-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PtaqgHRWZe+2eoflx4GGLzOfJd/TBO13+TTomg2ew7l4gkX+VL8jhN9XekCvRGBU Blt0pHNd9/uc1YFqgpvGIg== 0000950137-00-001346.txt : 20000411 0000950137-00-001346.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950137-00-001346 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFORMATION RESOURCES INC CENTRAL INDEX KEY: 0000714278 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 521287752 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-11428 FILM NUMBER: 581621 BUSINESS ADDRESS: STREET 1: 150 N CLINTON ST CITY: CHICAGO STATE: IL ZIP: 60661-1416 BUSINESS PHONE: 3127261221 MAIL ADDRESS: STREET 1: 150 N CLINTON ST CITY: CHICAGO STATE: IL ZIP: 60661-1416 10-K 1 FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 0-11428 --------------------- INFORMATION RESOURCES, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-2947987 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 150 NORTH CLINTON STREET, CHICAGO, ILLINOIS 60661 (Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (312) 726-1221 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: TITLE OF EACH CLASS COMMON STOCK, $.01 PAR VALUE PER SHARE PREFERRED STOCK PURCHASE RIGHTS --------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 29, 2000 (based on the closing price as quoted by NASDAQ as of such date) was $216,960,635. The number of shares of the registrant's common stock, $.01 par value per outstanding share, as of February 29, 2000 was 29,068,657. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for the annual meeting of stockholders to be held May 19, 2000 to be filed pursuant to Regulation 14A are incorporated by reference into Part III of this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS INTRODUCTION Information Resources, Inc. ("IRI"), and its subsidiaries (referred to herein as "IRI" or the "Company"), is a leading provider of universal product code ("UPC"), scanner-based business solutions services to the consumer packaged goods ("CPG") industry, offering services in the U.S., Europe and other international markets. The Company supplies CPG manufacturers, retailers and brokers with information and analysis critical to their sales and marketing operations. IRI provides services designed to deliver value through an enhanced understanding of the consumer to a majority of the Fortune 500 companies in the CPG industry. IRI is also currently exploring ways of integrating the Company's current off-line research with new on-line research capabilities for CPG clients as well as leveraging its core capabilities outside the CPG industry. The Company currently generates approximately 76% of its revenues from sales and services provided in the U.S. These services center in large part around the Company's flagship InfoScan(R) service, which tracks consumer purchasing of products sold in grocery stores, drug stores, mass merchandisers, convenience stores and other retail outlets across the United States. The Company also offers a number of other services to CPG manufacturers, including household-level information collected via consumer panels. One such service is BehaviorScan(R) which is used for the testing and evaluation of alternative marketing strategies and tactics for both new and established products. The Company also offers modeling and other testing services as well as custom analytic and consulting services to enable clients to address critical business issues. Closely related to its information services, the Company also markets various software applications to the CPG industry, including products based on EXPRESS(R) technology owned by Oracle Corporation ("Oracle"). In July 1995, the Company sold its EXPRESS technology to Oracle, while retaining certain rights to market and distribute Oracle EXPRESS software. The Company provides many of the same business information services in Europe and other international markets primarily using scanner-based data. Revenues from the Company's U.S. and International Services were as follows for the years ended December 31 (in thousands):
1999 1998 1997 -------- -------- -------- U.S. Services......................................... $416,729 $396,992 $366,678 International Services................................ 129,544 114,331 89,649 -------- -------- -------- Total....................................... $546,273 $511,323 $456,327 ======== ======== ========
U.S. AND INTERNATIONAL SERVICES The Company's U.S. and International Services include InfoScan product tracking services, related delivery and software product sales, consumer panel services, analytical and consulting services, BehaviorScan product testing services and a variety of applications of the Company's census (i.e., all stores within participating retail chains) scanner databases and the Company's multi-outlet consumer panel databases. InfoScan. The Company's principal information service marketed in the United States and internationally is InfoScan. InfoScan is a service used by the CPG industry to monitor and evaluate the market performance of products sold in retail stores. The InfoScan service provides subscribers with a variety of information including how much product they and their competitors are selling, where the products are being purchased, at what price the products are being sold and under what promotional conditions sales are occurring. This information helps subscribers make fundamental strategic and tactical decisions for their businesses in the areas of sales, marketing and promotion. IRI currently collects this information in grocery, drug, mass merchandiser, convenience store, club store and chain liquor outlets across the United States and is also exploring collection in other outlets. InfoScan utilizes data collected from UPC bar codes on CPG product packaging. Scanners at retail checkouts read the UPC code and record product sales electronically. On an on-going basis, the Company 3 procures such electronic sales data along with related promotional data from a sample of national and local market retail stores. The Company also collects consumer purchase information directly from individual households across the United States using proprietary in-home scanning devices and/or consumer identification cards in a store. The consumer purchase information can be used in a complementary fashion with InfoScan data. The Company processes the information at its computer facilities and stores it in the Company's proprietary databases. InfoScan subscribers access the information in the Company's databases through a variety of means, including the use of analytical software provided by the Company and the use of reports delivered via the internet. Subscriptions to InfoScan by CPG manufacturers are a principal source of revenue for the Company. Manufacturers subscribe to InfoScan by contracting with the Company to obtain access to the InfoScan databases for specified product categories. InfoScan contracts generally have multi-year terms, usually of three years or more in the United States. InfoScan Census. InfoScan Census applications are derived from a product tracking service based on scanner data collected from all stores within participating retail chains, as opposed to collection from a sample of such stores. InfoScan Census offers the CPG industry more complete and accurate data than sample services, since it has no sampling or projection errors, and its applications can go beyond traditional market tracking uses. IRI is in the process of transitioning its U.S. InfoScan core tracking service to an all census-based projection system. InfoScan Census revenues come primarily from manufacturers purchasing key account data, which are sales data for a product category based on all the stores of a specific retailer. This service enables manufacturers' sales representatives to negotiate with retail buyers based on a mutually consistent and accurate measure of retail product movement. In addition, an evaluation of differences in brand and product category purchasing across individual stores within a chain can often pin-point opportunities to effectively build sales to the benefit of both manufacturers and retailers. Beyond key account information, census applications include improved management of trade promotions, validation of "pay-for-performance" promotions, more effective sales force and broker compensation programs and improved inventory and distribution management. There are presently approximately 15,000 grocery stores, approximately 14,400 drug stores and approximately 3,300 mass merchandisers in the Company's InfoScan Census U.S. database. The Company has also begun to develop InfoScan Census services in certain European markets. InfoScan Data Collection. For the Company's InfoScan sample service, the Company continuously collects weekly product sales, price and promotional information from representative retail outlets. Included in the Company's national and local market samples in the U.S. are approximately 4,500 stores in the aggregate, including grocery stores, drug stores, mass merchandisers and convenience stores. Contracting retailers typically deliver their scanner data electronically to the Company's computer facilities in Wood Dale, Illinois. While most retail stores in the United States have installed scanner equipment to record product sales information, certain convenience stores and other retail outlets have not. When scanner data are not available, the Company's field personnel visit stores and obtain sales information via a manual audit of the stores' product purchases and inventory. Collection practices for weekly product sales information in the Company's operations in foreign countries are largely scanner-based, though they vary somewhat on a country-by-country basis, as does scanner data availability. The InfoScan U.S. and international databases typically contain product movement and price information and "causal" data. Causal data consist of information which may explain changes in product sales, such as price promotions, retailers' newspaper ads and in-store displays, as well as other promotion and merchandising data related to the sale of CPG products. The Company employs a field force of full-time and part-time workers to collect causal data. These employees conduct weekly on-site visits to retail stores participating in the InfoScan service to collect causal information such as in-store promotions and displays. Field force personnel perform other services as well, including those related to the Company's test marketing services and InfoForce(TM) services. 2 4 The Company often pays cash for scanner data covering a sample or census of retailers' stores. However, the Company also exchanges software, product movement information and other services to obtain access to data for all stores within certain grocery stores, drug chains and mass merchandiser stores. The Company provides its QScan(R) system to U.S. retailers in exchange for their participation in the provision of their all-store data for InfoScan Census. QScan is an information system designed to provide retailers with easy access to their scanner data. The system addresses retailers' problems of organizing and analyzing their own databases of information for products sold in their stores. The QScan system allows for the processing and analysis of scanner data from all of the retailer's stores on a weekly basis. Current census retailer contracts data generally have multi-year terms, usually of three or more years, cancelable on an annual basis after one or more years with 3 to 6 months notice by either party. Other data procurement contracts generally run year-to-year and are cancelable at the end of each year by either party with 60 days notice. Consumer Panel. The Company also collects consumer purchase information via its Shoppers' Hotline(R) service from individual households it has recruited in the United States. The Company provides approximately 55,000 of these households with hand-held scanners to record their product purchases. Collection via hand-held scanners enables the Company to ascertain product movement information from a variety of outlets, including stores that do not have scanners. In addition to the Company's multi-outlet consumer panel service, the Company also maintains a separate consumer panel of shoppers from approximately 23,000 households in its BehaviorScan testing markets in connection with the Company's provision of testing and analytics service. These additional households present an identification card when shopping at participating grocery stores, thereby allowing scanners to record specific details of their product purchases. Household panel information is available in European markets usually from alliance partners of the Company. Data Processing. With respect to its operations in the U.S., Great Britain, France, Italy, the Netherlands and Spain, the Company receives and processes data at its production center and computer facilities located in Wood Dale, Illinois. The Company is also in the process of transitioning data processing in Germany from an outside vendor to its facilities in Wood Dale, Illinois. The Company's production center operates with numerous platforms including mainframe, UNIX and Windows NT as well as proprietary production software and related technology developed exclusively by the Company to process and store very large amounts of data. Through direct telecommunication connections with InfoScan clients in the U.S., the Company also provides electronic on-line access to InfoScan data services. The Company currently leases its mainframe computers from third party financial institutions. Data Delivery. Subscriptions to the InfoScan service entitle the Company's clients to access the Company's databases and receive information for specific product categories. Because large amounts of data are involved, clients usually either take electronic delivery of the data or obtain electronic access to the Company's databases through the Company's on-line service. Clients taking electronic delivery generally license software from the Company. The Company's on-line service permits the Company to build, maintain and store client-subscribed databases which remain resident on the Company's computers. Clients then access the databases through remote electronic connection. Clients may also purchase software services from the Company. (See "Software and Related Products" below for more information on Company revenues derived from software licensing.) In addition, the Company also provides internet delivery options, including custom reports via a Company-hosted web site. Other Client Services. The Company places a major emphasis on the provision of experienced and knowledgeable client service personnel to assist InfoScan subscribers in the use and interpretation of InfoScan data and consumer panel data, as well as in the use of the Company's analytical software. The Company also provides numerous analytical and consulting services to both CPG manufacturers and retailers. Analytical and consulting services are directed at helping clients identify new marketing opportunities, more effectively manage their marketing mix, identify appropriate opportunities for product line optimization and increase productivity of marketing expenditures through more effective couponing, advertising and in-store merchandising programs. Revenues from analytical and consulting services typically follow from subscriptions to the Company's InfoScan service and principally relate to analytical use of InfoScan and panel data. These services are generally billed on a time and materials basis. 3 5 Software and Related Products. In close association with its retail tracking services around the world, the Company markets analytical software to the CPG industry principally for use in accessing, managing and analyzing the Company's databases. Many of the Company's U.S. and International clients use the Oracle EXPRESS-based software application, Oracle Sales Analyzer(R), in order to access, manage and analyze the Company's databases. Oracle EXPRESS is a software technology designed for working with large and complex databases. Oracle Sales Analyzer is a decision support software application built in Oracle EXPRESS and now owned by Oracle. The product provides users with a range of analytical and reporting tools. In July 1995, the Company sold its EXPRESS technology and certain software products to Oracle, while retaining ownership of certain EXPRESS-based sales and marketing software application products for use in the CPG industry. Through licensing agreements with Oracle, the Company continues to market and distribute many Oracle EXPRESS software products. The Company typically licenses its own applications as well as Oracle Sales Analyzer in conjunction with a client's InfoScan data subscription. A principal source of software revenues is the provision of on-line access services and web delivery services to InfoScan subscribers who access InfoScan databases residing in the Company's data warehouses. Other software revenues derive from the license of Oracle software product licenses to InfoScan subscribers who load InfoScan data on their own computer systems and do not use the Company's on-line services. Licenses typically require a one-time upfront license fee upon acceptance of the software and annual maintenance payments for support and update services thereafter. Oracle is entitled to receive royalties on certain types of licenses granted by the Company and its distributors; however, until July 2001, the Company is not required to pay royalties to Oracle on licenses granted by the Company and its data affiliates to CPG end-users for use with data provided by the Company or its data affiliates. After July 2001, the royalty rates owed to Oracle will be subject to renegotiation between the Company and Oracle. The Company is in the process of moving to an open systems architecture to provide alternative options for clients to access its databases. The open systems architecture is expected to increase accessibility of the Company's InfoScan data, enable compatibility with clients' existing technical architectures, improve integration with additional data sources, and facilitate a seamless interface with emerging Internet-based technologies. Specifically, the Company plans to complement its existing data access architecture with an open relational database access architecture based on commonly accepted industry standards for database access that will enable its clients to use any of a broad array of third-party tools and/or applications, including Open Database Connectivity (ODBC) and Object Linking and Editing for Databases (OLE DB). The Company also markets its proprietary Apollo Space Management System(TM) software to CPG retailers, wholesalers, manufacturers and brokers in the United States and internationally for use in managing retail shelf space and software applications to facilitate enhanced uses of InfoScan data. Apollo software is designed to assist in the management of retail shelf space, providing a range of tools for space management and shelf execution, including assortment planning, data integration and management, category analysis, creation of picture schematics and web communications and access. The Company also develops and markets other analytical software applications and technology-based consulting services for use in the CPG industry, including tools to help clients receive, analyze, interpret and facilitate enhanced uses of InfoScan data. Testing Services. The Company provides a number of testing services primarily for CPG manufacturers. These include controlled retail testing, other in-store testing, matched market analyses and related special analyses using the Company's InfoScan and panel databases. Controlled testing involves testing the placement of new products or changes in advertising, shelf location, price or promotional conditions in different retail outlets or different markets and involves custom manipulation and analysis of the Company's InfoScan databases. The Company's BehaviorScan service is a test marketing system available in the United States which enables CPG manufacturers to measure the impact of different marketing variables on consumer purchase behavior, for both new and existing products. Typical marketing variables tested in BehaviorScan markets are television advertisements, newspaper ads, manufacturers' coupons, free samples, in-store displays, shelf price and packaging changes. BehaviorScan tests compare the purchases of a group of consumers exposed to test variable(s) with the purchases of a control group of consumers not exposed to the test variable(s). A unique feature of the BehaviorScan system is its ability to deliver alternative television advertising to different groups of panel households using the Company's patented targetable television 4 6 technology. BehaviorScan is currently available in six markets and is the only such electronic test marketing system in the United States. Major costs associated with the BehaviorScan system include payments to retailers, incentive programs for participating panel households, field personnel costs, cable television studio operation, computer resources and client service personnel costs. Other Services. The Company continues to develop opportunities to leverage its core competencies. The Company is in the process of entering into several strategic alliances that include expanded media mix analysis, internet strategy development and on-line business-to-business and consumer research panels. The Company is also exploring ways of offering services to both CPG clients and new client bases that integrate the Company's current off-line research with new on-line research capabilities. INTERNATIONAL BUSINESS DEVELOPMENT Through subsidiaries and joint ventures with other leading marketing information firms, the Company in 1992 began offering information services in a number of countries outside of the United States. Specific services offered depend upon local country competitive conditions and the general retailer environment. The Company's major European subsidiaries and joint venture companies rely on the Company's data production facilities in the United States as well as the Company's know-how and trade secrets to provide InfoScan retail tracking services. Production for the Company's German operation will be transferred to the United States in late 2000. The Company's only significant competitor offering product tracking services internationally is the ACNielsen Company ("ACNielsen"). (See "Competition" below.) The Company competes with ACNielsen in virtually every foreign market where the Company has established information services. ACNielsen maintains a dominant market position throughout most of Europe where the Company's expenditures to establish product tracking services over the last five years have been most significant. United Kingdom. The Company's subsidiary in the United Kingdom offers a retail tracking service under the InfoScan name to the British market. Organized in 1992 as a joint venture, the Company's initial partners were Taylor Nelson AGB plc of the United Kingdom and GfK AG of Germany ("GfK"). The Company now owns substantially all of the joint venture. In 1993, the venture expanded its sample of scanning stores, initiated the collection of causal data and began offering a fully operational scanning service covering major chains under the InfoScan name. It also expanded the service to cover stores selling health and beauty aids. Pursuant to contractual arrangements, the Company provides data production services to the subsidiary from the Company's computer facilities in Wood Dale, Illinois. France. The Company's subsidiary in France offers scanner-based tracking services under the InfoScan name. In 1993, the Company organized a joint venture, IRI-SECODIP S.C.S. with GfK and SECODIP S.A. to acquire the operations of SECODIP's retail audit business and the business of a former development-stage scanner-based operation of GfK. Since 1994, the Company has funded substantially all of the joint venture's capital requirements and the Company now owns substantially all of the joint venture interests. Pursuant to contractual arrangements, the Company provides data production services to the subsidiary from the Company's computer facilities in Wood Dale, Illinois. Italy. In 1994, the Company began development of an information service in Italy through the formation of a wholly-owned subsidiary, IRI InfoScan Italy. Its basic service consists of retail sales and promotion tracking using a sample of retail grocery outlets. Supermarket sales are tracked by means of scanning data, while sales in smaller, traditional shops are measured by manual audit techniques. Pursuant to contractual arrangements, the Company provides production services to IRI InfoScan Italy from the Company's computer facilities in Wood Dale, Illinois. Germany. The Company operates a retail tracking service joint venture in Germany through a subsidiary whose minority shares are held by GfK. From 1993 through 1996, the Company owned a 15% interest in GfK Panel Services GmbH ("GfK Panel"), then a subsidiary of GfK. During that time, GfK Panel offered both retail and consumer panel tracking services based on consumer household panel data, retail audit data, scanner data and provided related consulting studies. 5 7 In February 1997, the retail tracking service and related software businesses were put into a new joint venture company, IRI/GfK Retail Services GmbH ("IRI/GfK Retail") in which the Company initially took a 51% ownership interest and GfK the remainder. Effective January 1, 1999, the Company's funding requirements per the joint venture agreement increased to 80%. Scanner data are not available from all major retailers in Germany. The Company is in the process of transitioning production services for IRI/GfK Retail from GfK's facilities in Nuremberg, Germany to the Company's facilities in Wood Dale, Illinois. This transfer is expected to result in service enhancements, as well as reduced production costs. In 1997, the Company sold its 15% ownership interest in GfK Panel to GfK. GfK Panel continues to provide consumer panel and ad hoc research services to the German market, and GfK Panel and IRI/GfK Retail cooperate in selling and delivering services to common clients. Benelux. The Company and GfK operate a joint venture which offers a scanner-based retail tracking service to the Netherlands market. This scanner-based retail tracking service became fully-operational in 1994. Until early 1998, this joint venture was owned 80.1% by GfK and 19.9% by the Company. In February 1998, the Company increased its ownership to 51% and took over management responsibilities. It operates under the InfoScan name, and pursuant to contractual arrangements, the Company provides production services to the joint venture through the Company's computer facilities in Wood Dale, Illinois. In 1998, the Company also sold a 9.9% interest in GfK Panel Services Benelux B.V. and GfK Belgium S.A. reducing its ownership to 10%. Those companies operate household panel services in the Netherlands and Belgium and continue to cooperate with the Netherlands joint venture scanner operation in the sale and delivery of services to common customers. Spain. IRI began a start-up venture in Spain during April 1998. In November 1998, the Company executed a joint venture agreement with Media Planning, S.A. to create a new retail tracking business to serve the Spanish market under the name Information Resources Espana, S.L. ("IRI-Spain"). In January 1999, IRI-Spain and Dympanel, S.A. signed a cooperation agreement which added Dympanel, S.A. as a third investor in IRI-Spain. The aforementioned agreements resulted in the Company, Media Planning, S.A., and Dympanel, S.A. currently owning 64%, 32% and 4%, respectively, of the capital shares of IRI-Spain. IRI- Spain began providing InfoScan service to the Spanish market in early 1999, using the Company's production facilities in Wood Dale, Illinois. Turkey. Until December 1998, the Company owned and operated a retail audit business in Turkey which it acquired in 1993. Effective January 1999 the Company contributed all of the operating assets and liabilities of its Turkish subsidiary to a Turkish joint venture, Panel-IRI Pazar Arastirma ve Danismanlik A.S. The business of the joint venture was discontinued in October 1999. Greece. The Company operates a retail audit business in Greece which it acquired in 1994. The operation includes collecting, reporting, analyzing and interpreting national and regional sales data from retail audits. Sweden. The Company owns an 8% interest in a joint venture formed in 1995 with GfK for the provision of scanner-based product tracking services in Sweden. The business is managed by GfK. Eastern Europe, Middle East and North Africa. In 1995, the Company entered into a strategic alliance with Middle East Market Research Bureau ("MEMRB"), a market research company based in Cyprus. MEMRB provides market research throughout more than 20 countries in the Middle East, Eastern Europe, the Mediterranean, the Commonwealth of Independent States and North Africa. Under the terms of the agreement, MEMRB has agreed to cooperate in the adoption of multi-country technical standards developed by the Company and co-market certain information and software products with the Company. In 1998 IRI acquired a 19.9% ownership interest in MEMRB, which decreased to 16% in 1999 due to funding from a new partner. The Company holds an option to increase its ownership interest of MEMRB to 49%. Asia and Australia. The Company has a wholly-owned software distribution subsidiary and a joint venture in Japan with Tokyo-based Mitsui & Co., Ltd., to provide software and information services, respectively, in Japan. The Company's ownership in the joint venture, which was formed in 1995, was 60%. 6 8 Effective May 21, 1998, Mitsui & Co., Ltd., increased its ownership to 60% and the Company's ownership was reduced to 40%. The Company also has wholly-owned software distribution subsidiaries in Australia and New Zealand. Latin America. The Company has operations in certain Latin American markets through joint ventures and subsidiaries in Venezuela, Puerto Rico and Guatemala. The Company owns 49% of the Venezuelan joint venture, Datos Information Resources, which provides audit-based product tracking as well as ad hoc and software services to the Venezuelan market. The Company's wholly-owned subsidiary in Puerto Rico offers both audit-based product tracking and ad hoc marketing research services. The Company owns 19.9% of a Guatemalan-based company that provides research services in Central America. In addition, the Company has distributors of its proprietary Apollo software products in Peru and Argentina. Canada. The Company's Canadian branch office provides software and consultancy services to both CPG and non-CPG clients in Canada. Mexico. The Company has a wholly-owned software distribution subsidiary in Mexico to provide software and consultancy services to both CPG and non-CPG clients in Mexico. TRADEMARKS, PATENTS, LICENSES AND SOFTWARE PROTECTION The Company is the owner of various trademarks, including InfoScan(R), InfoScan Census(TM), InfoForce(TM), QScan(TM), IRI Software(TM), IRI Logistics(TM), BehaviorScan(R), APOLLO(TM), CPGNetwork(TM), Attitudelink(TM), Consumer Knowledge Suite(TM), e-Scan(TM), e-profile(TM), e-response(TM), e-testing(TM), Shoppers' Hotline(R), Shoppers Hotline Elite(R) EZPrompt(R), CouponScan(TM), InSite Reporting(TM), XLerate(TM), ReviewNet(TM), The Partners(TM), Targeter(TM), PromoProphet(TM) and PromotionScan(TM). The Company also holds certain patents relating to the targetable television technology utilized in its BehaviorScan service. The patents expire at various dates through 2005. Loss or infringement of these patents would likely not have a material adverse effect upon the Company's revenues. As a result of the sale of the EXPRESS technology and line of software products to Oracle in July 1995, the Company no longer owns a large portion of the software that is used in the delivery of InfoScan data. The Company secured a license back from Oracle assuring the continued use of certain of the EXPRESS software products in the Company's business, including rights to sublicense software to clients of the Company. The initial term of the license is six years. The Company also has rights to use various trademarks owned by Oracle, including Oracle EXPRESS and Oracle Sales Analyzer. After July 2001, the royalty rates owed to Oracle will be subject to renegotiation between the Company and Oracle. The Company is in the process of moving to an open systems relational database architecture to provide alternative options for clients to access its databases. The open systems architecture is expected to increase accessibility to the Company's InfoScan data, enable compatibility with clients' existing technical architectures, improve integration with additional data sources, and facilitate a seamless interface with emerging Internet-based technologies. The Company regards its databases as proprietary and, in addition to copyright protection, relies upon trade secret laws, limitations on access to its computer source codes, confidentiality agreements with clients and internal nondisclosure safeguards to protect its rights to proprietary interests. The Company's own computer software is also proprietary and bears appropriate copyright notices. Because of the rapid pace of technological change in the computer industry, trademark, patent or copyright protection is of less significance than the knowledge and experience of the Company's personnel and their ability to develop and market new products, services and software applications and to leverage information delivery technologies. WORKING CAPITAL PRACTICES The Company invoices its information service clients in accordance with agreed contract terms. Typical billing cycles are quarterly or monthly for long-term contracts and payment is typically due within 30 days of receipt of invoice. Software licenses generally require payment in full upon delivery of software. 7 9 The Company pays certain retailers cash in accordance with negotiated terms for providing scanner data for use in the InfoScan service. Payments to other vendors are normally made in accordance with vendor terms. CUSTOMERS The Company had approximately 2,900, 2,400 and 2,300 clients using its information services in 1999, 1998 and 1997, respectively. Most of the Company's clients are CPG manufacturers in the United States or in foreign countries where the Company offers its services. No client of the Company accounted for revenues in excess of 10% of the Company's total revenues. The Company's top ten clients accounted for approximately 33% of the Company's 1999 revenues. BACKLOG ORDERS At December 31, 1999, 1998 and 1997, the Company had committed contract revenues for information services of approximately $507 million, $392 million and $335 million, respectively. Backlog revenue to be earned in the immediate year following December 31, 1999, 1998 and 1997 is $228 million, $200 million and $191 million, respectively. Contracts generally have terms of three to five years and not less than one year. Such contracts are generally categorized into one of two classes: 1) cancelable at the end of each year by the giving of six months written notice by either party, or 2) multi-year contracts either non-cancelable or cancelable only with significant penalties, generally by the giving of six months written notice after the initial multi-year term. Committed contract revenues include only the non-cancelable portion of a contract. Variations in the backlog relate to the timing of certain contract renewals and expirations. COMPETITION Numerous firms supply marketing and advertising research products and services to CPG manufacturers and retailers. However, the Company and ACNielsen are the only two firms which provide national scanner-based product tracking services in the United States to such manufacturers and retailers. ACNielsen is far larger than the Company in terms of worldwide revenues, giving it access to greater financial resources than the Company. In the product tracking services markets across Europe, ACNielsen currently maintains a dominant market position in most European countries and is the Company's only competitor. Principal competitive factors include: quality, reliability, timeliness and comprehensiveness of analytical services and data provided; flexibility and innovation in tailoring services to client needs; experience; the capability of technical and client service personnel; data processing and decision support software; reputation and price. Competitive factors played a role in the loss of certain clients in 1998 and 1999. The Company anticipates offsetting this impact through new product and service offerings including new strategic initiatives, and is focusing on expanding its current client base. There can be no assurances as to whether or not the Company will suffer further client losses. Due to the relatively high fixed cost nature of the Company's database operation, any further erosion in its revenue base could have a significant impact on profitability. RESEARCH AND DEVELOPMENT The Company is continuously developing new products and services. In this regard, the Company is actively engaged in research and development of new database analyses and applications, software applications and services and data delivery systems. Expenditures for research and development for the years ended December 31, 1999, 1998 and 1997 approximated $24.2 million, $25.9 million and $21.3 million, respectively. All research and development expenditures were expensed as incurred. PERSONNEL At December 31, 1999, the Company had approximately 4,400 full-time and 2,700 part-time employees worldwide. The Company depends to a significant extent on its skilled technical personnel. Its future success will depend to a large degree upon its ability to continue to hire, train and retain its professional staff. 8 10 ITEM 2. PROPERTIES The Company markets and provides its information services and software support services to U.S. clients from full-service sales offices in San Francisco and Los Angeles, California; Norwalk, Connecticut; Atlanta, Georgia; Minneapolis, Minnesota; Fairfield, New Jersey; Winston-Salem, North Carolina; Cincinnati, Ohio; Fort Washington, Pennsylvania as well as from its corporate headquarters in Chicago, Illinois and software development headquarters in Waltham, Massachusetts. The Company markets to international clients through subsidiaries, joint ventures and/or offices in Australia, Belgium, Canada, Cyprus, France, Germany, Guatemala, Greece, Italy, Japan, Mexico, the Netherlands, New Zealand, Puerto Rico, Spain, Sweden, United Kingdom and Venezuela as well as through its various distributors. Principal leased facilities of the Company are as follows:
APPROXIMATE FLOOR AREA LOCATION PRINCIPAL OPERATION (SQ. FT.) -------- ------------------- ----------- Chicago, IL.................................. Corporate headquarters and offices for professional staff 427,000 Waltham, MA.................................. Professional staff and computer facilities 72,000 Wood Dale, IL................................ Computer facilities 45,000 Regional sales and client service offices.... Sales, client service and analysis 243,000 International offices........................ Sales, client service, computer facilities and professional staff 249,000 Data collection facilities................... Data collection and client test market control, cable TV studio facilities, warehouse 125,000
ITEM 3. LEGAL PROCEEDINGS On July 29, 1996, IRI filed an action against The Dun & Bradstreet Corp., The A.C. Nielsen Company (now a subsidiary of ACNielsen) and IMS International, Inc. (collectively, "the Defendants") in the United States District Court for the Southern District of New York entitled Information Resources, Inc. v. The Dun & Bradstreet Corp., et. al. No. 96 CIV. 5716 (the "Action"). IRI alleged that, among other things, the Defendants violated Sections 1 and 2 of the Sherman Act, 15 U.S.C. Sections 1 and 2, by engaging in a series of anti-competitive practices aimed at excluding the Company from various export markets for retail tracking services and regaining monopoly power in the United States market for such services. These practices included: i) entering into exclusionary contracts with retailers in several countries, in order to restrict the Company's access to sales data necessary to provide retail tracking services; ii) illegally tying/bundling services in markets over which Defendants' had monopoly power with services in markets in which ACNielsen competed with the Company; iii) predatory pricing; iv) acquiring foreign market competitors with the intent of impeding the Company's efforts at export market expansion; v) tortiously interfering with Company contracts and relationships with clients, joint venture partners and other market research companies; and vi) disparaging the Company to financial analysts and clients. By the Action, the Company seeks to enjoin the Defendants' anti-competitive practices and to recover damages in excess of $350 million, prior to trebling. On January 15, 1999, IRI filed an action against Manugistics, Inc. ("Manugistics") in the Circuit Court of Cook County, Illinois, Case No. 99 L 00599. In Count I of its two count action, IRI has alleged that Manugistics has breached a Data Marketing and Guaranteed Revenue Agreement between IRI and Manugistics ("Agreement") by failing to pay certain amounts due to IRI thereunder. The Agreement was entered into by IRI and Manugistics in connection with the sale by IRI to Manugistics of certain assets relating to the manufacture, sale and servicing of certain logistics software. IRI has also alleged that Manugistics committed an anticipatory breach of the Agreement with respect to certain other amounts not yet due thereunder. IRI now seeks damages in excess of $15.0 million in connection with these claims. In Count II, IRI has alleged that Manugistics breached a related Non-Competition and Non-Solicitation agreement between IRI and Manugistics (the "Non-Competition Agreement"). IRI seeks unspecified damages to be 9 11 determined at trial under this count. On March 2, 1999, Manugistics filed a Motion to Stay Proceedings and Compel Arbitration. IRI agreed to arbitrate all claims related to the Agreement and filed an arbitration demand before the American Arbitration Association on July 9, 1999. IRI's claims against Manugistics for breach of the Non-Competition Agreement remain pending before the Circuit Court. Manugistics denies that it owes IRI any damages, claiming a failure of consideration. IRI vigorously disputes this assertion. In the ordinary course of business, IRI and its subsidiaries become involved as plaintiffs or defendants in various other legal proceedings. The claims and counterclaims in such litigation, including those for punitive damages, individually in certain cases and in the aggregate, involve amounts which may be material. However, it is the opinion of the Company's management, based upon the advice of counsel, that the ultimate disposition of pending litigation against the Company will not be material. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
POSITION WITH COMPANY NAME AGE AND BUSINESS EXPERIENCE - ---- --- ----------------------- Joseph P. Durrett.......................... 54 Chairman of the Board of Directors, Chief Executive Officer and President of the Company since May 1999. President and Chief Executive Officer of Broderbund Software, Inc. from October 1996 to December 1998. Member of the Board of Directors of Broderbund Software, Inc. from October 1996 to September 1998. President, Chief Operating Officer and Director of Advo, Inc. from September 1992 to July 1996. Member of the Board of Directors of Children's Miracle Network since 1990. Andrew G. Balbirer......................... 45 Executive Vice President and Chief Financial Officer of the Company since February 2000. Chief Executive Officer of Arkidata Corporation from October 1999 until February 2000. Independent Consultant from April 1998 to October 1999. Executive Vice President and Chief Operating Officer of Metz Baking Company (a division of Specialty Foods Corporation) from February 1996 to April 1998. Chief Executive Officer of Mother's Cake & Cookie Company (a division of Specialty Foods Corporation) from July 1995 to February 1996. Chief Financial Officer of Specialty Foods Corporation from February 1995 to February 1996.
10 12
POSITION WITH COMPANY NAME AGE AND BUSINESS EXPERIENCE - ---- --- ----------------------- Edward C. Kuehnle.......................... 46 Group President of IRI North America since November 1999. Division President of Customer Sales and Service from October 1998 to November 1999. Vice President of Sales of Pharmacia & Upjohn Consumer Healthcare from January 1998 to September 1998. Manager of Strategic Services Group of Coopers & Lybrand Consulting, LLP from January 1997 to January 1998. Senior Vice President of Consumer & Medical Sales of Whitehall Robins Healthcare (a division of American Home Products Corp.) from July 1995 to October 1996. Executive Vice President of Marketing & Sales of American Home Foods (a division of American Home Products Corp.) from July 1994 to July 1995. Senior Vice President of Sales of American Home Foods from July 1993 to July 1995. Prior to July 1993, Mr. Kuehnle served in various senior management sales, marketing, and supply chain positions at Bristol-Myers Squibb Company. Timothy Bowles............................. 56 Group President of International Operations of the Company since May 1999. President of European Operations from May 1995 to May 1999. Chief Executive Officer of The MRB Group (a division of WPP Group, plc, an international research supplier) from 1987 to May 1995. Rick Kurz.................................. 59 Division President of Strategic Business Development and Planning for the Company since June 1999. Chief Strategic Growth Officer and Senior Vice President of Advo, Inc. from August 1997 to June 1999. Chief Marketing Officer and Senior Vice President of Advo, Inc. from April 1994 to July 1997. Monica M. Weed............................. 39 Executive Vice President and General Counsel of the Company since November 1998; Corporate Secretary since February 2000; Assistant Secretary from May 1993 to February 2000; Senior Vice President and Assistant General Counsel of the Company from December 1994 to November 1998; Vice President of the Company from prior to March 1994 to December 1994. Sheri L. Huston............................ 39 Senior Vice President, Chief Accounting Officer and Controller of the Company since April 1999. Senior Vice President of IRI North America Business Group of the Company with responsibility for Finance from August 1995 to April 1999. Vice President of Finance for the Company from early 1993 to August 1995.
All of the foregoing executive officers hold office until the next annual meeting of the Board of Directors and until their successors are elected and qualified. 11 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER'S MATTERS The Company's Common Stock has traded on the NASDAQ Stock Market under the symbol "IRIC" since 1983. The stock currently trades on the National Market System. Share data has been adjusted for all stock splits and stock dividends to date. The high and low closing sales prices for the Company's Common Stock were as follows:
QUARTERS HIGH LOW - -------- ------- ------- 1998 1st quarter............................................... $16.250 $12.750 2nd quarter............................................... 19.188 15.750 3rd quarter............................................... 19.250 9.750 4th quarter............................................... 13.000 6.938 1999 1st quarter............................................... $11.000 $ 6.438 2nd quarter............................................... 9.628 6.875 3rd quarter............................................... 11.750 7.688 4th quarter............................................... 12.000 8.125
The last sale price on February 29, 2000 was $7.813 per share. As of February 29, 2000 there were 1,681 record holders of the Company's Common Stock. The Company has never paid cash dividends. It is the present policy of the Company's Board of Directors to retain earnings for use in the Company's business. Accordingly, the Board of Directors does not anticipate that cash dividends will be paid in the foreseeable future. There are restrictions in IRI's bank revolving credit facility and certain lease agreements which limit the payment of dividends and the purchases or redemption of Common Stock. (See Note 9 of the Notes to the Consolidated Financial Statements.) 12 14 ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 1996 1995 ------ ------ ------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE DATA) HISTORICAL RESULTS OF OPERATIONS(1) Revenue........................................... $546.3 $511.3 $456.3 $405.6 $399.9 ====== ====== ====== ====== ====== Restructuring and other charges(2) (3)............ (24.8) -- -- (4.8) (22.8) ====== ====== ====== ====== ====== Defined contribution plan expense(4).............. (7.9) -- -- -- -- ====== ====== ====== ====== ====== Operating profit (loss)........................... (32.6) 7.0 14.8 (5.1) (54.9) ====== ====== ====== ====== ====== Net gain (loss) on sale of assets(5).............. -- -- -- (4.6) 41.1 ====== ====== ====== ====== ====== Net earnings (loss)............................... $(18.4) $ 3.8 $ 7.7 $ (7.6) $(11.7) ====== ====== ====== ====== ====== Net earnings (loss) per common share -- basic..... $ (.66) $ .13 $ .27 $ (.27) $ (.43) ====== ====== ====== ====== ====== Weighted average common shares -- basic........... 28.0 28.6 28.5 27.8 27.0 ====== ====== ====== ====== ====== Net earnings (loss) per common and common equivalent share -- diluted..................... $ (.66) $ .13 $ .26 $ (.27) $ (.43) ====== ====== ====== ====== ====== Weighted average common and common equivalent shares -- diluted............................... 28.0 29.0 29.1 27.8 27.0 ====== ====== ====== ====== ====== BALANCE SHEET DATA(1) Total assets...................................... $368.5 $369.3 $366.6 $334.5 $338.5 ====== ====== ====== ====== ====== Working capital................................... (11.1) 5.2 24.9 34.6 44.4 ====== ====== ====== ====== ====== Long-term debt.................................... 10.8 4.6 .6 7.9 3.8 ====== ====== ====== ====== ====== Stockholders' equity.............................. $225.0 $238.5 $241.5 $226.3 $229.8 ====== ====== ====== ====== ====== Book value per common share....................... $ 7.74 $ 8.56 $ 8.41 $ 8.12 $ 8.33 ====== ====== ====== ====== ====== Dividends paid per common share................... -- -- -- -- -- ====== ====== ====== ====== ====== ADDITIONAL FINANCIAL INFORMATION(1) Deferred data procurement costs................... $130.2 $120.5 $111.8 $ 98.0 $ 96.8 ====== ====== ====== ====== ====== Capital expenditures.............................. 31.1 33.7 34.4 18.8 24.5 ====== ====== ====== ====== ======
- --------------- (1) In February 1997, the Company and GfK formed a new company, IRI/GfK Retail, of which the Company has a 51% ownership interest. IRI/GfK Retail purchased the German retail tracking business of GfK Panel. Effective January 1, 1999, the Company's funding requirements per the joint venture agreement increased to 80%. In November 1998, the Company executed a joint venture agreement relating to the newly formed start-up venture in Spain ("IRI-Spain"), resulting in a 60% ownership interest. The Company currently owns 64% of IRI-Spain. In February 1998, the Company increased its ownership from 19.9% to 51% in a joint venture which offers a retail tracking service to the Netherlands market. In addition, effective May 21, 1998, the Company reduced its ownership of Information Resources Japan, Ltd. from 60% to 40%. The consolidation of the various international entities above did not have a material impact on the consolidated financial results or position of the Company. (2) In December 1999, the Company recorded a $19.7 million charge relating to its restructuring program and a $5.1 million charge resulting from asset impairments, primarily goodwill at IRI/GfK Retail. (See Notes 1 and 4 of the Notes to Consolidated Financial Statements) 13 15 (3) The $4.8 million other charge in 1996 principally related to the disposal of certain cable TV advertising cut-in equipment originally developed for use in the Company's market testing operation. Other charges in 1995 included a $12.4 million write-down of assets, principally related to European deferred data procurement costs, to net realizable value and a $10.4 million charge principally related to a U.S. facility closing. (4) In December 1999, the Company adopted the Information Resources, Inc. Nonqualified Defined Contribution Plan (the "Plan). In December 1999, the Company made an irrevocable contribution of 877,000 shares of IRI common stock to the Plan trust, resulting in the $7.9 million charge above which represents the fair market value of the common stock contribution (see Note 1 of the Notes to Consolidated Financial Statements). (5) In December 1996, the Company recorded a $4.6 million charge primarily for the final settlement of the escrow account related to the sale of a portion of the Company's software business to Oracle in 1995. In July 1995, the Company sold to Oracle certain assets, liabilities and related software application products of its software products business, resulting in a $41.1 million gain. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Overview: Over the periods presented, the Company has generated increased revenues in a very competitive market. The revenue increases have primarily been achieved through the offering of new products and services, some price increases and the net effect of client gains and losses. The effect of client gains and losses have a somewhat delayed effect on reported revenues in the Company's consolidated financial statements. This lagging effect is due to the long-term nature of many contracts and the fact that only a portion of such contracts come up for renewal and therefore are subject to competitive bidding in any particular year. In addition, because of the relatively high fixed-cost component of the Company's database operations, small variations in revenue can have a significant impact on profitability. In 1992, the Company began introducing its InfoScan tracking service into Europe. Due to the inherent fixed cost nature of the business and the alleged anticompetitive business practices and tactics of its major competitor, ACNielsen, operating losses from the International Services business have been significant to date. In December 1996, ACNielsen signed a three-year Undertaking to the European Commission agreeing to halt numerous contractual practices which the Company believes had hampered the Company's participation in European markets. During the period that the Undertaking was in effect, the Company believes that clients have benefitted from the Company's services without risk of financial penalties being imposed by ACNielsen, and that a significant artificial barrier to the Company's efforts to provide services to the European markets was removed. The Company's International losses are declining as revenues have increased in each of the Company's major European countries. Operations: Consolidated revenues in 1999 increased 6.8% over 1998 while 1998 revenues were 12.1% higher than 1997. 1999 net earnings (loss) were ($18.4) million ($1.2 million before defined contribution plan expense and restructuring and other charges), compared to net earnings of $3.8 million in 1998 and $7.7 million in 1997. The Company considers the aggregation of operating profit (loss), equity earnings (losses) and minority interests ("Operating Results"), on a geographic basis to be a meaningful measure of the Company's 14 16 operating performance. A comparative analysis of consolidated revenues and operating results for the years ended December 31, 1999, 1998 and 1997 follows (in thousands):
1999 1998 1997 -------- -------- -------- Revenues: U.S. Services....................................... $416,729 $396,992 $366,678 International Services.............................. 129,544 114,331 89,649 -------- -------- -------- Total....................................... $546,273 $511,323 $456,327 ======== ======== ======== Operating Results: U.S. Services....................................... $ 25,672 $ 31,515 $ 38,613 International Services Operating loss................................... (13,709) (15,689) (19,920) Minority interests benefit (expense)............. 4,256 342 (304) Equity in earnings of affiliated companies....... 205 443 444 -------- -------- -------- Subtotal -- International Services.......... (9,248) (14,904) (19,780) Corporate and other expenses........................ (11,848) (8,856) (3,926) Restructuring and other charges..................... (24,755) -- -- Defined contribution plan expense................... (7,931) -- -- -------- -------- -------- Operating Results........................... $(28,110) $ 7,755 $ 14,907 ======== ======== ========
Revenues from the Company's U.S. services business in 1999 were 5.0% higher than in 1998, while revenues in 1998 increased 8.3% over 1997. The 1999 revenue increases were primarily due to expanded use of the Company's services and products from its existing clients, particularly its retailer specific and panel databases, as well as a full year of revenue from significant new clients won in 1998. Revenue growth in 1999 was dampened during the year by the effect of certain client losses, representing approximately 4% of 1998 U.S. services revenue. Certain client decisions to not renew business with IRI had only a partial or no effect on IRI in 1999 because the termination dates for such contracts occurred late in 1999 or will occur in 2000. The impact on 2000 of these client losses is expected to be about 8% of 1999 U.S. Services revenues. 1998 revenue increases are also attributed to expanded use of the Company's products and services from existing clients as U.S. market share remained relatively unchanged from 1997 to 1998. U.S. operating results before restructuring and other charges and defined contribution plan expense decreased 18.5% in 1999 due to the 7.0% increase in expenses outpacing the 5% increase in revenues. The 1999 expense increase was driven by higher compensation costs and technical consultants used for Y2K and other development activities, costs of the multi-outlet panel expansion and costs of movement data for new categories and channels. During the third quarter of 1999, the Company initiated a comprehensive program named "Project Delta" to improve productivity and operating efficiencies, which are expected to result in savings in certain expense categories in 2000 and future periods. Total International Services revenues in 1999 increased 13.3%, 18% in local currency, over 1998. Revenues in 1999 reflect the benefit of the November 1998 startup of IRI's majority-owned Spain operation, IRI-Spain. Operating results for the Company's International businesses were a ($9.2) million loss before the $4.2 million writeoff of the goodwill related to the German operation in 1999, 38.2% better than the ($14.9) million loss in 1998. The improved International operating results were principally due to continuing revenue growth of the Company's major European services, primarily France, the U.K. and Italy. The International operating results were a ($14.9) million loss in 1998 compared to a ($19.8) million loss in 1997. The 1998 reduced international losses are principally due to continued revenue increases in each of the Company's major European countries. Corporate and other expenses increased in 1999 and 1998 over prior years due to higher legal expenses attributable to the Company's antitrust lawsuit against the Dun and Bradstreet Corporation, ACNielsen Company and IMS International, Inc., and increased compensation expense in 1998 primarily related to severance and recruiting costs. 15 17 Year Ended December 31, 1999: Consolidated net losses were $18.4 million in 1999 compared to net earnings of $3.8 million in 1998. Results in 1999 reflect the $19.6 million after tax effect of: restructuring, other charges, and the defined contribution plan expense. (See further discussion of restructuring charges on page 18.) In addition, the results reflect a decrease in operating earnings in the Company's U.S. business caused by increased employee related expenses, the multi-outlet panel expansion, Y2K related activities and costs of new movement data for new categories. Consolidated revenues increased 6.8% to $546.3 million in 1999. Revenues in 1999 reflect strong market share growth in Europe, specifically in the U.K., France and Italy. Revenue growth of 5% in the U.S. came from the expanded use of the Company's products and services from existing accounts and the annualized impact of accounts won in 1998, offset by the loss of certain accounts in late 1998 and 1999. Consolidated cost of information services sold increased by $41.0 million, or 9.1% to $491.2 million in 1999. Major components of the 1999 increase included: (a) a $17.2 million increase in compensation expense resulting primarily from salary and incentive pay increases in the U.S. and growing European operations; (b) an $8.1 million increase in the amortization of deferred data procurement costs, principally resulting from expansion of information services businesses in Europe; and (c) a $7.0 million increase in operating expenses due to field costs associated with category and channel expansions. Consolidated selling, general and administrative expenses increased by $.8 million or 1.5% to $54.9 million for 1999. This increase was primarily attributable to a $2.9 million increase in legal expenses related to the Company's antitrust lawsuit against The Dun and Bradstreet Corporation, ACNielsen Company and IMS International, Inc. The case is currently in the discovery phase, and the Company anticipates that it will continue to incur a high level of legal expenses as the case continues to progress toward trial. The increased legal fees in 1999 were offset by a reduction in costs principally related to severance, training and recruiting costs as compared to 1998. Defined contribution plan expense and restructuring and other charges are discussed on pages 20 and 18, respectively. Interest and other expenses were $1.5 million for 1999 compared to $1.2 million in 1998. The increase in 1999 is due to a combination of increased interest rates and bank borrowings as well as foreign currency losses. The Company's 1999 income tax benefit was higher than the income tax rates computed using the U.S. Federal statutory rate primarily due to the effects of state income taxes. Year Ended December 31, 1998: Consolidated net earnings were $3.8 million in 1998 compared to net earnings of $7.7 million in 1997. Results in 1998 reflected a decrease in operating earnings in the Company's U.S. business caused by increased employee related expenses and data collection costs. Consolidated revenues increased 12.1% to $511.3 million in 1998. Revenues in 1998 reflected strong market share growth in Europe, specifically in the U.K., France and Italy. Revenues in 1998 also benefitted somewhat from the inclusion of the Company's majority-owned operations in the Netherlands, effective February 1, 1998. Consolidated cost of information services sold increased by $48.4 million, or 12.0%, to $450.2 million in 1998. Major components of the 1998 increase included: (a) a $26.8 million increase in compensation expense resulting primarily from salary increases in the U.S. and growing European operations; (b) a $10.5 million increase in the amortization of deferred data procurement costs, principally resulting from expansion of information services businesses in Europe; and (c) a $5.8 million increase in operating expenses due to the 1998 consolidation of the Netherlands operation. Consolidated selling, general and administrative expenses increased by $14.4 million or 36.4% to $54.1 million for 1998. This increase was primarily attributable to recruiting, training and severance costs relating to the reorganization of the Company's U.S. sales, marketing and other operating functions, legal expenses in the U.S., and worldwide increases in other general expenses, including compensation. Increased legal expenses relate to the Company's antitrust lawsuit against The Dun and Bradstreet Corporation, ACNielsen Company and IMS International, Inc. 16 18 Interest and other expenses were $1.2 million for 1998 compared to $.5 million in 1997. The increase in 1998 is due to increased bank borrowings during 1998 primarily resulting from the Company's purchases of Common Stock. The Company's 1998 income tax expense was higher than the income tax expense computed using the U.S. Federal statutory rate due to certain unbenefitted foreign losses, goodwill amortization and other nondeductible expenses. LIQUIDITY AND CAPITAL RESOURCES The Company's current cash resources include its $8.1 million consolidated cash balance and $50.0 million available under the Company's bank revolving credit facility. The Company anticipates that it will have sufficient funds from these sources and internally generated funds from its U.S. operations to satisfy its cash needs for the foreseeable future. The Company's bank credit agreement contains covenants which restrict the Company's ability to incur additional indebtedness. Cash Flow for the Year Ended December 31, 1999: Consolidated net cash provided by operating activities was $157.7 million for the year ended December 31, 1999 compared to $159.8 million in 1998. While earnings were lower in 1999, operating cash flow in 1999 reflected higher non-cash items, amortization and depreciation, than in 1998. The increase in non-cash elements of operating expense was offset by an increase in accounts receivable. The Company implemented in the U.S. a new revenue and billing system in the fourth quarter of 1999 and expects to improve its accounts receivable position in the near term as the new system and processes are absorbed by the organization. Consolidated cash used in net investing activities was ($165.2) million in 1999 compared to ($161.1) million in 1998. Investing activity in 1999 reflects higher expenditures for data procurement partially offset by lower capital expenditures. Net cash provided (used) before financing activities was ($7.5) million in 1999 and ($1.2) million in 1998 primarily due to the higher investing activities in 1999. Consolidated cash provided (used) by net financing activities was $5.9 million in 1999 compared to ($8.7) million in 1998. The Company borrowed $7.0 million under its revolving line of credit during 1999 and during 1999 purchased $1.2 million of the Company's stock under its stock purchase plan compared to borrowings of $3.0 million in 1998 and $20.2 million of stock purchases in 1998. Cash Flow for the Year Ended December 31, 1998: Consolidated net cash provided by operating activities was $159.8 million for the year ended December 31, 1998 compared to $151.4 million in 1997. While earnings were lower in 1998, operating cash flow in 1998 contained greater amortization and depreciation elements than in 1997. Consolidated cash used in net investing activities was ($161.1) million in 1998 compared to ($147.6) million in 1997. Investing activity in 1998 reflects higher expenditures for data procurement and software development. Net cash provided (used) before financing activities was ($1.2) million in 1998 and $3.8 million in 1997 primarily due to higher investing activities in 1998. Consolidated cash provided (used) by net financing activities was ($8.7) million in 1998 compared to $6.4 million in 1997. The Company borrowed $3.0 million under its revolving line of credit during 1998 and during 1998 purchased $20.2 million of the Company's stock under its stock purchase plan. Financings: On February 9, 2000, the Company amended its $60 million bank revolving credit facility to revise certain financial covenants and other terms and conditions of the agreement. The amended facility has floating rate options at or below prime and commitment fees of up to .35% payable on the unused portion. The weighted average interest rate at December 31, 1999 was 6.53%. The financial covenants in the bank credit agreement, as well as in the lease agreement for the Company's Chicago headquarters, require the Company to maintain a minimum tangible net worth and to meet certain cash flow coverage and leverage ratios. The agreements also limit the Company's ability to declare dividends or make distributions to holders of capital stock, or redeem or otherwise acquire shares of the Company. Approximately $15.4 million is currently available for such distributions under the most restrictive of these covenants. The bank credit agreement contains covenants which restrict the Company's ability to incur additional indebtedness. Common Stock Purchase Plan: In November 1997 the Company's Board of Directors approved a plan to purchase up to two million shares of the Company's Common Stock from time to time in the open market. Purchases under the plan are subject to a number of considerations including the market price of the 17 19 Company's Common Stock and general market conditions. As of December 31, 1999, the Company had purchased and retired 2,000,000 shares under the plan at an average cost of $12.19 per share of which 138,200 shares were purchased during 1999 at an average cost of $8.87 per share and 1,442,600 shares were purchased during 1998 at an average cost of $11.96 per share. Other Deferred Costs: Consolidated deferred data procurement expenditures were $130.2 million, $120.5 million and $111.8 million for the years ended December 31, 1999, 1998 and 1997, respectively. These expenditures are amortized over a period of 28 months and include payments to retailers for point-of-sale data and costs related to collecting, reviewing and verifying other data (i.e., causal factors) which are an essential part of the Company's database. The increase in deferred data procurement expenditures was primarily related to the expansion of the Company's International services business and increased retailer payments in the U.S. Deferred data procurement expenditures for the Company's U.S. services business were $80.7 million, $76.9 million and $71.7 million for the years ended December 31, 1999, 1998 and 1997, respectively. The Company's International services business deferred data procurement expenditures were $49.5 million, $43.6 million and $40.1 million for the years ended December 31, 1999, 1998 and 1997, respectively. NOL & Tax Credit Carryforwards: As of December 31, 1999, the Company had cumulative U.S. federal taxable net operating loss ("NOL") carryforwards of $74.1 million which expire primarily in 2009 and 2011. At December 31, 1999 the Company also had U.S. tax credit carryforwards of $8.3 million, $7.2 million of which expire between 2000 and 2012, and the remainder of which can be carried forward indefinitely. Certain of these carryforwards have not been examined by the Internal Revenue Service and, therefore, are subject to potential adjustment. In addition, at December 31, 1999, various foreign subsidiaries of IRI had aggregate foreign taxable NOL carryforwards of $9.2 million. Approximately $4.0 million of these NOL's may be carried forward indefinitely, while the remaining $5.2 million expire between 2001 and 2004. Impact of Inflation: Inflation has slowed in recent years and is currently not an important determinant of the Company's results of operations. To the extent permitted by competitive conditions, the Company passes increased costs on to customers by adjusting sales prices and, in the case of multi-year contracts, through consumer price index provisions in such agreements. RESTRUCTURING CHARGES Project Delta: In the third quarter of 1999, the Company initiated a comprehensive program named Project Delta, the objective of which is to improve productivity and operating efficiencies to reduce the Company's on-going cost structure in its U.S. operations. The first phase of Project Delta included the identification and assessment of potential operating efficiencies in the Company's various U.S. functional areas and was completed in the fourth quarter of 1999. The cost reduction program implementation will begin in early 2000 and the Company expects that annualized cost savings in certain expenses of at least $15 million will be achievable in the U.S. operations by the end of 2000. As a result of these planned initiatives, the Company recorded a restructuring charge of $19.7 million ($11.8 million after tax) in the fourth quarter of 1999. The key components of this charge include (i) severance related to planned staff reductions of approximately 10%, or 325, of the Company's full-time U.S. and Corporate employees; (ii) asset write-offs related to unprofitable activities that will be discontinued; and (iii) the disposition of excess office space. 18 20 For 1999, the pre-tax restructuring charges included in Restructuring and Other Charges in the Statement of Operations consists of the following (in thousands):
1999 ACTIVITY TOTAL ------------------ DECEMBER 31, 1999 CHARGES CASH NON-CASH ACCRUAL ------- ------ -------- ------------------ Termination benefits.............................. $ 8,391 $ -- $ -- $8,391 Asset write-offs related to discontinued activities...................................... 8,631 -- 8,631 -- Disposition of excess office space................ 1,498 -- 1,004 494 Other costs of project............................ 1,130 1,130 -- -- ------- ------ ------ ------ $19,650 $1,130 $9,635 $8,885 ======= ====== ====== ======
Termination Benefits: The Company recorded a charge of $8.4 million for termination benefits covering 325 full-time U.S. business and Corporate employees. As of December 31, 1999, the Company has communicated the termination plan and benefits to all of its affected employees. Expected terminations impact virtually all areas of the U.S. business including operations, client services, technology and marketing, as well as Corporate headquarters. Virtually all termination benefits will be disbursed subsequent to December 31, 1999 and prior to December 31, 2000. Asset Write-offs Related to Discontinued Activities: The Company wrote off $8.6 million of assets related to discontinued activities of the U.S. business. This charge consists of $4.8 million and $3.8 million relating to certain of the Company's trade promotion software applications and Card Panel database assets, respectively. Based on discounted future cash flow estimates, the Company decided to discontinue all selling activities relating to its internally developed trade promotion software. As a result of this decision, the net book value of the trade promotion software assets were written off in the fourth quarter of 1999. The Company's consumer panel business had consisted of 55,000 households that utilize hand-held scanners to record their product purchases ("Multi-outlet") and shoppers from approximately 60,000 households that present an identification card when shopping at participating grocery stores ("Card Panel"). In 1999, the Company determined that the need for a Multi-outlet panel was becoming the minimum standard for panel tracking services. As a result, the Company decided to continue to expand its Multi-outlet panel and eliminate the separate Card Panel service. The net book value of the Card Panel database was written off in the fourth quarter of 1999. The Company continues to collect consumer panel information from approximately 23,000 households in the Company's BehaviorScan markets via an identification card for use in connection with the Company's testing and analytics service in the U.S. Disposition of Excess Office Space: As a result of planned headcount reductions and space not currently utilized, the Company has decided to vacate certain facilities. The Company recorded $1.5 million of charges relating to office rent and accelerated depreciation on certain fixed assets associated with these facilities in the fourth quarter of 1999. The majority of the excess space was related to contraction of the U.S. business headcount. Other Costs of Project Delta: As part of the Project Delta initiative, the Company hired the Boston Consulting Group ("BCG") to provide assistance in the identification and execution of the project objectives. The Company paid $1.1 million in the fourth quarter relating to services rendered by BCG. Future Restructuring Charges: As a result of Project Delta, the Company anticipates that it will continue to incur restructuring charges for items that could not be accrued under EITF Issue No. 94-3 and as a result of future restructuring plans. The Company also expects it will commence restructuring its information technology processes and its International operations during the course of 2000. Although the Company cannot yet estimate the amount of restructuring costs for these future restructuring programs, the Company does expect to incur additional costs in 2000 of $14 million to $16 million relating to the first phase of Project Delta which could not be accrued as of December 31, 1999. 19 21 OTHER CHARGES Asset Impairment: During 1999 the Company determined, based on an analysis of undiscounted future cash flows, that goodwill relating to IRI/GfK Retail was impaired, resulting in a $4.2 million charge which was included in Restructuring and Other Charges in the Statement of Operations. The Company made a decision in the fourth quarter of 1999 to transfer production of IRI/GfK Retail from an external vendor in Germany to the U.S. headquarter facility in order to enhance its InfoScan offering in Germany and to reduce future production costs. This decision requires funding in 2000 of approximately $4 million. Additional asset impairment charges totaled $.9 million in the fourth quarter of 1999. Nonqualified Defined Contribution Plan: In December 1999, the Company adopted the Information Resources, Inc. Nonqualified Defined Contribution Plan (the "Plan"). The Plan was designed to provide designated employees of the Company with an ownership interest in the equity of IRI in order to align the interests of those employees with the interests of IRI shareholders and compensate employees for their past performance. In December 1999, as part of the Plan, the Company made an irrevocable contribution of 877,000 shares of IRI common stock to the Plan trust; all shares have been fully allocated to each individual participant's account. This has resulted in the Company recording an expense of $7.9 million in the fourth quarter of 1999 which represents the fair market value of the common stock contribution. The shares of common stock will vest and generally be distributable on the fourth anniversary of the date upon which such shares are allocated to the participant's account if the participant's employment with the Company has not been terminated, with certain exceptions for termination of employment due to retirement, disability, death or change in control. Forfeited shares will remain in the Plan and be reallocated to other participants. Of the $7.9 million expensed in the fourth quarter, $5.5 million, $2.1 million and $0.3 million relate to the U.S. Services, International Services, and Corporate segments of the business, respectively. YEAR 2000 ISSUES In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of its planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the Year 2000 to be prepared to promptly address any latent Year 2000 matters that may arise. The total cost associated with the Company Y2K assessment and remediation efforts from 1998 through December 1999 were $6.5 million, of which $4.5 million was spent in 1999. EUROPEAN CURRENCY CONVERSION ISSUES In accordance with the 1992 treaty of the European Union, on January 1, 1999, a new single European currency, the Euro, became legal tender. The Euro will replace the sovereign currencies ("legacy currencies") of the eleven initial members of the European Union ("participating countries"). On this date, fixed conversion rates between the Euro and the legacy currencies in those particular countries were established. As the Company has operations in several of the participating countries, it will be affected by issues surrounding the introduction of and transition to the Euro. The Company's European Executive Committee is charged with formulating and executing all aspects of the Company's plan concerning the conversion to the Euro. The Company does not expect the cost of any system modifications to be material or result in any material increase in transaction costs. The Company will continue to evaluate the impact of the Euro, however, based on currently available information, management does not believe the introduction of the Euro will have a material adverse impact on the Company's financial condition or overall trends in results of operations. 20 22 FORWARD LOOKING INFORMATION All statements other than statements of historical fact made in this Annual Report on Form 10-K are forward looking. In particular, statements regarding industry prospects, our future results of operations or financial position, and statements preceded by, followed by or that include the words "intends," "estimates," "believes," "expects," "anticipates," "should," "could," or similar expressions, are forward-looking statements and reflect our current expectations and are inherently uncertain. The Company's actual results may differ significantly from our expectations for a number of reasons, including risks and uncertainties relating to customer renewals of service contracts, the timing of significant new customer engagements, the success of implementing its Project Delta, competitive conditions, the potential for future client losses, changes in client spending for the non-contractual services the Company offers, the release of chain-specific data by European retailers, foreign currency exchange rates, European currency conversion issues and other factors beyond the Company's control. These risks and uncertainties are described herein and in reports and other documents filed by the Company with the Securities and Exchange Commission. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currency Exchange Rates: The Company operates and conducts business in several foreign countries, primarily Europe, and as a result is exposed to movements in foreign exchange rates. Exchange rate movements upon consolidation of the foreign subsidiaries for which the functional currency is not the U.S. dollar could impact the Company's revenues, expenses and equity. The Company's net earnings are also exposed to exchange rate movements relating to certain intercompany transactions between the U.S. and foreign subsidiaries. The Company does not use derivative financial instruments to manage changes in foreign currency exchange rates. Interest Rate Risk: A 1% fluctuation in interest rates would not have a significant impact on the operating results of the Company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Listed below are the financial statements and supplementary data included in this part of the Annual Report on Form 10-K:
PAGE NO. ---- (a) Financial Statements Report of Independent Auditors.............................. 22 Consolidated Balance Sheets at December 31, 1999 and 1998... 23 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997.......................... 24 Statement of Changes in Stockholders' Equity and Comprehensive Income for the years ended December 31, 1999, 1998 and 1997....................................... 25 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997.......................... 26 Notes to Consolidated Financial Statements.................. 27 (b) Supplementary Data Summary of Quarterly Data................................... 42
Financial statement schedule is included on page 46 preceding the signature pages of this report (see Item 14). 21 23 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Information Resources, Inc. We have audited the accompanying consolidated balance sheets of Information Resources, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the related consolidated statements of operations, changes in stockholders' equity and comprehensive income and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Information Resources, Inc. and Subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Chicago, Illinois February 9, 2000 22 24 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------- 1999 1998 --------- -------- (IN THOUSANDS) CURRENT ASSETS Cash and cash equivalents................................. $ 8,077 $ 11,149 Accounts receivable, net.................................. 94,125 87,637 Prepaid expenses and other................................ 8,569 9,223 --------- -------- Total Current Assets.............................. 110,771 108,009 --------- -------- Property and equipment, at cost............................. 204,535 177,443 Accumulated depreciation.................................... (123,550) (97,940) --------- -------- Net Property and Equipment........................ 80,985 79,503 Investments................................................. 9,624 9,792 Other assets................................................ 167,100 171,989 --------- -------- $ 368,480 $369,293 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of capitalized leases.................. $ 55 $ 521 Accounts payable.......................................... 49,616 43,640 Accrued compensation and benefits......................... 23,838 20,925 Accrued property, payroll and other taxes................. 4,813 4,486 Accrued expenses.......................................... 11,475 11,287 Accrued restructuring costs............................... 8,885 -- Deferred revenue.......................................... 23,163 21,940 --------- -------- Total Current Liabilities......................... 121,845 102,799 --------- -------- Long-term debt.............................................. 10,764 4,575 Deferred income taxes....................................... 2,269 14,017 Other liabilities........................................... 8,627 9,450 STOCKHOLDERS' EQUITY Preferred stock -- authorized 1,000,000 shares, $.01 par value; none issued..................................... -- -- Common stock -- authorized 60,000,000 shares, $.01 par value; 29,068,657 and 27,867,884 shares issued and outstanding, respectively.............................. 291 279 Additional paid-in capital................................ 198,863 190,701 Retained earnings......................................... 31,390 49,778 Accumulated other comprehensive income (loss)............. (5,569) (2,306) --------- -------- Total Stockholders' Equity........................ 224,975 238,452 --------- -------- $ 368,480 $369,293 ========= ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 23 25 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, -------------------------------------- 1999 1998 1997 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Information services revenues.............................. $ 546,273 $ 511,323 $ 456,327 Costs and expenses: Information services sold (excluding 1999 defined contribution plan expense of $6,936).................. (491,247) (450,236) (401,876) Selling, general and administrative expenses (excluding 1999 defined contribution plan expense of $995)....... (54,911) (54,117) (39,684) Restructuring and other charges.......................... (24,755) -- -- Defined contribution plan expense........................ (7,931) -- -- --------- --------- --------- (578,844) (504,353) (441,560) --------- --------- --------- Operating profit (loss).................................... (32,571) 6,970 14,767 Interest expense and other, net............................ (1,452) (1,174) (545) Equity in earnings of affiliated companies................. 205 443 444 Minority interests benefit (expense)....................... 4,256 342 (304) --------- --------- --------- Earnings (loss) before income taxes........................ (29,562) 6,581 14,362 Income tax (expense) benefit............................... 11,174 (2,735) (6,700) --------- --------- --------- Net earnings (loss)........................................ $ (18,388) $ 3,846 $ 7,662 ========= ========= ========= Net earnings (loss) per common share -- basic.............. $ (0.66) $ .13 $ .27 ========= ========= ========= Net earnings (loss) per common and common equivalent share -- diluted......................................... $ (0.66) $ .13 $ .26 ========= ========= ========= Weighted average common shares -- basic.................... 28,045 28,578 28,476 ========= ========= ========= Weighted average common and common equivalent shares -- diluted.................................................. 28,045 28,986 29,069 ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 24 26 INFORMATION RESOURCES, INC. AND SUBSIDIARIES STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31,
ACCUMULATED OTHER ADDITIONAL COMPREHENSIVE TOTAL COMMON PAID-IN RETAINED INCOME STOCKHOLDERS' STOCK CAPITAL EARNINGS (LOSS) EQUITY ------ ---------- -------- ------------- ------------- (IN THOUSANDS) Balance at December 31, 1996............ $279 $187,213 $ 38,270 $ 566 $226,328 ---- -------- -------- ------- -------- Comprehensive income: Net earnings.......................... -- -- 7,662 -- 7,662 Other comprehensive loss, foreign currency translation adjustment.... -- -- -- (3,780) (3,780) -------- Comprehensive income.................. 3,882 Shares issued from employee stock option plan exercises and other.............. 12 17,269 -- -- 17,281 Shares purchased and retired............ (4) (5,945) -- -- (5,949) ---- -------- -------- ------- -------- Balance at December 31, 1997............ 287 198,537 45,932 (3,214) 241,542 ---- -------- -------- ------- -------- Comprehensive income: Net earnings.......................... -- -- 3,846 -- 3,846 Other comprehensive income, foreign currency translation adjustment.... -- -- -- 908 908 -------- Comprehensive income.................. 4,754 Shares issued from employee stock option plan exercises and other.............. 6 9,398 -- -- 9,404 Shares purchased and retired............ (14) (17,234) -- -- (17,248) ---- -------- -------- ------- -------- Balance at December 31, 1998............ 279 190,701 49,778 (2,306) 238,452 ---- -------- -------- ------- -------- Comprehensive income: Net loss.............................. -- -- (18,388) (18,388) Other comprehensive loss, foreign currency translation adjustment.... -- -- -- (3,263) (3,263) -------- Comprehensive loss.................... (21,651) Restricted stock granted................ 3 361 -- -- 364 Shares issued to Defined Contribution Plan.................................. 9 7,922 -- -- 7,931 Shares issued from employee stock option plan exercises and other.............. 1 1,103 -- -- 1,104 Shares purchased and retired............ (1) (1,224) -- -- (1,225) ---- -------- -------- ------- -------- Balance at December 31, 1999............ $291 $198,863 $ 31,390 $(5,569) $224,975 ==== ======== ======== ======= ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 25 27 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 --------- --------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss)....................................... $ (18,388) $ 3,846 $ 7,662 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Amortization of deferred data procurement costs......... 120,227 112,111 101,625 Restructuring and other charges......................... 23,625 -- -- Defined contribution plan expense....................... 7,931 -- -- Depreciation............................................ 26,968 23,238 20,421 Amortization of capitalized software costs and intangibles.......................................... 7,295 6,894 6,689 Deferred income tax expense (benefit)................... (11,571) 2,606 6,329 Equity in earnings of affiliated companies and minority interests............................................ (4,461) (785) (140) Other................................................... (1,350) (2,864) (3,529) Change in assets and liabilities: Decrease (increase) in accounts receivable, net...... (7,717) 9,615 6,514 Decrease (increase) in other current assets.......... 655 560 (2,379) Increase in accounts payable and accrued liabilities........................................ 7,688 3,147 8,168 Increase (decrease) in deferred revenue.............. 1,223 1,471 (672) Other, net........................................... 5,571 3 679 --------- --------- --------- Total adjustments............................... 176,084 155,996 143,705 --------- --------- --------- Net cash provided by operating activities....... 157,696 159,842 151,367 CASH FLOWS FROM INVESTING ACTIVITIES: Deferred data procurement costs........................... (130,212) (120,493) (111,814) Purchase of property, equipment and software.............. (31,142) (33,731) (34,444) Capitalized software costs................................ (7,273) (7,167) (3,682) Proceeds from disposition of assets....................... 524 -- 1,500 Capital contributions from minority interests and other, net..................................................... 2,890 319 889 --------- --------- --------- Net cash used by investing activities........... (165,213) (161,072) (147,551) CASH FLOWS FROM FINANCING ACTIVITIES: Net bank borrowings (repayments).......................... 6,281 3,000 (5,500) Net repayments of capitalized leases...................... (480) (810) (2,291) Purchases of Common Stock................................. (1,225) (20,185) (3,012) Proceeds from exercise of stock options and other......... 1,299 9,256 17,154 --------- --------- --------- Net cash provided (used) by financing activities.................................... 5,875 (8,739) 6,351 EFFECT OF EXCHANGE RATE CHANGES ON CASH................... (1,430) 193 (1,437) --------- --------- --------- Net increase (decrease) in cash and cash equivalents................................... (3,072) (9,776) 8,730 Cash and cash equivalents at beginning of year............ 11,149 20,925 12,195 --------- --------- --------- Cash and cash equivalents at end of year.................. $ 8,077 $ 11,149 $ 20,925 ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 26 28 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 1. SUMMARY OF ACCOUNTING POLICIES BUSINESS Information Resources, Inc. ("IRI") and its subsidiaries (referred to herein as "IRI" or the "Company") is a leading provider of universal product code ("UPC"), scanner-based business solutions services to the consumer packaged goods ("CPG") industry, offering services in the U.S., Europe and other international markets. The Company supplies CPG manufacturers, retailers and brokers with information and analysis critical to their sales, marketing and supply chain operations. IRI provides services designed to deliver value through an enhanced understanding of the consumer to a majority of the Fortune 500 companies in the CPG industry. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Information Resources, Inc. and all wholly-or majority-owned subsidiaries and affiliates. Minority interests reflect the non-Company owned stockholder interests in IRI InfoScan Limited (U.K.), IRI/GfK Retail Services GmbH (Germany) ("IRI/GfK Retail"), effective February 1997, IRI/GfK Retail Services B.V. (the Netherlands), effective February 1998 and Information Resources Espana, S.L., effective November 1998. The equity method of accounting is used for investments in which the Company has a 20% to 50% ownership interest and exercises significant influence over operating and financial policies. All significant intercompany accounts and transactions have been eliminated in consolidation. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results may differ from estimates. RECLASSIFICATIONS Certain reclassifications have been made in the prior years' consolidated financial statements and the accompanying notes to the consolidated financial statements to conform to the 1999 presentation. REVENUE RECOGNITION Revenues on contracts for retail tracking services, which generally have terms of three to five years, are recognized over the terms of the contracts. Such contracts are generally categorized into one of two classes: 1) cancelable at the end of each year by the giving of six months written notice by either party; or 2) multi-year contracts either non-cancelable or cancelable only with significant penalties, generally by the giving of six months written notice after the initial multi-year term. Revenues for special analytical services, market research and consulting projects are recognized as services are performed. Certain of these projects are fixed-price in nature and use the percentage-of-completion method for the recognition of revenue. Revenues from the sale of software application products, or products sold under licensing agreements, are recognized upon delivery when there is a reasonable basis for estimating collectibility and the Company has no significant remaining obligations. Related software maintenance fees are recognized as earned over the terms of their respective contracts. 27 29 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) RESEARCH AND DEVELOPMENT The Company is continuously developing new products and services. In this regard, the Company is actively engaged in research and development of new database analyses and applications, software applications and services and data delivery systems. Expenditures for research and development for the years ended December 31, 1999, 1998 and 1997 approximated $24.2 million, $25.9 million and $21.3 million, respectively. All research and development expenditures were expensed as incurred. BENEFITS PLANS The Company sponsors an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. The plan allows eligible employees to contribute a portion of their pre-tax income in accordance with specified guidelines. The Company matches a percentage of employee contributions up to certain limits. The expense recognized for the 401(k) plan totaled approximately $3.0 million, $2.9 million and $2.4 million in 1999, 1998 and 1997, respectively. In December 1999, the Company adopted the Information Resources, Inc. Nonqualified Defined Contribution Plan (the "Plan"). The plan was designed to provide designated employees of the Company with an ownership interest in the equity of IRI in order to align the interests of those employees with the interests of IRI shareholders and compensate employees for their past performance. In December 1999, as part of the Plan, the Company made an irrevocable contribution of 877,000 shares of IRI common stock to the Plan trust; all shares have been fully allocated to each individual participant's account. This has resulted in the Company recording an expense of $7.9 million in the fourth quarter of 1999 which represents the fair market value of the common stock contribution. The shares of common stock will vest and generally be distributable on the fourth anniversary of the date upon which such shares are allocated to the participant's account if the participant's employment with the Company has not been terminated, with certain exceptions for termination of employment due to retirement, disability, death or change in control. Forfeited shares will remain in the Plan and be reallocated to other participants. Of the $7.9 million expensed in the fourth quarter, $5.5 million, $2.1 million and $0.3 million relate to the U.S. Services, International Services, and Corporate segments of the business, respectively. CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents include cash on hand and funds held in money market accounts with a maturity of three months or less. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CREDIT RISK The carrying value of the Company's financial instruments, cash and cash equivalents, investments and debt obligations represent a reasonable estimate of their fair value. As of December 31, 1999 and 1998, the Company had no significant concentrations of credit risk related to cash equivalents and accounts receivable. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost and is depreciated over the estimated service lives. For financial statement purposes, depreciation is provided by the straight-line method. The Company also capitalizes the cost of internal-use computer software as incurred and amortizes such costs over the respective estimated useful lives in accordance with SOP 98-1. Leasehold improvements are amortized over the shorter 28 30 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of their estimated service lives or the terms of their respective lease agreements. Estimated useful lives are as follows: Computer equipment and software............................. 3 to 7 years Market testing and other operating equipment................ 3 to 7 years Leasehold improvements...................................... 4 to 20 years Equipment and furniture..................................... 3 to 8 years
OTHER ASSETS Other assets include deferred data procurement costs, intangible assets and costs of capitalized software held for sale. Data procurement costs are amortized over a period of 28 months and include payments and services to retailers for point-of-sale data and costs related to collecting, reviewing and verifying other data (i.e., causal factors) which are an essential part of the database. Intangible assets include goodwill, solicitation rights and non-compete agreements, all of which arose from acquisitions, investments or strategic alliances. Goodwill is amortized on a straight-line basis over periods from ten to twenty years. Solicitation rights are amortized on a straight-line basis over the expected useful lives of six to ten years. Non-compete agreements are being amortized over periods from five to seven years. Capitalized costs of computer software held for sale are amortized on a straight-line basis beginning upon the software's general release date over a period not to exceed three years. On an ongoing basis, management reviews the valuation and amortization of these assets to determine possible impairment by comparing the carrying value to the undiscounted future cash flows of the related assets. During 1999, the Company determined, based on this review, that goodwill relating to IRI/GfK Retail (part of International Services) was impaired, resulting in a $4.2 million charge which was included in Restructuring and Other Charges in the Statement of Operations. The Company made a decision in the fourth quarter of 1999 to transfer production of IRI/GfK Retail from an external vendor in Germany to the U.S. headquarter facility in order to enhance its InfoScan offering in Germany and to reduce future production costs. This decision requires funding in 2000 of approximately $4 million. Based on discounted future cash flow estimates, the Company decided to discontinue all selling activities relating to certain of the Company's internally developed trade promotion software. As a result of this decision, the $4.8 million net book value of the asset was written off in the fourth quarter of 1999. In 1999, the Company determined that the need for a Multi-outlet panel was becoming the minimum standard for panel tracking services. As a result, the Company decided to continue to expand its Multi-outlet panel and eliminate the Card Panel. As a result, the $3.8 million net book value of the Card Panel database asset was written off in the fourth quarter of 1999. INCOME TAXES Deferred income taxes are recognized at statutory rates to reflect the future effects of tax carryforwards and temporary differences arising between the tax bases of assets and liabilities and their financial reporting amounts at each year end. Deferred income taxes arise in business combinations accounted for as purchases as a result of differences between the fair value of assets acquired and their tax bases. EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE AND STOCK-BASED COMPENSATION Net earnings (loss) per share is based upon the weighted average number of shares of common stock outstanding during each year. Net earnings (loss) per common and common equivalent share -- diluted is based upon the weighted average number of shares of common stock and common stock equivalents, entirely comprised of stock options, outstanding during each year. For the year ended December 31, 1999, all stock options, aggregating 7,451,373 shares, were excluded from the weighted average shares outstanding calculation because they were anti-dilutive. For the year ended December 31, 1998, stock options aggregating 29 31 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3,256,904 shares were excluded from the weighted average shares outstanding calculation because they were anti-dilutive. The Company accounts for stock option grants in accordance with provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees." 2. SUPPLEMENTAL CASH FLOW INFORMATION Interest expense paid and income taxes paid during the years ended December 31, were as follows (in thousands):
1999 1998 1997 ------ ------ ------ Interest.................................................... $1,731 $1,257 $1,346 Income taxes................................................ 418 1,548 262
Non-cash investing and financing activities are excluded from the consolidated statements of cash flows. In 1999, the Company contributed 877,000 shares of common stock with a fair market value of $7.9 million to the IRI Nonqualified Defined Contribution Plan (See Note 1). In 1998 and 1997, receivables of $1.6 million and $.5 million, respectively, were reclassified to investment in joint ventures. 3. ACQUISITIONS AND JOINT VENTURES In November 1998, the Company executed a joint venture agreement with Media Planning, S.A. to create a new retail tracking business to serve the Spanish market under the name Information Resources Espana, S.L. ("IRI-Spain"). In January 1999, IRI-Spain and Dympanel, S.A. signed a cooperation agreement which added Dympanel, S.A. as a third investor in IRI-Spain. The Company's ownership interest in IRI-Spain is 64% as of December 31, 1999. IRI-Spain began providing InfoScan service to the Spanish market in early 1999, using the Company's production facilities in Wood Dale, Illinois. Until December 1998, the Company owned and operated a retail audit business in Turkey, which it acquired in 1993. Effective January 1999, the Company contributed all of the operating assets and liabilities of its Turkish subsidiary to a joint venture. The business of the joint venture was discontinued in October 1999. Under the terms of a 1995 agreement, the Company has a strategic alliance with Middle East Market Research Bureau ("MEMRB"), a market research company based in Cyprus. In 1998 IRI acquired a 19.9% ownership interest in MEMRB, which decreased to 16% in 1999 due to funding from a new partner. The Company holds an option to increase its ownership interest of MEMRB to 49%. The Company and GfK AG of Germany ("GfK") operate a joint venture which offers a scanner-based product tracking service to the Netherlands market operating under the InfoScan name. Until early 1998, this joint venture was owned 80.1% by GfK and 19.9% by the Company. In February 1998, the Company increased its ownership to 51% and assumed overall management responsibilities. In 1998, the Company sold a 9.9% interest in GfK Panel Services Benelux B.V. and GfK Belgium S.A., reducing its ownership to 10%. Those companies operate household panel services in the Netherlands and Belgium and continue to cooperate with the Netherlands InfoScan operation in the sale and delivery of services to common customers. Effective May 21, 1998, the Company reduced its ownership in Information Resources, Japan, Ltd., from 60% to 40% by selling a 20% ownership interest to Mitsui & Co., Ltd. In February 1997, the Company and GfK organized a new joint venture company, IRI/GfK Retail. The Company currently has a 51% ownership interest in IRI/GfK Retail, and GfK owns the remainder. Effective 30 32 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) January 1, 1999, the Company's funding requirement per the joint venture agreement increased to 80%. IRI/ GfK Retail purchased the German retail tracking business of GfK Panel Services GmbH ("GfK Panel"). In a separate transaction, the Company sold its previously held 15% ownership interest in GfK Panel to GfK at no book gain or loss. GfK Panel, a provider of consumer panel and ad hoc research services, will cooperate with IRI/GfK Retail in selling and delivering services to customers. The consolidation of the Company's Netherlands, German and Spain operations, the exercise of its MEMRB option, the shut-down of the Turkey operation and the sale of its 20% interest in Information Resources Japan, Ltd. did not have a material impact on the consolidated financial results or position of the Company. 4. RESTRUCTURING Project Delta: In the third quarter of 1999, the Company initiated a comprehensive program named Project Delta, the objective of which is to improve productivity and operating efficiencies to reduce the Company's on-going cost structure in its U.S. operations. The first phase of Project Delta included the identification and assessment of potential operating efficiencies in the Company's various U.S. functional areas and was completed in the fourth quarter of 1999. As a result of these planned initiatives, the Company recorded a restructuring charge of $19.7 million ($11.8 million after tax) in the fourth quarter of 1999. The key components of this charge include (i) severance related to planned staff reductions of approximately 10%, or 325, of the Company's full-time U.S. and Corporate employees; (ii) asset write-offs related to unprofitable activities that will be discontinued; and (iii) the disposition of excess office space. For 1999, the pre-tax restructuring charges included in Restructuring and Other Charges in the Statement of Operations consist of the following (in thousands):
1999 ACTIVITY TOTAL ------------------ DECEMBER 31, 1999 CHARGES CASH NON-CASH ACCRUAL ------- ------ -------- ----------------- Termination benefits....................... $ 8,391 $ -- $ -- $8,391 Asset write-offs related to discontinued activities............................... 8,631 -- 8,631 -- Disposition of excess office space......... 1,498 -- 1,004 494 Other costs of project..................... 1,130 1,130 -- -- ------- ------ ------ ------ Total............................ $19,650 $1,130 $9,635 $8,885 ======= ====== ====== ======
Termination Benefits: The Company recorded a charge of $8.4 million for termination benefits covering 325 full-time U.S. business and Corporate employees. As of December 31, 1999, the Company has communicated the termination plan and benefits to all of its affected employees. Expected terminations impact virtually all areas of the U.S. business including operations, client services, technology and marketing, as well as Corporate headquarters. Virtually all termination benefits will be disbursed subsequent to December 31, 1999 and prior to December 31, 2000. Asset Write-offs Related to Discontinued Activities: The Company wrote off $8.6 million of assets related to discontinued activities of the U.S. business. This charge consists of $4.8 million and $3.8 million relating to certain of the Company's trade promotion software applications and Card Panel database assets, respectively. Based on discounted future cash flow estimates, the Company decided to discontinue all selling activities relating to its internally developed trade promotion software. As a result of this decision, the net book value of the trade promotion software assets were written off in the fourth quarter of 1999. The Company's consumer panel business had consisted of 55,000 households that utilize hand-held scanners to record their product purchases ("Multi-outlet") and shoppers from approximately 60,000 31 33 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) households that present an identification card when shopping at participating grocery stores ("Card Panel"). In 1999, the Company determined that the need for a Multi-outlet panel was becoming the minimum standard for panel tracking services. As a result, the Company decided to continue to expand its Multi-outlet panel and eliminate the separate Card Panel service. The net book value of the Card Panel database asset was written off in the fourth quarter of 1999. The Company continues to collect consumer panel information from approximately 23,000 households via an identification card for limited use in connection with the Company's BehaviorScan testing service in the U.S. Disposition of Excess Office Space: As a result of planned headcount reductions and space not currently utilized, the Company has decided to vacate certain facilities. The Company recorded $1.5 million of charges relating to office rent and accelerated depreciation on certain fixed assets associated with these facilities in the fourth quarter of 1999. The majority of the excess space was related to contraction of the U.S. business headcount. Other Costs of Project Delta: As part of the Project Delta initiative, the Company hired the Boston Consulting Group ("BCG") to provide assistance in the identification and execution of the project objectives. The Company paid $1.1 million in the fourth quarter relating to services rendered by BCG. 5. INCOME TAXES As of December 31, 1999, the Company had cumulative U.S. federal taxable net operating loss ("NOL") carryforwards of $74.1 million which expire primarily in 2009 and 2011. At December 31, 1999 the Company also had U.S. tax credit carryforwards of $8.3 million, $7.2 million of which expire between 2000 and 2012, and the remainder of which can be carried forward indefinitely. Certain of these carryforwards have not been examined by the Internal Revenue Service and, therefore, are subject to potential adjustment. In addition, at December 31, 1999, various foreign subsidiaries of IRI had aggregate foreign taxable NOL carryforwards of $9.2 million. Approximately $4.0 million of these NOL's may be carried forward indefinitely, while the remaining $5.2 million expire between 2001 and 2004. Domestic earnings (losses) before income taxes were ($28.9) million, $16.7 million and $31.4 million for 1999, 1998 and 1997, respectively. The foreign losses before income taxes were ($0.7) million, ($10.1) million and ($17.0) million for 1999, 1998 and 1997, respectively. A majority of the foreign pre-tax losses are deducted as partnership losses in IRI's consolidated U.S. Federal income tax return. Income tax (expense) benefit relating to earnings (loss) for the years ended December 31, 1999, 1998 and 1997 consisted of the following components (in thousands):
1999 1998 1997 ------- ------- ------- Current income tax (expense) benefit Federal................................................... $ -- $ -- $ -- Foreign................................................... (397) (129) (371) State and local........................................... -- -- -- ------- ------- ------- (397) (129) (371) ------- ------- ------- Deferred income tax (expense) benefit Federal................................................... 9,562 (1,939) (6,366) Foreign................................................... (593) 21 549 State and local........................................... 2,602 (688) (512) ------- ------- ------- 11,571 (2,606) (6,329) ------- ------- ------- Income tax (expense) benefit................................ $11,174 $(2,735) $(6,700) ======= ======= =======
32 34 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has reduced its deferred tax liability by its U.S. federal and state NOL carryforwards and certain foreign NOL carryforwards in its consolidated financial statements. The Company expects to realize these future tax benefits from future recognition of substantial taxable income resulting from the reversal of $157.3 million of existing net temporary differences. Significant components of the Company's deferred tax liabilities and assets were as follows (in thousands):
DECEMBER 31, ----------------- 1999 1998 ------- ------- Deferred tax liabilities: Deferred data procurement costs........................... $51,329 $48,581 Capitalized software costs................................ 3,048 2,385 Acquisition related costs................................. 3,186 4,536 Other..................................................... 5,425 11,767 ------- ------- Total deferred tax liabilities.................... 62,988 67,269 Deferred tax assets: Domestic NOL carryforwards................................ 28,136 25,003 Domestic tax credit carryforwards......................... 8,429 9,571 Foreign NOL carryforwards................................. 3,923 4,409 Reserve for compensation related items.................... 15,612 4,866 Other..................................................... 14,278 18,196 ------- ------- Total deferred tax assets......................... 70,378 62,045 Valuation allowance on deferred tax assets.................. (9,659) (8,793) ------- ------- Net deferred tax assets..................................... 60,719 53,252 ------- ------- Net deferred tax liability.................................. $ 2,269 $14,017 ======= =======
The valuation allowance was increased by $0.9 million in 1999 and $0.1 million in 1998, because it is more likely than not that certain foreign NOL and tax credit carryforwards may not be fully utilized. Income tax (expense) benefit differs from the statutory U.S. Federal income tax rate of 35% applied to earnings (loss) before income taxes for the years ended December 31, 1999, 1998 and 1997 as follows (in thousands):
1999 1998 1997 ------- ------- ------- Statutory tax (expense) benefit......................... $10,347 $(2,303) $(5,027) Effects of -- State income taxes, net of Federal income tax effect............................................. 1,691 (447) (333) Nondeductible meals and entertainment................. (406) (428) (407) Nondeductible acquisition/organization costs.......... (160) (180) (127) Foreign losses and taxes.............................. (338) 558 (1,089) Valuation allowance................................... (713) 400 216 Other non-taxable income (non-deductible expenses).... 753 (335) 67 ------- ------- ------- $11,174 $(2,735) $(6,700) ======= ======= =======
33 35 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. ACCOUNTS RECEIVABLE Accounts receivable at December 31, were as follows (in thousands):
1999 1998 ------- ------- Billed...................................................... $73,605 $71,141 Unbilled.................................................... 24,294 21,258 ------- ------- 97,899 92,399 Reserve for accounts receivable............................. (3,774) (4,762) ------- ------- $94,125 $87,637 ======= =======
Payments received in advance of revenue recognition are reflected in the consolidated financial statements as deferred revenue. Unbilled accounts receivable represent revenues and fees on contracts and other services earned to date for which customers were not invoiced as of the balance sheet date. 7. PROPERTY AND EQUIPMENT Property and equipment at December 31, were as follows (in thousands):
1999 1998 --------- -------- Computer equipment and software............................. $ 117,411 $ 96,302 Market testing and other operating equipment................ 33,619 30,730 Leasehold improvements...................................... 15,961 14,963 Equipment and furniture..................................... 37,544 35,448 --------- -------- 204,535 177,443 Accumulated depreciation.................................... (123,550) (97,940) --------- -------- $ 80,985 $ 79,503 ========= ========
8. INVESTMENTS AND OTHER ASSETS Investments at December 31, were as follows (in thousands):
1999 1998 ------ ------ Datos Information Resources, at cost plus equity in undistributed earnings.................................... $4,926 $5,268 GfK Panel Services Benelux B.V., at cost.................... 1,315 1,272 Middle East Market Research Bureau ("MEMRB"), at cost....... 2,808 2,821 Other....................................................... 575 431 ------ ------ $9,624 $9,792 ====== ======
34 36 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Other assets at December 31, were as follows (in thousands):
1999 1998 -------- -------- Deferred data procurement costs -- net of accumulated amortization of $141,531 in 1999 and $123,440 in 1998..... $140,285 $138,356 Intangible assets, including goodwill -- net of accumulated amortization of $15,050 in 1999 and $13,616 in 1998....... 11,659 18,610 Capitalized software costs -- net of accumulated amortization of $3,149 in 1999 and $3,701 in 1998......... 7,799 9,258 Other....................................................... 7,357 5,765 -------- -------- $167,100 $171,989 ======== ========
Commercial software development costs of $7.3 million, $7.2 million and $3.6 million were capitalized for the years ended December 31, 1999, 1998 and 1997. 9. LONG-TERM DEBT Long-term debt at December 31, was as follows (in thousands):
1999 1998 ------- ------ Bank borrowings............................................. $10,000 $3,000 Capitalized leases and other................................ 819 2,096 ------- ------ 10,819 5,096 Less current maturities..................................... (55) (521) ------- ------ $10,764 $4,575 ======= ======
On February 9, 2000 the Company amended its $60 million bank revolving credit facility to amend certain financial covenants and other terms and conditions of the agreement. The amended facility has floating rate options at or below prime and commitment fees of up to .35% payable on the unused portion, and a termination date of 2002. The weighted average interest rates at December 31, 1999 and 1998 were 6.53% and 6.25% respectively. The financial covenants in the bank credit agreement, as well as in the lease agreement for the Company's Chicago headquarters, require the Company to maintain a minimum tangible net worth and to meet certain cash flow coverage and leverage ratios. The agreements also limit the Company's ability to declare dividends or make distributions to holders of capital stock, or redeem or otherwise acquire shares of the Company. Approximately $15.4 million is currently available for such distributions under the most restrictive of these covenants. The bank credit agreement contains covenants which restrict the Company's ability to incur additional indebtedness. Capitalized leases and other primarily consist of leases for computer and communications equipment expiring through 2000. Maturities of capitalized leases in 2000 are $0.1 million. 10. CAPITAL STOCK PREFERRED STOCK PURCHASE RIGHTS In 1989, IRI adopted a shareholder rights plan which attached preferred stock rights ("Rights") to each share of its Common Stock. Each Right entitles the holder to purchase one one-hundredth share of Preferred Stock at an exercise price of $60. The Rights become exercisable upon the acquisition of a certain percentage of IRI Common Stock or a tender offer or exchange offer for IRI Common Stock by a person or group. IRI 35 37 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) may redeem the Rights at $.01 per Right at any time prior to a public announcement that a person or group has acquired a certain percentage of IRI's Common Stock. The Rights will expire on October 27, 2007. IRI has authority to issue one million shares of $.01 par value Preferred Stock. COMMON STOCK At December 31, 1999, 1998 and 1997, 29,068,657, 27,867,884 and 28,713,943 shares of Common Stock, respectively, were issued and outstanding. In connection with the IRI director stock plan, approximately 50,000 shares were reserved for future issuance at December 31, 1999. In connection with all IRI employee stock option plans, 11.3 million shares were reserved for issuance at December 31, 1999. These reserved shares were reduced by 7.5 million stock options outstanding at December 31, 1999, resulting in 0.3 million and 3.5 million stock options available for grant under the Executive Stock Option Plan and the Employee Stock Option Plan, respectively. In November 1997 the Company's Board of Directors approved a plan to purchase up to two million shares of the Company's Common Stock from time to time in the open market. Purchases under the plan are subject to a number of considerations including the market price of the Company's Common Stock and general market conditions. As of December 31, 1999, the Company had purchased and retired 2,000,000 shares under the plan at an average cost of $12.19 per share, including 138,200 shares purchased during 1999 at an average cost of $8.87 per share and 1,442,600 shares purchased during 1998 at an average cost of $11.96 per share. In May 1996, the Company's shareholders approved a stock plan for non-employee directors (the Directors' Plan), authorizing the issuance of up to 100,000 shares of Common Stock. Under the Directors' Plan an eligible director is paid annually in shares of Common Stock in lieu of 75% of the cash retainer otherwise payable for services on the Board. The number of shares issued is based upon the fair market value of the Company's Common Stock. The Company issued 21,215, 8,154, and 9,873 shares in 1999, 1998 and 1997 at a price of $8.72, $17.38 and $14.36 per share, respectively, under the Directors' Plan. There are restrictions in IRI's bank revolving credit facility and lease agreements which limit the payment of dividends and the purchases or redemption of Common Stock. (See Note 9.) STOCK OPTIONS The Company has several stock option plans. The Employee Stock Option Plan covers most employees other than executive officers and directors. Substantially all options under these plans have been granted at fair market value or higher. Most option grants are exercisable in equal annual increments of 25% beginning on the first anniversary of the grant date and expire ten years after the date of grant. IRI also has an Executive Stock Option Plan covering executive officers and directors which at inception authorized up to 2.5 million stock options. Most options under this plan were granted at fair market value and are exercisable in equal annual increments of 25% beginning on the first anniversary of the grant date and expire ten years after the date of grant. For options granted at less than fair market value, the Company recognizes compensation expense over the vesting period for the difference between the total fair market value and the total exercise price on the date of grant. The following table presents, on a pro forma basis, net earnings (loss) and net earnings (loss) per share for the years ended December 31, 1999, 1998 and 1997 as if an alternate method of accounting as prescribed 36 38 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) by SFAS No. 123 "Accounting for Stock-Based Compensation" for stock options had been adopted (in thousands, except per share data):
1999 1998 1997 -------- ------ ------ Net earnings (loss) -- as reported........................ $(18,388) $3,846 $7,662 ======== ====== ====== Net earnings (loss) -- pro forma.......................... $(21,687) $ 981 $6,096 ======== ====== ====== Net earnings (loss) per common share -- basic -- as reported................................................ $ (.66) $ .13 $ .27 ======== ====== ====== Net earnings (loss) per common share -- basic -- pro forma................................................... $ (.77) $ .03 $ .21 ======== ====== ====== Net earnings (loss) per common and common equivalent share -- diluted -- as reported......................... $ (.66) $ .13 $ .26 ======== ====== ====== Net earnings (loss) per common and common equivalent share -- diluted -- pro forma........................... $ (.77) $ .03 $ .21 ======== ====== ======
The above table is based upon the valuation of option grants using the Black-Scholes pricing model for traded options with assumed risk-free interest rates of 5.5%, 5.5% and 6.6% for 1999, 1998 and 1997, respectively; stock price volatility factor of 61.0%, 55.9% and 46.6% for 1999, 1998 and 1997, respectively; and an expected life of the options of five years. Using the foregoing assumptions, the calculated weighted-average fair value of options granted in 1999, 1998 and 1997 was $5.01, $6.64 and $7.21, respectively. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the input assumptions can materially affect the fair value estimate, in management's opinion, the model does not necessarily provide a reliable single measure of the fair value of its employee stock options. Transactions involving stock options for the Executive and Employee Stock Option Plans are summarized as follows:
WEIGHTED AVERAGE NUMBER EXERCISE OF OPTIONS PRICE ---------- -------- Outstanding January 1, 1997................................. 8,348,180 $14.26 Granted..................................................... 801,390 14.59 Canceled/Expired............................................ (651,083) 17.06 Exercised................................................... (1,236,864) 12.38 ---------- ------ Outstanding December 31, 1997............................... 7,261,623 14.36 Granted..................................................... 1,647,345 12.52 Canceled/Expired............................................ (997,762) 15.89 Exercised................................................... (584,972) 13.88 ---------- ------ Outstanding December 31, 1998............................... 7,326,234 13.73 Granted..................................................... 1,461,500 8.80 Canceled/Expired............................................ (1,238,931) 14.58 Exercised................................................... (97,430) 9.85 ---------- ------ Outstanding December 31, 1999............................... 7,451,373 $12.68 ========== ====== Exercisable December 31, 1999............................... 4,852,097 $13.84 ========== ======
37 39 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock options outstanding at December 31, 1999 are as follows:
WEIGHTED OUTSTANDING EXERCISABLE AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE - ------------------------ ----------- ----------- ----------- ----------- ----------- $ 6.94-$ 9.35................ 1,931,800 7.55 $ 8.48 510,301 $ 8.90 $ 9.38-$13.875............... 1,906,163 6.31 11.99 1,444,829 12.23 $14.00-$14.25................ 2,718,465 4.81 14.14 2,117,857 14.17 $14.313-$34.00............... 894,945 4.83 18.78 779,110 19.16 --------- ---- ------ --------- ------ $ 6.94-$34.00................ 7,451,373 5.91 $12.68 4,852,097 $13.84 ========= ==== ====== ========= ======
11. COMMITMENTS, CONTINGENCIES AND LITIGATION LEASE AGREEMENTS AND OTHER COMMITMENTS Future minimum lease payments under all operating leases as of December 31, 1999 are as follows (in thousands):
YEAR ENDING DECEMBER 31, OPERATING LEASE PAYMENTS ------------------------ ------------------------ 2000........................................................ $ 27,974 2001........................................................ 22,661 2002........................................................ 16,859 2003........................................................ 14,758 2004........................................................ 12,031 After 2004.................................................. 44,873 -------- Total minimum lease payments................................ $139,156 ========
Total rental expense for the years ended December 31, 1999, 1998 and 1997 was $27.4 million, $30.9 million and $36.1 million respectively. LEGAL PROCEEDINGS In July 1996, IRI filed an action against The Dun & Bradstreet Corp., The A.C. Nielsen Company (now a subsidiary of ACNielsen) ("ACNielsen") and IMS International, Inc. (collectively, "the Defendants") in the United States District Court for the Southern District of New York entitled Information Resources, Inc. v. The Dun & Bradstreet Corp., et. al. No. 96 CIV. 5716 (the "Action"). IRI alleged that, among other things, the Defendants violated Sections 1 and 2 of the Sherman Act, 15 U.S.C. Section 1 and 2, by engaging in a series of anti-competitive practices aimed at excluding the Company from various export markets for retail tracking services and regaining monopoly power in the United States market for such services. These practices included: (i) entering into exclusionary contracts with retailers in several countries, in order to restrict the Company's access to sales data necessary to provide retail tracking services; (ii) illegally tying/bundling services in markets over which Defendants' had monopoly power with services in markets in which ACNielsen competed with the Company; (iii) predatory pricing; (iv) acquiring foreign market competitors with the intent of impeding the Company's efforts at export market expansion; (v) tortiously interfering with Company contracts and relationships with clients, joint venture partners and other market research companies; and (vi) disparaging the Company to financial analysts and clients. By the Action, the Company seeks to enjoin the Defendants' anti-competitive practices and to recover damages in excess of $350 million, prior to trebling. 38 40 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On January 15, 1999, IRI filed an action against Manugistics, Inc. ("Manugistics") in the Circuit Court of Cook County, Illinois, Case No. 99 L 00599. In Count I of its two count action, IRI has alleged that Manugistics has breached a Guaranteed Data Marketing and Revenue Agreement between IRI and Manugistics ("Agreement") by failing to pay certain amounts due to IRI thereunder. The Agreement was entered into by IRI and Manugistics in connection with the sale by IRI to Manugistics of certain assets relating to the manufacture, sale and servicing of certain logistics software. IRI has also alleged that Manugistics committed an anticipatory breach of the Agreement with respect to certain other amounts not yet due thereunder. IRI now seeks damages in excess of $15.0 million in connection with these claims. In Count II, IRI has alleged that Manugistics breached a related Non-Competition and Non-Solicitation Agreement between IRI and Manugistics (the "Non-Competition Agreement"). IRI seeks unspecified damages to be determined at trial under this count. On March 2, 1999, Manugistics filed a Motion to Stay Proceedings and Compel Arbitration. IRI agreed to arbitrate all claims related to the Agreement and filed an arbitration demand before the American Arbitration Association on July 9, 1999. IRI's claims against Manugistics for breach of the Non-Competition Agreement remain pending before the Circuit Court. Manugistics denies that it owes IRI any damages, claiming a failure of consideration. IRI vigorously disputes this assertion. In the ordinary course of business, IRI and its subsidiaries become involved as plaintiffs or defendants in various other legal proceedings. The claims and counterclaims in such litigation, including those for punitive damages, individually in certain cases and in the aggregate, involve amounts which may be material. However, it is the opinion of the Company's management, based upon advice of counsel, that the ultimate disposition of pending litigation against the Company will not be material. 12. SEGMENT INFORMATION The Company develops and maintains databases, decision support software, and mathematical models, primarily for the analysis of detailed information on purchasing of consumer goods, all within one industry segment -- business information services. The Company's business information services are conducted almost exclusively in the United States and Europe. The Company's operations in other markets account for approximately 1% of consolidated revenues. Executive management of the Company routinely evaluates the performance of its operations against short-term and long-term objectives. The Company's segment disclosure by geographic areas is consistent with the management structure of the Company. The executive management of the Company considers revenues from third parties and the aggregation of operating profit (loss), equity earnings (losses) and minority interests, ("Operating Results"), on a geographic basis to be the most meaningful measure of the operating performance of each respective geographic segment and of the Company as a whole. 39 41 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following tables and discussion present certain information regarding the operations of the Company by geographic segment as of December 31, 1999, 1998, and 1997 (in thousands): Segmented Results:
1999 1998 1997 -------- -------- -------- Revenues: U.S. Services............................................. $416,729 $396,992 $366,678 International Services.................................... 129,544 114,331 89,649 -------- -------- -------- Total............................................. $546,273 $511,323 $456,327 ======== ======== ======== Operating Results: U.S. Services............................................. $ 25,672 $ 31,515 $ 38,613 International Services: Operating loss............................................ (13,709) (15,689) (19,920) Minority interests benefit (expense)...................... 4,256 342 (304) Equity in earnings of affiliated companies................ 205 443 444 -------- -------- -------- Subtotal -- International Services................ (9,248) (14,904) (19,780) Corporate and other expenses................................ (11,848) (8,856) (3,926) Defined contribution plan expense (b)....................... (7,931) -- -- Restructuring and other charges (b)......................... (24,755) -- -- -------- -------- -------- Operating Results................................. (28,110) 7,755 14,907 -------- -------- -------- Interest expense and other, net............................. (1,452) (1,174) (545) -------- -------- -------- Earnings (loss) before income taxes............... $(29,562) $ 6,581 $ 14,362 ======== ======== ========
Identifiable Assets:
1999 1998 1997 -------- -------- -------- U.S. Services............................................... $237,913 $232,851 $237,755 International Services...................................... 120,943 126,650 115,804 Corporate(a)................................................ 9,624 9,792 13,061 -------- -------- -------- Total Identifiable Assets......................... $368,480 $369,293 $366,620 ======== ======== ========
- --------------- (a) Identifiable corporate assets represent investments aggregating $9.6 million, $9.8 million and $13.1 million at December 31, 1999, 1998 and 1997, respectively. (See Note 8.) (b) $5.5 million, $2.1 million and $0.3 million of defined contribution plan expense relates to U.S. Services, International Services and Corporate, respectively. $19.7 million, $4.2 million and $.9 million of restructuring and other charges relates to U.S. Services, International Services and Corporate, respectively. 40 42 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OTHER CASH FLOW INFORMATION:
UNITED STATES INTERNATIONAL CORPORATE TOTAL ------- ------------- --------- -------- (IN THOUSANDS) Capital expenditures 1999.............................................. $23,394 $ 5,413 $2,335 $ 31,142 1998.............................................. 26,976 5,453 1,302 33,731 1997.............................................. 27,293 5,136 2,015 34,444 Depreciation expense 1999.............................................. $18,946 $ 4,686 $3,336 $ 26,968 1998.............................................. 16,556 4,921 1,761 23,238 1997.............................................. 14,745 3,916 1,760 20,421 Data procurement expenditures 1999.............................................. $80,740 $49,472 $ -- $130,212 1998.............................................. 76,940 43,553 -- 120,493 1997.............................................. 71,757 40,057 -- 111,814 Amortization of data procurement expenditures 1999.............................................. $78,508 $41,719 $ -- $120,227 1998.............................................. 74,583 37,528 -- 112,111 1997.............................................. 69,844 31,781 -- 101,625
41 43 INFORMATION RESOURCES, INC. AND SUBSIDIARIES SUMMARY OF QUARTERLY DATA (UNAUDITED) Summaries of consolidated results on a quarterly basis are as follows (in thousands, except per share data):
1999 ----------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- Revenues................................... $131,745 $137,847 $136,092 $140,589 ======== ======== ======== ======== Defined contribution plan.................. -- -- -- (7,931) ======== ======== ======== ======== Restructuring and other charges............ -- -- -- (24,755) ======== ======== ======== ======== Operating profit (loss).................... (1,774) 394 1,921 (33,112) ======== ======== ======== ======== Net earnings (loss)........................ (251) 468 1,328 (19,933) ======== ======== ======== ======== Net earnings (loss) per common share -- basic.................................... (.01) .02 .05 (.71) ======== ======== ======== ======== Net earnings (loss) per common and common equivalent share -- diluted.............. (.01) .02 .05 (.71) ======== ======== ======== ======== Weighted average common shares -- basic.... 27,865 28,080 28,120 28,185 ======== ======== ======== ======== Weighted average common and common equivalent shares -- diluted............. 27,865 28,098 28,267 28,185 ======== ======== ======== ========
1998 ----------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- Revenues................................... $119,190 $129,392 $125,346 $137,395 ======== ======== ======== ======== Operating profit (loss).................... 3,286 5,917 (2,341) 108 ======== ======== ======== ======== Net earnings............................... 1,910 3,441 (1,538) 33 ======== ======== ======== ======== Net earnings per common share -- basic..... .07 .12 (.05) -- ======== ======== ======== ======== Net earnings per common and common equivalent share -- diluted.............. .07 .12 (.05) -- ======== ======== ======== ======== Weighted average common shares -- basic.... 28,671 28,860 28,708 28,071 ======== ======== ======== ======== Weighted average common and common equivalent shares -- diluted............. 28,946 29,839 28,708 28,093 ======== ======== ======== ========
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None 42 44 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" are incorporated by reference from the definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Company's 2000 annual meeting of stockholders scheduled for May 19, 2000. Information about the Company's executive officers is set forth in Item 4(a) in Part I of this Report. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation" excluding the Board Compensation Committee Report and the stock price performance graph is incorporated by reference from the definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Company's 2000 annual meeting of stockholders scheduled for May 19, 2000. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Ownership of Securities" is incorporated by reference from the definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Company's 2000 annual meeting of stockholders scheduled for May 19, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled "Certain Transactions" is incorporated by reference from the definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Company's 2000 annual meeting of stockholders scheduled for May 19, 2000. 43 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as a part of this Report: 1. Financial Statements The consolidated financial statements of the Company are included in Part II, Item 8 of this Report.
PAGE NO. ---- 2. Financial Statement Schedules Schedule II -- Valuation and Qualifying Accounts; Reserve for Accounts Receivable..................................... 46 All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the financial statements or notes thereto. 3. Executive Compensation Plans and Arrangements. The following Executive Compensation Plans and Arrangements are listed as exhibits to this Form 10-K: Form of letter agreement between the Company and John D.C. Little. Consulting and Noncompetition Agreement dated January 16, 1987 between the Company and Edwin Epstein. Agreement effective January 1, 1989 between the Company and Edwin Epstein, amending the Consulting and Noncompetition Agreement dated January 16, 1987, which Consulting and Noncompetition Agreement is referred to above. Letter agreement dated August 7, 1989 between the Company and Leonard Lodish. 1992 Executive Stock Option Plan, as amended. 1992 Employee Incentive Stock Option Plan. 1994 Employee Nonqualified Stock Option Plan. Form of Information Resources, Inc. Directorship/ Officership Agreement between the Company and its directors, its executive officers and certain other officers. Information Resources, Inc. Executive Deferred Compensation Plan effective January 1, 1999. Consulting Agreement dated as of February 16, 1999, between the Company and Gian M. Fulgoni. Employment letter agreement dated April 26, 1995 between the Company and Gary M. Hill. Employment letter agreement dated September 23, 1997 between the Company and James R. Chambers, as amended by letter agreement dated August 31, 1998. Employment agreement dated April 30, 1999 between the Company and Joseph P. Durrett. Restricted stock agreement dated April 30, 1999 between the Company and Joseph P. Durrett. Employment agreement dated May 28, 1999 between the Company and Rick Kurz. Information Resources, Inc. 1999 Restricted Stock Plan.
44 46
PAGE NO. ---- Information Resources, Inc. 1999 Nonqualified Defined Contribution Plan Trust. Employment agreement dated March 1, 1999, as amended by letter agreement dated April 27, 1999, between the Company and Timothy Bowles. Employment letter agreement dated September 8, 1999, as amended by letters dated September 11, 1999 and September 15, 1999, respectively, between the Company and Edward Kuehnle. Employment agreement dated February 4, 2000 between the Company and Andrew Balbirer.
(b) Reports on 8-K: None (c) Exhibits See Exhibit Index (immediately following the signature pages) 45 47 SCHEDULE II INFORMATION RESOURCES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS RESERVE FOR ACCOUNTS RECEIVABLE (IN THOUSANDS)
CHARGED BALANCE AT TO COSTS DEDUCTIONS BALANCE AT BEGINNING AND (NET WRITEOFFS/ END OF DESCRIPTION OF PERIOD EXPENSES RECOVERIES) PERIOD ----------- ---------- -------- --------------- ---------- Year ended December 31, 1997..................... $4,337 $1,046 $(1,543) $3,840 Year ended December 31, 1998..................... $3,840 $1,883 $ (961) $4,762 Year ended December 31, 1999..................... $4,762 $ 285 $(1,273) $3,774
46 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: March 28, 2000 INFORMATION RESOURCES, INC. By: /s/ JOSEPH P. DURRETT ---------------------------------- Joseph P. Durrett President and Chief Executive Officer Pursuant to the Requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 28, 2000.
SIGNATURE TITLE --------- ----- /s/ JOSEPH P. DURRETT Chairman of the Board of Directors, - -------------------------------------------------------- President, Joseph P. Durrett Chief Executive Officer and Director /s/ ANDREW G. BALBIRER Executive Vice President and Chief Financial - -------------------------------------------------------- Officer Andrew G. Balbirer [Principal financial officer] /s/ SHERI L. HUSTON Senior Vice President and Controller - -------------------------------------------------------- [Principal accounting officer] Sheri L. Huston * /s/ JAMES G. ANDRESS Director - -------------------------------------------------------- James G. Andress * /s/ WILLIAM B. CONNELL Director - -------------------------------------------------------- William B. Connell * /s/ EDWIN E. EPSTEIN Director - -------------------------------------------------------- Edwin E. Epstein * /s/ BRUCE A. GESCHEIDER Director - -------------------------------------------------------- Bruce A. Gescheider * /s/ JOHN D.C. LITTLE Director - -------------------------------------------------------- John D.C. Little * /s/ LEONARD M. LODISH Director - -------------------------------------------------------- Leonard M. Lodish * /s/ EDWARD E. LUCENTE Director - -------------------------------------------------------- Edward E. Lucente * /s/ JEFFREY P. STAMEN Director - -------------------------------------------------------- Jeffrey P. Stamen
47 49
SIGNATURE TITLE --------- ----- * /s/ RAYMOND H. VAN WAGENER, JR. Director - -------------------------------------------------------- Raymond H. Van Wagener, Jr. * /s/ THOMAS W. WILSON, JR. Director - -------------------------------------------------------- Thomas W. Wilson, Jr. *By: /s/ JOSEPH P. DURRETT --------------------------------------------------- Pursuant to a Power of Attorney
48 50 EXHIBIT INDEX The following documents are the exhibits to this Report. For convenient reference, each exhibit is listed according to the number assigned to it in the Exhibit Table of Item 601 of Regulation S-K.
SEQUENTIAL EXHIBIT DOCUMENT NUMBER DESCRIPTION OF DOCUMENT FILING - ------- ----------------------- ---------- 3(a) -- Copy of the certificate of incorporation of the Company dated May 27, 1982, as amended. (Incorporated by reference. Previously filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988.) IBRF (b) -- Copy of the bylaws of the Company, as amended. (Incorporated by reference. Previously filed as Exhibit 3(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988.) IBRF (c) -- Copy of amendments to the Certificate of Incorporation approved by the stockholders on May 16, 1989. (Incorporated by reference. Previously filed as Exhibit 3(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) IBRF (d) -- Copy of amendments to the bylaws of the Company as approved by the Board of Directors bringing the bylaws into conformity with the amendments to the Certificate of Incorporation approved by the stockholders May 16, 1989. (Incorporated by reference. Previously filed as Exhibit 3(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) IBRF (e) -- Certificate of Designations of Series A Participating Preferred Stock, as adopted by the Board of Directors of the Company on March 2, 1989 and duly filed with the Secretary of State of the State of Delaware March 15, 1989. (Incorporated by reference. Previously filed as Exhibit 3(e) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) IBRF 10 -- Material Contracts (a) -- Information Resources, Inc., Nonqualified Stock Option Plan effective January 1, 1984, as amended. (Incorporated by reference. Previously filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1988.) IBRF (b) -- Consulting and Noncompetition Agreement dated January 16, 1987 between the Company and Edwin Epstein. (Incorporated by reference. Previously filed as Exhibit 10(e) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987.) IBRF (c) -- Form of letter agreement between the Company and John D.C. Little (Incorporated by reference. Previously filed as Exhibit 10(m) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) IBRF (d) -- Agreement effective January 1, 1989 between the Company and Edwin Epstein, amending the Consulting and Noncompetition Agreement dated January 16, 1987, which Consulting and Noncompetition Agreement is referred to in Exhibit 10(b) hereof. (Incorporated by reference. Previously filed as Exhibit 19(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) IBRF (e) -- Letter agreement dated August 7, 1989 between the Company and Leonard Lodish. (Incorporated by reference. Previously filed as Exhibit 3(q) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) IBRF (f) -- Lease Agreement dated September 27, 1990 between Randolph/Clinton Limited Partnership and the Company. (Incorporated by reference. Previously filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated September 27, 1990.) IBRF
49 51
SEQUENTIAL EXHIBIT DOCUMENT NUMBER DESCRIPTION OF DOCUMENT FILING - ------- ----------------------- ---------- (g) -- 1992 Employee Incentive Stock Option Plan (Incorporated by reference. Previously filed as Exhibit 10(x) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) IBRF (h) -- 1994 Employee Nonqualified Stock Option Plan. (Incorporated by reference. Previously filed as Exhibit 10(y) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) IBRF (i) -- Second Amendment to Lease Agreement dated September 27, 1990 between the Company and Randolph/Clinton Limited Partnership. (Incorporated by reference. Previously filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.) IBRF (j) -- 1992 Executive Stock Option Plan, as amended effective May 24, 1995. (Incorporated by reference. Previously filed as Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.) IBRF (k) -- Amended and Restated Asset Purchase Agreement dated as of June 12, 1995 by and between the Company and Oracle Corporation. (Incorporated by reference. Previously filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated July 27, 1995 and filed August 11, 1995.) IBRF (l) -- Licenses-Back Agreement dated as of July 27, 1995 between the Company and Oracle Corporation. (Incorporated by reference. Previously filed as Exhibit B to the Amended and Restated Asset Purchase Agreement dated as of July 27, 1995 filed as Exhibit 2.1 to the Current Report on Form 8-K dated July 27, 1995 and filed August 11, 1995.) IBRF (m) -- Form of Information Resources, Inc. Directorship/Officership Agreement between the Company and each of its directors, executive officers and certain other officers. (Incorporated by reference. Previously filed as Exhibit 10(x) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.) IBRF (n) -- Employment Agreement dated as of August 22, 1996, between the Company and Randall S. Smith and First Amendment to Employment Agreement dated November 11, 1996. (Incorporated by reference. Previously filed as Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) IBRF (o) -- Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan and Trust adopted by the Company effective May 24, 1995. (Incorporated by reference. Previously filed as Exhibit 10(hh) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) IBRF (p) -- First Amendment to the Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan effective July 1, 1996. (Incorporated by reference. Previously filed as Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) IBRF (q) -- Second Amendment to the Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan effective March 1, 1997. (Incorporated by reference. Previously filed as Exhibit 10(jj) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) IBRF (r) -- Trust Agreement between Information Resources, Inc. and Fidelity Management Trust Company dated as of July 1, 1996. (Incorporated by reference. Previously filed as Exhibit 10(kk) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) IBRF
50 52
SEQUENTIAL EXHIBIT DOCUMENT NUMBER DESCRIPTION OF DOCUMENT FILING - ------- ----------------------- ---------- (s) -- First Amendment to Trust Agreement between Fidelity Management Trust Company and Information Resources, Inc. effective March 1, 1997. (Incorporated by reference. Previously filed as Exhibit 10(11) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) IBRF (t) -- Credit Agreement dated October 31, 1997 among the Company, the Bank Parties thereto and Harris Trust and Savings Bank, as Agent. (Incorporated by reference. Previously filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.) IBRF (u) -- Rights Agreement between Information Resources, Inc. and Harris Trust and Savings Bank, amended and restated as of October 27, 1997. (Incorporated by reference. Previously filed as Exhibit 4.2 to the Company's Current Report on Form 8-A/A dated October 27, 1997 and filed October 28, 1997). IBRF (v) -- Information Resources, Inc. Executive Deferred Compensation Plan effective January 1, 1999. (Incorporated by reference. Previously filed as Exhibit 10(ff) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). IBRF (w) -- Consulting Agreement dated as February 16, 1999, between the Company and Gian M. Fulgoni. (Incorporated by reference. Previously filed as Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). IBRF (x) -- First Amendment to Credit Agreement dated as of February 10, 1999 between the Company, the Banks Party thereto and Harris Trust and Savings Bank, as agent for the Banks. (Incorporated by reference. Previously filed as Exhibit 10(hh) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). IBRF (y) -- Employment letter agreement dated April 26, 1996 between the Company and Gary M. Hill. (Incorporated by reference. Previously filed as Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). IBRF (z) -- Employment letter agreement dated September 23, 1997 between the Company and James R. Chambers, as amended by letter agreement dated August 31, 1998. (Incorporated by reference. Previously filed as Exhibit 10(jj) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). IBRF (aa) -- Employment agreement dated April 30, 1999 between the Company and Joseph P. Durrett. (Incorporated by reference. Previously filed as Exhibit 10(kk) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). IBRF (bb) -- Restricted stock agreement dated April 30, 1999 between the Company and Joseph P. Durrett. (Incorporated by reference. Previously filed as Exhibit 10(ll) to the Company's Quarterly Report Form on 10-Q for the quarter ended June 30, 1999). IBRF (cc) -- Employment agreement dated May 28, 1999 between the Company and Rick Kurz. (Incorporated by reference. Previously filed as Exhibit 10(mm) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). IBRF (dd) -- Information Resources, Inc. 1999 Restricted Stock Plan. (Incorporated by reference. Previously filed as Exhibit 99-1 to the Company's Registration Statement filed with the SEC on February 25, 2000). IBRF (ee) -- Information Resources, Inc. 1999 Nonqualified Defined Contribution Plan. (Incorporated by reference. Previously filed as Exhibit 99-2 to the Company's Registration Statement filed with the SEC on February 25, 2000). IBRF (ff) -- Information Resources, Inc. 1999 Nonqualified Defined Contribution Plan Trust. (Incorporated by reference. Previously filed as Exhibit 99-3 to the Company's Registration Statement filed with the SEC on February 25, 2000). IBRF
51 53
SEQUENTIAL EXHIBIT DOCUMENT NUMBER DESCRIPTION OF DOCUMENT FILING - ------- ----------------------- ---------- (gg) -- Second Amendment to Credit Agreement dated as of February 9, 2000 between the Company, the Banks party thereto and Harris Trust and Savings Bank, as agent for the Banks. EF (hh) -- Employment agreement dated March 1, 1999, as amended by letter agreement dated April 27, 1999, between the Company and Timothy Bowles. EF (ii) -- Employment letter agreement dated September 8, 1999, as amended by letters dated September 11 and September 13, respectively, between the Company and Edward Kuehnle. EF (jj) -- Employment agreement dated February 4, 2000 between the Company and Andrew Balbirer. EF 18 -- Letter regarding change in accounting principle. (Incorporated by reference. Previously filed as Exhibit 18 to the Company's Quarterly Report on form 10-Q for the quarter ended March 31, 1994). IBRF 21 -- Subsidiaries of the Registrant (filed herewith). EF 23 -- Consent of Independent Auditors (filed herewith). EF 24 -- Powers of Attorney (filed herewith). EF 27 -- Financial Data Schedule (filed herewith). EF
52 EX-10.(GG) 2 2ND AMENDMENT TO CREDIT AGREEMENT DTD AS OF 2/9/00 1 EXHIBIT 10(gg) INFORMATION RESOURCES, INC. SECOND AMENDMENT TO CREDIT AGREEMENT This Second Amendment to Credit Agreement (herein, the "Amendment") is entered into as of February 9, 2000, between Information Resources, Inc., the Banks party thereto, and Harris Trust and Savings Bank, as Agent for the Banks. PRELIMINARY STATEMENTS A. The Borrower and the Banks entered into a certain Credit Agreement, dated as of October 31, 1997 (the Credit Agreement, as amended prior to the date hereof, being referred to herein as the "Credit Agreement"). All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. B. The Borrower and the Required Banks have agreed to (i) amend the Cash Flow Coverage Ratio, (ii) amend the Eurodollar Margin, (iii) amend the Commitment Fee, and (iv) make certain other amendments to the Credit Agreement, under the terms and conditions set forth in this Amendment. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. WAIVER. The Borrower has informed the Agent and the Banks that as of December 31, 1999, the Borrower was not in compliance with Section 7.8 of the Credit Agreement (Cash Flow Coverage Ratio). The Borrower has requested that the Banks waive compliance with Section 7.8 of the Credit Agreement and, by signing below, the Required Banks hereby agree to waive compliance with Section 7.8 of the Credit Agreement through the period ending on (but not after) December 31, 1999. Notwithstanding anything herein to the contrary, the waiver in this Section 1 shall not become effective unless and until the conditions precedent set forth in Section 3 hereof have been satisfied. SECTION 2. AMENDMENTS. 2.1. The definition of "Eurodollar Margin" appearing in Section 1.3(b) of the Credit Agreement shall be amended and restated to read as follows: "Eurodollar Margin" means, from one Pricing Date to the next, a rate per annum determined in accordance with the following schedule: 2
CASH FLOW COVERAGE RATIO FOR SUCH PRICING DATE: EURODOLLAR MARGIN: Less than 0.90 to 1.0 1.80% Equal to or greater than 0.90 to 1.0, but less than 1.0 to 1.0 1.35% Equal to or greater than 1.0 to 1.0, but less than or equal to 1.05 to 1.0 1.20% Greater than 1.05 to 1.0 1.00%
The Borrower and the Banks acknowledge and agree that from and after the effective date of the Second Amendment to Credit Agreement dated as of February 9, 2000, by and among the Borrower, the Banks, and the Agent (the "Second Amendment"), and retroactive to January 1, 2000, the Eurodollar Margin shall be 1.80%, and the Eurodollar Margin shall not be adjusted until the Pricing Date occurring after the Agent's receipt of the Borrower's June 30, 2000 financial statements and corresponding compliance certificate. 2.2. The last sentence of Section 2.1 of the Credit Agreement shall be amended and restated to read as follows: For purposes hereof, the term "Applicable Commitment Fee" means, from one Pricing Date to the next, a rate per annum determined in accordance with the following:
CASH FLOW COVERAGE RATIO FOR SUCH PRICING DATE: APPLICABLE COMMITMENT FEE: Less than 0.90 to 1.0 0.35% Equal to or greater than 0.90 to 1.0, but less than 1.0 to 1.0 0.25% Equal to or greater than 1.0 to 1.0, but less than or equal to 1.05 to 1.0 0.20% Greater than 1.05 to 1.0 0.15%
The Borrower and the Banks acknowledge and agree that from and after the effective date of the Second Amendment and retroactive to January 1, 2000, the Applicable Commitment Fee shall be .35%, and the Applicable Commitment Fee shall not be adjusted until the Pricing Date occurring after the Agent's receipt of the Borrower's -2- 3 June 30, 2000 financial statements and corresponding compliance certificate. 2.3. Section 7.8 of the Credit Agreement shall be amended and restated to read as follows: Section 7.8. Cash Flow Coverage Ratio. The Borrower shall, as of the last day of each quarter-annual accounting period of the Borrower ending during the periods specified below, maintain the ratio of Consolidated Cash Flow for the four fiscal quarters of the Borrower then ended to Consolidated Fixed Charges for the same four fiscal quarters then ended (the "Cash Flow Coverage Ratio") of not less than:
CASH FLOW COVERAGE FROM AND TO AND RATIO SHALL NOT BE LESS INCLUDING INCLUDING THAN: 1/1/00 9/29/00 .75 to 1.0 9/30/00 12/30/00 .80 to 1.0 12/31/00 6/29/01 1.0 to 1.0 6/30/01 and at all times thereafter 1.05 to 1.0
SECTION 3. CONDITIONS PRECEDENT. The effectiveness of this Amendment is subject to the satisfaction of all of the following conditions precedent: 3.1. The Borrower and the Required Banks shall have executed and delivered this Amendment. 3.2. The Agent shall have received copies (executed or certified, as may be appropriate) of all legal documents or proceedings taken in connection with the execution and delivery of this Amendment to the extent the Agent or its counsel may reasonably request. 3.3. Legal matters incident to the execution and delivery of this Amendment shall be satisfactory to the Agent and its counsel. 3.4. The Agent shall have received for the benefit of each Bank executing this Amendment on or before February 8, 2000, an amendment fee equal to 0.20% of the Commitment of such Bank. -3- 4 SECTION 4. REPRESENTATIONS. In order to induce the Banks to execute and deliver this Amendment, the Borrower hereby represents to the Banks that as of the date hereof, and after giving effect to the waiver set forth in Section 1 above, the representations and warranties set forth in Section 5 of the Credit Agreement are and shall be and remain true and correct (except that the representations contained in Section 5.4 shall be deemed to refer to the most recent financial statements of the Borrower delivered to the Banks) and the Borrower is in compliance with the terms and conditions of the Credit Agreement and no Default or Event of Default has occurred and is continuing under the Credit Agreement or shall result after giving effect to this Amendment. SECTION 5. MISCELLANEOUS. 5.1. Except as specifically amended herein, the Credit Agreement shall continue in full force and effect in accordance with its original terms. Reference to this specific Amendment need not be made in the Credit Agreement, the Notes, or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to or with respect to the Credit Agreement, any reference in any of such items to the Credit Agreement being sufficient to refer to the Credit Agreement as amended hereby. 5.2. The Borrower agrees to pay on demand all costs and expenses of or incurred by the Agent in connection with the negotiation, preparation, execution and delivery of this Amendment and the replacement Notes, including the fees and expenses of counsel for the Agent. 5.3. This Amendment may be executed in any number of counterparts, and by the different parties on different counterpart signature pages, all of which taken together shall constitute one and the same agreement. Any of the parties hereto may execute this Amendment by signing any such counterpart and each of such counterparts shall for all purposes be deemed to be an original. This Amendment shall be governed by the internal laws of the State of Illinois. [SIGNATURE PAGES TO FOLLOW] -4- 5 This Second Amendment to Credit Agreement is dated as of the date first above written. INFORMATION RESOURCES, INC. By Name ------------------------------- Title ------------------------------- Accepted and agreed to as of the date and year first above written. HARRIS TRUST AND SAVINGS BANK, in its individual capacity as a Bank and as Agent By Name ------------------------------- Title ------------------------------- LASALLE NATIONAL BANK By Name ------------------------------- Title ------------------------------- THE BANK OF NEW YORK By Name ------------------------------- Title ------------------------------- -5- EX-10.(HH) 3 EMPLOYMENT AGREEMENT DATED 3/1/99 1 EXHIBIT 10(hh) EMPLOYMENT AGREEMENT THIS AGREEMENT ("Agreement") is made as of the 1st day of March, 1999 by and between INFORMATION RESOURCES, INC., a Delaware corporation ("Information Resources"), and TIMOTHY BOWLES ("Employee" or "the Employee"). WHEREAS, Information Resources has employed the Employee since May 15, 1995 and desires to continue to employ the Employee in an executive capacity on the terms and subject to the conditions set forth in this Agreement; and WHEREAS, Employee desires to continue such employment with Information Resources on the terms and subject to the conditions set forth in this Agreement; NOW THEREFORE, in consideration of the foregoing and of the mutual covenants of Information Resources and Employee set forth in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Information Resources and Employee, the parties agree as follows: ARTICLE I Employment 1.0 Employment. Information Resources agrees to continue the employment of the Employee, and the Employee agrees to continue to serve Information Resources on a full-time basis in an executive capacity, according to the terms and subject to the conditions hereinafter set forth, for the period commencing on the date hereof and ending with the effective date of termination of employment as provided in ARTICLE IV (the "Employment Period"). 1.1 Employment Duties. As of the date of this Agreement, the Employee shall be employed in the capacity of Divisional President - European Operations. During the Employment Period, the Employee shall devote his best efforts and all of his normal business time and attention 2 (excluding permitted vacation, holidays and personal and sick leave) to the business of Information Resources and its affiliated companies, and to serve Information Resources or any of its affiliated companies in such capacity as senior management of Information Resources may from time to time stipulate. During the Employment Period, the Employee may be required to perform ordinary business travel consistent with the responsibilities of his office. 1.2 Place of Employment. In connection with his employment with Information Resources, as of the date of this Agreement, Employee shall be based at the offices of Information Resources in Bracknell, England. ARTICLE II Compensation Information Resources agrees to compensate Employee for the services rendered by him during the Employment Period as follows: 2.0 Base Salary. During the Employment Period, Information Resources shall pay Employee a base salary ("Base Salary") at the rate of One Hundred Fifty-four Six Hundred and Fifty Thousand British Pounds (L154,650.00) per year, subject to review and adjustment at least once per year, with such adjustments to be made commensurate with the Employee's position, duties, and responsibilities and in conformity with Information Resources' policies and practices applied to other similarly situated executives employed by Information Resources. The Base Salary shall be payable in accordance with the practice followed by Information Resources with respect to its other senior executives. Information Resources shall not be required to pay the Employee his Base Salary for any time period with respect to which the Employee receives disability benefit payments according to the provisions of Information Resources' disability plans applicable to the Employee. 2.1 Bonus or Incentive Compensation. Information Resources shall award the Employee, in respect of each calendar year (pro-rated for partial years) of the Employment Period, 3 bonus or incentive compensation as provided under any applicable present or future incentive compensation plan of Information Resources or, in the absence of any such plan, such bonus or incentive compensation as senior management of Information Resources deems appropriate in light of the amount of bonus or other incentive compensation awarded by Information Resources to other similarly situated executives employed by Information Resources. 2.2 Employee Benefit Plans. The Employee shall participate during the Employment Period in all employee benefit plans (as those plans may be in effect from time to time) generally applicable to similarly situated executives employed by Information Resources in the United Kingdom, including, without limitation, an annual contribution equal to 10% of Employee's Base Salary to the Group Personal Pension Scheme in effect with respect to United Kingdom employees of Information Resources. 2.3 Disability Benefit Plans. During any period of disability, as defined in the applicable disability plans of Information Resources in effect from time to time ("Disability Period"), Employee shall continue to be an employee of Information Resources for purposes of continued vesting of stock options (but not for purposes of participation in incentive or bonus plans) and shall continue to participate in all employee benefit plans for which he is eligible pursuant to this Agreement or otherwise. In addition to the disability benefit payments under said plans, during the first 180 days of any such Disability Period, the Employee shall be entitled to receive, at normal payroll dates, supplemental disability payments directly from Information Resources in the amount necessary for the total of such supplemental disability payments and disability benefit plan payments to equal, on an annual basis, 100% of the Base Salary in effect at the beginning of the Disability Period. In the event the period of disability continues beyond such 180 day period, Employee shall then receive, for the remaining duration of any such disability, in addition to the disability benefit payments under the provisions of IRI's disability plan(s), supplemental disability payments directly from Information Resources at a rate equal to fifteen percent (15%) of his Base Salary in effect at 4 the beginning of the period of disability, such supplemental disability payments to be adjusted thereafter on an annual basis by the applicable percentage increase (or decrease) in the applicable consumer price index for the Greater London Metropolitan area. 2.4 Supplemental Benefits. In addition to any other employee benefits to which the Employee, his spouse or his estate may be entitled, in the event of the Employee's death during the term of this Agreement, Information Resources shall continue to pay his monthly Base Salary to his spouse, or his estate if there is no living spouse, for a period of six (6) months commencing on the first day of the month following the month of the Employee's death. ARTICLE III Stock Options 3.0 Grant of Stock Options. During the term of his employment with Information Resources, Employee has been and may continue to be granted options under Information Resources' Nonqualified Stock Option Plan (hereinafter referred to as the "Plan" ), on terms and conditions consistent with the terms and conditions (including provisions regarding vesting) provided in the Plan as administered by the Option Plan Committee. Such options shall be evidenced by a separate option agreement entered into contemporaneously with the grant of such options. 3.1 Acceleration. Notwithstanding any provisions of the Plan (or any option granted pursuant to the Plan) to the contrary, in the event of any "Change of Control" (defined as any merger, consolidation or reorganization in which Information Resources is a merging, consolidating or reorganizing party and pursuant to which neither Information Resources nor any entity controlled by it is the surviving entity; or as the acquisition of beneficial ownership of, or power to vote, forty percent (40%) or more of the outstanding voting securities of Information Resources by any acquirer (or group of acquirers acting in concert) within any period of 90 consecutive days) which occurs after the effective date of this Agreement, then the Employee, or his estate if the Employee is not 5 then living, shall be entitled to immediately exercise in full any unexercised options previously granted pursuant to the Plan (other than terminated or expired options) then held by the Employee or his estate if the Employee is not then living. 3.2 Stock Option Vesting/Exercise. All stock options in which Employee is vested at the time of termination of employment under any circumstances (including but not limited to those options which vest as a consequence of the termination of employment as described in this Agreement) shall be exercisable by Employee, or his estate if he is not living, for a period of 13 months following the termination of his employment. In the event of Employee's death during the Employment Period, all unvested options shall immediately vest and be exercisable by his estate for a period of 13 months from the date of death. ARTICLE IV Term of Employment 4.0 Term of Employment. The employment of Employee under this Agreement shall commence on the date hereof and shall automatically continue thereafter until terminated in accordance with this Agreement. 4.1 Termination Without Cause. Either party may terminate the employment of the Employee pursuant to this Agreement, without cause, by giving the other party prior written notice (a "Section 4.1 Notice") specifying a termination date no sooner than (a) twelve (12) months following the delivery of the Section 4.1 Notice in the case of Information Resources terminating this Agreement; and (b) six (6) months following the delivery of the Section 4.1 Notice in the case of Employee terminating this Agreement. If Information Resources terminates Employee's employment without cause and pursuant to this Section 4.1, then notwithstanding any provisions of the Plan (or any option granted pursuant to the Plan) to the contrary, any unvested options held by Employee on the effective date of such termination (other than terminated or expired options) shall immediately vest as of such date of termination and be exercisable in accordance with the 6 provisions of Section 3.2 hereof. 4.2 Termination by Employee for Good Reason. Except as otherwise provided in this Section 4.2, at any time prior to Employee's receipt of a Section 4.1 Notice or the termination of Employee's employment by Information Resources for "Cause," the Employee may give notice to terminate his employment for "Good Reason" (described in subsections (a) through (d) of this Section 4.2) by delivering a written notice of termination to Information Resources specifying the "Good Reason" for the termination and further specifying the effective date of termination which shall be no earlier than thirty (30) days and no later than sixty (60) days after Information Resources' receipt of such written notice of termination (a "Section 4.2 Notice"). A Section 4.2 Notice will not be effective unless received by Information Resources within 30 days after the occurrence of the event specified by Employee as being the "Good Reason" for termination. Information Resources shall have 30 days after receiving any Section 4.2 Notice within which to initiate corrective or remedial action, and if such action is timely initiated then upon completion of such corrective or remedial action the Section 4.2 Notice shall be deemed withdrawn; provided, however, that the Section 4.2 Notice shall not be deemed withdrawn if the events specified by Employee as being the "Good Reason" for termination are repeated, intentional and directed at the Employee individually. For the purposes of this Agreement, Employee shall have "Good Reason" to terminate his employment hereunder if, but only if: (a) without the express written consent of Employee, he is assigned any duties inconsistent with Article 1 or his positions, duties, responsibilities and status with Information Resources immediately prior to a change in his reporting responsibilities, titles or offices, or he is removed from or not re-elected to any of those positions, except in connection with (1) the termination of his employment for Cause or Disability or by Employee other than for "Good Reason" as provided in this Section 4 or as a result of his death, or (2) his reassignment by the Chief Executive Officer and/or the Board of Directors (or the appropriate committee thereof) of 7 Information Resources to a comparable position, in conformity with the provisions of Section 1.2 hereof, with a comparable level of duties and responsibilities and with the same salary, same eligibility for bonus/incentive compensation and same grade level, or (3) the commencement or continuation of a Disability Period; (b) a reduction is made by Information Resources in Employee's Base Salary, except as provided in Section 2.0 hereof; (c) Information Resources fails to continue in effect any benefit, bonus or compensation plan, stock ownership plan, stock purchase plan, stock option plan, life insurance plan, health-and-accident plan or disability plan (other than those plans which expire by the express terms thereof) in which Employee is participating, without providing him with a plan having substantially similar benefits, or takes any action which would adversely affect his participation in or materially reduces his benefits under any of those plans or deprives him of a material fringe benefit enjoyed by him, in any case other than as part of a reduction or change generally applicable to other senior officers of Information Resources; or (d) Information Resources fails to obtain from any successor entity to Information Resources an agreement to perform this Agreement to the extent and in the manner required to be performed by Information Resources. In the event Employee terminates his employment for "Good Reason" in accordance with this Section 4.2, Employee shall receive, for each of the twelve (12) months following any such termination of employment, his monthly Base Salary at the rate in effect immediately prior to the giving of the Section 4.2 Notice (less appropriate deductions for applicable taxes) and, during such 12-month period, shall also be entitled to continue to participate in the employee benefit plans identified in Section 2.2 in accordance with the terms thereof. If the Employee terminates his employment for "Good Reason" in accordance with this Section 4.2, any unvested stock options held by Employee on the effective date of such termination shall continue to vest during the 12- 8 month period following such termination of employment. 4.3 Termination For Cause. In the event of "Cause," Information Resources shall have the right to terminate this Agreement, without any prior written notice to the Employee. "Cause" shall be deemed to exist under the following circumstances: (a) if Employee refuses or fails or neglects to perform his obligations under this Agreement and the Employee fails to rectify such deficiency within thirty (30) days after receiving written notice from senior management of Information Resources; (b) if Employee has developed or pursued interests substantially adverse or substantially inconsistent with the material fulfillment of his obligations hereunder to Information Resources, and fails to cease such conduct within ten (10) days after receiving written notice from senior management of Information Resources; (c) if Employee engages in illegal or other wrongful conduct which is detrimental to the business or reputation of Information Resources; or (d) if Employee engages in any conduct or activity prohibited by Section 5.0, 6.0 or 6.1 of this Agreement. In the event of termination in accordance with this paragraph 4.3, Information Resources shall have no further liability in respect of the Employee's employment; provided, however, that Information Resources shall pay the Employee the value of any accrued salary or other compensation due Employee on the date of termination. 4.4 Termination Upon Death of Employee. The employment of the Employee under this Agreement shall automatically terminate upon the death of the Employee. ARTICLE V Covenant Not to Compete 5.0 Covenant Not to Compete. The Employee shall not, without the prior written consent of Information Resources, directly or indirectly, for himself or for any other person or 9 entity, individually, jointly or as a partner, stockholder (except as a holder of not more than five percent (5%) of the outstanding shares of a publicly-held corporation), employee, agent, consultant or otherwise: (a) during the Employment Period, and for a period of two (2) consecutive years immediately thereafter, work or perform any service for: (i) the A.C. Nielsen Company, IMS, Efficient Market Services, Inc. (ems), Paragren Technologies, Inc., Intactix, or any parent, subsidiary, affiliate or successor of any of the foregoing, or (ii) any individual or entity providing products or services which are substantially based upon or derived from scanner-based data and which directly compete with products or services provided by Information Resources or any of its divisions, subsidiaries or affiliates; (b) during the Employment Period, and for a period of two (2) consecutive years immediately thereafter, induce or attempt to induce any employee, officer, director, consultant, sales representative or agent of Information Resources (or any of its subsidiaries or affiliates) to terminate or alter his or her business relationship with Information Resources (or any of its subsidiaries or affiliates) or to breach any agreement he or she has with or to Information Resources (or any of its subsidiaries or affiliates) or to perform work or services for Employee or for a competitor of Information Resources described in Section 5.0(a); or to hire or solicit for hiring any Information Resources employee or consultant within six months after such person ceases being an employee or consultant of Information Resources; or (c) during the Employment Period, and for a period of two (2) consecutive years immediately thereafter, attempt in any manner to solicit from any customer of Information Resources (or any of its subsidiaries or affiliates) business of the type performed by Information Resources or any of its subsidiaries or affiliates, or attempt in any manner to persuade any customer of Information Resources (or any of its subsidiaries or affiliates) to cease or reduce the amount of business which such customer engages in or contemplates engaging in with Information Resources 10 (or any of its subsidiaries or affiliates), regardless of whether the relationship between such customer and Information Resources (or its subsidiary or affiliate) was originally established in whole or in part through Employee's efforts. 5.1 Acknowledgement. Employee acknowledges that the restrictions set forth in this Article V are (a) reasonable and necessary for the protection of Information Resources' interests and (b) are entered into by the Employee in exchange for adequate consideration granted to him in connection with this Agreement. In the event that any provision of this Article V is found by a court of competent jurisdiction to be unreasonable or unenforceable, the parties agree that such provision shall be enforceable against the Employee to the greatest extent that would be found to be reasonable and enforceable. ARTICLE VI Confidentiality; Ideas and Improvements. 6.0 Confidentiality: Information Resources is engaged in various lines and methods of doing business, and utilizes processes, programs, data, software and techniques which consist of or involve confidential business information. Such information has been or will be available to and used by Employee during the course of his employment as well as confidential client information including data disclosing the identity of clients of Information Resources, their particular needs, methods, data and other similar information. Employee agrees that so long as such information is confidential in fact and is not readily ascertainable by third parties through lawful means, he will not, during the Employment Period and for a period of five consecutive years immediately thereafter, disclose or use such confidential information, either directly or indirectly for the benefit of any person or entity other than Information Resources. Employee agrees to return all programs, manuals, documents, records, and other information relating to the business of Information Resources, including materials prepared by Employee, to Information Resources immediately upon the termination of employment hereunder. 11 6.1 Ideas and Improvements. Employee agrees to promptly disclose to Information Resources all ideas, designs, improvements, creations and inventions, whether or not patentable or subject to other legal protection, which have significant relationship to the business of Information Resources or any affiliates of Information Resources, and which were developed or created by Employee at any place or time during the Employment Period (collectively, "Ideas and Creations"). Employee further agrees to take all steps necessary to execute and deliver to Information Resources copyright or patent rights on matters suitable for such protection, and to execute and deliver to Information Resources all documents which may be required to assign to Information Resources such copyright or patent rights, and to otherwise cooperate to the extent within Employee's control to ensure Information Resources' use and enjoyment of such Ideas and Creations, provided that there is no obligation to assign an invention for which no equipment, supplies, facility, or trade secret information of Information Resources was used and which was developed entirely on Employee's own time, unless (a) the invention relates to the business of Information Resources or to Information Resources' actual or demonstrably anticipated research or development, or (b) the invention results from any work performed by Employee for Information Resources. ARTICLE VII Miscellaneous Provisions 7.0 Legal Remedies. Employee hereby acknowledges that Information Resources would suffer irreparable injury if the provisions of paragraphs 5.0, 6.0 or 6.1 above were breached and that Information Resources' remedies at law would be inadequate in the event of such breach. Accordingly, Employee hereby agrees that any such breach or threatened breach may, in addition to any other available remedies, be preliminarily enjoined by Information Resources without bond. In the event of litigation under this Agreement, each side shall pay its own attorneys' fees and expenses, except that if Employee is enjoined either preliminarily or permanently, after an evidentiary hearing, then Employee shall pay the attorneys' fees and expenses of Information 12 Resources in connection with that evidentiary hearing and, if such evidentiary hearing results in a court refusing a preliminary or permanent injunction, then Information Resources shall pay Employee's attorneys' fees and expenses in connection with such hearing. Sections 5.0, 6.0 and 6.1 shall survive, and shall continue in effect, notwithstanding any termination of this Agreement. 7.1 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of Employee and Information Resources and each of their respective heirs, personal representatives, permitted assigns, and successors in interest, including, in the case of Information Resources, any company with which Information Resources may be merged or consolidated or to which all or substantially all of Information Resources' assets may be transferred. Except as otherwise provided above, this Agreement shall not be assignable by Information Resources or Employee without the express written consent of the other party. 7.2 Governing Law. This Agreement shall be construed and enforced in accordance with the law of the State of Illinois. 7.3 Notices. All notices required or permitted hereunder shall be given in writing, either delivered personally or by registered or certified mail, addressed to Information Resources at its principal office to the attention of the Corporate Secretary, or to Employee either at his residence address shown on the employment records of Information Resources or in care of the principal office of Information Resources. Notice delivered personally shall be deemed effectively given as of the time of personal delivery, and notice given by mail shall be deemed effectively given as of two days after the date of such mailing. 7.4 Entire Agreement; Amendments; Headings. This Agreement embodies the entire Agreement of Information Resources and the Employee with respect to the subject matter hereof, and replaces and supersedes any prior understandings, whether written or oral, regarding such subject matter. No amendment or modification of the terms of this Agreement shall be effective unless reduced to a written instrument executed by Information Resources and the Employee. The 13 headings of sections in this Agreement are for convenience only. IN WITNESS WHEREOF, Information Resources and Employee have caused this Agreement to be duly executed as of the date first written above. INFORMATION RESOURCES, INC. ATTEST: By: ------------------------------------ Its: - -------------------------- ------------------------------------ TIMOTHY BOWLES ---------------------------------------- 14 PERSONAL & CONFIDENTIAL April 27, 1999 Mr. Timothy Bowles Information Resources, Inc. InfoScan, Ltd.(these words should be deleted) Eagle House, The Ring Bracknell, Berkshire RG12 1HB UNITED KINGDOM Dear Tim: The purpose of this letter is to document our recent agreement on the following modification to the Employment Agreement between Information Resources, Inc. ("IRI") and you, dated as of March 1, 1999: We have agreed that, if your employment with IRI is terminated, either by IRI or by you, prior to May 1, 2001 as a result of IRI's decision to significantly reduce its operations in Europe (as further defined below), IRI will continue to pay you your monthly Base Salary (at the rate in effect immediately prior to your employment termination and less appropriate deductions for applicable taxes) and continue to provide you with benefits in accordance with the terms of your Employment Agreement from the date of employment termination through and including May 1, 2001 or for a period of 12 months after the date of such employment termination, whichever is greater (the "Severance Period"). Your right to terminate your employment under this provision is subject to your providing IRI with no less than 90 days and no more than 120 days prior written notice of termination, which notice must be received by Information Resources within 30 days after you are notified in writing by the CEO or Board of Directors of IRI that IRI has made a decision to significantly reduce its operations in Europe. Any stock options held by you shall continue to vest during the Severance Period. All stock options in which you are vested shall be exercisable by you until the end of the Severance Period. For the purposes of this letter, IRI shall be deemed to have decided to "significantly reduce its operations in Europe" if it decides to cease to offer a retail tracking service, alone or in conjunction with others, in more than one of the following countries in Europe: United Kingdom, France, Germany, Italy and/or Spain. 15 Mr. Timothy Bowles April 27, 1999 Page 2 If IRI elects to terminate your employment at any time with or without cause except as a result of IRI's decision to significantly reduce its operations in Europe during the specified period as set forth above or you elect to terminate your employment at any time for any reason other than IRI's decision to significantly reduce its operations in Europe during the specified time period as set forth above, such termination shall be governed by the original terms of your Employment Agreement. Sincerely, Randall Smith Group President International Services and Corporate Development Accepted this 12th day of January , 2000 ---- ------- - ----------------------------------------- Timothy Bowles EX-10.(II) 4 EMPLOYMENT LETTER AGREEMENT DATED 8/8/99 1 EXHIBIT 10(ii) September 8, 1998 Mr. Edward Kuehnle 17 Devonshire Land Mendham, NJ 07945 Dear Ed: We are delighted to offer you employment and new career opportunities at IRI. The purpose of this letter is to summarize our verbal offer to you. You will be employed as Division President for Customer Sales and Service, reporting to me. Your base salary will be $265,000 per year, your next review date will be May 1, and annually each May thereafter. Your May 1, 1999 increase will be pro-rated based on your start date. Your initial annual bonus target will be 35% of your base salary, and your final bonus will be based on your performance and IRI's bonus plan formula. You will not be bonus eligible for 1998. We will also provide you with a $40,000 sign on bonus payable 30 days after your start date. You will be required to repay the sign on bonus to IRI, if you are terminated for cause or you voluntarily resign your position before your one year anniversary. You will enjoy all employee benefits and perquisites available generally to the other senior executive officers of the Company. This includes IRI's flexible benefits program which consists of health and welfare plans, life insurance, disability, 401(k) plan, holidays, personal leave, sick leave and vacation allowance (four weeks vacation per year), and IRI's new Executive Deferred Compensation Program. As we have discussed, your assignment will initially be located in Fairfield, NJ. However, we will expect you to relocate to Chicago no later than October 1, 1999. This relocation to the Corporate office is mandatory and is non-negotiable. You also will receive IRI's comprehensive relocation package for senior executives which includes relocation assistance in planning your move to Chicago from a third party relocation company. You'll find the services first class. Enclosed is information regarding IRI's benefits and relocation package. Please contact Gary Newman directly regarding questions pertaining to IRI's benefits and relocation assistance. On your start date, the Company will grant you 60,000 options under its senior management Stock Option Plan, to be evidenced by the Company's customary form of stock option agreement. For these 60,000 options, one-third will vest after two years of service and then another third after each anniversary of the starting date of your employment. You will also be eligible based on performance, additional annual stock option grants with approval from IRI's Compensation Committee. 2 Mr. Ed Kuehnle September 8, 1998 Page 2 Should a "change of control" (defined as the sale of the Company, whether by merger or otherwise, or the acquisition of more than 25% of the company's common stock by an acquirer, or group acting in concert) occur during your employment, the following will apply. If a change in control occurs before the second anniversary of your employment and you leave the Company within one year thereafter for any reason (other than for cause), your options (including any granted to you in the future) will continue to vest and become exercisable (until 30 days after the last options vest) in accordance with their vesting schedules notwithstanding the termination of your employment. If a change in control occurs after the second anniversary of your employment, all your unvested options will immediately vest and become exercisable. Upon starting with the Company, you will be expected to execute a customary noncompetition and confidentiality agreement (attached). Should your employment be terminated (including a reduction in responsibility) for any reason other than for cause, death or your voluntary resignation (except in case of resignation within one year following a change in control), you will continue for the next twelve months to receive all benefits including your base salary then in effect. Again, if your employment terminates for cause, or as the result of your death, or your voluntary resignation (except for change of control as stated above) you will receive no severance benefits. Also, any options that would otherwise vest in the succeeding 18 month period following such termination not otherwise vested pursuant to the above change in control provision will vest immediately. Ed, everyone is extremely excited about your joining our team. We know you can make a difference for IRI, and believe we can offer you the challenges and career opportunities you desire. On behalf of the Company and our entire senior management team, we are looking forward to your joining IRI and our team. Sincerely, Jim Chambers Group President Accepted this 7th day of Ocotober, 1998 - ----------------------------------------- Ed Kuehnle cc: Gary Newman Gian Fulgoni 3 SEPTEMBER 11, 1998 Mr. Ed Kuehnle 17 Devonshire Lane Mendham, NJ 07945-1860 Dear Ed: This letter will amend our September 8, 1998 offer letter regarding your employment at IRI as Division President of Consumer Sales and Service. Your assignment will initially be located in Fairfield, NJ. Then, we will expect you to relocate to Chicago no later than October 1, 1999. However, if family circumstances make this difficult for you to complete, we will extend this time to July 1, 2000. If your final relocation is delayed until July 2000, we will expect you to work in Chicago 4 days a week starting on October 1, 1999 (Obviously, you will be on business travel and may be on the east coast for business). We will provide you temporary living until July 1, 2000 and the ability to fly home on weekends. I hope this amended language confirms our earlier conversation on Thursday. I will contact Linda tomorrow morning to answer her additional questions and will call you over the weekend to touch basis with you. Sincerely, Jim Chambers Group President, US Commercial Businesses cc: Gary Newman 4 SEPTEMBER 15, 1999 Mr. Ed Kuehnle 17 Devonshire Lane Mendham, NJ 07945-1860 Dear Ed: This letter will amend our September 8, offer of employment and the September 11, amended letter. In addition to the benefits you already received, this will confirm you will receive the following additional benefits. ** As a Division President you will be able to fly first class air as long as the travel is booked by IRI's travel department. We fly American and due to the level of business and our executives travel first class. International flying is business class. ** You will receive 4 vacation days in 1998. We would request you take these days during the last week of December (Dec. 28-31). In 1999, you will receive 20 days of vacation and it will be between you and Jim Chambers when you can take vacation. ** We will pay you your signing bonus on January 15th. This will allow you the opportunity to defer the bonus into our Executive Deferral Compensation Plan (EDCP) pre tax after January 1, 9999. We will be sitting down with you in October to explain the EDCP and how and where (specific funds) you can defer your bonus on a pre tax basis. I believe this covers all of the items we have discussed. Please let me know if you have any questions. You will go through a comprehensive benefits orientation on your first day. However, if you want to do this before you start, I can arrange for my staff to meet with you prior to enroll you in our benefits. Sincerely, Gary Newman EX-10.(JJ) 5 EMPLOYMENT AGREEMENT DATED 2/4/00 1 EXHIBIT 10(jj) February 4, 2000 Mr. Andrew Balbirer 4112 Three Lakes Drive Long Grove, IL 60047 Dear Andy: This letter amends the February 1, 2000 offer letter you received from us and includes the changes we agreed to. You will be employed as Chief Financial Officer reporting to Joe Durrett. Your base salary will be $325,000 per year, your next review date will be May 1, 2001, and annually each May thereafter. Your initial annual bonus target will be 40% of your base salary paid (there will be no pro-ration), and your final bonus will be based on IRI's and your personal performance. For 2000, we will guarantee you a minimum bonus payout of $70,000. You will enjoy all employee benefits and perquisites available generally to the other senior executive officers of the Company. This includes IRI's flexible benefits program which consists of health and welfare plans, life insurance, disability, 401(k) plan, holidays, personal leave, sick leave and vacation allowance (four weeks vacation per year), and IRI's new Executive Deferred Compensation Program. On your start date, the Company will grant you 175,000 options under its Executive Stock Option Plan, to be evidenced by the Company's customary form of stock option agreement. For these 175,000 options, one-third will vest after two years of service and then another third after each anniversary of the starting date of your employment. You will also be eligible based on performance, additional annual stock option grants with approval from IRI's Compensation Committee. In addition, we will grant you 50,000 shares of restricted stock under our non-qualified defined contribution plan and trust. There is a cliff vesting period of four (4) years on the restricted stock. Enclosed is a copy of the restricted stock plan document for your review. Should a "change of control" (defined as the sale of the Company, whether by merger or otherwise, or the acquisition of more than 25% of the company's common stock by an acquirer, or group acting in concert) occur during your employment, the following will apply. If a change in control occurs, all your unvested options will immediately vest. You will have one year from your termination date to exercise your stock options. 2 Mr. Andrew Balbirer February 4, 2000 Page 2 Upon starting with the Company, you will be expected to execute a customary noncompetition and confidentiality agreement (attached). Should your employment be terminated (including a reduction in responsibility) for any reason other than for cause, death or your voluntary resignation (except in case of resignation within one year following a change in control), you will continue for the next twelve months to receive all benefits including your base salary then in effect. In the case of your death, your estate will receive 12 months of severance and benefit continuation in accordance with IRI policies. Again, if your employment terminates for cause or your voluntary resignation (except for change of control as stated above) you will receive no severance benefits. Our offer of employment is contingent upon approval by the Executive Committee of the IRI Board of Directors. Andy, we are excited about you accepting our offer and joining our team. We know you will make a difference for IRI, and believe we will offer you the challenges and career opportunities you desire. On behalf of the Company and our entire senior management team, we are looking forward to your joining IRI and our team. Sincerely, Gary S. Newman Executive Vice President, Human Resources Accepted this day of , 2000 ----- ------ - ----------------------------------------- Andy Balbirer cc: Joe Durrett EX-21 6 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 INFORMATION RESOURCES, INC. AND SUBSIDIARIES SUBSIDIARIES DOMESTIC SUBSIDIARIES
STATE OF SUBSIDIARY INCORPORATION - ---------- ------------- 564 Randolph Co. #2 Illinois IRI Puerto Rico, Inc. (formerly Market Trends, Inc.) Puerto Rico NEO, Inc. Connecticut IRI Venezuela Holdings, Inc. Delaware IRI Guatemala Holdings, Inc. Delaware IRI Greek Holdings, Inc. Delaware IRI French Holdings, Inc. Delaware IRI Italy Holdings, Inc. Delaware InfoScan Italy Holdings, Inc. Delaware IRI Logistics, Inc. (formerly LogiCNet, Inc.) Delaware Shoppers Hotline, Inc. Delaware North Clinton Corporation Illinois
FOREIGN SUBSIDIARIES
COUNTRY OF SUBSIDIARY INCORPORATION - ---------- ------------- Information Resources S.A. France IRI Software, Ltd. (formerly known as Management Decision Systems, Limited) d/b/a Information Resources United Kingdom IRI Software B.V. The Netherlands Information Resources GmbH Federal Republic of Germany Information Resources Australia Pty. Ltd. Australia Information Resources Japan, Ltd. Japan IRI Apollo K.K. Japan Information Resources New Zealand Pty. Ltd. New Zealand IRI-SECODIP, S.N.S. France IRI Hellas, S.A. Greece Information Resources de Mexico, S.A. de C.V. (formerly known as IRI Software de Mexico, S.A. de C.V.) Mexico IRI InfoScan S.r.1 Italy Precis (1136) Limited United Kingdom IRI InfoScan Limited (formerly InfoScan NMRA Limited) United Kingdom IRI/GfK Retail Services GmbH Federal Republic of Germany IRI/GfK Retail Services B.V. (formerly GfK InfoScan B.V.) The Netherlands Information Resources Espana, S.L. Spain
EX-23 7 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-31182) pertaining to the Information Resources, Inc. 1999 Restricted Stock Plan and 1999 Nonqualified Defined Contribution Plan, the Registration Statement (Form S-8 No. 333-31416) pertaining to the Information Resources, Inc. Restricted Stock Plan -- Joseph P. Durrett, the Registration Statement (Form S-8 No. 33-48289) pertaining to the Information Resources, Inc. Nonqualified Stock Option Plan, the Registration Statement (Form S-8 No. 33-48290) pertaining to the Information Resources, Inc. 1992 Incentive Stock Option Plan, the Registration Statement (Form S-8 No. 33-48291) pertaining to the Information Resources, Inc. 1992 Executive Stock Option Plan, the Registration Statement (Form S-8 No. 33-52719) pertaining to the Information Resources, Inc. Nonqualified Stock Option Plan, the Registration Statement (Form S-8 No. 33-52721) pertaining to the Information Resources, Inc. Employee Nonqualified Stock Option Plan, the Registration Statement (Form S-8 No. 33-54649) pertaining to the Information Resources Inc. 1992 Executive Stock Option Plan and the Registration Statement (Form S-8 No. 333-24041) pertaining to the Information Resources, Inc. 401(k) Retirement Savings Plan and Trust of our report dated February 9, 2000 with respect to the consolidated financial statements and schedule of Information Resources, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1999. ERNST & YOUNG LLP Chicago, Illinois March 28, 2000 EX-24 8 POWERS OF ATTORNEY 1 EXHIBIT 24 INFORMATION RESOURCES, INC. AND SUBSIDIARIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Joseph P. Durrett and Monica M. Weed, and each of them, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the year ended December 31, 1999 of Information Resources, Inc., together with any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agent of either of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 24, 2000 /s/ JOSEPH P. DURRETT ------------------------------------ Joseph P. Durrett, Director /s/ JAMES G. ANDRESS ------------------------------------ James G. Andress, Director /s/ WILLIAM B. CONNELL ------------------------------------ William B. Connell, Director /s/ EDWIN E. EPSTEIN ------------------------------------ Edwin E. Epstein, Director /s/ BRUCE A. GESCHEIDER ------------------------------------ Bruce A. Gescheider, Director /s/ JOHN D. C. LITTLE ------------------------------------ John D. C. Little, Director /s/ LEONARD M. LODISH ------------------------------------ Leonard M. Lodish, Director /s/ EDWARD E. LUCENTE ------------------------------------ Edward E. Lucente, Director /s/ JEFFREY P. STAMEN ------------------------------------ Jeffrey P. Stamen, Director /s/ RAYMOND H. VAN WAGENER, JR. ------------------------------------- Raymond H. Van Wagener, Jr., Director /s/ THOMAS W. WILSON, JR. ------------------------------------- Thomas W. Wilson, Jr. Director EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1999 DEC-31-1999 8,077 0 97,899 3,774 0 110,771 204,535 123,550 368,480 121,845 0 0 0 291 224,682 368,480 0 546,273 0 578,844 0 0 1,748 (29,562) (11,174) (18,388) 0 0 0 (18,388) (.66) (.66)
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