggregating $14.5 million relating to its restructuring program and ($0.9) million relating to other charges. 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 4 and 11 of the Notes to Consolidated Financial Statements).
(3) 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 a $7.9 million charge which represents the fair market value of the common stock contribution. (See Note 1 of the Notes to Consolidated Financial Statements).
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview: The Company's market is very competitive and revenue growth is achieved primarily through the offering of new products and services. Revenues are also affected in any given year by the net effect of client gains and losses. The impact of client gains and losses has 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 there is generally a period of transition between the date a client makes a contract decision and the effective date of the agreement. 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.
Operations: Consolidated revenues in 2001 increased 4.7% over 2000 while 2000 revenues decreased 2.8% over 1999. 2001 net losses were $3.9 million ($5.8 million earnings before restructuring and other items) compared to losses of $7.5 million ($0.4 million earnings before restructuring and other items) in 2000 and losses of $18.4 million ($1.2 million earnings before Defined Contribution Plan expense and restructuring and other items) in 1999.
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 operating performance. A comparative analysis of consolidated revenues and operating results for the years ended December 31, 2001, 2000 and 1999 follows (in thousands):
Revenues from the Company's U.S. services business in 2001 were 5.6% higher than in 2000, while revenues in 2000 were 4.5% lower than in 1999. The increase in 2001 revenue was primarily due to a 17.1% increase in analytic and panel revenue, a 2.8% increase in retail tracking services driven primarily by the growth of the Company's web access portal, CPGNetwork, and a 10.7% increase in retail audit services. Certain client decisions in 2001 not to renew business with IRI had a limited or no impact on the Company in 2001 because the termination dates for such contracts occurred late in 2001 or early in 2002. These client losses will adversely impact 2002 results; however, the Company expects to more than offset these losses with the addition of new clients that will begin generating revenue in 2002 as well as from increases in the sales of existing and new products to our current client base. The decline in revenue in 2000 was primarily due to the delayed effect of 1999 client losses partially offset by revenue from new clients in 2000 and additional revenues from many existing clients.
U.S. operating results before restructuring and other items increased 63.5% in 2001 due to a 5.6% increase in revenues partially offset by a 3.2% increase in expenses. Expense increases include compensation and benefits including incentive compensation due to improved operating results. These increases were offset by reductions in travel, recruiting and office expenses. U.S. operating results before restructuring and other items decreased 38.3% in 2000, due to the 4.5% decline in revenues partially offset by a 2.3% decline in expenses. 2000 expenses were reduced over the prior year primarily as a result of the Project Delta cost reduction initiatives undertaken during 2000. 2000 expenses were lower for compensation and benefits and recruiting and office expenses. However, the Company incurred certain other planned additional costs, including the upgrade of its data center capacity, partially offsetting the Project Delta cost reductions.
On May 1, 2001, Wal-Mart announced its decision, effective as of the beginning of August, 2001, to discontinue providing point-of-sale and related data for its U.S. business to all third party data providers, including the Company and ACNielsen. The Company has developed an alternative data solution for its customers that replaces Wal-Mart sample-based point-of-sale scanner data with the Company's consumer panel data. The Company believes that it was the first to market and release an alternative solution to Wal-Mart point-of-sale data to the marketplace. The Company began introducing its solution, InfoScan Advantage, to clients in October 2001.
While management believes its solution is the best available solution in the marketplace for Wal-Mart scanner point-of-sale data, it does not provide the granularity of Wal-Mart point-of-sale data. IRI is continuing to review and develop enhancements to this service that are targeted to improving data accuracy and maximizing the value of the data. Although the Company's InfoScan Advantage panel solution has only recently been made available to the marketplace, management believes that it will be a reasonable substitute for the Wal-Mart scanner data, particularly for the larger product categories on which IRI reports. However, many of the Company's clients are continuing to evaluate IRI's InfoScan Advantage solution. If, based on the level of acceptance, the marketplace does not view the Company's solution as a reasonable substitute for Wal-Mart scanner data, the Company's revenues and results of operations could be materially impacted.
International services revenues in 2001 increased by 1.9%, 6.0% in local currency over 2000. Revenues in 2000 increased 2.7%, 15% in local currency, over 1999. Operating results, before restructuring and other items, for the Company's International businesses reflected a $1.4 million loss for 2001 compared to the 2000 loss of $1.3 million. Revenue growth continued in 2001 in the Company's European markets, primarily in the U.K., France, Italy and Spain. Expense increases in 2001 of 5.0% on a local currency basis partially offset the favorable impact of revenue growth. International operating results, before restructuring and other items, reflected a $1.3 million loss in 2000 compared to a $9.2 million loss in 1999. The reduced loss in 2000 was principally due to the continued European revenue growth primarily in the U.K., France, Italy, Spain and the Netherlands.
Year Ended December 31, 2001: Consolidated net losses were $3.9 million in 2001 compared to net losses of $7.5 million in 2000. The 2001 net loss decreased primarily due to higher revenues, which outpaced increases in operating and restructuring expenses. Results in 2001 reflect a net after tax charge of $9.7 million for restructuring and other items compared to $7.9 million in 2000. (See further discussion of restructuring and other items below.)
Consolidated revenues increased 4.7% to $555.9 million in 2001. U.S. revenues increased 5.6% primarily due to increases in analytic, CPGNetwork and retail tracking services revenue. International revenues increased 1.9% over 2000, reflecting continued growth in the Company's European markets, primarily in the U.K., France, Italy and Spain. However, international revenue growth in local currency was 6.0%, reflecting the strength of the U.S. dollar versus European currencies.
Consolidated cost of information services sold increased by $19.8 million, or 4.2%, to $493.9 million in 2001. The increase is primarily attributable to increases in compensation and benefits, and market operations resulting from increased revenues. These
increases were offset by declines in office and travel expenses. Additionally, the strength of the U.S. dollar versus European currencies favorably impacted expenses.
Consolidated selling, general and administrative expenses decreased by $4.0 million, or 7.2%, to $51.4 million for 2001. The decrease is primarily attributable to declines in recruiting and office expenses.
Restructuring and other items are discussed below.
Interest and other expenses were $3.1 million for 2001 compared to $3.6 million in 2000. The decrease in 2001 is due to lower interest expense resulting from decreased bank borrowings offset by higher foreign currency losses. The Company's 2001 income tax benefit was lower than the income tax rates computed using the U.S. Federal statutory rate primarily due to the effects of non-deductible expenses.
Year Ended December 31, 2000: Consolidated net losses were $7.5 million in 2000 compared to net losses of $18.4 million in 1999. The 2000 net loss decreased primarily due to the decline in restructuring and other items over the prior year. Results in 2000 reflect an after tax charge of $7.9 million for restructuring and other items compared to $19.6 million in 1999. (See further discussion of restructuring and other items below.) The 2000 results reflect a 2.8% decrease in revenues, primarily due to the delayed impact of 1999 client losses, offset by a 3.0% decrease in operating expenses, primarily the result of the Company's Project Delta cost reduction initiatives.
Consolidated revenues decreased 2.8% to $530.9 million in 2000. U.S. revenues decreased 4.5% primarily due to the delayed effect of 1999 client losses partially offset by revenue from new clients in 2000 and increased revenues from existing clients. International revenues increased 2.7% over 1999 reflecting continued growth in the Company's European markets, primarily in the U.K., France, Italy, Spain and the Netherlands. However, international revenue growth in local currency was 15%, reflecting the strength of the U.S. dollar versus European currencies.
Consolidated cost of information services sold decreased by $17.1 million, or 3.5%, to $474.2 million in 2000. The decrease is primarily attributable to Project Delta cost reduction initiatives. These savings for the most part were realized through reduced headcount and lower compensation and other employee benefit costs. Additionally, the strength of the U.S. dollar versus European currencies favorably impacted expenses.
Consolidated selling, general and administrative expenses increased by $0.5 million, or 1.0%, to $55.4 million for 2000.
Restructuring and other items are discussed below.
Interest and other expenses were $3.6 million for 2000 compared to $1.5 million in 1999. The increase in 2000 is due to a combination of increased bank borrowings, primarily to fund cash restructuring charges, as well as foreign currency losses. The Company's 2000 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current cash resources include its $13.7 million consolidated cash balance and $55.5 million available under the Company's 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, which contains covenants restricting the Company's ability to incur additional indebtedness, expires in October 2002. Management believes a substantially similar credit facility will be negotiated however, liquidity and capital resources could be impacted if the Company is unable to negotiate a credit facility having substantially similar terms to its existing agreement. Also, if the Company violates a covenant that the bank group is unwilling to waive, and the bank group declares a default under the credit agreement, liquidity could be negatively impacted.
Cash Flow for the Year Ended December 31, 2001: Consolidated net cash provided by operating activities was $179.7 million for the year ended December 31, 2001 compared to $143.9 million in 2000. In addition to improved earnings in 2001, a significant portion of this increase is attributable to a $10.9 million cash payment received by the Company as an early termination fee on a client contract that was to expire in 2005. Net cash provided by operating activities was also higher due to improved working capital
management in 2001. Consolidated cash used in net investing activities was $154.9 million in 2001 compared to $148.2 million in 2000. Investing activity in 2001 reflects higher payments for U.S. convenience and drug store data and higher retailer payments in the U.K. and France. Additionally, 2001 investing activity reflects reduced capital contributions from minority partners. 2001 investing activity also includes payments of $3.7 million made in connection with the formation of Mosaic InfoForce, L.P. Net cash provided before financing activities was $24.7 million in 2001 compared to a net cash use before financing activities of $4.3 million in 2000. Consolidated cash used by net financing activities was $22.6 million in 2001 compared to net cash provided by financing activities of $8.4 million in 2000. The Company repaid $21.0 million under its revolving line of credit during 2001 and purchased $0.2 million of the Company's stock compared to borrowings of $11.0 million and $0.9 million of stock purchases in 2000.
Cash Flow for the Year Ended December 31, 2000: Consolidated net cash provided by operating activities was $143.9 million for the year ended December 31, 2000 compared to $157.7 million in 1999. Although the net loss was lower in 2000, operating cash flow in 2000 included the funding of restructuring charges accrued at the end of 1999. Consolidated cash used in net investing activities was $148.2 million in 2000 compared to $165.2 million in 1999. Investing activity in 2000 reflects lower expenditures for data procurement, capital and software costs. These lower expenditures were partially offset by payments of $3.8 million made in connection with the formation of Mosaic InfoForce, L.P. and the Company's United Kingdom subsidiary's $0.9 million investment in Radar Research Limited. Net cash used before financing activities was $4.3 million in 2000 and $7.5 million in 1999. Consolidated cash provided by net financing activities was $8.4 million in 2000 compared to $5.9 million in 1999. The Company borrowed $11.0 million under its revolving line of credit during 2000 and purchased $0.9 million of the Company's stock compared to borrowings of $6.3 million and $1.2 million of stock purchases in 1999.
Financings: During October 2001, the Company amended certain financial covenants and other terms and conditions of its $60 million bank revolving credit facility. The amended facility has floating rate options at or below prime and commitment fees of up to 0.5% payable on the unused portion and a termination date of October 2002. The weighted average interest rate at December 31, 2001 was 6.58%. Under the amended credit facility, the maximum commitment of funds available for borrowings is limited by a defined borrowing base formula related to eligible accounts receivable. The facility is secured by the Company's assets.
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 $3.7 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.
Contractual Obligations and Commercial Commitments: Following is a summary of the Company's commitments as of December 31, 2001 (in thousands):
Common Stock Repurchase Program: During 2000, the Company began acquiring shares of its Common Stock in connection with a stock repurchase program announced in August 2000 that was established to acquire shares to fund the Company's 2000 Employee Stock Purchase Plan ("ESPP"). The program, approved by the Company's Board of Directors, authorized the periodic repurchase of up to one million shares of its Common Stock on the open market, or in privately negotiated transactions, depending upon market conditions and other factors. During 2001, the Company purchased 40,000 shares of Common Stock aggregating $0.2 million at an average cost of $5.50 per share. The Company purchased 158,700 shares of Common Stock aggregating $0.9 million during 2000 at an average cost of $5.88 per share. During 2001 and 2000, the Company sold 199,720 shares, 40,000 shares of which were held in treasury and the remainder of which were newly issued shares, and 158,827 shares, respectively, of Common Stock for $0.8 million and $0.4 million, respectively, to employees participating in the ESPP.
Other Deferred Costs: Consolidated deferred data procurement expenditures were $129.0 million, $124.8 million and $130.2 million for the years ended December 31, 2001, 2000 and 1999, respectively. These expenditures are amortized over a period of 28 months, which is the average number of months of back-data provided to clients, 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. Deferred data procurement expenditures for the Company's U.S. services business were $76.4 million, $74.7 million and $80.7 million for the years ended December 31, 2001, 2000 and 1999, respectively. The increase in deferred data procurement expenditures in 2001 over the prior year is primarily due to higher payments for convenience and drug store data. The Company's International services business deferred data procurement expenditures were $52.6 million, $50.1 million and $49.5 million for the years ended December 31, 2001, 2000 and 1999, respectively. The increase is primarily attributable to increases in retailer payments in the U.K. and France.
Capital Expenditures: Consolidated capital expenditures were $20.9 million, $19.8 million and $31.1 million for the years ended December 31, 2001, 2000 and 1999, respectively. Capital expenditures for the Company's U.S. services business were $16.5 million, $14.0 million, and $25.7 million, while depreciation expense was $24.4 million, $25.2 million and $22.3 million for the years ended December 31, 2001, 2000 and 1999, respectively. Additionally, the Company acquired computer software licenses during 2001 for $4.8 million in exchange for long-term obligations. During 2000, the Company acquired mainframe computer equipment in exchange for a capital lease obligation recorded at $7.4 million. The Company's International services business capital expenditures were $4.4 million, $5.8 million and $5.4 million, while depreciation expense was $4.5 million, $4.6 million and $4.7 million for the years ended December 31, 2001, 2000 and 1999, respectively.
Consolidated capitalized software development costs, primarily in the U.S., were $2.1 million, $1.6 million and $7.3 million for the years ended December 31, 2001, 2000 and 1999, respectively. The decline in capitalized software costs is primarily due to the Company's 1999 decision to discontinue all selling activities relating to certain of IRI's internally developed trade promotion software.
NOL & Tax Credit Carryforwards: As of December 31, 2001, the Company had cumulative U.S. federal taxable net operating loss ("NOL") carryforwards of $95.4 million which expire primarily in 2009, 2011 and 2020. At December 31, 2001 the Company also had U.S. tax credit carryforwards of $6.8 million, $5.4 million of which expire between 2002 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, 2001, various foreign subsidiaries of IRI had aggregate foreign taxable NOL carryforwards which had not been deducted in the U.S. tax returns of $0.6 million which expire between 2009 and 2011.
The Company has reduced the deferred tax liabilities in its consolidated financial statements by the deferred tax assets related to its U.S. federal and state NOL carryforwards and certain foreign NOL carryforwards. The Company expects to realize these deferred tax
assets primarily from future recognition of substantial taxable income resulting from the reversal of $77.2 million of existing net temporary differences.
Impact of Inflation: Inflation has slowed in recent years, however the Company's results of operations are impacted by rising prices given the labor intensive nature of the business. 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require management to make estimates and assumptions. Management believes that of the Company's significant accounting policies as disclosed in Note 1 of the Notes to Consolidated Financial Statements, the following affect its more significant judgments and estimates used in the preparation of the consolidated financial statements.
Allowance for Bad Debts: IRI maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its clients to make required payments. If the financial condition of the Company's clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. No client accounted for 10% or more of consolidated revenue in 2001, 2000 or 1999.
Deferred Taxes: The Company has significant net operating loss carryforwards that result in a deferred tax asset. The asset has been reduced by a valuation allowance to an amount that is more likely than not to be realized. Realization of the asset is primarily dependent on the future recognition of substantial taxable income resulting from the reversal of existing net temporary differences. However, in the event that IRI was to determine the deferred tax asset would not be realized, a material adjustment to the deferred tax asset could be required.
Deferred Data Procurement Costs: IRI capitalizes data procurement expenditures as an asset and amortizes the expenditures over a period of 28 months, which is the average number of months of back-data provided to clients. Capitalized costs 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 asset is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An estimate of the undiscounted future cash flows produced by the asset is compared to the carrying value to determine whether an impairment exists. If estimates of cash flows change in the future, the Company may be required to reduce the carrying value of the asset resulting in an expense in the Statement of Operations.
RESTRUCTURING AND OTHER ITEMS
Since 1999, the Company has undertaken three major initiatives as described below resulting in incremental, one-time expenditures that have been classified as restructuring expenses in the Statement of Operations.
Project Delta: In the third quarter of 1999, the Company initiated a comprehensive program named Project Delta, the objective of which was 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 the 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 the charge included (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 were discontinued; and (iii) the disposition of excess office space. The cost reduction program implementation began in the first quarter 2000 and ended during the third quarter of 2001. The Company realized cost savings from Project Delta of $30.0 million in 2000 and an additional $10.0 million in 2001, before the impact of certain other planned cost increases.
A restructuring accrual was established in the fourth quarter of 1999 to reflect the outstanding obligations related to the fourth quarter 1999 restructuring charges. Certain restructuring costs were not eligible for accrual in 1999 in accordance with EITF Issue No. 94-3 and were recorded during 2000 and 2001.
Transition of German Production to U.S. Facility: The Company made the decision in the fourth quarter of 1999 to transfer production services for IRI/GfK Retail from an external vendor in Germany to the Company's U.S. headquarters facility in order to enhance its InfoScan offering in Germany and to reduce future production costs. The transition of German production to the U.S. facility began in the first quarter of 2000 and was completed in the first quarter of 2002.
Information Technology Rearchitecture: During the fourth quarter of 2001, the Company began a review of its information technology operations to assess potential restructuring costs and benefits. This review is expected to be completed early in the second quarter of 2002. The review will include initial assessments of database design, transition planning and cost and savings estimates.
The following tables reflect restructuring and other items incurred during 2001, 2000 and 1999 and all cash payments made to date (in thousands):
RESTRUCTURING CHARGES
Termination Benefits: In the fourth quarter of 1999, the Company decided to terminate approximately 325 full-time positions during 2000, impacting virtually all areas of the U.S. business, including operations, client services, technology and marketing, as well as corporate headquarters. The Company recorded a charge of $8.4 million in 1999 for termination benefits as communications of such benefits had been made to affected employees. Additional provisions of $1.4 million and $3.6 million have been made in 2001 and 2000, respectively, to cover retention and relocation incentive costs that were not eligible for accrual at December 31, 1999. As of December 31, 2001, 397 employees have been terminated under various Project Delta initiatives.
Discontinued Activities: During the third quarter of 2000, it was determined that certain equipment used in the Company's U.S. operations to collect retail information would no longer be utilized after the second quarter of 2001. Accordingly, the Company recognized a non-cash charge of $2.0 million in 2001 and 2000 relating to accelerated depreciation on this equipment.
During 2000, the Company ceased operations of entities in Japan (IRI Apollo K.K.) and Australia (Information Resources Australia Pty, Ltd.) which were responsible for distributing Apollo software. The Company entered into agreements with its 40% owned affiliate, Information Resources Japan Ltd. and an unrelated company in Australia to distribute its Apollo software. In connection with the cessation of local operations, the Company incurred charges during 2000 of $0.7 million and $1.0 million relating to the Japan and Australia businesses, respectively.
In 1999, the Company wrote off $8.6 million of assets related to discontinued activities of the U.S. business. This charge consisted 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. The Company decided to discontinue all selling activities related to its internally developed trade promotion software based on discounted future cash flow estimates. As a result of this decision, the net book value of the trade promotion software assets was written off in the fourth quarter of 1999. The Company's consumer panel business had consisted of 55,000 households that utilized hand-held scanners to record their product purchases ("Multi-outlet Panel") and shoppers from approximately 60,000 households that presented 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.
Disposition of Excess Office Space: As a result of planned headcount reductions and space not currently utilized, office space was reduced. The Company recorded $0.02 million, $0.6 million and $1.5 million of charges in 2001, 2000 and 1999, respectively, relating to accelerated depreciation on leasehold improvements and furniture and fixtures and lease buyouts associated with these facilities.
Other Restructuring Costs: Other restructuring costs in 2001 and 2000 relate primarily to consulting fees paid to third parties for assistance in the identification of process improvements and efficiencies within the U.S. operations.
Transition of German Production to U.S. Facility: During 2001 and 2000, charges of approximately $7.8 million and $4.7 million, respectively, were recorded related to the transition of German production to the U.S. facility. These costs consist primarily of parallel processing and temporary workforce expenses. The transition was completed in the first quarter of 2002.
Information Technology Rearchitecture: 2001 costs relate to consulting fees paid to a third party incurred in connection with the rearchitecture project.
Future Restructuring Charges: The Company expects to incur additional costs in the first quarter of 2002 of $5.0 million to $6.0 million relating to the review of the Company's information technology operations and approximately $1.5 million to $2.0 million in the second quarter of 2002. Restructuring charges for the information technology review will cease at the end of the second quarter of 2002. Charges for the first quarter of 2002 to complete the transition of German production to the U.S aggregated $1.1 million.
OTHER ITEMS
Dispute Settlement: During the fourth quarter of 2001, the Company settled a dispute with Manugistics, Inc. as further discussed in Note 11, Legal Proceedings, of the Notes to Consolidated Financial Statements. Manugistics agreed to pay IRI a total of $8.625 million, resulting in a gain of $2.0 million which is reflected as other income in Restructuring and Other Items.
Asset Impairments: In the fourth quarter of 1999, Restructuring and Other Items included a $0.9 million charge for a non-current receivable reserve. This reserve was reversed during 2000 pursuant to a settlement agreement reached with the other party.
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 Items.
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 resulted in the Company recording an expense of $7.9 million in the fourth quarter of 1999 which represented 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 were 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 1999, $5.5 million, $2.1 million and $0.3 million related to the U.S. Services, International Services, and Corporate segments of the business, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations," effective for acquisitions after June 30, 2001, and No. 142, "Goodwill and Other Intangible Assets," which is effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill, the excess of the carrying value over the net book value of investments accounted for using the equity method, and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of Statement No. 142 is expected to result in an increase in net income of approximately $900 thousand ($.03 per share) per year. The Company will perform the first of the required impairment tests of goodwill during the first six months of 2002, and has not yet determined what effect, if any, these tests will have on the earnings and financial position of the Company.
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 replaces the sovereign currencies ("legacy currencies") of eleven 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.
Although the Company has operations in several of the participating countries, IRI has not incurred any material costs relating to system modifications and does not anticipate any material increase in transaction costs. 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.
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, competitive conditions, marketplace acceptance of IRI's solution for replacing Wal-Mart point-of-sale data, potential loss of ongoing supply of point-of-sale data from other cooperating retailers, changes in client spending for the non-contractual services the Company offers, the success of technology alternatives currently being developed or implemented by the Company to provide access to Company data, other technology changes that may impact Company services, 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the consolidated financial position, results of operations or cash flows of the Company due to adverse changes in financial rates. The Company is exposed to market risk in the area of foreign exchange and interest rates.
Foreign Currency Exchange Rates: The Company operates and conducts business in several foreign countries, primarily in 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. The Company does not currently maintain any interest rate hedge agreements.
ITEM 8.
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:
Financial statement schedule is included on page 49 preceding the signature page of this report (see Item 14).
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, 2001 and 2000 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, 2001. 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, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, 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 5, 2002, except for Note 11 as to which the date is March 1, 2002
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
The accompanying notes to consolidated financial statements are an integral part of these statements.
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes to consolidated financial statements are an integral part of these statements.
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31,
The accompanying notes to consolidated financial statements are an integral part of these statements.
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes to consolidated financial statements are an integral part of these statements.
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
BUSINESS
Information Resources, Inc. and its subsidiaries (collectively 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 primarily in the U.S. and Europe. 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. Minority interests reflect the non-Company owned stockholder interests in IRI/GfK Retail Services GmbH (Germany) ("IRI/GfK Retail"), Information Resources GfK B.V. (the Netherlands) and Information Resources Espana, S.L. (Spain). The equity method of accounting is used for investments in which the Company has a 20% to 50% ownership interest because it exercises significant influence over operating and financial policies. All significant intercompany accounts and transactions have been eliminated in consolidation. The excess of the carrying value over the net book value of investments accounted for using the equity method is amortized over ten years (see recent accounting pronouncements below).
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.
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 giving six months written notice by either party; or 2) multi-year contracts either non-cancelable or cancelable only with significant penalties, generally by giving 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 license of software application products, or products licensed 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.
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, 2001, 2000 and 1999 approximated $11.7 million, $15.8 million and $16.9 million, respectively. All research and development expenditures were expensed as incurred.
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
BENEFIT 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 $2.6 million, $2.8 million and $3.0 million in 2001, 2000 and 1999, 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 resulted in the Company recording an expense of $7.9 million in the fourth quarter of 1999 which represented 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 were 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 1999, $5.5 million, $2.1 million and $0.3 million related 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, 2001 and 2000, 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 of their estimated service lives or the terms of their respective lease agreements. Estimated useful lives are as follows:
OTHER ASSETS
Other assets include deferred data procurement costs, intangible assets and capitalized costs of software held for sale. Data procurement costs are amortized over a period of 28 months, which is the average number of months of back-data provided to clients, 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 and solicitation rights which arose from acquisitions, investments or strategic alliances. Goodwill is amortized on a straight-line basis over periods from ten to twenty years (see recent accounting pronouncements below). Solicitation rights are amortized on a straight-line basis over the expected useful lives of six to ten years. The Company capitalizes costs incurred for computer software to be sold in accordance with Statement of
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Financial Accounting Standards No. 86. 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 exceeding 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 wrote off certain assets as described in Note 4. Such charges were classified as Restructuring and Other Items in 1999 in the Statement of Operations.
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.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's foreign operations are measured using local currency as the functional currency. Accordingly, assets and liabilities have been translated into U.S. dollars at the rates of exchange at the balance sheet date and revenues and expenses have been translated at average exchange rates prevailing during the period. Translation gains and losses are deferred as a separate component of stockholders' equity while foreign currency transaction gains and losses are included in determining net earnings.
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 years ended December 31, 2001, 2000 and 1999, all stock options, aggregating 9,013,672 shares, 8,704,117 shares and 7,451,373 shares, respectively, were excluded from the weighted average shares outstanding calculation because they were anti-dilutive.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation expense for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations," effective for acquisitions after June 30, 2001, and No. 142, "Goodwill and Other Intangible Assets," which is effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill, the excess of the carrying value over the net book value of investments accounted for using the equity method, and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of Statement No. 142 is expected to result in an increase in net income of approximately $900 thousand ($.03 per share) per year. The Company will perform the first of the required impairment tests of goodwill during the first six months of 2002, and has not yet determined what effect, if any, these tests will have on the earnings and financial position of the Company.
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUPPLEMENTAL CASH FLOW INFORMATION
Interest expense paid and income taxes paid (refund received) during the years ended December 31 were as follows (in thousands):
Non-cash investing and financing activities are excluded from the consolidated Statements of Cash Flows. During 2001, the Company acquired computer software licenses for $4.8 million in exchange for long-term obligations. During 2000, the Company acquired mainframe computer equipment in exchange for capital lease obligations recorded at $7.4 million. In 2000, the Company also capitalized $3.7 million as an investment relating to the formation of the Mosaic InfoForce, L.P. joint venture in exchange for an obligation due in 2001.
3. JOINT VENTURES
During 2000, the Company and Mosaic Group, Inc. formed a joint venture company, Mosaic InfoForce, L.P. ("MIF"), in which the Company currently has a 49% ownership interest and Mosaic Group, Inc. owns the remainder. The Company's domestic causal and custom audit data collection and merchandising business is operated by MIF. The Company capitalized $7.4 million in connection with the formation of MIF, which is being accounted for using the equity method of accounting. As of December 31, 2001, IRI has guaranteed $3.1 million of MIF equipment capital leases. The capital leases have varying expiration dates through 2004.
4. RESTRUCTURING AND OTHER ITEMS
Since 1999, the Company has undertaken three major initiatives as described below resulting in incremental, one-time expenditures that have been classified as restructuring expenses in the Statement of Operations.
Project Delta: In the third quarter of 1999, the Company initiated a comprehensive program named Project Delta, the objective of which was 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 the 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 the charge included (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 were discontinued; and (iii) the disposition of excess office space. The cost reduction program implementation began in the first quarter of 2000 and was completed during the third quarter of 2001. A restructuring accrual was established in 1999 to reflect certain of the outstanding obligations related to 1999 restructuring charges. Certain restructuring costs were not eligible for accrual in 1999 and were recorded during 2000 and 2001.
Transition of German Production to U.S. Facility: The Company made the decision in the fourth quarter of 1999 to transfer production services for IRI/GfK Retail from an external vendor in Germany to the Company's U.S. headquarters facility in order to enhance its InfoScan offering in Germany and to reduce future production costs. The transition of German production to the U.S. facility began in the first quarter of 2000 and was completed in the first quarter of 2002.
Information Technology Rearchitecture: During the fourth quarter of 2001, the Company began a review of its information technology operations to assess potential restructuring costs and benefits. This review is expected to be completed early in the second quarter of 2002. The review will include initial assessments of database design, transition planning and cost and savings estimates.
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following tables reflect restructuring and other items incurred during 2001, 2000 and 1999 and all cash payments made to date (in thousands):
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
RESTRUCTURING CHARGES
Termination Benefits: In the fourth quarter of 1999, the Company decided to terminate approximately 325 full-time positions during 2000, impacting virtually all areas of the U.S. business, including operations, client services, technology and marketing, as well as corporate headquarters. The Company recorded a charge of $8.4 million in 1999 for termination benefits as communications of such benefits had been made to affected employees. Additional provisions of $1.4 million and $3.6 million have been made in 2001 and 2000, respectively, to cover retention and relocation incentive costs that were not eligible for accrual at December 31, 1999. As of December 31, 2001, 397 employees have been terminated under various Project Delta initiatives.
Discontinued Activities: During the third quarter of 2000, it was determined that certain equipment used in the Company's U.S. operations to collect retail information would no longer be utilized after the second quarter of 2001. Accordingly, the Company recognized a non-cash charge of $2.0 million in 2001 and 2000 relating to accelerated depreciation on this equipment.
During 2000, the Company ceased operations of entities in Japan (IRI Apollo K.K.) and Australia (Information Resources Australia Pty, Ltd.) which were responsible for distributing Apollo software. The Company entered into agreements with its 40% owned affiliate, Information Resources Japan Ltd., and an unrelated company in Australia to distribute its Apollo software. In connection with the cessation of local operations, the Company incurred charges during 2000 of $0.7 million and $1.0 million relating to the Japan and Australia businesses, respectively.
In 1999, the Company wrote off $8.6 million of assets related to discontinued activities of the U.S. business. This charge consisted 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. The Company decided to discontinue all selling activities related to its internally developed trade promotion software based on discounted future cash flow estimates. As a result of this decision, the net book value of the trade promotion software assets was written off in the fourth quarter of 1999. The Company's consumer panel business had consisted of 55,000 households that utilized hand-held scanners to record their product purchases ("Multi-outlet Panel") and shoppers from approximately 60,000 households that presented 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.
Disposition of Excess Office Space: As a result of planned headcount reductions and space not currently utilized, office space was reduced. The Company recorded $0.02 million, $0.6 million and $1.5 million of charges in 2001, 2000 and 1999, respectively, relating to accelerated depreciation on leasehold improvements and furniture and fixtures and lease buyouts associated with these facilities.
Other Restructuring Costs: Other restructuring costs in 2001 and 2000 relate primarily to consulting fees paid to third parties for assistance in the identification of process improvements and efficiencies within the U.S. operations.
Transition of German Production to U.S. Facility: During 2001 and 2000, charges of approximately $7.8 million and $4.7 million, respectively, were recorded related to the transition of German production to the U.S. facility. These costs consist primarily of parallel processing and temporary workforce expenses. The transition was completed in the first quarter of 2002.
Information Technology Rearchitecture: 2001 costs relate to consulting fees paid to a third party in connection with the rearchitecture project.
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
OTHER ITEMS
During the fourth quarter of 2001, the Company settled a dispute with Manugistics, Inc. as further discussed in Note 11, Legal Proceedings. Manugistics agreed to pay IRI a total of $8.625 million, resulting in a gain of $2.0 million which is reflected as other income in Restructuring and Other Items.
In the fourth quarter of 1999, Restructuring and Other Items included a $0.9 million charge for a non-current receivable reserve. This reserve was reversed during 2000 pursuant to a settlement agreement reached with the other party.
During 1999, the Company determined that goodwill relating to IRI/GfK Retail was impaired, resulting in a $4.2 million charge which was included in Restructuring and Other Items.
5. INCOME TAXES
As of December 31, 2001, the Company had cumulative U.S. federal taxable net operating loss ("NOL") carryforwards of $95.4 million which expire primarily in 2009, 2011 and 2020. At December 31, 2001, the Company also had U.S. tax credit carryforwards of $6.8 million, $5.4 million of which expire between 2002 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.
A majority of the foreign pre-tax losses are deducted as partnership losses in IRI's consolidated U.S. Federal income tax return. At December 31, 2001, various other foreign subsidiaries of IRI had foreign taxable NOL carryforwards of $0.6 million which expire between 2009 and 2011.
Domestic losses before income taxes were $6.1 million, $10.0 million and $28.9 million for 2001, 2000 and 1999, respectively. The foreign earnings (losses) before income taxes were $0.8 million, ($3.7) million and ($0.7) million for 2001, 2000 and 1999, respectively.
The income tax benefit relating to the years ended December 31, 2001, 2000 and 1999 consisted of the following components (in thousands):
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets were as follows (in thousands):
Except to the extent that a valuation allowance has been established, the Company expects to realize the deferred tax assets related to its U.S. federal and state NOL carryforwards and certain foreign NOL carryforwards, primarily from the future recognition of substantial taxable income resulting from the reversal of $77.2 million of existing net temporary differences.
The income tax benefit differs from the statutory U.S. Federal income tax rate of 35% applied to losses before income taxes for the years ended December 31, 2001, 2000 and 1999 as follows (in thousands):
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. ACCOUNTS RECEIVABLE
Accounts receivable at December 31 were as follows (in thousands):
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):
The net book value of computer equipment under capital leases aggregated $3.9 million and $6.0 million for the years ended December 31, 2001 and 2000, respectively, and is included in the above amounts. Amortization of assets under capital leases is included in depreciation expense in the accompanying financial statements.
8. INVESTMENTS AND OTHER ASSETS
Investments at December 31 were as follows (in thousands):
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Other assets at December 31 were as follows (in thousands):
Commercial software development costs of $2.1 million, $1.6 million and $7.3 million were capitalized for the years ended December 31, 2001, 2000 and 1999.
9. LONG-TERM DEBT
Long-term debt at December 31 was as follows (in thousands):
During October 2001, the Company amended certain financial covenants and other terms and conditions of its $60 million bank revolving credit facility. The amended facility has floating rate options at or below prime and commitment fees of up to 0.5% payable on the unused portion, and a termination date of October 2002. The weighted average interest rates at December 31, 2001 and 2000 were 6.58% and 8.27%, respectively. Under the amended credit facility, the maximum commitment of funds available for borrowings is limited by a defined borrowing base formula related to eligible accounts receivable. Borrowings under the facility are secured by the Company's assets. The Company had $55.5 million of borrowing availability under the amended revolving credit facility as of December 31, 2001.
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 $3.7 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.
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Capitalized leases and other primarily consist of leases for computer equipment expiring through 2004. Minimum payments under capital lease obligations are as follows (in thousands).
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 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, 2001, 2000 and 1999, 29,397,373, 29,069,892 and 29,068,657 shares of Common Stock, respectively, were issued and outstanding. In connection with the IRI Directors' Plan (see below), 24,893 shares were reserved for future issuance at December 31, 2001. In connection with all IRI employee stock option plans, 10.5 million shares were reserved for issuance at December 31, 2001. These reserved shares were reduced by 9.0 million stock options outstanding at December 31, 2001, resulting in 1.5 million stock options available for grant under the Amended and Restated 1992 Executive Stock Option Plan, the Amended and Restated 1994 Employee Nonqualified Stock Option Plan and the Amended and Restated 1992 Stock Option Plan.
In May 2000, the Company established the 2000 Employee Stock Purchase Plan ("ESPP") providing employees the opportunity to purchase Common Stock of the Company through accumulated payroll deductions. The plan qualifies as an Employee Stock Purchase Plan under Section 423 of the Internal Revenue Code of 1986, as amended. Employees are eligible to purchase Common Stock at the end of an accumulation period at an amount equal to 85% of the fair market value of a share of Common Stock on the first or last day of an accumulation period, whichever is lower. Employees are restricted from trading stock purchased under the ESPP for six months from the date of purchase. During 2001 and 2000, the Company sold 199,720 shares, 40,000 shares of which were held in treasury and the remainder of which were newly issued shares, and 158,827 shares, respectively, of Common Stock for $0.8 million and $0.4 million, respectively, to employees participating in the ESPP.
During 2000, the Company began acquiring shares of its Common Stock in connection with a stock repurchase program announced in August 2000 that was established to acquire shares to fund the Company's ESPP. The program, approved by the Company's Board of Directors, authorizes the periodic repurchase of up to one million shares of its Common Stock on the open market, or in privately negotiated transactions, depending upon market conditions and other factors. During 2001, the Company purchased 40,000 shares of Common Stock, at an average cost of $5.50 per share, aggregating $0.2 million. The Company purchased 158,700 shares of Common Stock, at an average cost of $5.88 per share, aggregating $0.9 million during 2000.
In May 1996, the Company's shareholders approved a stock plan for non-employee directors (the "IRI Directors' Plan"), authorizing the issuance of up to 100,000 shares of Common Stock. Under the IRI 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 12,075, 13,098, and 21,215 shares in 2001, 2000 and 1999 at an average price of $6.51, $5.41 and $8.72 per share, respectively, under the IRI Directors' Plan.
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 Amended and Restated 1994 Employee Nonqualified Stock Option Plan and the Amended and Restated 1992 Stock Option Plan cover 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 Amended and Restated 1992 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 loss and net loss per share for the years ended December 31, 2001, 2000 and 1999 as if an alternate method of accounting as prescribed by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," for stock options had been adopted (in thousands, except per share data):
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 4.55%, 6.15% and 5.5% for 2001, 2000 and 1999, respectively; stock price volatility factor of 71.9%, 69.0% and 61.0% for 2001, 2000 and 1999, 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 2001, 2000 and 1999 was $3.30, $3.19 and $5.01, 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.
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Transactions involving stock options for the Executive and Employee Stock Option Plans are summarized as follows:
Stock options outstanding at December 31, 2001 are as follows:
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. COMMITMENTS, CONTINGENCIES AND LITIGATION
LEASE AGREEMENTS AND OTHER COMMITMENTS
Future minimum lease payments under all operating leases as of December 31, 2001 are as follows (in thousands):
Total rental expense for the years ended December 31, 2001, 2000 and 1999 was $22.3 million, $24.9 million and $27.4 million, respectively.
LEGAL PROCEEDINGS
On July 29, 1996, IRI filed an action against The Dun & Bradstreet Corp., The A.C. Nielsen Company (now owned by VNU, N.V.) 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 sought to enjoin the Defendants' anti-competitive practices and to recover damages in excess of $350 million, prior to trebling. In procedural rulings, the District Court dismissed IRI's claims for injury suffered from Defendants' activities in foreign markets, where IRI operates through subsidiaries, and denied IRI leave to join such subsidiaries as parties. IRI has appealed these rulings and expects a decision from the United States Court of Appeals for the Second Circuit by mid-2002. The Company continues to vigorously prosecute its claims for injuries in the U.S. and other markets, which the Company believes to be substantial.
As previously reported, in 1999 IRI filed an action against Manugistics, Inc. in the Circuit Court of Cook County, Illinois. In this action IRI was seeking damages for Manugistics' alleged breach of a Data Marketing and Guaranteed Revenue Agreement and a related Non-Competition and Non-Solicitation Agreement. In December 2001, IRI and Manugistics settled their dispute under these agreements. Pursuant to the settlement agreement, Manugistics agreed to pay IRI a total of $8.625 million. Of this amount, $4.75 million is to be paid in cash installments, with the last installment coming due on or before April 1, 2002. To date, Manugistics has paid $3.75 million of this cash amount. Manugistics also agreed to issue shares of its common stock representing the remaining $3.875 million (the "Settlement Shares"). On February 26, 2002, Manugistics issued the Settlement Shares to IRI. All of the Settlement Shares were sold by IRI for $3.875 million, net of commissions on March 1, 2002.
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.
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 less than 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.
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, 2001, 2000, and 1999 (in thousands):
IDENTIFIABLE ASSETS:
- ----------
(a) $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.
(b) Restructuring and other items (in millions):
(c) Identifiable corporate assets represent investments. (See Note 8).
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
OTHER CASH FLOW INFORMATION:
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUMMARY OF QUARTERLY DATA (UNAUDITED)
Summaries of consolidated results on a quarterly basis are as follows (in thousands, except per share data):
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
PART III
ITEM 10.
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 2002 annual meeting of stockholders scheduled for May 17, 2002. Information about the Company's executive officers is set forth in Item 4(a) in Part I of this Report.
ITEM 11.
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 2002 annual meeting of stockholders scheduled for May 17, 2002.
ITEM 12.
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 2002 annual meeting of stockholders scheduled for May 17, 2002.
ITEM 13.
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 2002 annual meeting of stockholders scheduled for May 17, 2002.
PART IV
ITEM 14.
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............................................................ 49
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.
Letter agreement dated August 7, 1989 between the Company and Leonard Lodish.
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.
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.
Information Resources, Inc. 1999 Nonqualified Defined Contribution Plan.
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.
Amendment to employment letter agreement dated June 16, 2000 between the Company and Edward Kuehnle.
Amended and Restated 1992 Stock Option Plan, as amended effective June 29, 2000.
1992 Executive Stock Option Plan, as amended effective June 29, 2000.
Amended and Restated 1994 Employee Nonqualified Stock Option Plan, as amended effective June 29, 2000.
Employment letter agreement dated May 19, 2000 between the Company and Mary K. Sinclair.
Form of Employment and Change in Control Agreement between the Company and certain executive officers.
Information Resources, Inc. Directors Deferred Compensation Plan effective May 1, 2000.
Information Resources, Inc. 2000 Employee Stock Purchase Plan effective as of May 19, 2000.
Amendment One to Employment Agreement dated April 30, 1999 between the Company and Joseph P. Durrett.
(b) Reports on 8-K:
None
(c) Exhibits
See Exhibit Index (immediately following the signature page)
SCHEDULE II
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS RESERVE FOR ACCOUNTS RECEIVABLE (IN THOUSANDS)
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 21, 2002
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 21, 2002.
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.