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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM 10-K
 
(Mark
One)
 
  [X]            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
           OF THE SECURITIES EXCHANGE ACT OF 1934. [NO FEE REQUIRED]
 
                  For the fiscal year ended December 31, 1996
 
                                      OR
  [_]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
               SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                      For the Transition period from  to
 
                        COMMISSION FILE NUMBER 1-14348
 
                               ----------------
 
                             METROMAIL CORPORATION
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
               DELAWARE                              13-3015410
       (STATE OF INCORPORATION)         (I.R.S. EMPLOYER IDENTIFICATION NO.)
 
                 360 EAST 22ND STREET, LOMBARD, IL 60148-4989
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
 
      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 620-3300
 
                               ----------------
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
<TABLE>
<CAPTION>
                                       NAME OF EACH EXCHANGE
        TITLE OF EACH CLASS             ON WHICH REGISTERED
        -------------------           -----------------------
      <S>                             <C>
       COMMON STOCK, $.01             New York Stock Exchange
        PAR VALUE PER SHARE
       PREFERRED STOCK PURCHASE       New York Stock Exchange
       RIGHTS
</TABLE>
 
       SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
  Indicate by check mark whether Metromail Corporation (1) has filed all
reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that Metromail
Corporation 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 non-affiliates of
Metromail Corporation as of January 31, 1997 was approximately $281,432,250
(based on closing sale price of $20.625 as reported for the New York Stock
Exchange-Composite Transactions).
 
  The number of shares of Metromail Corporation's common stock, $.01 par value
per share, outstanding as of January 31, 1997, was 22,311,900.
 
                               ----------------
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
  PORTIONS OF THE PROXY STATEMENT FOR METROMAIL CORPORATION'S 1997 ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 24, 1997 ARE INCORPORATED BY
REFERENCE IN PART III.
 
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                             CROSS REFERENCE SHEET
                                      AND
                               TABLE OF CONTENTS
 
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                                                                    PAGE NO. OR
                                                                     REFERENCE
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 <C>      <S>                                                       <C>
 PART I
 ITEM 1.  BUSINESS................................................        1
 ITEM 2.  PROPERTIES..............................................        8
 ITEM 3.  LEGAL PROCEEDINGS.......................................        8
 ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS...        9
 ITEM 4A. EXECUTIVE OFFICERS OF METROMAIL CORPORATION.............       10
 PART II
 ITEM 5.  MARKET FOR METROMAIL CORPORATION'S COMMON EQUITY AND
          RELATED STOCKHOLDER MATTERS.............................       11
 ITEM 6.  SELECTED FINANCIAL DATA.................................       12
 ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS.....................       13
 ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............       17
 ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE.....................       37
 PART III
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF METROMAIL
          CORPORATION.............................................       37
 ITEM 11. EXECUTIVE COMPENSATION..................................       37
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT..............................................       37
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........       37
 PART IV
 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
          FORM 8-K................................................       37
</TABLE>
<PAGE>
 
                                    PART I
 
ITEM 1: BUSINESS.
 
  Metromail Corporation ("Metromail" or the "Company") is a leading provider
of direct marketing and reference products and services in the United States
and the United Kingdom. Metromail helps its customers identify and reach
targeted audiences utilizing its comprehensive, proprietary consumer database
encompassing more than 90% of the households in the United States, as well as
providing database marketing software and related services. The Company
provides its information, information services and software services to a wide
variety of organizations engaged in direct mail, telephone and target
marketing, as well as to clients who desire specific reference and information
services. The Company's clients include Fortune 500 companies, as well as
numerous mid-size and small businesses.
 
  Metromail was incorporated under the laws of the State of Delaware in 1979.
It is a successor to several predecessor businesses, including a list
development business that was started in 1946. The Company became a public
company in 1984 and remained so until mid-1987 when it was acquired by
R. R. Donnelley & Sons Company ("R. R. Donnelley"). The Company has made
several acquisitions, including the acquisition in 1994 of the assets of
Customer Insight Company, a company that develops PC-based marketing oriented
database solutions ("CIC"). Data by Design, a database marketing consulting
service in the United Kingdom ("DBD"), and International Communication & Data
Plc, a compiler of lists in the United Kingdom primarily through the use of
surveys ("ICD"), were acquired by R. R. Donnelley in 1994 and 1995,
respectively. The Company managed the United Kingdom operations since their
acquisition by R. R. Donnelley, with ownership being transferred to the
Company in early 1996. On June 19, 1996, Metromail completed an initial public
offering of 13,800,000 shares of its common stock (the "IPO"), resulting in
the reduction of R. R. Donnelley's ownership in the Company to approximately
38.4%.
 
PRODUCTS AND SERVICES
 
  Metromail provides two general categories of products and services to its
clients: Direct Marketing Services (including database marketing software and
services, list enhancement services, list development and personalization
printing and lettershop services) and Reference Services (including on-line
services and directory publishing). Direct Marketing Services accounted for
80.2%, 80.0% and 80.7% of the Company's total net sales in the years ended
December 31, 1994, 1995 and 1996, respectively, and Reference Services
accounted for 19.8%, 20.0% and 19.3% of total net sales in 1994, 1995 and
1996, respectively.
 
 Direct Marketing Services
 
  Database Marketing Software and Services. Metromail, through CIC, provides
PC-based database marketing products and services to clients that possess a
large amount of internal and external data and need a way to assemble and
analyze the data to determine their appropriate marketing initiatives. The
Company's software products are designed to enable each client to maintain its
database on its own personal computer for quick desktop access to information.
Alternatively, the client can choose to have the Company house the client's
database on the mainframe computer in the Company's Lombard, Illinois data
center and, with the use of the Company's proprietary MetroBase software
loaded on the client's personal computers, analyze the files contained in the
client's database and generate desired reports through on-line access.
 
  The Company targets a variety of industries for these software products and
services, focusing on the financial services, telecommunications, catalog,
publishing, cable television, transportation, entertainment and travel-related
services industries. The Company currently supports over 2,000 installations
of these products at over 340 client sites.
 
  The Company's software products provided by CIC are licensed to clients,
generally for a three-year period. A substantial portion of the license fee is
paid at the time the license agreement is entered into with the balance
<PAGE>
 
due upon completion of installation. In addition, the Company collects an
annual license and maintenance fee that is approximately 20% of the initial
license fee. In connection with some installations, the Company, as a service,
purchases and re-sells to the client certain computer equipment such as
storage devices and other peripherals.
 
  List Enhancement Services. The Company improves the quality of lists or
databases provided by its clients by eliminating duplicate names, correcting
addresses and ZIP codes and appending additional information, such as
telephone numbers or other marketing-related characteristics, to the lists or
databases.
 
  Metromail's list enhancement services enable a client to process information
utilized in direct mail campaigns. These processes help the Company's clients
identify persons on lists supplied by the client likely to respond favorably
to the client's mailing, improve the delivery of the items mailed and reduce
the postage costs of a direct mail campaign. Typically, a client sends to the
Company hundreds of lists, aggregating millions of names that have been rented
from list brokers or other sources and the client's current customer list.
Using its computer resources and proprietary software, the Company
consolidates these lists, corrects addresses and ZIP codes and eliminates
duplicate names (the merge/purge process). A client can enhance this
consolidated list by incorporating certain of the characteristics contained in
the Company's database and/or INSOURCE, an enhancement database that combines
Metromail's National Consumer Database and other proprietary databases with
the consumer databases of Experian Information Solutions Inc. (formerly TRW
Target Marketing Services) to provide in-depth information on approximately 95
percent of all U.S. households. INSOURCE, introduced in late 1996, is able to
append more than 300 data variables to customer records, including hobbies,
interests, product preferences and investment, educational and occupational
information. Metromail believes INSOURCE is the most complete enhancement
database currently available in the market.
 
  The Company also uses its database to enhance a client's proprietary
customer list and to make that list more deliverable. The Company has non-
exclusive licenses from the United States Postal Service for certain services,
such as National Change of Address, Delivery Sequence File and Locatable
Address Conversion System, to facilitate these processes. These enhancements
usually include adding information from the Company's database, eliminating
undeliverable addresses and verifying households at a particular address. ZIP
codes and addresses on a proprietary list can be corrected and telephone
numbers can be added. In addition, the Company saves its clients money on the
mailing of these enhanced lists by carrier route coding, ZIP code presorting
and overlaying 9-digit ZIP codes.
 
  The Company provides list enhancement services to approximately 400 clients
annually, most of whom are involved in continuity marketing (e.g., record
clubs), financial services, insurance, magazine and book publishing, mail
order and catalog merchandising or retail. The Company provides these services
primarily from its facilities in Lombard, Illinois.
 
  List Development Services. The Company assists clients in implementing cost-
effective direct marketing strategies by creating for its clients lists of
those individuals and households in the client's trade area having the
characteristics that fit the marketing strategy and are most likely to respond
favorably to the client's marketing efforts. Metromail provides customized
list development services to two primary groups of clients: sales promotion
and mail order organizations. Sales promotion clients generally have
determined the characteristics of their target customers and provide the
Company with a trade area definition and a customer profile. The Company then
uses its computer software and database to identify the individuals and
households in the customer's trade area who have the characteristics that the
client has specified and compiles a list of those individuals and households.
 
  Mail order clients use the Company's marketing services and statistical
software to identify the geographic, demographic and other marketing
characteristics in the Company's database that singly and in combination
describe the best prospects for the client's direct marketing campaign. The
Company reviews the client's customer files and direct marketing experience,
as well as syndicated research, publicly available marketing data,
 
                                       2
<PAGE>
 
and relevant historical information and marketing research in the Company's
database. In addition, the Company may design, conduct and analyze market
surveys or test mailings. From this research and testing the Company defines
relevant market segments and their respective sizes and ranks these segments
according to their relative potential value to the client.
 
  The Company provides lists to approximately 15,000 clients annually. The
Company generates most of its list sales from sales to consumer goods
manufacturers, financial institutions, magazine publishers, mail order houses
and not-for-profit organizations. These lists are used for targeted mailings,
telephone marketing campaigns and statistical samplings. Except for test
mailings, these list orders range in size from 500 to 20 million households
and prices generally range from $7 to $250 per thousand names, although
requests for certain information may be as high as $1,000 per thousand names.
Lists are generally delivered in the form of computer tape or mailing labels.
The Company provides its list development services from its facilities in
Lincoln, Nebraska.
 
  Personalization Printing and Lettershop Services. Metromail's
personalization printing and lettershop services frequently are used in
conjunction with list development and enhancement services provided by the
Company. In 1996, 22 of the Company's top 25 list development and enhancement
clients used these services in addition to its list services. The Company
provides processing and mailing services to direct mail advertisers from
facilities located in Mt. Pleasant, Iowa; Rutland, Vermont; Seward, Nebraska;
and Lincoln, Nebraska.
 
  Personalization printing involves applying addresses and variable text to
direct mail pieces. Lettershop services consist of forms trimming, folding,
affixing special items (such as coins, medallion or cards), inserting
materials into envelopes, polywrapping, applying address labels and mailing.
In connection with these services, the Company uses both addresses generated
from its own database and addresses provided by its customers. Lettershop
services are typically contracted for on an individual mailing basis.
Contracts range in size from relatively small test mailings and statistical
samplings to major promotions of up to 25 million pieces.
 
  The Company is one of the largest providers of commercial lettershop
services in the United States. At its three lettershop facilities, the Company
has the capacity to insert material in more than 6.5 million envelopes per
day, package 10 million product samples per month and polywrap 26 million
packages per month. The Company has installed and improved special equipment
in its production facilities that permits production of a high volume of
polywrapped advertising materials. The Company has also established an
integrated computerized system of scheduling, production and inventory
control.
 
  The Company's lettershop services processed over 1.2 billion pieces of mail
in 1996. To expedite mailing of materials, United States Postal Service
personnel have been permanently assigned to each of the lettershop facilities.
 
 Reference Services
 
  On-Line Services. Metromail offers a number of services that involve the
need for immediate electronic access to information contained in the Company's
database. The most important of these services are the Company's MetroNet and
National Directory Assistance ("NDA") services.
 
  The Company's MetroNet service provides users with on-line or electronic
access to the Company's MetroNet Master file (a subset of the Company's
database), change of address files, business listings and regional Bell
operating companies' electronic directory assistance databases. These services
are marketed primarily to collection agencies, consumer finance companies and
credit card issuers. This service is used by many of the Company's clients to
confirm certain information that is contained on credit applications submitted
to them (such as name and address, but not credit history).
 
  The Company's NDA services provide on-line access to a database consisting
of more than 108 million residential, business and government listings, as
well as on-line access to the electronic directory assistance
 
                                       3
<PAGE>
 
databases maintained by the regional Bell operating companies. The Company
markets these services, which were commenced in 1995, to telephone companies,
operator service providers and other organizations with high-volume directory
assistance needs. To date the Company has entered into contracts to provide
these services to approximately 25 clients. The Company is in various stages
of testing with some of these clients and at the end of 1996 was sending
invoices to 23 clients for services being provided by the Company.
 
  Directory Publishing Services. Metromail publishes the Cole directories,
local "reverse" directories covering approximately 150 urban and suburban
areas in the United States and Canada, including New York, Boston,
Philadelphia, Dallas and Houston. These directories, which contain
approximately 32 million residential and business listings, are available
either in printed form or on CD-ROM. The directories are derived from the
Company's database and contain listings arranged by street address and
telephone number. Many of the directories also include census demographic data
on a neighborhood basis and historical data, such as duration of residence.
 
  The Company has approximately 48,000 clients annually for the printed Cole
directories and approximately 3,000 clients for its Cole and MetroSearch CD-
ROM products. The clients for these products are principally collection
agencies, financial institutions, government agencies, insurance brokers and
agents, local merchants such as home improvement businesses, and real estate
brokers. The Cole directories are primarily used by clients to market products
or services to prospects or to identify individuals at specific addresses or
telephone numbers within a specific geographic area. The Cole directories are
supplied on an annual subscription basis for prices ranging from $75 to over
$600, depending on the size of the market. In 1996, approximately 73% of
leases for Cole directories were renewed.
 
  The Company publishes, prints and binds the Cole directories at its Lincoln,
Nebraska facility. In addition, the Company provides certain printing and
binding services for other publishers of short-run directories.
 
  Cole(R), MetroBase(R), Metromail(R), Metromail's National Consumer Data
Base(R), MetroNet(R), MetroSearch(R) and NDA(R) are registered trademarks of
Metromail; AnalytiX(R) is a registered trademark of Customer Insight Company;
BehaviorBank is a service mark of Metromail; Explore is a trademark of
Customer Insight Company; INSOURCE is a service mark of Metromail and Experian
Information Solutions Inc.; and Windows(R) is a registered trademark of
Microsoft Corporation.
 
INTERNATIONAL OPERATIONS
 
  Metromail's international operations currently consist primarily of its
operations in the United Kingdom of ICD, one of Britain's leading consumer
lifestyle and financial list developers and providers, and DBD, a provider of
database marketing consulting services. ICD acquires consumer lifestyle data
primarily through mailed surveys. During 1996, ICD received lifestyle data for
3.5 million individuals, bringing the number of individuals included in the
company's lifestyle file to 8.6 million. Another ICD product, the British
Investor Database, is compiled from share registers and contains 7.7 million
share transactions. More than 2,000 companies either sponsor survey questions
or rent data from ICD. Through DBD, ICD also offers a range of high value
analytical and consultancy services.
 
METROMAIL'S DATABASE
 
  Metromail maintains and continually updates a large proprietary database
that contains geographic, demographic, individual and other marketing
information on over 90% of the households in the United States. The Company
believes that its database is one of the most complete, highest quality and
up-to-date direct marketing databases in the United States and is a principal
reason that clients use the Company's list development and enhancement
services. This database contains numerous characteristics relating to the
individuals and households reflected in the database in addition to name,
address and telephone number. Examples of these characteristics include age,
length of residence at a particular address, dwelling unit type, gender of the
head of household, presence of other family members, estimated household
income and home ownership.
 
                                       4
<PAGE>
 
  The Company has been accumulating data for almost 50 years, and management
believes that its processes of gathering data from numerous sources and
modifying and updating its database represent a significant competitive
advantage for the Company.
 
  Metromail derives the data included in its database from a wide variety of
publicly available sources and proprietary, third-party providers. With the
exception of self-reported data which the Company obtains primarily through
the use of consumer surveys, the Company does not collect data directly from
consumers. Among the publicly available sources used by the Company are the
"white pages" (the Company's primary source of names, addresses and telephone
numbers), public records of driver's license registrations, real estate
transactions and U.S. census data. The Company has arrangements with numerous
third parties that provide proprietary data to the Company. These providers
include certain of the Company's clients that provide the Company with data
relating to their recent direct marketing experiences.
 
  In 1993, the Company began collecting data directly from consumers in
response to surveys. The Company distributes to consumers, primarily through
co-op mailings, package inserts and magazine inserts, survey questionnaires in
various forms. These questionnaires solicit information from the recipients
such as standard demographic information, product preferences, purchasing
habits, activities, hobbies and interests, brand awareness and medical
ailments. Questionnaires can be tailored to address specific marketing
concerns of the Company's clients by developing specific survey questions
which seek the desired information. Survey respondents complete and return
questionnaires to the Company because they become eligible to receive offers
of coupons, samples and information from manufacturers, pharmaceutical
companies, financial institutions and other service providers. Incentives such
as sweepstakes offers, prizes and extensions to subscribed services are also
provided when appropriate to increase response rates. The Company provides
disclosure to potential survey respondents regarding the intended use of the
data thereby reducing privacy concerns because respondents are voluntarily
completing the surveys acknowledging that they understand how the information
may be used. The Company does not use the information collected through
surveys for its reference services and has stated that it will not do so
unless disclosure is provided in the survey regarding the use of such
information for reference services. The Company expects to continue to expand
its use of surveys as a data collection method. As indicated above under
"International Operations," the Company is using the survey method as a means
to develop its database in the United Kingdom.
 
  The Company is dedicated to being a leader in ethical management of consumer
data. It has developed information management practices applicable to its
direct marketing services and its reference services. The Company believes
that responsible data management includes collecting, using and disseminating
information by fair, ethical and lawful means and respecting the requests of
individuals for information the Company possesses about them and any requests
that their names be suppressed in the Company's database so that they do not
receive unwanted marketing solicitations.
 
COMPETITION
 
  The markets in which Metromail competes are highly competitive and
fragmented. While a number of large companies and many smaller competitors
provide certain of the direct marketing, database marketing and reference
services provided by the Company, the Company believes that it provides the
broadest range of these types of services of any company in the direct
marketing services, database marketing services and reference services
industries.
 
  In list development and list enhancement services, Metromail competes on the
basis of the quality, accuracy and completeness of its database, its market
analysis and segmentation capabilities and the other list enhancement services
it offers. The Company competes in marketing database services on the basis of
the quality of its software products. The Company competes in lettershop
services on the basis of the capabilities and efficiencies of its equipment
and employees, which enable it to handle large and complicated orders in a
timely manner. Price is also a competitive factor for all the direct marketing
services the Company provides. In reference services, Metromail competes on
the basis of the quality, accuracy and scope of the information contained in
its
 
                                       5
<PAGE>
 
database, the quality of its customer service and price. With respect to its
on-line services, two critical competitive factors are the ability to be
contacted by the user and the response time.
 
REGULATION
 
  Although the manner in which Metromail collects, uses and transfers certain
types of data is regulated in certain respects at the federal level and by
certain states, as described below, Metromail's business is not currently
subject to direct regulation by any government agency, other than regulations
applicable to businesses generally, including regulations concerning the
environment.
 
  In response to concerns about individual privacy and the collection,
distribution and use of information about individuals, the Direct Marketing
Association (the "DMA"), which is the leading trade association of direct
marketers, has established certain guidelines for fair information practices
which it recommends be followed by participants in the direct marketing
industry. The Company was actively involved in the formulation of the DMA's
guidelines, and many of the Company's significant direct marketing clients
have adopted and implemented such guidelines. In addition, the Company has
adopted and is implementing information management practices, principles and
procedures which supplement those of the DMA. One of the guidelines suggested
by the DMA is that direct marketers refrain from soliciting by mail or
telephone those individuals who have contacted the DMA and have asked that
they not be the subject of unrequested solicitations. To make compliance with
this guideline possible, the DMA maintains the Mail Preference Service and the
Telephone Preference Service, consisting of lists of those individuals who
have notified the DMA that they wish to "opt out" of receiving mail or
telephone solicitations. The DMA makes these lists available to participants
in the direct marketing industry who subscribe to these services. The Company
is a subscriber and receives updated lists from the DMA monthly and promptly
suppresses in its database all information concerning the individuals who
appear on the DMA lists.
 
  Privacy concerns have also led to increased federal and state regulation of
the collection, use and transfer of information about individuals and of
direct marketers and their activities. Examples of laws regulating the use of
information include laws adopted by a number of states precluding the use of
information derived from voter registration records, real estate files and
driver's licenses and the federal Driver's Privacy Protection Act of 1994,
which becomes effective in September 1997. Under this act, each state will be
prohibited from disclosing personal information contained in motor vehicle
department records for bulk use in surveys, marketing or solicitations, unless
the state has implemented a procedure whereby each driver has the opportunity
to prohibit such use of information about such driver. Examples of laws
regulating direct marketers and their activities include: state laws requiring
telemarketers to be bonded or registered; a Federal Trade Commission
regulation prohibiting telemarketers from making a call to a person who
previously has stated that he or she does not wish to receive a call made by
or on behalf of the seller whose goods or services are being offered; and
federal and state restrictions on the use by telemarketers of automatic
dialing and artificial voices or prerecorded messages.
 
  In May, 1996, a bill seeking to restrict the sale of data was introduced in
the United States Congress. The Children's Privacy Protection and Parental
Empowerment Act sought to prohibit list brokers (including the Company) from
knowingly selling or purchasing personal information (defined to include name,
address and telephone number) about a child (defined to be a person under 16
years old) without the written consent of a parent of that child. This bill
failed to become enacted into law in 1996. The Company believes that this bill
or a similar bill will be reintroduced in 1997.
 
  In 1996, Congress asked the Federal Reserve Board (the "FRB") to examine the
availability to the general public of sensitive consumer identification
information, including social security numbers, mother's maiden names, prior
addresses and dates of birth. The FRB invited companies to respond to
questions relating to the collection, maintenance and use of sensitive data.
With the exception of month and year of birth, the Company does not distribute
data that is the subject of the FRB's inquiry.
 
 
                                       6
<PAGE>
 
  The Federal Trade Commission (the "FTC") continues to conduct workshops and
studies on the protection and use of personal information. These workshops and
studies examine the collection and availability of personal information on the
internet and on "look-up" services and the collection and availability of
children's information. The Company has been actively working with the FTC on
these and other issues. FTC Commissioners have stated publicly that they
prefer industry self-regulation over government regulations.
 
  Because of the possibility of increased regulation brought on by privacy
concerns, the Company collects certain data directly from individuals, who
agree that their information may be used for direct marketing and other
purposes. Although the Company intends to continue to pursue actively the
collection of self-reported data, the percentage of data in the Company's
current database that constitutes self-reported data is small.
 
  The Company is not aware of any generally accepted industry guidelines for
the use of information on individuals in connection with the Company's
reference services. The Company has adopted its own privacy principles for its
reference services.
 
  Certain of the reference services provided by the Company to certain credit
card issuer associations and their member banks are subject to the Fair Credit
Reporting Act ("FCRA"). Amendments to the FCRA, scheduled to become effective
on September 30, 1997, provide consumers with easier access to their credit
reports, facilitate the correction of errors in reports and address the issue
of "prescreening," a procedure used by creditors in some direct marketing
programs.
 
CUSTOMERS AND SEASONALITY
 
  The Company's business is based on long-standing client relationships.
Although sales are not guaranteed under long-term contracts, a substantial
portion of the Company's net sales is derived from clients that the Company
has served for many years. Net sales to the top 25 clients (almost all of
which have been clients for five or more years) amounted to $65.9 million in
1994, $68.6 million in 1995 and $75.4 million in 1996. Net sales to the top 25
clients accounted for 33.7%, 28.9% and 26.8% of total net sales in 1994, 1995
and 1996, respectively, as the Company expanded into new products and services
across all operations. No single client accounted for more than 10% of total
net sales in any of these years. The Company's business is somewhat seasonal.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Outlook".
 
COMPUTER OPERATIONS
 
  The Company's data centers run on computer systems designed to provide
advanced processing capabilities, provide flexibility to meet the Company's
and its clients' changing needs and contain costs. The Company's mainframe
computer system consists of two IBM ES9000 computers, one located at the
Lombard data center and one located at the Lincoln data center. The IBM ES9000
computer located at the Lincoln data center has 223 MIPS (millions of
instructions per second) of processing power and the IBM ES9000 located at the
Lombard data center has 270 MIPS of processing power. The ES9000 platform
allows for expansion of processing capacity to approximately 3,000 MIPS,
without significant infrastructure changes. Other data center components
include robotic tape subsystems, DASD and high-speed laser, LED and compact
printers. The Company also supports alternate platforms from IBM, Hewlett
Packard and Sequent, which have approximately a terabyte of DASD attached to
them.
 
  In 1996, the Company completed a major redesign of the file structure of its
database. This redesign, which commenced in 1994, takes advantage of new
relational software and parallel processing hardware technology. The new
database structure is expected to reduce the costs and time of adding newly
acquired data to the database, permit concurrent processing of a number of
separate jobs and reduce processing times.
 
EMPLOYEES
 
  As of December 31, 1996, the Company had approximately 3,080 employees, of
whom approximately 2,975 were located in the United States and approximately
105 were located in the United Kingdom. The domestic
 
                                       7
<PAGE>
 
employees included approximately 275 officers and managerial employees,
approximately 275 employees engaged in sales or sales support and
approximately 210 programmers, system engineers and systems analysts. The
domestic employees also include approximately 1,360 hourly employees, most of
whom are engaged in providing lettershop services. The Company employs part-
time workers as needed, primarily in lettershop services.
 
  None of the Company's employees is covered by a collective bargaining
agreement. The Company believes that its relations with its employees are
good.
 
ITEM 2: PROPERTIES.
 
  The Company's principal executive offices and one of the Company's data
centers are located at 360 East 22nd Street, Lombard, Illinois 60148, where
the Company leases a 115,000 square foot facility pursuant to a lease expiring
in 2001 and a 19,000 square foot facility pursuant to a lease expiring in
2000. The Company also owns a 233,000 square foot facility in Lincoln,
Nebraska, which includes the Company's second data center, and lettershop
facilities in Mt. Pleasant, Iowa (211,000 square feet); Seward, Nebraska
(161,000 square feet); and Rutland, Vermont (113,000 square feet). The Company
leases its 31 regional sales offices pursuant to leases that in general have
three-year terms. The Company's marketing database services operate from a
54,000 square foot leased facility in the Denver, Colorado area. The Company's
main phone number is (630) 620-3300 and its internet address is
http://www.metromail.com.
 
ITEM 3: LEGAL PROCEEDINGS.
 
  In 1993, the Company purchased the assets of Computerized Marketing
Technologies, Inc. and affiliated companies ("CMT") relating to a database
created through the use of questionnaires distributed to consumers. Following
this purchase, the Company continued CMT's practice of contracting with
Computerized Image & Data Systems, Inc. ("CIDS") for CIDS to provide data
input services with respect to completed surveys. CIDS had been subcontracting
a portion of these services to a correctional facility maintained by the State
of Texas. This facility was a major supplier of data input services to the
State of Texas, including services with respect to voter registration and
drivers' license records, and according to CIDS, was selected as a
subcontractor, in part, because of the procedures followed by the facility to
safeguard the information made available to the prisoners. In June 1994, the
Company became aware of a report that a woman in Ohio, who apparently had
completed a Company survey, had received a letter purporting to contain
sexually explicit language from a convicted rapist held in the facility that
provided data input services. Immediately after becoming aware of this report,
the Company requested the third party to terminate its subcontract with the
facility. On April 18, 1996, a complaint was filed in the District Court of
Travis County, Texas (Beverly J. Dennis v. Metromail Corporation et al., Cause
No. 96-04451) against the Company, R. R. Donnelley, CIDS, the Texas Department
of Criminal Justice, the executive director of the Texas Department of
Criminal Justice and the chairman of the Texas Board of Criminal Justice by
the woman who allegedly had received the letter. The complaint alleges the
following causes of action against the Company and R. R. Donnelley and certain
of the other defendants: (1) defendants' conduct represented an intentional or
reckless disregard of plaintiffs' safety; (2) the conduct of the Company, R.
R. Donnelley and CIDS in inducing plaintiffs to provide information without
disclosing to plaintiffs that such information would be provided to convicted
felons constituted fraud; (3) defendants have been unjustly enriched by their
actions; (4) defendants' conduct resulted in the invasion of plaintiffs'
privacy; (5) defendants' conduct resulted in the infliction of severe
emotional distress upon plaintiffs; and (6) defendants were grossly negligent
in entrusting plaintiffs' information to convicted felons. In addition, the
complaint alleged two causes of action solely against the Texas Department of
Criminal Justice and the two state officials. The complaint seeks restitution,
actual and exemplary damages in an unspecified amount and injunctive relief on
behalf of the named plaintiff and a purported class consisting of all persons
who completed Company surveys and whose completed surveys were processed by
inmates in the Texas prison system from January 1, 1993 to the present time.
The Company is not yet able to determine the number of persons comprising the
purported class but believes the number of persons who completed surveys in
this period and whose surveys were processed by such inmates
 
                                       8
<PAGE>
 
could exceed 1.3 million. The Company intends to defend vigorously this suit.
The Company had removed the case to the United States District Court for the
Western District of Texas but the case was subsequently remanded to state
court. The Company has filed a motion to dismiss all counts against it. If the
motion is not granted, the Company intends to challenge certification of the
class, and the Company believes that if such challenge is successful, this
litigation would not have a material adverse effect on the Company. However,
because this litigation is in its early stages, it is not possible to make a
meaningful determination of the ultimate outcome or to make an estimate of the
loss, if any, should the outcome be unfavorable. The Company has made a
preliminary estimate that its costs of litigating the case will be $1.5
million. The Company's insurer has agreed to assume the defense of this case
subject to a reservation of rights to deny coverage. In the event the
Company's insurer were to successfully deny coverage, R. R. Donnelley has
agreed to pay the legal fees and expenses incurred by the Company in defending
this case, but the Company would be responsible for any other amounts payable
by it as a result of this case. Because of such agreements to pay such fees
and expenses, such legal fees and expenses will not affect the Company's cash
flows; however, if R. R. Donnelley were to pay such fees and expenses,
applicable accounting principles would require the Company to recognize such
fees and expenses as incurred and apply all payments by R. R. Donnelley in
respect of such fees and expenses to additional paid-in capital.
 
  The Company is subject to various claims and legal actions which arise in
the ordinary course of business. The Company believes such claims and legal
actions, individually and in the aggregate, will not have a material adverse
effect on the business or financial condition of the Company.
 
  The statements contained in this "Legal Proceedings" section that are not
historical information are forward-looking statements that are based on the
Company's estimates, assumptions, projections and current expectations.
Reference is hereby made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Cautionary Statements Regarding Future-
Looking Statements" for a discussion of certain factors that could cause the
matters discussed in this section to differ materially from the forward-
looking statements contained herein.
 
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
 
  None
 
                                       9
<PAGE>
 
ITEM 4A: EXECUTIVE OFFICERS OF METROMAIL CORPORATION.
 
  Information with respect to those individuals who served as executive
officers of the Company as of December 31, 1996 is set forth below.
 
<TABLE>
<CAPTION>
             NAME         AGE POSITION
             ----         --- --------
      <C>                 <C> <S>
      Barton L. Faber      49 Chairman and Director
      Susan L. Henricks    46 President and Chief Executive Officer and
                               Director
      Philip H. Bonello    45 Senior Vice President and General Manager, On-
                               Line Services
      Ronald G. Eidell     52 Senior Vice President and Chief Financial Officer
      Kenneth A. Glowacki  44 Vice President, Finance
      Tery R. Larrew       43 President, Database Marketing Services and
                               President, Customer Insight Company
      Thomas J. Quarles    47 Senior Vice President, General Counsel, Chief
                               Administrative Officer and Secretary
      Michael T. Reynolds  47 Senior Vice President
      Mac E. Rodgers       37 Senior Vice President and General Manager,
                               Information Services
</TABLE>
 
  Barton L. Faber has been Chairman of the Company since January 1996 and a
director of the Company since July 1995. He served as President, Information
Resources of R. R. Donnelley from January 1995 to June 1996. From September
1989 until January 1995, he was President, Information Services of R. R.
Donnelley. Prior to that time, he was Vice President and Director, Information
Services of R. R. Donnelley in 1989, Vice President, Corporate Development of
R. R. Donnelley from April 1985 until 1989, and Group Manager, Business
Development and Analysis of R. R. Donnelley from the time he joined R. R.
Donnelley in January 1985 until April 1985. Prior to joining R. R. Donnelley,
he held various positions with Mobil Oil Corporation and Ramada Europe. Mr.
Faber is also a member of the board of directors of Dataware Technologies,
Inc., Document Sciences Corporation, GeoSystems Global Corporation and Xeikon
N.V.
 
  Susan L. Henricks has been a Director of the Company since January 1996 and
has been President and Chief Executive Officer of the Company since July 1995.
She was President of the Company from May 1995 until July 1995. Ms. Henricks
joined the Company in 1986 and served as Reference and Information Services
Division President from 1990 to May 1995, Senior Vice President, Information
Services, in 1989, Vice President, Data Processing in 1988 and Vice President
of Production from 1986 to 1988. Prior to joining the Company, she held
various positions with CNA Insurance Company, Centerre Bank, N.A. and The
Signature Group.
 
  Philip H. Bonello has served as Senior Vice President and General Manager,
On-Line Services of the Company since July 1995. Since joining the Company in
1986, he was Vice President, Electronic Services and Vice President, Marketing
Research from 1993 to 1995, Director of Marketing from 1992 to 1993 and
Director of Corporate Planning from 1986 to 1992. Prior to joining the
Company, he held various positions with Coopers & Lybrand from 1984 to 1986
and DePaul University from 1980 to 1994.
 
  Ronald G. Eidell has been Senior Vice President and Chief Financial Officer
of the Company since February 1996. He served as Senior Vice President,
Finance of R. R. Donnelley from January 1996 to June 1996. From 1991 until
January 1996, he was Senior Vice President and Treasurer of R. R. Donnelley.
Prior to that time, he was Vice President and Treasurer of R. R. Donnelley
from 1988 to 1991, Treasurer of R. R. Donnelley in 1988 and Controller of
R. R. Donnelley from 1982 to 1986. From February 1987 until rejoining R. R.
Donnelley in 1988, he was Vice President-Chief Financial Officer and Treasurer
of Advanced Systems, Inc.
 
                                      10
<PAGE>
 
  Kenneth A. Glowacki has been Vice President, Finance of the Company since
September 1988. From December 1986 to September 1988, he served as Director of
Internal Audit of R. R. Donnelley. Prior to that time, Mr. Glowacki was an
Audit Manager at Arthur Andersen & Co.
 
  Tery R. Larrew has served as President, Database Marketing Services of the
Company since December 1996 and President, Customer Insight Company since
1990. Prior to that time, he was a Principal at Pinnacle Management
Corporation and held various executive positions at First Financial Management
Corporation.
 
  Thomas J. Quarles has been Senior Vice President, General Counsel and Chief
Administrative Officer of the Company since February 1996 and Secretary of the
Company since April 1996. He served as Senior Vice President and General
Counsel of R. R. Donnelley from February 1995 to June 1996. From January 1991
until February 1995, he was Vice President and Associate General Counsel of
Ameritech Corporation. From April 1985 until December 1990 he was Vice
President and General Counsel of Ameritech Publishing, Inc. and from 1979
until March 1985, he was general attorney for Michigan Bell Telephone Company.
 
  Michael T. Reynolds served as Senior Vice President and General Manager,
Enhancement Services of the Company from July 1995 through December 1996. From
1992 to 1995, he was Vice President, Small Business/Alternate Channels of the
Company and from 1990 to 1992 he was Vice President, Sales of the Company.
Prior to joining the Company, he was Director of Sales and Marketing at Acxiom
Corporation from 1986 to 1990 and held various positions with Systematics from
1984 to 1986 and IBM from 1976 to 1983.
 
  Mac E. Rodgers has served as Senior Vice President and General Manager,
Information Services of the Company since December 1996. Mr. Rodgers joined
the Company in 1984 and served as Vice President and General Manager, List and
Cole Services from July 1995 to December 1996, Vice President and General
Manager, Cole Services from January 1995 to July 1995, Vice President, Sales
from 1993 to January 1995 and Vice President and Plant Manager from 1990 to
1993, along with various production and managerial positions.
 
                                    PART II
 
ITEM 5: MARKET FOR METROMAIL CORPORATION'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
 
  The Company's Common Stock is listed on the New York Stock Exchange ("NYSE")
under the symbol "ML". As of January 31, 1997, there were 117 holders of
record of the Common Stock.
 
  Trading of the Common Stock commenced on the NYSE on June 14, 1996 in
connection with the IPO. Prior to the IPO, the Common Stock was not listed or
quoted on any organized market system. The following table sets forth the high
and low sales prices of the Common Stock during the periods indicated as
reported on the New York Stock Exchange Composite Transactions Tape during
such periods.
 
<TABLE>
<CAPTION>
                                                                 HIGH     LOW
                                                                ------- -------
      <S>                                                       <C>     <C>
      Second Quarter of 1996 (June 14 through June 30)......... $22 3/4 $19 3/4
      Third Quarter of 1996.................................... $22 1/2    $16
      Fourth Quarter of 1996................................... $23 3/8    $16
</TABLE>
 
  The Company currently intends to retain earnings to finance the growth of
its business and therefore does not intend to pay any cash dividends for the
foreseeable future. Payment of any cash dividends in the future will depend on
the Company's results of operations, financial condition, cash requirements
and other factors deemed relevant by the Board of Directors of the Company.
 
                                      11
<PAGE>
 
ITEM 6: SELECTED FINANCIAL DATA.
 
  The following table sets forth selected historical consolidated and combined
financial data of the Company. Statement of operations data for each of the
three years in the period ended December 31, 1996 and balance sheet data as of
December 31, 1995 and 1996 have been derived from the audited consolidated and
combined financial statements of the Company contained herein. Statement of
operations data for the year ended December 31, 1993 and balance sheet data as
of December 31, 1994 are derived from audited consolidated and combined
financial statements of the Company not contained herein. Statement of
operations data for the year ended December 31, 1992 and balance sheet data as
of December 31, 1992 and 1993 are derived from unaudited information. The
unaudited financial data includes all adjustments that the Company considers
necessary for a fair presentation of the consolidated and combined financial
position and consolidated and combined results of operations for the periods
reflected therein.
 
  The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Financial Statements and Supplementary Data" included
elsewhere in this Annual Report on Form 10-K.
 
<TABLE>
<CAPTION>
                                         YEAR ENDED DECEMBER 31,
                               -----------------------------------------------
                                 1992      1993    1994(1)  1995(1)     1996
                               --------  --------  -------- --------  --------
                                              (IN THOUSANDS)
<S>                            <C>       <C>       <C>      <C>       <C>
STATEMENT OF OPERATIONS DATA:
  Direct marketing sales...... $120,364  $127,683  $156,806 $189,713  $227,023
  Reference sales.............   33,317    36,032    38,665   47,474    54,422
                               --------  --------  -------- --------  --------
    Total net sales...........  153,681   163,715   195,471  237,187   281,445
  Database and production
   costs......................   86,184    95,016   108,806  134,361   155,708
  Amortization of goodwill....    6,054     6,054     6,608    7,446     7,572
  Selling expenses............   26,252    29,625    37,107   45,913    53,240
  General and administrative
   expenses...................   13,232    12,372    14,408   16,645    25,524
  Provisions for doubtful
   accounts...................    1,798     1,959     1,848    2,180     2,143
                               --------  --------  -------- --------  --------
    Earnings from operations..   20,161    18,689    26,694   30,642    37,258
  Interest expense--related
   party......................   21,337    22,112    18,999   21,329    10,178
  Interest expense............      --        --        --        80       776
  Other expense (income)--net.      (57)     (138)       24      (87)     (207)
                               --------  --------  -------- --------  --------
    Earnings (loss) before
     income taxes.............   (1,119)   (3,285)    7,671    9,320    26,511
  Income taxes................    2,034     1,181     5,684    6,585    12,649
                               --------  --------  -------- --------  --------
    Net income (loss) from
     operating before
     cumulative effect of
     accounting change........   (3,153)   (4,466)    1,987    2,735    13,862
  Cumulative after-tax effect
   of change in accounting for
   post retirement benefits
   other than pensions........      --      4,388       --       --        --
                               --------  --------  -------- --------  --------
    Net income (loss)......... $ (3,153) $ (8,854) $  1,987 $  2,735  $ 13,862
                               ========  ========  ======== ========  ========
BALANCE SHEET DATA (AT END OF
 PERIODS):
  Total assets................ $289,353  $293,691  $328,768 $378,721  $443,406
  Total debt..................  187,863   202,503   219,737  250,376    21,468
  Total shareholders' equity..   84,739    75,872    78,939   85,392   360,548
</TABLE>
--------
(1) In 1994, the Company purchased CIC for approximately $20.0 million. In
    1995, an affiliate of R. R. Donnelley acquired ICD for approximately $15.3
    million. See Notes 1 and 14 of Notes to Consolidated and Combined
    Financial Statements of Metromail.
 
                                      12
<PAGE>
 
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
 
RESULTS OF OPERATIONS
 
 Year ended December 31, 1996 compared to the year ended December 31, 1995
 
  Total net sales increased 18.7% to $281.4 million for 1996 from $237.2
million for 1995. This $44.2 million increase resulted from a $37.3 million,
or 19.7%, increase in direct marketing sales and a $6.9 million, or 14.6%,
increase in reference sales. Direct marketing sales growth was due to $17.7
million of additional sales of U.K. business due to growth, completion by ICD
of two surveys in 1996 compared to one in 1995 and the inclusion of a full
twelve months of sales of ICD (acquired in May 1995). Additional direct
marketing growth was due to increased database marketing sales of $7.0 million
due to strong demand for the AnalytiX and Explore database products, increased
lettershop volume of $3.7 million and more modest increases across the
traditional direct marketing services of list, list enhancement and U.S.
survey. Reference services sales growth was primarily due to a 28.7% increase
in the Company's MetroNet and NDA on-line services plus a 5.8% increase in
directory publishing services.
 
  Database and production costs increased from $134.4 million for 1995, or
56.7% as a percentage of total net sales, to $155.7 million, or 55.3% as a
percentage of total net sales, for 1996. This growth was due to increased
expenses of $4.9 million related to the second U.K. survey, start-up costs of
the NDA on-line services of $5.7 million, increased production costs to
support the higher sales volume for the lettershops, increased costs to
support the growth in marketing database services, increased U.S. survey
expenses, expenses related to the upgrade of computer capacity and increased
directory publishing costs. The decrease in the database and production costs
as a percentage of total net sales was due to improved efficiencies at ICD
(primarily the second survey, which has production costs as a percentage of
total net sales less than the Company's other operations) and increased sales
in the traditional direct marketing areas, which improved the coverage of
fixed costs. The decrease in database and production costs as a percentage of
total net sales was partially offset by increased costs related to the start
up of the NDA on-line services.
 
  Selling expense increased $7.3 million, or 16.0%, from 1995 and decreased as
a percentage of total net sales from 19.4% for 1995 to 18.9% for 1996. The
increase in the amount is due to the increase in sales and related selling
expenses across all operations and from ICD, where selling expenses as a
percentage of total net sales are higher than the Company's other operations.
 
  General and administrative expenses grew $8.9 million, or 53.3%, from 1995
and as a percentage of total net sales from 7.0% to 9.1% for 1996. The
increase resulted primarily from the acquisition and growth of ICD, and
increased staff costs associated with being a stand alone public company.
 
  Earnings from operations of $37.3 million for 1996 increased $6.7 million
from $30.6 million for 1995 due to the foregoing factors.
 
  Interest expense-related party decreased $11.1 million due to the use of the
IPO net proceeds to repay the amount owed to a subsidiary of R. R. Donnelley.
 
  Interest expense of $0.8 million resulted from borrowings under a credit
agreement with a syndicate of banks (See "Changes in Financial Condition")
required to pay related party debt for ICD and provide operating funds in the
U.K.
 
  The Company's tax expense in 1996 increased $6.1 million compared to 1995
due to the increase in earnings before income taxes. The effective tax rate
exceeds the U.S. federal statutory rate primarily due to the effect of non-
deductible goodwill amortization.
 
  Net income increased $11.2 million to $13.9 million for 1996 as a result of
the foregoing factors.
 
                                      13
<PAGE>
 
 Year ended December 31, 1995 compared to the year ended December 31, 1994
 
  Total net sales increased 21.3% to $237.2 million in 1995 from $195.5
million in 1994. This $41.7 million increase was comprised of a $32.9 million,
or 21.0%, increase in direct marketing sales and a $8.8 million, or 22.8%,
increase in reference sales. Direct marketing sales growth resulted primarily
from strong demand for list development and lettershop services and marketing
database software. List development sales increased $10.2 million due to
growth of 8.1% in sales to national list accounts, 12.7% in sales to small
business accounts and 51.9% in sales of the BehaviorBank list product.
Marketing database software sales grew $9.5 million reflecting a full year's
sales after the June 1994 acquisition of CIC along with volume growth of 35.8%
over comparable full year 1994 sales. Lettershop sales increased $4.2 million
due to increased sales efforts to utilize available capacity. Direct marketing
sales were also increased by $7.1 million due to the inclusion of ICD's sales
following the acquisition of ICD in May 1995. The increase in reference sales
reflects in large part the strong growth in on-line services, including the
NDA and MetroNet services.
 
  Database and production costs increased in 1995 to $134.4 million, or 56.7%
as a percentage of total net sales, from $108.8 million in 1994, or 55.7% as a
percentage of total net sales, primarily due to the start-up of the NDA
service, along with increased expenses to upgrade computers resulting in
increased capacity.
 
  Amortization of goodwill increased 12.7% to $7.4 million in 1995. This
increase reflected the inclusion of a full year of amortization of goodwill
resulting from the CIC acquisition and additional goodwill resulting from the
ICD acquisition.
 
  Selling expenses increased $8.8 million, or 23.7%, from 1994 and as a
percentage of total net sales to 19.4% in 1995 from 19.0% in 1994. The
increase in selling expenses was due to the inclusion of CIC for a full year
($3.1 million), the acquisition of ICD ($1.5 million) and growth in the on-
line services sales staff ($0.7 million), as well as increased commissions and
support costs across all businesses due to increased sales. The increase in
selling expenses as a percentage of total net sales resulted primarily from
the fact that selling expenses of CIC and ICD as a percentage of their total
net sales was higher than for the Company's other operations.
 
  General and administrative expenses grew $2.2 million, or 15.5%, from 1994,
but decreased as a percentage of total net sales from 7.4% to 7.0% in 1995.
The increase in these expenses resulted from the acquisition of ICD ($1.4
million), the settlement agreement with Aristotle Industries, Inc. regarding a
contract dispute ($0.7 million) and the inclusion of CIC for a full year ($0.6
million), as well as increased expenses across the Company's other operations.
 
  Provisions for doubtful accounts increased $0.3 million, or 18.0%, from
1994, but remained the same as a percentage of total net sales at 0.9%.
 
  Interest expense, primarily paid to a subsidiary of R. R. Donnelley,
increased by $2.3 million because the Company had higher average outstanding
debt levels in 1995. The higher debt levels were required to fund capital
expenditures, the ICD acquisition and increased working capital requirements
to support sales increases.
 
  The Company's effective income tax rate decreased to 70.7% in 1995 from
74.1% in 1994. The effective tax rate exceeds the U.S. federal statutory rate
due to the effect of nondeductible goodwill amortization and of state and
foreign taxes. The decrease in the effective tax rate in 1995 reflects the
increase in pretax income, which reduces the relative effect of the
nondeductible items.
 
  Net income increased $0.7 million, or 37.6%, to $2.7 million in 1995 as a
result of the foregoing factors.
 
CHANGES IN FINANCIAL CONDITION
 
  For 1996, operating cash flow (net income plus depreciation and
amortization) of $42.2 million increased $18.6 million from 1995. The Company
believes that cash flows from operations will be sufficient to fund its on-
going operations on a long-term basis, as well as continued growth and
investment. The Company expects the credit agreement described below to be
available for seasonal cash needs and acquisitions.
 
                                      14
<PAGE>
 
  Capital expenditures for 1996 totaled $37.6 million, an increase of $9.1
million over the prior year. The increase was due to funding for the second
U.K. survey, database redesign, data center expansion and various
administrative software packages required as a stand alone public company.
 
  The Company has entered into a credit agreement with a syndicate of banks (
the "Credit Agreement") under which it is entitled to borrow up to $45 million
on a revolving credit basis. Borrowings under the Credit Agreement mature in
2001 and bear interest (i) at the prime rate announced by the bank acting as
agent for the syndicate, (ii) at the LIBOR rate plus, depending on the
Company's leverage ratio and fixed charge coverage ratio, up to 42.5 basis
points per annum, or (iii) at a rate determined by competitive bidding. At
December 31, 1996 there was $21.5 million outstanding under the credit
agreement resulting from the repayment of related party debt for ICD and
borrowings to provide operating funds for the Company's U.K. operations.
 
  Under the terms of a stock repurchase program approved by the Board of
Directors in December 1996, the Company repurchased 125,100 shares of Common
Stock for $2.1 million in 1996.
 
OUTLOOK
 
  Historically, the Company's net sales build quarterly through the year, with
the majority of net sales being achieved in the second half of a given year.
In 1994, 1995 and 1996 total net sales of the Company during the second half
of the year constituted 56.3%, 55.3% and 56.0%, respectively, of the total net
sales for the year.
 
  Many of the Company's expenses are incurred ratably through the year and,
when combined with the quarterly revenue pattern discussed above, result
historically in fluctuations in earnings from operations for the year.
Earnings from operations are strongest in the second half of the year.
Earnings from operations in the second half of 1994, 1995 and 1996 constituted
70.4%, 55.6% and 72.0%, respectively, of total earnings from operations for
the year. Had the deferral of approximately $2.0 million of expenses from the
second quarter of 1995 to the third and fourth quarters of 1995 (resulting in
a $2.0 million negative impact on earnings from operations for the second half
of 1995) not taken place, the Company estimates that the percentage of
earnings for the second half of 1995 would have been approximately 62.1% of
the full year's earnings from operations.
 
  Management expects the historical patterns of larger second half portions of
the year's sales and operating earnings to occur again in 1997.
 
CAUTIONARY STATEMENTS REGARDING FUTURE-LOOKING STATEMENTS
 
  The Company's Annual Report to Stockholders and this Form 10-K, including
the "Outlook" section above, are among certain communications by the Company
that contain forward-looking statements, including statements regarding the
Company's financial position, results of operations, market position, product
development and regulatory matters. These forward-looking statements are based
on the Company's estimates, assumptions, projections and current expectations.
The Company hereby notes several important factors that could cause the
Company's actual results and other matters to differ materially from the
results, projections and expectations expressed in the forward-looking
statements.
 
  Regulation. Adoption of additional guidelines by the DMA or new guidelines
applicable to the Company's reference services and enactment of federal or
state laws or regulations affecting either the Company's direct marketing or
reference services could have the effect of materially increasing the cost to
the Company of collecting certain kinds of information, precluding the use by
direct marketers of information that the Company could lawfully collect or
otherwise materially adversely affecting the Company's business, operating
results or financial condition.
 
  Absence of Long-Term Contracts; Lack of Predictability of Sales;
Fluctuations in Operating Results. The Company's sales, particularly with
respect to its direct marketing products, are generally not derived from long-
term contracts. Therefore, the Company must continually engage in sales
efforts and must be prepared to adjust its pricing terms to meet competition.
The Company's net sales are affected by a number of seasonal
 
                                      15
<PAGE>
 
characteristics and other factors, including, with respect to the Company's
direct marketing services, the timing and extent of the direct marketing
activities of the Company's clients. These activities are influenced by
general factors, such as postal rates, paper prices and overall economic
conditions, and by factors specific to a client, such as the client's
advertising budget and choice of advertising media. The Company's net sales
can also be affected by the availability of new or updated data. Thus, if the
Company does not update its database as quickly as do its competitors, the
Company's net sales could be adversely affected. The potential
unpredictability of the Company's net sales can lead to fluctuations in
quarterly and annual operating results, especially because many expenses are
incurred by the Company ratably throughout the year. In addition, the expenses
associated with acquiring data, and the timing of acquisitions and the costs
and expenses associated therewith, might also affect operating results.
 
  Competition. The markets in which Metromail competes are highly competitive
and fragmented. Some of the Company's competitors have, and potential
competitors may have, materially greater financial, technical and marketing
resources than the Company that may allow them to compete effectively with the
Company in respect of some or all of its direct marketing and reference
services.
 
  Technological Changes and Software Development. The Company's future success
is dependent on its ability to keep pace with technological improvements,
including as they affect the Company's ability to input collected information
into its database and produce the information desired by its clients and the
costs of doing so. In addition, the Company's future success in respect of its
marketing database software will depend upon its ability to enhance its
current products and to develop and introduce new products and services on a
timely basis that keep pace with technological developments and address the
increasingly sophisticated needs of its clients. If the Company is unable to
keep pace with technological improvements or is unable, for technological or
other reasons, to develop and introduce new products or enhancements of
existing products in a timely and cost-effective manner in response to
changing market conditions or customer requirements, the Company's business,
operating results or financial condition could be materially adversely
affected.
 
  Litigation. The Company cannot predict the effects, if any, that the
litigation discussed under "Legal Proceedings" may have on its business,
operating results or financial condition, although such litigation could have
an adverse effect on the Company (including through adverse publicity) if the
Company were not to be successful in its defense or if the Company's insurer
were to deny coverage.
 
  Risk of Loss of Data Centers or Interruption of Telecommunications Services.
The Company's operations are dependent on its ability to protect its data
centers in Lombard, Illinois and Lincoln, Nebraska against damage from fire,
power loss, telecommunications failure or similar event. In addition, the on-
line services provided by the Company are dependent on telecommunications
links to the regional Bell operating companies. The Company has taken
precautions to protect its data centers and telecommunications links from
events that could interrupt its operations. Any damage to the Company's data
centers or any failure of the Company's telecommunication links that causes
interruptions in the Company's operations could have a material adverse effect
on the Company's business, operating results or financial condition.
 
  Growth Through Acquisitions and New Products. The Company's business
strategy includes growth through acquisitions of proprietary information and
of distribution channels and businesses complementary to the Company's
business. The Company has made a number of acquisitions in the past and
believes that it has been successful in integrating the acquired assets and
businesses into the Company's operations. There can be no assurance, however,
that future acquisitions will be consummated on acceptable terms or that any
acquired assets or business will be successfully integrated into the Company's
operations. The Company's business strategy also includes growth through the
introduction of new products or services that leverage the information
contained in the Company's database. There can be no assurance that new
products or services introduced by the Company will achieve acceptance.
 
  Reference is also made to the Company's Registration Statement (No. 333-
2042) under "Risk Factors" for a more detailed discussion of the foregoing and
other factors that may affect the Company.
 
                                      16
<PAGE>
 
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Shareholders of Metromail
 Corporation and Affiliates:
 
  We have audited the accompanying consolidated and combined balance sheets of
Metromail Corporation and Affiliates as of December 31, 1996 and 1995, and the
related consolidated and combined statements of operations, changes in
shareholders' equity and cash flows for each of the three years ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial position of Metromail Corporation and
Affiliates as of December 31, 1996 and 1995 and the results of its operations
and cash flows for each of the three years ended December 31, 1996, in
conformity with generally accepted accounting principles.
 
                                          Arthur Andersen LLP
 
Chicago, Illinois
January 21, 1997
 
                                      17
<PAGE>
 
                      METROMAIL CORPORATION AND AFFILIATES
 
                    CONSOLIDATED AND COMBINED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT SHARE INFORMATION)
 
<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ------------------
                          ASSETS                               1996      1995
                          ------                             --------  --------
<S>                                                          <C>       <C>
Cash and equivalents.......................................  $ 18,530  $    --
Receivables, less sales allowances and allowances for
 doubtful accounts of $4,461 in 1996 and $3,965 in 1995....    99,219    68,438
Inventories................................................     6,722     5,658
Prepaid expenses...........................................     8,552     7,449
Current deferred income taxes..............................       793       625
                                                             --------  --------
    Total current assets...................................   133,816    82,170
Net property, plant and equipment, at cost, less
 accumulated depreciation of $50,701 in 1996 and $43,392 in
 1995......................................................    45,313    37,545
Goodwill and other intangibles, net of accumulated
 amortization of $86,372 in 1996 and $66,614 in 1995.......   255,799   252,526
Deferred income taxes......................................       --        149
Other assets...............................................     8,478     6,331
                                                             --------  --------
    Total assets...........................................  $443,406  $378,721
                                                             ========  ========
<CAPTION>
           LIABILITIES AND SHAREHOLDERS' EQUITY
           ------------------------------------
<S>                                                          <C>       <C>
Accounts payable...........................................  $  6,608  $  5,742
Accrued compensation.......................................     8,540     6,073
Short-term debt............................................       --      1,884
Short-term debt and advances--due to related party.........       --    248,492
Deferred revenue...........................................     9,050     6,721
Other accrued liabilities..................................    28,560    19,206
                                                             --------  --------
    Total current liabilities..............................    52,758   288,118
Long-term debt.............................................    21,468       --
Deferred income taxes......................................     1,591       --
Other noncurrent liabilities...............................     7,041     5,211
                                                             --------  --------
    Total noncurrent liabilities...........................    30,100     5,211
Shareholders' equity:
  Common stock, $.01 par value, authorized 75,000,000
   shares; issued 22,437,000 and 8,600,000 shares in 1996
   and 1995, respectively. Preferred stock, $.01 par value,
   authorized 20,000,000 shares; no shares issued in 1996
   and 1995 ...............................................       224        86
  Additional paid-in capital...............................   374,832   111,779
  Retained deficit (includes cumulative adjustment for
   currency translation of $3 in 1996 and ($237) in 1995)..   (12,362)  (26,473)
  Treasury stock, at cost, 125,100 shares in 1996..........    (2,146)      --
                                                             --------  --------
    Total shareholders' equity.............................   360,548    85,392
                                                             --------  --------
    Total liabilities and shareholders' equity.............  $443,406  $378,721
                                                             ========  ========
</TABLE>
 
   See accompanying Notes to Consolidated and Combined Financial Statements.
 
                                       18
<PAGE>
 
                      METROMAIL CORPORATION AND AFFILIATES
 
               CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                                   ----------------------------
                                                     1996      1995      1994
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
Direct marketing sales............................ $227,023  $189,713  $156,806
Reference sales...................................   54,422    47,474    38,665
                                                   --------  --------  --------
  Total net sales.................................  281,445   237,187   195,471
Database and production costs.....................  155,708   134,361   108,806
Amortization of goodwill..........................    7,572     7,446     6,608
Selling expenses..................................   53,240    45,913    37,107
General and administrative expenses...............   25,524    16,645    14,408
Provisions for doubtful accounts..................    2,143     2,180     1,848
                                                   --------  --------  --------
  Earnings from operations........................   37,258    30,642    26,694
Interest expense--related party...................   10,178    21,329    18,999
Interest expense..................................      776        80       --
Other expense (income)--net.......................     (207)      (87)       24
                                                   --------  --------  --------
  Earnings before income taxes....................   26,511     9,320     7,671
Income taxes......................................   12,649     6,585     5,684
                                                   --------  --------  --------
    Net income.................................... $ 13,862  $  2,735  $  1,987
                                                   ========  ========  ========
    Net income per share (Note 2)................. $    .62  $    .12  $    .09
                                                   ========  ========  ========
    Weighted average number of shares of common
     stock and common stock equivalents
     outstanding..................................   22,427    22,427    22,427
                                                   ========  ========  ========
</TABLE>
 
 
 
   See accompanying Notes to Consolidated and Combined Financial Statements.
 
                                       19
<PAGE>
 
                      METROMAIL CORPORATION AND AFFILIATES
 
    CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                              ADDITIONAL               TOTAL
                             COMMON TREASURY   PAID-IN   RETAINED  SHAREHOLDERS'
                             STOCK   STOCK     CAPITAL   DEFICIT      EQUITY
                             ------ --------  ---------- --------  -------------
<S>                          <C>    <C>       <C>        <C>       <C>
Balance at December 31,
1993........................  $ 86  $   --     $107,844  $(30,958)   $ 76,972
  Current year earnings.....   --       --          --      1,987       1,987
                              ----  -------    --------  --------    --------
Balance at December 31,
 1994.......................    86      --      107,844   (28,971)     78,959
  Current year earnings.....   --       --          --      2,735       2,735
  Currency translation......   --       --          --       (237)       (237)
  ICD stock acquired........   --       --        3,935       --        3,935
                              ----  -------    --------  --------    --------
Balance at December 31,
 1995.......................    86      --      111,779   (26,473)     85,392
  Current year earnings.....   --       --          --     13,862      13,862
  Currency translation......   --       --          --        249         249
  Common stock issued in
   IPO......................   138      --      263,053       --      263,191
  Treasury stock acquired...   --    (2,146)        --        --       (2,146)
                              ----  -------    --------  --------    --------
Balance at December 31,
 1996.......................  $224  $(2,146)   $374,832  $(12,362)   $360,548
                              ====  =======    ========  ========    ========
</TABLE>
 
 
 
 
   See accompanying Notes to Consolidated and Combined Financial Statements.
 
                                       20
<PAGE>
 
                      METROMAIL CORPORATION AND AFFILIATES
 
               CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                                  ----------------------------
                                                    1996      1995      1994
                                                  --------  --------  --------
<S>                                               <C>       <C>       <C>
Cash flows provided by (used in) operating
 activities:
  Net income from operations..................... $ 13,862  $  2,735  $  1,987
  Depreciation and amortization of intangibles...   20,810    13,405     8,174
  Amortization of goodwill.......................    7,572     7,446     6,607
  Other--net.....................................      249      (236)      121
  Net change in assets and liabilities...........  (18,511)  (13,651)   (8,685)
                                                  --------  --------  --------
    Net cash provided by operating activities....   23,982     9,699     8,204
Cash flows used for investing activities:
  Capital expenditures...........................  (37,589)  (28,459)   (9,940)
  Other investments including acquisitions, net
   of cash.......................................      --    (15,330)  (19,987)
                                                  --------  --------  --------
    Net cash used for investing activities.......  (37,589)  (43,789)  (29,927)
Cash flows provided by (used for) financing
 activities:
  Borrowings and advances from related parties...  131,592   325,381   253,396
  Repayments of borrowings and advances from
   related party................................. (380,084) (296,526) (231,673)
  Increase in borrowings.........................   19,584     1,300       --
  Change in capital stock........................      138       --        --
  Proceeds from initial public offering..........  263,053       --        --
  Purchase of treasury stock.....................   (2,146)      --        --
  Capital contribution from R. R. Donnelley......      --      3,935       --
                                                  --------  --------  --------
    Net cash provided by financing activities....   32,137    34,090    21,723
Net increase in cash and equivalents.............   18,530       --        --
  Cash and equivalents at beginning of year......      --        --        --
                                                  --------  --------  --------
  Cash and equivalents at end of year............ $ 18,530  $    --   $    --
                                                  ========  ========  ========
 
  The changes in assets and liabilities, net of balances assumed through
acquisitions, were as follows:
 
Decrease (increase) in assets:
  Receivables--net............................... $(30,781) $ (8,470) $(12,418)
  Inventories--net...............................   (1,064)   (1,244)     (829)
  Prepaid expenses...............................   (1,103)   (4,545)      432
  Current deferred income taxes..................     (168)      560      (486)
  Deferred income taxes..........................      149      (149)      --
  Other assets...................................   (2,147)   (3,106)   (1,602)
Increase (decrease) in liabilities:
  Accounts payable...............................      866    (1,954)      246
  Accrued compensation...........................    2,467       151     2,299
  Deferred revenue...............................    2,329     1,157     2,924
  Other accrued liabilities......................    8,859     4,873    (2,034)
  Deferred income taxes..........................      252    (1,121)       28
  Other noncurrent liabilities...................    1,830       197     2,755
                                                  --------  --------  --------
    Net change in assets and liabilities......... $(18,511) $(13,651) $ (8,685)
                                                  ========  ========  ========
</TABLE>
 
   See accompanying Notes to Consolidated and Combined Financial Statements.
 
                                       21
<PAGE>
 
                     METROMAIL CORPORATION AND AFFILIATES
 
            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
 
1. ORGANIZATION AND NATURE OF OPERATIONS
 
  Metromail Corporation ("Metromail" or the "Company") is a leading provider
of marketing-oriented consumer information and reference services which it
supplies to a wide variety of organizations engaged in direct mail, telephone
and target marketing, as well as to clients who need specific reference and
information services. The Company operates entirely within the information
services industry segment. Within this segment, the Company offers two general
categories of products and services: direct marketing services and reference
services.
 
  Metromail was a wholly owned subsidiary of R. R. Donnelley & Sons Company
("R. R. Donnelley") until June 19, 1996 when the Company completed an initial
public offering of 13.8 million shares of its common stock (the "IPO"),
reducing R. R. Donnelley's ownership in the Company to 38.4%. Metromail had
been acquired by R. R. Donnelley in 1987 in a business combination accounted
for as a purchase. On the date of acquisition, the financial position of
Metromail was adjusted to the fair value of the assets acquired and
liabilities assumed by R. R. Donnelley. All adjustments to Metromail's
financial position by R. R. Donnelley at the date of acquisition have been
pushed down to Metromail's financial statements.
 
  The accompanying consolidated and combined financial statements include the
accounts of Metromail and subsidiaries, as well as International Communication
& Data Plc ("ICD") and Data by Design ("DBD"), which were affiliates of
Metromail in 1995. ICD was an affiliate of Metromail and an indirect wholly
owned subsidiary of R. R. Donnelley located in the United Kingdom. DBD was a
division of a wholly owned subsidiary of R. R. Donnelley located in the United
Kingdom, which was acquired by R. R. Donnelley in August 1994. ICD was
contributed to Metromail by R. R. Donnelley in February 1996. Subsequent to
this contribution, ICD purchased all of the assets of DBD. The accompanying
financial statements have been restated to reflect the combination of entities
under common control by R. R. Donnelley at December 31, 1995. ICD and DBD are
included in the results of operations of the accompanying consolidated and
combined financial statements from the date of original acquisition by R. R.
Donnelley in May 1995 and August 1994, respectively. Metromail, its wholly
owned subsidiaries, ICD and DBD are collectively referred to hereinafter as
the "Company".
 
2. SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of Consolidation and Combination
 
  The consolidated and combined financial statements include all accounts of
the Company. All material intercompany balances and transactions are
eliminated in consolidation and combination.
 
 Revenue Recognition and Deferred Revenues
 
  The Company recognizes revenues for direct marketing services at the time
the services are provided. Revenues for reference services are recognized at
the time the service is provided or the product is delivered. The Company's
proprietary database software is generally licensed for an initial term of
three years. The license provides for an initial license fee, subsequent
annual license and maintenance fees and customer support service fees. Initial
license fee revenues are recognized when delivery of the software has
occurred, collectibility is probable and the Company retains no significant
obligations under the licensing agreements. Revenues from customer support
services are recognized in the period in which the support services are
performed by the Company. Annual license and maintenance fees are recognized
over the balance of the contract in accordance with specific contract terms.
 
  The Company provides sales allowances for sales credits issued to clients in
the normal course of business. The allowances are recorded as reductions of
sales and are included in net sales in the accompanying statement of
operations. The reductions included in net sales were $3.6 million, $5.1
million and $5.0 million for the years ended 1994, 1995 and 1996,
respectively.
 
                                      22
<PAGE>
 
                     METROMAIL CORPORATION AND AFFILIATES
 
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Per Share Information
 
  Net income per share for the years ended December 31, 1996, 1995 and 1994
has been computed using the weighted average number of common stock and common
stock equivalents outstanding for the year ended December 31, 1996 which
reflects the shares issued by the Company upon completion of the IPO as if
they were outstanding for all years presented.
 
 Inventories
 
  Inventories include materials, labor and production overhead and are carried
at weighted average cost.
 
 Foreign Currency Translation
 
  The financial statements of ICD are translated into U.S. dollars using
exchange rates in effect at the end of the period for assets and liabilities
and average exchange rates for results of operations during the period of
inclusion in the Company's financial statements. Gains and losses arising from
translation are included in shareholders' equity and are not included in
results of operations.
 
 Property, Plant and Equipment--Capitalization and Depreciation
 
  Property, plant and equipment are stated at cost. Depreciation is computed
using the straight-line method based on useful lives of up to 30 years for
buildings and 3 to 10 years for machinery, equipment and computer hardware.
Maintenance and repair costs are charged to expense as incurred. When
properties are retired or disposed, the costs and related depreciation
reserves are eliminated and the resulting profit or loss is recognized in
income.
 
 Intangible Assets--Capitalization and Amortization
 
  Intangible assets primarily consist of the cost of databases and data,
internal software, software development and goodwill.
 
  Goodwill primarily consists of the excess of purchase price over the fair
market value of net assets acquired by R. R. Donnelley as a result of its
acquisition of Metromail in 1987. Goodwill also includes the excess of
purchase price over the fair market value of net assets for businesses the
Company has acquired and accounted for as a purchase. These costs are
amortized over their estimated useful lives of primarily 40 years.
 
  Costs incurred for routine maintenance and updating of databases are
expensed as incurred. However, the Company does capitalize the costs incurred
to acquire databases, significantly enhance existing databases, acquire lists
and acquire data through Company-generated surveys. Such databases and data
enhancements are stated at cost and are amortized over their estimated useful
life of three years.
 
  Internal software represents costs incurred to purchase externally developed
software, external consulting costs and direct internal costs incurred in the
development of various production and administrative applications. Intangible
assets as of December 31, 1996 included $9.7 million related to a major
redesign of the file structure of the Company's database. This new database
structure supports the delivery of the Company's information service
offerings. The costs related to this redesign will be amortized over its
expected period of benefit of five years. All other internal software is
amortized over three years.
 
  Software development costs represent costs incurred to develop database
software which is licensed to clients. The Company capitalizes software
development costs when the technological feasibility of the product has been
assured, through the time at which the product is available for licensing to
its clients, in accordance with Statement of Financial Accounting Standards
No. 86. These costs are amortized over their estimated useful life of three
years. All development costs incurred prior to achieving technological
feasibility are expensed as incurred.
 
                                      23
<PAGE>
 
                     METROMAIL CORPORATION AND AFFILIATES
 
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Impairment of Long-lived Assets
 
  The Company periodically assesses whether events or circumstances have
occurred that may indicate the carrying value of its long-lived assets may not
be recoverable. When such events or circumstances indicate the carrying value
of an asset may be impaired, the Company uses an estimate of the future
undiscounted cash flows to be derived from the asset over the remaining useful
life of the asset to assess whether or not the asset is recoverable. If the
future undiscounted cash flows to be derived over the life of the asset do not
exceed the asset's net book value, the Company recognizes an impairment loss
for the amount by which the net book value of the asset exceeds its estimated
fair market value. The Company has not recognized any material impairment
losses for the years ended December 31, 1994, 1995 and 1996. Management does
not believe any material impairment of long-lived assets exists as of December
31, 1996.
 
 Income Taxes
 
  Metromail and its wholly owned subsidiaries have been included in the
consolidated federal income tax return of R. R. Donnelley through June 19,
1996 (the date of completion of the IPO). DBD and ICD have historically been
included in the consolidated tax return of R. R. Donnelley's wholly owned
United Kingdom subsidiaries. The consolidated and combined tax provision is
presented as if the Company filed separate tax returns. Deferred taxes are
provided when tax laws and financial accounting standards differ with respect
to the amount of income calculated in a given year and the bases of assets and
liabilities, in accordance with Statement of Financial Accounting Standards
No. 109. Prior to completion of the IPO, income taxes were paid by R. R.
Donnelley on behalf of Metromail.
 
 Use of Estimates and Assumptions
 
  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, liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
3. TRANSACTIONS WITH R. R. DONNELLEY & SONS COMPANY
 
  Related party transactions with R. R. Donnelley not disclosed elsewhere in
the financial statements are as follows:
 
 Employee Benefit Programs
 
  Prior to completion of the IPO, the Company participated in various employee
benefit programs which were sponsored by R. R. Donnelley. These programs
included medical, dental and life insurance and workers' compensation. The
Company reimbursed R. R. Donnelley for its proportionate cost of these
programs based on historical experience and relative headcount. The costs
reimbursed to R. R. Donnelley included costs for reported claims as well as
incurred but not reported claims. The Company recorded expense related to the
reimbursement of these costs of approximately $7.3 million, $8.8 million and
$5.5 million in the years ended December 31, 1994 and 1995 and the period from
January 1, 1996 through the completion of the IPO, respectively. These costs
are charged to database and production costs, selling expense and general and
administrative expense based on the number of employees in each of these
categories. The Company believes its allocation of the proportionate cost is
reasonable and, in all material respects, approximates what would have been
incurred had the Company operated on a stand-alone basis prior to completion
of the IPO. Except as discussed below, R. R. Donnelley is liable for all
payments under these programs and, thus, no liability for these benefits has
been reflected on the accompanying balance sheet in respect of periods ended
prior to completion of the IPO.
 
                                      24
<PAGE>
 
                     METROMAIL CORPORATION AND AFFILIATES
 
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  At the completion of the IPO, the Company and R. R. Donnelley entered into a
Benefit Administration Services Agreement. This agreement, among other things,
permitted the Company to continue to participate in the welfare plans of R. R.
Donnelley until the Company established its own welfare plans, which it did on
July 1, 1996. The Benefit Administration Services Agreement also required the
Company to reimburse R. R. Donnelley for (1) the actual cost of benefits
provided under R. R. Donnelley's employee benefit plans for Company employees
during the period in which the Company continued to participate in such plans
following completion of the IPO and (2) the Company's pro rata share of
administration and plan asset management expenses incurred in the operation of
these plans during such period. The costs incurred by the Company under this
agreement in respect of the Company's participation in R. R. Donnelley's
employee benefit plans for the period from completion of the IPO through
December 31, 1996 were $1.3 million.
 
 Post-Retirement Medical and Life Insurance Benefits
 
  Prior to completion of the IPO, the Company also participated in a post-
retirement benefit program sponsored by R. R. Donnelley, which provides
certain post-retirement medical and life insurance benefits. Prior to
completion of the IPO, the Company reimbursed R. R. Donnelley for its
proportionate cost of these programs based on an actuarial estimation of the
proportionate costs attributable to all of the Company's employees. The
Company recorded expense related to the reimbursement of these costs of
approximately $2.1 million, $1.8 million and $1.2 million in the years ended
December 31, 1994, 1995 and 1996, respectively. Under the Benefit
Administration Services Agreement, the Company assumed the liability to
provide retiree medical and life insurance benefits with respect to active
employees who had not yet satisfied the age and service eligibility
requirements to receive such benefits as of the completion of the IPO and R.
R. Donnelley retained the liability to provide retiree benefits to all active
and terminated employees who had met the age and service requirements for
eligibility as of the completion of the IPO. The liability related to the
portion of post-retirement benefits which will be paid by the Company has been
reflected in other noncurrent liabilities in the accompanying financial
statements in the amounts of $4.8 million and $6.0 million as of December 31,
1995 and 1996, respectively. The liability related to the portion of post-
retirement liability retained by R. R. Donnelley, net of associated deferred
taxes receivable from R. R. Donnelley, has been reflected in other noncurrent
liabilities in the accompanying financial statements.
 
 Corporate Services
 
  Prior to completion of the IPO, R. R. Donnelley provided certain support
services to the Company, including legal, tax, treasury, benefits
administration, real estate, audit and corporate development services. These
charges were allocated by R. R. Donnelley to the Company based on various
formulas which reasonably approximate the actual costs incurred. The expenses
recorded by the Company for these allocations were approximately $1.4 million,
$1.8 million and $1.3 million for the years ended December 31, 1994 and 1995
and the period from January 1, 1996 through the completion of the IPO,
respectively, and are included in general and administrative expenses in the
accompanying income statements. The amounts allocated by R. R. Donnelley are
not necessarily indicative of the actual costs which may have been incurred
had the Company operated as an entity unaffiliated with R. R. Donnelley during
the periods prior to completion of the IPO. However, the Company believes that
such allocation was reasonable and in accordance with the Securities and
Exchange Commission's Staff Accounting Bulletin No. 55.
 
  At the completion of the IPO, the Company and R. R. Donnelley entered into a
Transition Services Agreement, pursuant to which R. R. Donnelley or its
affiliates agreed to perform certain legal, environmental, real estate, risk
management and tax services for the Company, and the Company agreed to furnish
R. R. Donnelley certain financial information. The costs incurred by the
Company under this agreement for the period from completion of the IPO through
December 31, 1996 were $0.2 million.
 
 
                                      25
<PAGE>
 
                     METROMAIL CORPORATION AND AFFILIATES
 
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 Metromail Computer Processing Services
 
  Prior to completion of the IPO, the Company provided computer processing
services to R. R. Donnelley for most of the corporate software applications
used by R. R. Donnelley. The Company charged R. R. Donnelley the estimated
cost of providing these services. These costs include hardware, software and
labor costs associated with running the various application programs used by
R. R. Donnelley. The costs reimbursed by R. R. Donnelley were approximately
$3.1 million, $3.5 million and $1.8 million for the years ended December 31,
1994 and 1995 and the period from January 1, 1996 through the completion of
the IPO, respectively. These amounts have been recorded as reductions of
database and production costs in the accompanying income statement. The
Company believes these reimbursed costs reasonably approximate the actual
costs incurred by the Company.
 
  At the completion of the IPO, the Company entered into a Data Center
Services Agreement with R. R. Donnelley. Under the Data Center Services
Agreement, the Company provides to R. R. Donnelley general computer and data
processing services, including mainframe processing and technical software
systems support and data processing for R. R. Donnelley's internal business
purposes. The Data Center Services Agreement will be in effect for the period
commencing on the closing of the IPO and ending on December 31, 1998. After
December 31, 1998, the Data Center Services Agreement will automatically renew
unless terminated by either party upon six months notice. R. R. Donnelley pays
the Company an annualized fee of $4.3 million for the Company's services under
the agreement during the period ending on December 31, 1996 and, thereafter,
the yearly fee will be adjusted according to changes in R. R. Donnelley's
service needs and increased by an amount equal to the average published
consumer price index increase for the preceding 12 months, measured at
September 30 of each year, provided that such increases shall not exceed six
percent per year. The fees paid by R. R. Donnelley under the agreement for the
period from completion of the IPO through December 31, 1996 were $2.3 million.
 
 Sales through R. R. Donnelley
 
  The Company sold products and services to clients who were also clients of
R. R. Donnelley. For some of these sales, the Company's clients were billed by
R. R. Donnelley. R. R. Donnelley then allocated to the Company that portion of
the revenue attributable to the Company's performed services, as agreed upon
by the Company and its client. Sales approximated $20.9 million, $22.7 million
and $21.8 million for the years ended December 31, 1994, 1995 and 1996,
respectively. The receivables from the Company's clients related to sales
prior to the completion of the IPO are excluded from the Company's balance
sheets as R. R. Donnelley retained risk of loss with collection. The
receivables from R. R. Donnelley related to these sales were included in
short-term debt and advances due to related party discussed in Note 11.
 
  At the completion of the Offering, the Company and R. R. Donnelley entered
into a Sales Agreement. Pursuant to the Sales Agreement, if R. R. Donnelley
successfully sells the services of the Company to a customer, R. R. Donnelley
will, following performance of the services, invoice and seek to collect the
amounts owed from such customer for the services provided by the Company. Upon
collection of such amounts from the customer, R. R. Donnelley will pay over
the collected amount less two percent. Under this agreement, revenue
attributable to the Company's performed services are recognized at the
completion of the Company's services. The Company retains the risk of loss
related to these sales and $4.9 million of sales are included in receivables
at December 31, 1996.
 
 Stock Purchase Plan
 
  Prior to completion of the IPO, the Company participated in a stock purchase
plan for selected managers and key staff employees which was sponsored by R.
R. Donnelley. Under the plan, the Company contributed an amount equal to 70%
of participants' contributions, of which 50% was applied to the purchase of R.
R.
 
                                      26
<PAGE>
 
                     METROMAIL CORPORATION AND AFFILIATES
 
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
Donnelley Common Stock and 20% was paid in cash. Amounts charged to expense by
the Company for this plan were $0.6 million and $0.3 million for the years
ended December 31, 1994 and 1995, respectively. The Company did not
participate in this plan in 1996. Accordingly, no amounts were charged to
expense by the Company for this plan for the year ended December 31, 1996.
Pursuant to the Benefit Administration Services Agreement between R. R.
Donnelley and the Company, the Company ceased being a participant in the R. R.
Donnelley stock purchase plan at completion of the IPO.
 
 Tax Allocation and Indemnification Agreement
 
  Prior to completion of the IPO, the Company was included in the consolidated
federal income tax return of R. R. Donnelley and filed on a combined basis
with R. R. Donnelley in certain states. Thus, rather than paying income taxes
directly in these jurisdictions, the Company made tax sharing payments to R.
R. Donnelley pursuant to R. R. Donnelley's tax allocation policy. In general,
R. R. Donnelley's tax allocation policy provided that the consolidated or
combined tax liability was allocated among the entities in the consolidated or
combined group based principally upon taxable income, credits, preferences and
other amounts directly related to each entity. As a result of completion of
the IPO, the Company is no longer permitted to be included in such
consolidated and combined tax returns. Instead, it files its own federal,
state and local income tax returns and pay its own taxes on a separate company
basis. Pursuant to a Tax Allocation and Indemnification Agreement entered into
by the Company and R. R. Donnelley at the completion of the IPO, the Company
remained obligated to pay to R. R. Donnelley any income taxes shown on R. R.
Donnelley's consolidated and combined tax returns, generally to the extent
attributable to the Company, for calendar year 1995 and for the tax period
(the "Interim Period") beginning on January 1, 1996 and ending on the date of
the consummation of the IPO (to the extent that it has not previously paid
such amounts to R. R. Donnelley). In addition, if the income tax liability
shown on any such consolidated or combined tax return for the Interim Period
and attributable to the Company is adjusted as a result of an action of a
taxing authority or a court, then the Company will pay to R. R. Donnelley the
full amount of any increase in such tax liability (together with any
applicable interest and penalties). Under federal regulations, the Company
will be subject to several liability for the consolidated federal income taxes
for any tax year (including the Interim Period) in which it was a member of
the R. R. Donnelley federal consolidated group (whether or not such taxes are
attributable to the Company). R. R. Donnelley has agreed to indemnify the
Company against such liability and any similar liability under state and local
law. R. R. Donnelley has also agreed to indemnify the Company against any
increase in the Company's income taxes (whether or not related to taxes paid
on a consolidated or combined basis) for periods prior to January 1, 1996 that
results from an action of a taxing authority or a court (except to the extent
such increase provides tax benefits to the Company for periods beginning on or
after January 1, 1996, in which case the sum of such tax benefits will be
retained by R. R. Donnelley or paid by the Company to R. R. Donnelley).
 
 Impact of Operating as a Stand Alone Entity
 
  The accompanying financial statements reflect all of the Company's costs of
doing business, including all expenses incurred by R. R. Donnelley on the
Company's behalf in accordance with SEC Staff Accounting Bulletin No. 55.
However, the Company estimates that prior to completion of the IPO it would
have incurred increased expenses for additional senior management and
administrative support functions associated with being a stand alone public
entity. In addition, the Company estimates that it would have incurred
additional sales commission expense of approximately $0.5 million for the year
ended December 31, 1995 payable to R. R. Donnelley related to sales to clients
of the Company who are also clients of R. R. Donnelley. These expenses would
have been offset partially by reduced database and production costs as a
result of increased charges for computer services to be provided by the
Company to R. R. Donnelley. The estimated pro forma impact of all of the above
adjustments would have reduced pretax income by approximately $1.6 million for
the year ended December 31, 1995.
 
                                      27
<PAGE>
 
                     METROMAIL CORPORATION AND AFFILIATES
 
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
4. INVENTORIES
 
  The components of the Company's inventories were as follows:
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                   -------------
                                                                    1996   1995
                                                                   ------ ------
                                                                        (IN
                                                                    THOUSANDS)
      <S>                                                          <C>    <C>
      Raw materials............................................... $2,662 $2,119
      Work in process.............................................  4,060  3,539
                                                                   ------ ------
        Total..................................................... $6,722 $5,658
                                                                   ====== ======
</TABLE>
 
  Raw material inventories consist mainly of paper and other materials used in
the manufacturing of directories. Work in process inventories consist of costs
associated with jobs not completed for list, list enhancement, lettershop and
directories in process.
 
5. PROPERTY AND EQUIPMENT
 
  Property and equipment consisted of the following:
 
<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ------------------
                                                               1996      1995
                                                             --------  --------
                                                              (IN THOUSANDS)
      <S>                                                    <C>       <C>
      Land.................................................. $  1,439  $  1,439
      Buildings and improvements............................   30,328    27,208
      Machinery, equipment and computer hardware............   64,247    52,290
                                                             --------  --------
        Total property and equipment........................   96,014    80,937
      Accumulated depreciation..............................  (50,701)  (43,392)
                                                             --------  --------
        Net property and equipment.......................... $ 45,313  $ 37,545
                                                             ========  ========
</TABLE>
 
  Depreciation expense included in the Consolidated and Combined Statements of
Operations was $5.2 million, $6.5 million and $8.6 million for the years ended
December 31, 1994, 1995 and 1996, respectively.
 
6. INTANGIBLE ASSETS
 
  Intangible assets consisted of the following:
 
<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ------------------
                                                               1996      1995
                                                             --------  --------
                                                              (IN THOUSANDS)
      <S>                                                    <C>       <C>
      Databases and software development costs.............. $ 65,410  $ 44,811
      Goodwill..............................................  276,761   274,329
                                                             --------  --------
        Total intangibles...................................  342,171   319,140
      Accumulated amortization..............................  (86,372)  (66,614)
                                                             --------  --------
        Total intangibles, net.............................. $255,799  $252,526
                                                             ========  ========
</TABLE>
 
  Amortization expense included in the Consolidated and Combined Statements of
Operations was $9.6 million, $14.4 million and $19.8 million for the years
ended December 31, 1994, 1995 and 1996, respectively.
 
                                      28
<PAGE>
 
                     METROMAIL CORPORATION AND AFFILIATES
 
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
7. OTHER ASSETS
 
  Other assets include investment tax credits recorded in connection with an
investment and employment agreement between the Company and the state of
Nebraska. The credits recorded in other assets are approximately $4.0 million
and $4.9 million as of December 31, 1995 and 1996, respectively. Under the
terms of the agreement, the Company must maintain certain investments in plant
and equipment and the number of personnel in the state over a defined period
of time.
 
  The Company records the income derived from this agreement in the period in
which the required wage and capital expenditures are made. The investment
credits will be realized through reductions of sales, use and other state
taxes in future periods. Approximately $3.1 million of these tax credits
expire in the year 2003 and $1.8 million expire in the year 2010. The benefits
associated with these credits are recorded in earnings from operations in the
amount of approximately $1.0 million for each of the years ended December 31,
1994, 1995 and 1996. The credits are classified in database and production
costs, selling expense and general and administrative expense based on a
proration of the amount of wage and capital expenditures applicable to each of
the respective areas.
 
8. PENSION PLAN AND POST-RETIREMENT BENEFITS
 
  The Company's pension plan (the "Plan") is a defined benefit pension plan
sponsored by the Company for its employees. All contributions to the Plan are
made by the Company. Employees are considered eligible when they reach 21
years of age. The Plan provides a normal retirement benefit equal to the sum
of the following:
 
  .The benefit accrued as of December 31, 1990;
 
  . 1.5% of covered earnings for each year of benefit services earned after
    December 31, 1990, up to a maximum of 38 total years of benefit service
    (including years of benefit service earned prior to 1991);
 
  . 0.5% of covered earnings in excess of covered compensation for each year
    of benefit services earned after December 31, 1990, up to a maximum of 38
    total years of benefit service (including years of benefit service earned
    prior to 1991); and
 
  .2.0% of covered earnings for each year of benefit service in excess of 38
     years.
 
  Participants are 100 percent vested upon the completion of five years of
vesting service; provided, however, that a participant who was employed by the
Company prior to 1995 will be vested upon attainment of age 55 regardless of
such participant's years of service. Plan participants are eligible for normal
benefits at age 65 but may elect early retirement after age 55. The
participants may also elect to continue working beyond age 65 and defer
retirement.
 
  Net pension expenses (credits) included in operating results for the Plan
for the years ended December 31 were:
 
<TABLE>
<CAPTION>
                                                       1996     1995     1994
                                                      -------  -------  -------
                                                          (IN THOUSANDS)
<S>                                                   <C>      <C>      <C>
Service cost........................................  $ 2,178  $ 1,386  $ 1,602
Interest cost on the projected benefit obligation...    2,391    2,027    1,893
Actual (return) loss on plan assets.................   (5,410)  (6,506)     625
Amortization of unrecognized prior service costs and
 of net obligation at adoption of SFAS No. 87 and
 deferrals..........................................    2,549    4,542   (2,443)
                                                      -------  -------  -------
  Total expense.....................................  $ 1,708  $ 1,449  $ 1,677
                                                      =======  =======  =======
</TABLE>
 
                                      29
<PAGE>
 
                     METROMAIL CORPORATION AND AFFILIATES
 
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The actuarial computations that derived the above amounts assumed a discount
rate on the projected benefit obligations of 7.50% at December 31, 1996, 7.25%
at December 31, 1995 and 8.5% at December 31, 1994, an expected long-term rate
of return on Plan assets of 9.5% and annual salary increases of 4.0%.
 
  In June of 1992 certain accrued benefits and assets relating thereto were
transferred to the Plan from the Oregon Printing Industry Pension Plan (the
"OPI Benefits"). In connection with the IPO, in July of 1996, the OPI Benefits
(approximately $1.9 million) were transferred from the Plan to the R. R.
Donnelley Norwest Pension Plan. Had these assets been excluded from plan
assets, pension expense would not have been materially impacted for the years
ended December 31, 1994, 1995 and 1996, respectively.
 
  Plan assets are mainly invested in marketable securities valued at the last
quoted market price during the fiscal year. The funded status and prepaid
pension cost as of December 31 are as follows:
 
<TABLE>
<CAPTION>
                                                                1996     1995
                                                               -------  -------
                                                               (IN THOUSANDS)
      <S>                                                      <C>      <C>
      Fair value of Plan assets..............................  $38,432  $33,095
                                                               -------  -------
      Actuarial present value of benefit obligations:
        Vested...............................................   24,482   22,756
        Non-vested...........................................    1,527    1,709
                                                               -------  -------
      Total accumulated benefit obligations..................   26,009   24,465
      Additional amounts related to projected wage increases.    9,175    9,264
                                                               -------  -------
      Projected benefit obligations for services rendered to
       date..................................................   35,184   33,729
                                                               -------  -------
      Plan assets (liabilities) under projected benefit
       obligations...........................................    3,248     (634)
      Unrecognized prior service cost........................    1,213      867
      Unrecognized net (gain) loss from experience...........   (2,385)   1,157
      Unrecognized portion of net transition obligation......      751      920
                                                               -------  -------
        Prepaid pension costs................................  $ 2,827  $ 2,310
                                                               =======  =======
</TABLE>
 
  In the event of Plan termination, the Plan provides that no funds can revert
to the Company and any excess assets over Plan liabilities must be used to
fund retirement benefits.
 
  Benefits under the Pension Plan are limited to the extent required by
provisions of the Internal Revenue Code and the Employee Retirement Income
Security Act of 1974. If payment of retirement benefits is limited by such
provisions, an amount equal to any reduction in retirement benefits will be
paid as supplemental benefit under the Unfunded Supplemental Benefit Plan
effective January 1, 1996. In 1996, $0.3 million was charged to expense. The
accumulated benefit obligation of $0.4 million was recorded in other accrued
liabilities at December 31, 1996. At December 31, 1996 the related projected
benefit obligation was $1.2 million.
 
  As a subsidiary of R. R. Donnelley, the Company also provided certain health
care and life insurance benefits for retired employees as part of a post-
retirement benefit program sponsored by R. R. Donnelley. Subsequent to the
IPO, the Company continues to provide certain health care and life insurance
benefits for retired employees similar to those sponsored under the R. R.
Donnelley program. Substantially all of the Company's domestic full-time
employees become eligible for those benefits upon reaching age 55 while
working for the Company and having 10 years of continuous service with the
Company or R. R. Donnelley at retirement. The Company does not fund the
liability and thus no plan assets have been considered in the determination of
post-retirement benefit expense below.
 
 
                                      30
<PAGE>
 
                      METROMAIL CORPORATION AND AFFILIATES
 
      NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
  The accrual basis expense for all employees of the Company recorded in the
accompanying statements of operations for post-retirement benefit programs
sponsored by R. R. Donnelley or the Company during 1994, 1995 and 1996 is as
follows:
 
<TABLE>
<CAPTION>
                                                           1996    1995   1994
                                                          ------  ------ ------
                                                             (IN THOUSANDS)
      <S>                                                 <C>     <C>    <C>
      Service cost....................................... $  913  $1,088 $1,353
      Interest cost......................................    646     742    707
      Amortization of prior service cost.................   (378)    --     --
                                                          ------  ------ ------
        Total expense.................................... $1,181  $1,830 $2,060
                                                          ======  ====== ======
</TABLE>
 
  The Company is liable for post-retirement medical and life insurance benefits
for active employees under 55 years of age who are not yet eligible to receive
benefits. This liability is as follows:
 
<TABLE>
<CAPTION>
                                                                   1996   1995
                                                                  ------ ------
                                                                       (IN
                                                                   THOUSANDS)
      <S>                                                         <C>    <C>
      Accumulated post-retirement benefit obligation for active
       plan participants not yet fully eligible to retire and
       receive benefits.......................................... $4,766 $4,647
        Unrecognized prior service cost..........................    863    --
        Unrecognized net gain....................................    345    185
                                                                  ------ ------
        Net post-retirement liability............................ $5,974 $4,832
                                                                  ====== ======
</TABLE>
 
   This liability, net of associated deferred taxes receivable from R. R.
Donnelley, has been reflected in other noncurrent liabilities. R. R. Donnelley
is liable for payments of post-retirement medical and life insurance benefits
for all other employees of the Company as of the completion of the IPO.
 
  The actuarial computations assume a discount rate of 7.25% (8.5% at December
31, 1995) and a health care cost trend rate of 8.0%, declining gradually to
5.5% in the year 2023 and thereafter to determine the accumulated post-
retirement benefit obligation. A one percentage point increase in the health
care cost trend rate would increase the 1996 post-retirement benefit expense by
less than $0.1 million and the accumulated post-retirement benefit obligation
as of December 31, 1996 by approximately $0.2 million.
 
9. LEASE OBLIGATIONS
 
  The Company leases office space and various equipment. The leases are mainly
accounted for as operating leases. Rental costs under the operating lease
agreements approximated $8.7 million, $9.4 million and $10.0 million for the
years ended December 31, 1994, 1995 and 1996, respectively.
 
  Minimum future lease obligations in effect at December 31, 1996 are:
 
<TABLE>
<CAPTION>
                                                                    OBLIGATION
                                                                  --------------
                                                                  (IN THOUSANDS)
      <S>                                                         <C>
      Period ending December 31,
        1997.....................................................    $10,747
        1998.....................................................      9,697
        1999.....................................................      8,905
        2000.....................................................      7,331
        2001 and thereafter......................................      8,878
                                                                     -------
          Total..................................................    $45,558
                                                                     =======
</TABLE>
 
 
                                       31
<PAGE>
 
                     METROMAIL CORPORATION AND AFFILIATES
 
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
  The Company is treating the lease of a computer as a capital lease. This
lease was initiated on October 1, 1996 and is for a five-year period. The
gross asset value recorded under this lease is $4.8 million. Accumulated
amortization at December 31, 1996 was approximately $0.2 million and was
included in depreciation expense for the year.
 
  Minimum future lease obligations and imputed interest in effect at December
31, 1996 are:
 
  Period ending December 31,
 
<TABLE>
<CAPTION>
                                                              OBLIGATION
                                                              ----------
                                                            (IN THOUSANDS)
                                                       PRINCIPAL INTEREST TOTAL
                                                       --------- -------- ------
<S>                                                    <C>       <C>      <C>
  1997................................................  $  822     $347   $1,169
  1998................................................     892      277    1,169
  1999................................................     969      200    1,169
  2000................................................   1,051      118    1,169
  2001................................................     847       29      876
                                                        ------     ----   ------
    Total.............................................  $4,581     $971   $5,552
                                                        ======     ====   ======
</TABLE>
 
10. COMMITMENTS AND CONTINGENCIES
 
  The Company is a party to certain litigation arising in the ordinary course
of business which, in the opinion of the Company, will not have a material
adverse effect on the operations or financial position of the Company. See
Item 3: Legal Proceedings.
 
11. DEBT AND ADVANCES DUE TO A RELATED PARTY
 
  The Company's debt and advances due to a related party consisted of the
following:
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                            -----------------
                                                              1996     1995
                                                            -------- --------
                                                             (IN THOUSANDS)
      <S>                                                   <C>      <C>
      Notes payable and accrued interest payable to Caslon
       Incorporated:
        Grid Note, dated October 12, 1987..................  $ --    $ 57,934
        Fixed Note, 9.75%, dated August 13, 1987...........    --     160,000
        Advance due R. R. Donnelley........................    --      30,558
                                                            -------- --------
          Total debt and accrued interest..................  $ --    $248,492
                                                            ======== ========
</TABLE>
 
  Caslon Incorporated is a wholly owned subsidiary of R. R. Donnelley. The
Grid Note was paid in full with a portion of the net proceeds of the IPO.
Prior to completion of the IPO, the Grid Note funded operating and investing
activities of the Company's domestic operations. Interest on the Grid Note was
payable on the first day of each calendar quarter based on an interest rate
equal to the prime rate in the preceding calendar quarter as published in The
Wall Street Journal. As of December 31, 1995, the interest rate on the Grid
Note was 8.75%. The Fixed Note was paid in full with a portion of the net
proceeds of the IPO. Interest on the Fixed Note was payable on the first day
of each calendar quarter based on an interest rate equal to 9.75% per annum.
 
  Total accrued interest payable included in the above amounts is $5.2 million
as of December 31, 1995.
 
  The debt is classified on the accompanying balance sheet in accordance with
the above stated terms. The Grid Note and the Fixed Note are classified as
short term at December 31, 1995.
 
                                      32
<PAGE>
 
                      METROMAIL CORPORATION AND AFFILIATES
 
      NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Advances due to related party represents advances from R. R. Donnelley to
fund operating and investing activities, net of cash advanced to R. R.
Donnelley from operating cash flows generated by the Company and receivables
resulting from sales through R. R. Donnelley discussed in Note 3. Prior to
completion of the IPO, this payable was periodically transferred by R. R.
Donnelley into the Grid Note borrowings discussed above.
 
12. DEBT
 
  Prior to the IPO, ICD had a $4.6 million revolving credit agreement. The
amount outstanding under this facility was $1.9 million at December 31, 1995.
 
  The Company has entered into a credit agreement with a syndicate of banks
(the "Credit Agreement") under which it is entitled to borrow up to $45 million
on a revolving credit basis. Borrowings under the Credit Agreement mature in
2001 and bear interest (i) at the prime rate announced by the bank acting as
agent for the syndicate, (ii) at the LIBOR rate plus, depending on the
Company's leverage ratio and fixed charge coverage ratio, up to 42.5 basis
points per annum, or (iii) at a rate determined by competitive bidding. At
December 31, 1996, there was $21.5 million outstanding under the credit
agreement resulting from the repayment of related party debt for ICD and
borrowings to provide operating funds for the Company's U.K. operations.
Interest paid, net of capitalized interest and related party interest, was $0.6
million in 1996.
 
13. INCOME TAXES
 
  The components of the provision for taxes for the years ended December 31 are
as follows:
 
<TABLE>
<CAPTION>
                                                            1996    1995   1994
                                                           ------- ------ ------
                                                              (IN THOUSANDS)
      <S>                                                  <C>     <C>    <C>
      Federal............................................. $ 9,118 $5,435 $4,929
      State...............................................   1,989    832    755
      Foreign.............................................   1,542    318    --
                                                           ------- ------ ------
        Total tax provision............................... $12,649 $6,585 $5,684
                                                           ======= ====== ======
</TABLE>
 
  The current and deferred portions of the income tax provision are as follows:
 
<TABLE>
<CAPTION>
                                                          1996    1995    1994
                                                         ------- ------  ------
                                                            (IN THOUSANDS)
      <S>                                                <C>     <C>     <C>
      Current........................................... $12,357 $7,295  $6,142
      Deferred..........................................     292   (710)   (458)
                                                         ------- ------  ------
        Total provision................................. $12,649 $6,585  $5,684
                                                         ======= ======  ======
</TABLE>
 
  A reconciliation of the effective tax rate from statutory U.S. federal income
tax rate of 35% for the years ended December 31 is as follows:
 
<TABLE>
<CAPTION>
                                                               1996  1995  1994
                                                               ----  ----  ----
      <S>                                                      <C>   <C>   <C>
      Federal rate............................................ 35.0% 35.0% 35.0%
      State taxes.............................................  6.0   8.9   9.8
      Foreign taxes...........................................   --   2.4   --
      Goodwill amortization...................................  8.9  23.0  27.7
      Other...................................................   .8   1.4   1.6
                                                               ----  ----  ----
        Effective tax rate.................................... 50.7% 70.7% 74.1%
                                                               ====  ====  ====
</TABLE>
 
 
                                       33
<PAGE>
 
                      METROMAIL CORPORATION AND AFFILIATES
 
      NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
  As of December 31, 1995 and 1996, total current deferred tax assets and total
noncurrent deferred tax (liability) asset are as follows:
 
<TABLE>
<CAPTION>
                                                                1996     1995
                                                               -------  -------
      <S>                                                      <C>      <C>
      Allowance for doubtful accounts......................... $   690  $   594
      Inventory...............................................  (1,086)  (1,200)
      Vacation liability......................................     756      678
      Payroll and related liabilities.........................     --       153
      Miscellaneous, other....................................     433      400
                                                               -------  -------
        Total net current deferred tax asset..................     793      625
                                                               -------  -------
      Accumulated depreciation................................  (3,906)  (3,006)
      Goodwill and intangibles................................   1,172      974
      Other intangibles.......................................  (1,014)   1,146
      Pension accrual.........................................    (267)    (898)
      Post retirement liabilities.............................   2,424    1,933
      Miscellaneous, other....................................     --       --
                                                               -------  -------
        Total net noncurrent deferred tax (liability) asset...  (1,591)     149
                                                               -------  -------
        Total................................................. $  (798) $   774
                                                               =======  =======
</TABLE>
 
  The Company has not provided a valuation allowance for deferred tax assets
because, although realization is not assured, the Company believes it is more
likely than not that such tax assets will be recognized through reversals of
taxable timing differences and taxable income in future periods.
 
  Taxes payable are included in debt and advances due to R. R. Donnelley and
its subsidiaries for the year ended December 31, 1995. Taxes payable at
December 31, 1996 are included in other accrued liabilities. Cash payments for
income taxes were $7.2 million for the period from completion of the IPO
through December 31, 1996.
 
14. ACQUISITIONS
 
  The Company acquired Customer Insight Company, Inc. ("CIC") in June 1994 and
a wholly owned subsidiary of R. R. Donnelley acquired ICD in May 1995. Both
acquisitions were accounted for as purchases.
 
  CIC was purchased for approximately $20.0 million. The excess of the purchase
price over the fair market value of net assets acquired, including identifiable
intangible assets, has been allocated to goodwill in the amount of
approximately $16.8 million. The goodwill is being amortized over its estimated
useful life of 15 years.
 
  ICD was purchased for approximately $15.3 million. The excess of the purchase
price over the fair market value of net assets acquired, including identifiable
intangible assets, has been allocated to goodwill in the amount of $14.7
million. The goodwill is being amortized over its estimated useful life of 40
years.
 
  In February 1996, a wholly owned subsidiary of R. R. Donnelley contributed
ICD to Metromail. Subsequent to the contribution, ICD purchased all of the net
assets of DBD. This contribution and purchase between entities under R. R.
Donnelley's common control resulted in the historical costs bases of ICD and
DBD (prior to their contribution and purchase) being carried over to Metromail
with no gain or loss recognized as a result of these transactions.
 
                                       34
<PAGE>
 
                     METROMAIL CORPORATION AND AFFILIATES
 
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
15. STOCK INCENTIVE PLANS
 
  The Company has reserved for issuance under the 1996 Stock Incentive Plan
and the 1996 Broad-Based Employee Stock Plan an aggregate of 1,600,000 shares
of Common Stock. Under the 1996 Stock Incentive Plan, 1,168,500 options and
37,000 shares of restricted Common Stock were granted in 1996. The 1,147,500
options granted on June 19, 1996 have an exercise price per share of $20.50
and the 3,500 options granted on August 27, 1996 have an exercise price per
share of $18.1875. These options vest in four annual 25% installments on each
of the first four anniversaries of the date of grant. Non-employee directors
of the Company were granted 17,500 options on September 1, 1996. Such options
have an exercise price per share of $17.5626 and vest on September 1, 1997.
Each option granted under the 1996 Stock Incentive Plan has a 10-year term.
Options to purchase 142,750 shares of Common Stock were granted on June 19,
1996 under the 1996 Broad-Based Employee Stock Plan and have an exercise price
of $20.50. Each such option has a 10-year term and will become exercisable on
June 19, 1999. No options were exercised or cancelled during 1996.
 
  The Company accounts for these plans under APB Opinion No. 25, under which
no compensation cost has been recognized. Had compensation cost for stock
options been determined consistent with FASB Statement No. 123, the Company's
net income and net income per share for 1996 would have been reduced by $1.6
million and $0.07, respectively. These plans were not effective for 1995,
accordingly 1995 and prior years were not affected by this accounting. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: weighted
average risk-free interest of 7.1%; no expected dividend yield; expected life
of ten years; weighted average volatility of 36%. Management has provided this
information in accordance with the requirements of FASB Statement No. 123. The
value attached to the stock options using the Black-Scholes model, which was
intended to value short-term, publicly-traded options, may vary significantly
due to the lack of history to measure the market for the Common Stock. The
Company will continue to revise this calculation annually to report a more
current estimate.
 
16. OTHER ACCRUED LIABILITIES
 
  The balance in other accrued liabilities consists of the following:
 
<TABLE>
<CAPTION>
                                                                 1996    1995
                                                                ------- -------
      <S>                                                       <C>     <C>
      Taxes.................................................... $ 7,755 $ 4,671
      Capital lease............................................   4,581   4,670
      Data/royalties...........................................   3,363   3,806
      Amount due to related party..............................   4,600     --
      Customer deposits........................................     422   2,127
      Other....................................................   7,839   3,932
                                                                ------- -------
        Total.................................................. $28,560 $19,206
                                                                ======= =======
</TABLE>
 
                                      35
<PAGE>
 
                      METROMAIL CORPORATION AND AFFILIATES
 
      NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONCLUDED)
 
 
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                 1ST      2ND     3RD     4TH
                                               QUARTER  QUARTER QUARTER QUARTER
                                               -------  ------- ------- -------
                                               (IN THOUSANDS, EXCEPT PER SHARE
                                                            DATA)
   <S>                                         <C>      <C>     <C>     <C>
   1996:
   Direct marketing sales..................... $41,894  $55,959 $54,820 $74,350
   Reference sales............................  12,475   13,387  13,410  15,150
                                               -------  ------- ------- -------
     Total net sales..........................  54,369   69,346  68,230  89,500
   Earnings from operations...................   1,725    8,713  10,893  15,927
   Net income (loss)..........................  (2,887)   1,484   5,947   9,318
   Earnings (loss) per share..................   (0.13)    0.07    0.27    0.42
<CAPTION>
                                                 1ST      2ND     3RD     4TH
                                               QUARTER  QUARTER QUARTER QUARTER
                                               -------  ------- ------- -------
                                               (IN THOUSANDS, EXCEPT PER SHARE
                                                            DATA)
   <S>                                         <C>      <C>     <C>     <C>
   1995:
   Direct marketing sales..................... $38,860  $44,862 $48,018 $57,973
   Reference sales............................  10,972   11,531  13,105  11,866
                                               -------  ------- ------- -------
     Total net sales..........................  49,832   56,393  61,123  69,839
   Earnings from operations...................   3,095   10,445   7,267   9,835
   Net income (loss)..........................  (1,733)   2,464     548   1,456
   Earnings (loss) per share..................   (0.07)    0.11    0.02    0.06
</TABLE>
 
                                       36
<PAGE>
 
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
 
  None
 
                                    PART III
 
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF METROMAIL CORPORATION.
 
  Information required by this item regarding directors is contained in the
section entitled "Election of Director" in the Company's Proxy Statement for
its 1997 Annual Meeting of Stockholders, which section is incorporated herein
by reference. Information regarding officers is included at the end of Part I
of this Annual Report on Form 10-K. Other information required by this item
regarding both directors and officers is contained in the section entitled
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
Proxy Statement for its 1997 Annual Meeting of Stockholders, which section is
incorporated herein by reference.
 
ITEM 11: EXECUTIVE COMPENSATION.
 
  Information required by this item is contained in the section entitled
"Compensation of Directors and Executive Officers" in the Company's Proxy
Statement for its 1997 Annual Meeting of Stockholders, which section is
incorporated herein by reference.
 
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
  Information required by this item is contained in the section entitled
"Beneficial Ownership of Common Stock" in the Company's Proxy Statement for its
1997 Annual Meeting of Stockholders, which section is incorporated herein by
reference.
 
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
  Information required by this item is contained in the section entitled
"Certain Transactions" in the Company's Proxy Statement for its 1997 Annual
Meeting of Stockholders, which section is incorporated herein by reference.
 
                                    PART IV
 
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
  (a)1. FINANCIAL STATEMENTS
 
      See Part II, Item 8 of this Annual Report on Form 10-K.
 
    2. FINANCIAL STATEMENT SCHEDULES
 
      See "Schedule II--Valuation and Qualifying Accounts" set forth
      below.
 
    3. EXHIBITS
 
      Exhibits required to be attached pursuant to Item 601 of Regulation
      S-K are listed in the Exhibit Index attached hereto, which Exhibit
      Index is incorporated herein by reference.
 
  (b)REPORTS ON FORM 8-K
 
      No Current Report on Form 8-K was filed by the Company during the
      fourth quarter of 1996.
 
  (c)EXHIBITS
 
      See Item 14(a)(3) above.
 
                                       37
<PAGE>
 
                                  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.
 
                                          Metromail Corporation
 
                                                   /s/ Barton L. Faber
                                          By: _________________________________
                                             Name: Barton L. Faber
                                             Title: Chairman
 
March 4, 1997
 
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF METROMAIL
CORPORATION AND IN THE CAPACITIES AND ON THE DATE INDICATED.
 
<TABLE>
<CAPTION>
             SIGNATURE                         TITLE(S)                   DATE
             ---------                         --------                   ----
<S>                                  <C>                           <C>
        /s/ Barton L. Faber          Director and Chairman           March 4, 1997
____________________________________   (principal executive
          Barton L. Faber              officer)
 
       /s/ Susan L. Henricks         Director, President and         March 4, 1997
____________________________________   Chief Executive Officer
         Susan L. Henricks
 
        /s/ Ronald G. Eidell         Chief Financial Officer         March 4, 1997
____________________________________   (principal financial
          Ronald G. Eidell             officer)
 
      /s/ Kenneth A. Glowacki        Vice President, Finance         March 4, 1997
____________________________________   (principal accounting
        Kenneth A. Glowacki            officer)
 
      /s/ Robert C. McCormack        Director                        March 4, 1997
____________________________________
        Robert C. McCormack
 
        /s/ Peter F. Murphy          Director                        March 4, 1997
____________________________________
          Peter F. Murphy
 
        /s/ Jonathan P. Ward         Director                        March 4, 1997
____________________________________
          Jonathan P. Ward
</TABLE>
<PAGE>
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
  We have audited in accordance with generally accepted auditing standards, the
consolidated and combined financial statements of Metromail Corporation and
Affiliates included in this Form 10-K and have issued our report thereon dated
January 21, 1997. Our audit was made for the purpose of forming an opinion on
the basic financial statements as a whole. The schedule immediately following
this report is presented for purposes of complying with the Securities and
Exchange Commissions rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
 
                                          Arthur Andersen LLP
 
Chicago, Illinois
January 21, 1997
<PAGE>
 
                      METROMAIL CORPORATION AND AFFILIATES
 
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
 
<TABLE>
<S>                               <C>       <C>      <C>         <C>         <C>          <C>
                                                                             DEDUCTIONS--
                                                       ADDITIONS              WRITE-OFFS
                                   BALANCE  --------------------------------   OF TRADE
                                   AT THE   CHARGES    CHARGES   CHARGES TO  RECEIVABLES, BALANCE AT
      SALES ALLOWANCES AND        BEGINNING    TO        TO         OTHER       NET OF      END OF
ALLOWANCES FOR DOUBTFUL ACCOUNTS  OF PERIOD SALES(1) EXPENSES(2) ACCOUNTS(3)  RECOVERIES    PERIOD
--------------------------------  --------- -------- ----------- ----------- ------------ ----------
For the Year Ended December 31,
 1995...........................    3,586    5,067      2,180        465        (7,333)     3,965
For the Year Ended December 31,
 1996...........................    3,965    4,979      2,143        --         (6,626)     4,461
</TABLE>
--------
(1) These amounts represent provisions for sales allowances that are included
    in net sales.
(2) These amounts represent provisions for doubtful accounts that are included
    in general and administrative expenses.
(3) Represent additions to the reserve resulting from the purchase of ICD in
    1995.
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
     EXHIBIT
       NO.                               DESCRIPTION
     -------                             -----------
     <C>     <S>
      3(i)   Third Restated Certificate of Incorporation of Metromail
             Corporation, as amended.
      3(ii)  By-laws of Metromail Corporation. (1)
      4      Rights Agreement, dated as of February 24, 1997, between Metromail
             Corporation and American Stock Transfer and Trust Company, as
             Rights Agent. (2)
     10.1    Form of Transition Services Agreement between Metromail
             Corporation and
             R. R. Donnelley. (1)
     10.2    Form of Sales Agreement between Metromail Corporation and R. R.
             Donnelley. (1)
     10.3    Form of Benefit Administration Services Agreement between
             Metromail Corporation and R. R. Donnelley. (1)
     10.4    Form of Data Center Services Agreement between Metromail
             Corporation and
             R. R. Donnelley. (1)
     10.5    Form of Tax Allocation and Indemnification Agreement between
             Metromail Corporation and R. R. Donnelley. (1)
     10.6*   Employment Agreement between Metromail Corporation and Barton L.
             Faber. (1)
     10.7*   Employment Agreement between Metromail Corporation and Susan L.
             Henricks. (1)
     10.8*   Employment Agreement between Metromail Corporation and Ronald G.
             Eidell.
     10.9*   Employment Agreement between Metromail Corporation and Thomas J.
             Quarles.
     10.10*  Employment Agreement dated June 16, 1994 between Customer Insight
             Company and Tery R. Larrew. (1)
     10.11*  Management Agreement between Metromail Corporation and Barton L.
             Faber.
     10.12*  Management Agreement between Metromail Corporation and Susan L.
             Henricks.
     10.13*  Management Agreement between Metromail Corporation and Ronald G.
             Eidell.
     10.14*  Management Agreement between Metromail Corporation and Thomas J.
             Quarles.
     10.15*  Management Agreement between Metromail Corporation and Tery R.
             Larrew.
     10.16*  Amended and Restated Metromail Corporation 1996 Stock Incentive
             Plan.
     10.17*  Metromail Corporation 1996 Broad-Based Employee Stock Plan. (1)
     10.18*  Metromail Corporation Directors' Deferred Retainer Plan.
     10.19   Form of Credit Agreement among Metromail Corporation and certain
             Subsidiaries, as Borrower, the Banks named therein and the First
             National Bank of Chicago, as Administrative Agent. (1)
     10.20   Registration Rights Agreement, dated as of February 24, 1997,
             between Metromail Corporation and R. R. Donnelley. (3)
     10.21   Acknowledgment and Agreement, dated as of February 24, 1997,
             between Metromail Corporation and R. R. Donnelley. (3)
     21      Subsidiaries of Metromail Corporation.
     23      Consent of Arthur Andersen LLP.
     27      Financial Data Schedule.
</TABLE>
--------
*Denotes management contract or compensatory plan or arrangement.
(1) Filed as an Exhibit to the Company's Registration Statement on Form S-1
    (No. 333-2042) that became effective on June 13, 1996, and incorporated
    herein by reference.
(2) Filed as an Exhibit to the Company's Registration Statement on Form 8-A,
    filed on February 26, 1997, and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
    February 24, 1997, and incorporated herein by reference.