ITEM 1. BUSINESS
On March 24, 1995, Audits and Surveys, Inc. ("A&S") and The Triangle Corporation ("Triangle") consummated a merger pursuant to which A&S was merged with and into Triangle. Triangle was the surviving corporation and the separate existence of A&S ceased. The name of the merged corporation was changed to Audits & Surveys Worldwide, Inc. ("ASW"). Unless the context otherwise requires, the terms "Company" or "ASW" refer to Audits and Surveys Worldwide, Inc. and its consolidated subsidiaries.
Recent Developments
The Company made significant progress towards implementation of its strategy to globally expand its services through the growth of its international consumer tracking research from approximately 60 countries in 1995 to approximately 70 countries in 1996. The Company capitalized on its leadership position in providing U.S. data to the personal computer industry to establish a syndicated global sales measurement program in information technology products. Seven European countries are now being monitored by the Company and the Company intends to commence monitoring in countries in Asia and Latin America in the second and third quarters of 1997, respectively. The Company is also conducting major customer satisfaction and mystery shopper programs on computer products around the world. ASW recently opened an Asia Pacific headquarters office in Manila to provide regional on-site supervision of its research in the area.
ASW's Media Division joined forces with IBOPE, the largest research company in Latin America, to sell and service the region's first pan-regional television ratings service to U.S.-based clients. The Division has also developed the unique Primary Audience Database, a syndicated print measurement service for publishers and advertising agencies, which measures magazine readership and monitors household demographics, product usage and lifestyles of U.S. magazine readers.
The Company has been expanding its presence in niche markets. In its efforts to better serve clients selling through the rapidly expanding group of home improvement centers, the Company recently entered a 10-year strategic alliance with Triad Systems Corporation, an information management company, to provide retail sales measurement and other marketing data.
Business. General. Audits and Surveys, founded in 1953, is an international marketing research firm providing clients with a broad selection of services to assist in the development of marketing, advertising and investment strategies. The Company's marketing research services, conducted in over 70 countries, are provided to major commercial, industrial, institutional and academic organizations. The Company's most significant clients in terms of 1996 revenue include AT&T, The Coca-Cola Company, Harlequin, IBM, MasterCard, Metropolitan Transportation Authority, Shell Oil Company, Volvo Corporation of North America, Warner Lambert and Xerox.
ASW provides its services on a custom, continuous tracking or syndicated basis. Custom research measures awareness, knowledge, attitudes and behavior toward specific products, services, advertising or public policies among consumers with particular demographics or a defined profile. Continuous tracking allows companies to track consumer attitudes and behavior on an ongoing basis in order to determine changes in the market toward its products or services. Syndicated research is made available on a nonexclusive basis and provides economies of scale to
ASW and cost savings to client companies. Syndicated research may include audits of product inventory and distribution and consumer survey research.
The Company's varied services include monitoring of market share trends or measuring the impact of new product advertising or service introductions, conducting surveys for media and advertisers who require the measurement of the size and demographics of target audiences and providing clients with data on customer satisfaction, mystery shopping studies at client product or service outlets and litigation research.
The percentages of the Company's revenues by type of research service for the last three years have been as follows:
1996 1995 1994 ---- ---- ----
Custom Research Projects 31% 36% 41%
Continuous Tracking Studies 49% 49% 39%
Syndicated Studies 20% 15% 20% ---- ---- ----
100% 100% 100%
The Company believes that it has earned an impressive reputation for providing quality research with state-of-the-art statistical and sampling techniques and analysis. ASW utilizes a proprietary Computer-Assisted Telephone Interviewing system (A&S/CATI), special analytic software, multimedia software for client presentations and a system for digitizing respondents' answers to telephone surveys (A&S/Voice CATI(R)). The services and products offered by ASW are supported by a large in-house computer capacity and a full staff of programmers, statisticians, psychologists, sociologists and marketing professionals.
ASW believes that its ability to provide both consumer and retail data nationally and internationally yields marketing insights to its clients which are unavailable from any other industry source. The Company also believes that its marketing research services and technological and professional capabilities provide significant advantages over other marketing research firms and serve as a platform for the development of new services and products to domestic and multinational corporations, whatever their country of origin.
Industry Overview. The marketing research industry is highly fragmented, comprising several large firms, including ASW, and a large number of smaller firms. Many firms specialize in specific industries, products, services or methodologies. The bulk of the smaller firms offer limited services and conduct their research primarily in the consumer market while larger firms generally provide services in the retail, consumer and industrial markets.
Services of ASW. The Company offers a wide array of services to assist clients in developing and refining the marketing, advertising and investment strategies for their products. These services include continuous retail sales measurement, test marketing, tests of in-store
promotions and measurement of product distribution on a local, regional, national and international basis. ASW complements these "audit" efforts for its clients through surveys of consumers, retailers and industrial establishments.
The Company's client services are provided by six primary internal organizations.
Audit Division. The Audit Division provides clients with a wide variety of services that track retail sales, product inventory and factors relating to distribution. Most of the Division's services are syndicated or continuous tracking programs, with the remainder being customized research, often to provide clients of syndicated services with marketing insights more tailored to their needs than syndicated programs can provide.
Major continuous sales tracking services are:
SERVICE DESCRIPTION - ------- -----------
Global Computer Products A monthly measurement of sales of Sales Index Personal Computers and related products through all major retail channels throughout the world.
National Home Improvement A monthly or bi-monthly measurement Products Sales Index of sales of Do-It-Yourself products through the rapidly growing Home Center channel.
PETS A continuous tracking of the sales of Pet Products through Veterinarians, Pet Supply Stores and Farm/Feed Dealers.
Small Food Store In-person audits and point-of-sale Sales Index information to measure sales and distribution in small food stores.
VENDtrack The only national on-site continuous tracking service of vending machine distribution.
Automotive Aftermarket Measurement of sales of specific Sales Index product categories in the retail automotive chain store market.
The Audit Division also offers continuous sales tracking for a broad array of other products including jewelry, optical products, photographic products and home health care.
Other principal services offered by the Audit Division are: the National Retail Census, which measures penetration of products among a nationally projectable sample of retail and service outlets; Custom Retail Measurements, including test markets, controlled in-store variable tests and interviews of store customers and management; Brand Name Store Search which assists clients to avoid problems arising from the choice of a brand name that may be confusingly similar to existing brand names; and Product Pickup Service providing retrieval for product recalls, age-dating analysis, packaging integrity examination and competitive new product introductions.
Survey Division. The Survey Division provides custom and syndicated research services which help clients increase market share, focus media advertising and promotion, identify areas for enhancement of consumer goodwill and generally assist in the development of marketing, advertising and investment strategies for their products and services.
The Survey Division's telephone interviewing is conducted at A&S/CATI facilities in Chicago, Philadelphia and Portland (OR). The A&S/Voice CATI(R) system digitally captures the respondent's own voice, allowing researchers to overcome the limitations of interviewer and coder interpretation and facilitate the transfer of voice data to clients through a variety of digital media.
One of the Survey Division's syndicated services is TECH/TRACK, a comprehensive syndicated study of sales, incidence and usage of personal computers, software, peripherals, online services and other technology products in the home. This study provides PC manufacturers with information on ownership and product awareness, customer loyalty and computer service membership. Because the survey includes both owner and nonowner households, Tech/Track also provides market research on prime potential customer markets.
International Division - The International Division helps clients identify growth opportunities and develop marketing strategies for their products and services on six continents. The International Division offers a broad range of services from problem definition to research analysis in new product development testing, market share data, attitude and usage profiles, brand and corporate imagery, and retail product availability measurement. The International Division specializes in conducting major, continuous research programs with quality standards that permit truly comparable results to be obtained across and within all researched countries over time. ASW's international research is coordinated at its corporate headquarters in New York and is supervised regionally by offices in London, Manila and Buenos Aires.
Customer Satisfaction Division - The Company pioneered the measurement of customer satisfaction in the 1950's. Today its services go beyond traditional customer satisfaction studies to examine the many individual components that create customer satisfaction. The Customer Satisfaction Division uses qualitative focus group studies, customer satisfaction studies, mystery shopper programs, benchmarking/comparison research, employee satisfaction studies, feedback management systems, motivational/incentive programs and communications and training to implement the results of the research objectives.
The Media Division - has developed the first syndicated study of media and consumer markets encompassing nineteen Latin American countries. This study, funded by a consortium of more than 30 of the largest multinational cable TV networks, advertising agencies, advertisers and magazines, provides a standardized method of evaluating multinational, multimedia advertising plans in Latin America. The Company is also the only company authorized to sell and service the IBOPE Latin American Television Ratings Service, the first pan-regional television ratings service in Latin America. The Media Division has also developed the unique Primary Audience Database, a syndicated print measurement service for publishers and advertising agencies, which measures magazine readership and monitors household demographics, product usage and lifestyles of U.S. magazine readers.
Public Affairs Division - The Public Affairs Division assists corporations, advertising and public relations firms, universities and foundations, associations, government agencies and law firms in understanding the perceptions and concerns of their varied constituencies in order to develop and deliver more effective communications. The Public Affairs Division conducts research in all areas of public relations and public policy including corporate image and reputation, crisis communications, publicity research, communications audits, public affairs/public policy research, issue tracking and management, investor relations research, media effectiveness, communications program effectiveness, political research and government research.
Clients. The Company's 10 largest clients, based on revenue for the year ended December 31, 1996, were AT&T, The Coca-Cola Company, Harlequin, IBM, MasterCard, Metropolitan Transportation Authority, Shell Oil Company, Volvo Corporation of North America, Warner Lambert and Xerox. The Coca-Cola Company has been a client of ASW for over 30 years and represented approximately 28% of the Company's 1996 revenues. No other client accounted for more than 6 % of ASW's revenues during such fiscal year. Of the other nine clients listed above, 5 have been clients of the Company for 10 years or more.
The Company has conducted numerous domestic and international custom and consumer tracking studies for The Coca-Cola Company. Its Audit Division has also conducted an annual International Availability Study, as well as a domestic retail sample census and numerous test market studies for this client. These studies were commissioned by different divisions of The Coca-Cola Company, including the Fountain Division and The Minute Maid Company.
Marketing And Sales. New business development has centered on continuous nurturing of existing client relationships by the researchers and professionals directly involved with the client. The Company believes excellent provider/client relationships create the best opportunities for future business with existing clients, and significantly assist in the generation of new business through client referrals and recommendations.
The Company's marketing staff is responsible for the overall monitoring of client relationships and for the development of domestic and international opportunities in addition to those market entries generated by the research staff. The marketing staff determines the feasibility of new market penetration through analyses of industry trends, consumer buying patterns and potential client needs. The Company owns several registered trademarks and service marks, and has applied for registration of certain other trademarks and service marks. The Company does not believe that the loss of any such mark would have a material adverse effect on its business and operations.
Operations. The Company is headquartered in New York City and operates regionally through offices in Chicago, Minneapolis, Philadelphia, Portland (OR) and San Francisco. International research studies are coordinated in New York and are conducted in Europe through the Company's 51% owned subsidiary, Audits & Surveys Europe, Ltd., located in London. The Company recently opened an office in Manila to provide on-site regional supervision of research conducted in Asia Pacific. In Latin America the Company entered into a strategic business
relationship with the marketing research firm ASECOM, S.A. of Buenos Aires to provide research services throughout Latin America.
The Company's offices in Chicago, Philadelphia and Portland (OR) contain approximately 180 A&S/CATI terminals which enable the Company to conduct telephone interviews in three time zones across the United States. The multiple locations of A&S/CATI operations provide the Company with a competitive advantage by increasing interviewer scheduling flexibility, expanding the number of daily interviews that can be conducted and allowing for alternative interviewing facilities in the event that extreme weather conditions or an area-wide power failure temporarily incapacitates any given location.
Competition. The market research industry is highly competitive and is characterized by a large number of competitors, ranging from relatively small organizations to companies with substantial resources. These competitors also include in-house marketing research departments, advertising agencies and business consulting firms. Although the Company believes that no single competitor offers a comparable combination of services, there can be no assurance that other companies, some with greater financial resources, will not attempt to offer a broader range of services than those offered by the Company. The Company believes that it competes primarily on the basis of the quality of the design of its market research proposals and on its ability to perform, analyze and provide the results of its research projects on a timely basis, consistently.
The Company believes that its ability to offer a wide variety of statistically valid marketing services to a broad base of clients in both domestic and international markets is critical to its competitive advantage and believes that providing a combination of custom, continuous tracking and syndicated research services for the consumer and industrial markets further enhances its competitive position in the industry. The Company also believes that its ability to design and develop research services and technologies in response to changing clients' needs, as well as in anticipation of marketing trends, has enabled the Company to achieve and sustain a leadership position in the market research industry.
Employees. The Company has 562 employees, 275 of whom were part-time hourly support employees and 287 were full-time staff. The full-time staff includes 120 professional employees, 77 support employees and 90 individuals in administrative and management functions. The part-time employees are primarily engaged in A&S/CATI operations and other data gathering and processing functions.
The Company conducts regular training sessions for professional staff and enrolls selected staff members in the training programs sponsored by CASRO, a marketing research industry association. In addition, the Company monitors the performance of its staff on a regular basis and conducts special training sessions for all its telephone interviewing staff in order to maintain high quality standards.
Many of the Company's professional staff have advanced degrees in fields such as marketing, economics, computer science, management, finance, business, statistics, mathematics and psychology. None of its employees are subject to a collective bargaining agreement, nor has
the Company experienced any work stoppages. The Company believes that its relations with employees are excellent.
Compliance with Environmental Laws. Based on the nature of its marketing research operations, the Company believes that its compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, should have no material effect upon its capital expenditures, earnings or competitive position. (See Note 15 to the Notes to Consolidated Financial Statements.)
Backlog. A majority of the Company's revenues are recorded utilizing the percentage of completion method of accounting, which recognizes revenues as services are performed. In addition, revenues are recognized on syndicated research studies on a pro rata basis over the terms of the individual contracts. At December 31, 1996, the Company had total unrecognized revenues of approximately $16,300,000 compared with approximately $14,100,000, as adjusted, at December 31, 1995. Substantially all of such unrecognized revenues at December 31, 1996 are expected to be recognized in 1997.
ITEM 2.
ITEM 2. PROPERTIES
The Company's principal office is located in New York, New York where it leases approximately 107,000 square feet under a lease that expires on February 28, 2003. It currently subleases approximately 21,000 square feet at this location to an unaffiliated party through the date on which the primary lease expires.
The Company also leases an aggregate of approximately 26,000 square feet of office space in San Francisco, Chicago, Philadelphia, Minneapolis, Portland (OR), Livonia (MI), Manila and London.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation that is expected to have a material effect on its results of operations or financial condition. (See Note 15 to the Consolidated Financial Statements for a discussion of an environmental action involving an inactive subsidiary, Diamond Tool and Horseshoe Co., now known as Tri-North, Inc.)
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Price Range of Common Stock ---------------------------
The Company's common stock is traded on the American Stock Exchange ("AMEX"). The following table shows the range of closing prices for the common stock for the calendar quarters indicated, as reported by AMEX:
1995 HIGH LOW
First Quarter $ 4 - 1/2 $ 2 - 7/8 Second Quarter 4 - 1/8 2 - 7/8 Third Quarter 3 - 11/16 2 - 3/8 Fourth Quarter 2 - 3/4 1 - 1/2
First Quarter $ 2 - 3/4 $ 1 - 3/4 Second Quarter 2 - 3/4 2 Third Quarter 3 2 - 3/8 Fourth Quarter 3 2 - 1/8
(b) Approximate Number of Equity Security Holders ---------------------------------------------
The number of record holders of the Company's common stock as of March 17, 1996 was 629.
(c) Dividends ---------
For the year ended December 31, 1996 the Company declared a special cash dividend of $.05 per share which was paid on January 15, 1997 to stockholders of record as of December 31,1996. No dividends were declared or paid for the year ended December 31, 1995. During the year ended December 31, 1994 the Company declared and paid $2,049,000 of distributions to shareholders which were the final distributions related to periods during which the Company was an S Corporation for income tax purposes and distributed substantially all its earnings in the form of S Corporation distributions.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA (Dollar amounts in thousands except per share data)
(a) In connection with the termination of the Company's S Corporation tax status as of December 1, 1993, a cumulative Federal and New York State deferred tax asset of $759,000 was recognized with an offsetting credit to the provision for income taxes for the one month period ended December 31, 1993.
(b) For the years ended November 28, 1993 and November 29, 1992 the Company was an S Corporation for tax purposes and its historical results provided limited state and local income taxes and no Federal income taxes. Pro forma net income shown above for these two years has been adjusted to reflect an estimate of the actual taxes that would have been paid had the Company been a C Corporation.
(c) For the year ended December 31, 1996 the Company declared a cash dividend of $.05 per share which was paid on January 15, 1997 to stockholders of record as of December 31,1996. No dividends were declared or paid for the year ended December 31, 1995. During the year ended December 31, 1994 the Company declared and paid $2,049,000 of distributions to shareholders which were the final distributions related to periods during which the Company was an S Corporation for income tax purposes and distributed substantially all its earnings in the form of S Corporation distributions.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1996 Compared with 1995 - -----------------------
Revenues for 1996 increased $5.7 million (10%) to $60.4 million compared with $54.6 million in 1995. The increase in revenues was principally attributable to higher revenues from international consumer tracking studies and several custom and syndicated audit research services.
Direct costs were $1.7 million (6%) higher in 1996 compared with 1995, primarily as a result of the increase in revenues. As a percentage of revenues, direct costs were 47% in 1996 compared with 49% in 1995. The decrease in direct costs as a percentage of revenues represented an improvement in the profitability of the overall mix of revenues in 1996 compared with 1995. Direct costs also include expenses related to the development of new research services and such development expenses were lower in 1996 than in 1995.
Selling, general and administrative (SG&A) expenses increased $1 million (4%) in 1996 compared with 1995. Approximately 70% of the SG&A increase was in payroll and related costs and resulted from the addition of personnel as well as normal salary adjustments. The remainder of the increase in SG&A expenses was spread over various expenses such as rent and utilities, depreciation and computer costs.
The provision for incentive bonuses was $.6 million higher in 1996 compared with 1995 and resulted from the increase in operating income on which the incentive bonuses are calculated.
Income taxes for 1996 have been provided at approximately 41% of pretax income compared with 45% in 1995. See Note 7 to the Notes to Consolidated Financial Statements for a detailed analysis of the provisions for income taxes.
1995 Compared with 1994 - -----------------------
Revenues for 1995 rose $10.7 million (24%) to $54.6 million compared with $43.9 million in 1994. Approximately 85% of the increase in 1995 stemmed from new customer satisfaction continuous tracking studies and major international consumer products surveys. The remaining portion of the increase in revenues came from a variety of new custom research studies.
Direct costs increased $8.9 million (50%) in 1995 compared with 1994, principally as a result of the increased revenues. As a percentage of revenues, direct costs were 49% in 1995 compared with 41% in 1994. The overall increase in direct costs as a percentage of revenues was caused primarily by the survey studies which generated a significant portion of the increased revenues having substantially higher direct cost levels than the Company's historical mix of survey studies. In addition, direct costs as a percentage of revenues reflected the effect of expenses incurred in the development of various new research services.
SG&A expenses increased $3.7 million (18%) compared with 1995. Approximately $2.6 million of the increase resulted from higher base compensation for several key employees upon implementation of new compensation agreements (see incentive bonuses discussion below) and additional salaries of new personnel related to the increased revenues previously discussed. Other SG&A expenses increased $1.1 million, with approximately half of these increases stemming from higher professional and consulting fees and other expenses
incurred in connection with the Company making the transition from a private to a publicly owned corporation and for improvements to the Company's information system. In addition, increases in rent, utilities, telephone and associated costs were incurred to accommodate the new personnel described above.
Incentive bonuses decreased $2.2 million in 1995 which resulted from a decline in the operating income on which the incentive bonuses are calculated as well as the implementation of new compensation agreements with several key employees which increased base salaries (see SG&A above) and simultaneously reduced incentive bonuses.
Results of operations in 1995 were adversely impacted by a charge of $175,000 against "Other Income" resulting from the termination of a sublease with a subtenant and the occupancy of the space by the Company to accommodate the increased personnel referred to above.
Income before taxes in 1994 was favorably effected by $215,000 as a result of three nonrecurring transactions. The Company sold its investment in an Argentinean affiliate at a gain of $1,335,000. The gain was offset by costs of $779,000 incurred in connection with stock bonuses issued to certain key employees and $341,000 representing the settlement costs of a retirement agreement with the estate of a former shareholder. No similar nonrecurring transactions arose in 1995.
Financial Condition, Liquidity and Capital Resources
At December 31, 1996, the Company had working capital of $3.9 million and a current ratio of 1.28 to 1 compared with working capital of $1.9 million and a current ratio of 1.15 to 1 at December 31, 1995.
Cash flow from operations and borrowings under its credit facilities with its bank are the Company's principal sources of funds. The Company's cash flow and borrowings have historically been sufficient to provide funds for working capital, capital expenditures and payment of indebtedness. On June 5, 1996 the Company refinanced an existing term loan and its $5 million short-term credit facility into a new $2,610,000 term loan and a $2.5 million secured line of credit. The new term loan is repayable in 20 quarterly installments of $130,500 which began on June 30, 1996. The term loan and the line of credit contain customary affirmative and negative covenants including those requiring the Company to maintain certain financial ratios and restricting the annual payment of cash dividends to an amount not in excess of 50% of the preceding year's net income.
Net cash provided by operating activities was $4,980,000, consisting primarily of net income of $2,589,000 plus non-cash expenses of $1,628,000 and increases in customer billings in excess of revenue earned of $952,000 and income taxes payable of $716,000 offset primarily by an increase in accounts receivable of $930,000.
Net cash used in investing activities was $57,000 primarily from purchases of property and equipment of $583,000 and payment of merger related expenses of $124,000 offset by proceeds of $650,000 from the sale of a portion of Triangle's former operating assets.
Net cash used in financing activities was $2,055,000 consisting primarily of proceeds from bank borrowings of $1,931,000 offset by repayments of bank borrowings and other debt of $3,993,000.
The Company believes that its revised credit arrangements with its bank, combined with funds generated by its operations, will be adequate to fund its planned capital expenditures, meet its debt obligations and finance its operations for at least the next twelve months.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of the report. (See Item 14).
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in response to this item with respect to Directors is contained in the Company's 1997 Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year and, accordingly, is omitted pursuant to General Instruction G(3).
The following sets forth the names and ages of the Company's Executive Officers, together with all positions and offices held with the Company by such Executive Officers. Officers are appointed to serve until the meeting of the Board of Directors following the next Annual Meeting of Stockholders and until their successors have been elected and have qualified:
Solomon Dutka (73) has served as a director, Chairman and Chief Executive Officer of the Company since March 1995. A founder of A&S in 1953, he served A&S in various capacities, including as its Chairman and President, prior to the merger with Triangle in March 1995.
H. Arthur Bellows, Jr. (59) has served as a director, President and Chief Operating Officer of the Company since March 1995. He served as a director and Chairman of Triangle from August 1967 until the merger with A&S in March 1995 and as Triangle's President from October 1971 until March 1995.
Joseph Plummer (56) has served as Vice Chairman of the Company since August 1996. From 1989 to 1996 he was with the advertising agency of DMB&B, serving as its Vice Chairman and Worldwide Planning Director. From 1979 to 1989 he was with Young & Rubicam where he served as its Worldwide Research Director.
Carl Ravitch (55) has served as a director and Executive Vice President of the Company since March 1995. He joined A&S in 1967 and served as its Executive Vice President - Chief Marketing Officer from 1992 until the merger with Triangle in March 1995.
Joel S. Klein (58) has served as Executive Vice President- Operations of the Company since January 1996 and as the Company's Secretary since August 1996. He has been with the Company for over 35 years and has served in various research, operational and management positions.
Alan J. Ritter (56) has served as Senior Vice President and Chief Financial Officer of the Company since August 1996 and as Corporate Controller from September 1995 until July 1996. He served as Vice President - Finance of Triangle from October 1993 until the merger with A&S in March 1995 and as Triangle's Corporate Controller from December 1978 until September 1993.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is contained in the Company's 1997 Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year and, accordingly, is omitted pursuant to General Instruction G(3).
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item is contained in the Company's 1997 Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year and, accordingly, is omitted pursuant to General Instruction G(3).
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is contained in the Company's 1997 Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year and, accordingly, is omitted pursuant to General Instruction G(3).
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Documents filed as part of this Report.
1. Financial Statements Page Number -------------------- ----------- Independent Auditor's Report Consolidated Balance Sheets at December 31, 1996 to and December 31, 1995 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years to ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements to
2. Financial Statement Schedules -----------------------------
Schedule Number Description --------------- ----------- II Valuation and Qualifying Accounts S-1
All other financial statement schedules not listed have been omitted since the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required.
Exhibit Numbers Description - ------- -----------
2.01 Merger Agreement between The Triangle Corporation and Audits and Surveys, Inc., dated as of August 11, 1994 (the "Merger Agreement"). Incorporated by reference to Exhibit (2) (I) to the Company's Report on Form 10-Q for the quarter ended September 30, 1994.
2.02 Amendment No. 1 to the Merger Agreement, dated as of October 7, 1994. Incorporated by reference to Exhibit (2) (ii) to the Company's Report on Form 10-Q for the quarter ended September 30, 1994.
2.03 Amendment No. 2 to the Merger Agreement, dated as of January 6, 1995. Incorporated by reference to Exhibit 2 (iii) to the Company's Report on Form 10-K for the year ended December 31, 1994.
2.04 Amendment No. 3 to the Merger Agreement, dated as of January 31, 1995. Incorporated by reference to Exhibit 2 (iv) to the Company's Report on Form 10-K for the year ended December 31, 1994.
2.05 Amendment No. 4 to the Merger Agreement, dated as of February 8, 1995. Incorporated by reference to Exhibit 2 (v) to the Company's Report on Form 10-K for the year ended December 31, 1994.
2.06 Stock and Asset Purchase Agreement between Cooper Industries, Inc. and The Triangle Corporation, dated April 9, 1993 (the "Stock and Asset Purchase Agreement"). Incorporated by reference to Exhibit (2) to the Company's Report on Form 10-Q for the quarter ended March 31, 1993.
2.07 Amendment No. 1 to the Stock and Asset Purchase Agreement, dated April 30, 1993. Incorporated by reference to Exhibit (2) (ii) to the Company's Report on Form 10-Q for the quarter ended June 30, 1993.
2.08 Amendment No. 2 to the Stock and Asset Purchase Agreement, dated August 4, 1993. Incorporated by reference to Exhibit (2) (iii) to the Company's Report on Form 10-Q for the quarter ended June 30, 1993.
3.01 Restated and Amended Certificate of Incorporation of the Company. Incorporated by reference to Exhibit 4.1 to the Company's Report on Form 10-Q/A for the quarter ended March 31, 1995.
3.02 Amended and Restated By-laws of the Company. Incorporated by reference to Exhibit 2(b) to the Company's Registration Statement on Form 8-A/A (Amendment No. 1) filed February 26, 1997.
4.01 Registration Rights Agreement among the Company, H. Arthur Bellows, Jr., Carl Ravitch and the Estate of Irving I. Roshwalb, dated March 24, 1995. Incorporated by reference to Exhibit 4.3 to the Company's Report on Form 10-Q/A for the quarter ended March 31, 1995.
Exhibit Numbers Description - ------- -----------
4.02 Shareholders Agreement among the Company, H. Arthur Bellows, Jr., Solomon Dutka, Solomon Dutka Trust for James Dutka, Solomon Dutka Trust for Michael Dutka, Solomon Dutka Trust for Joyce Dutka, Carl Ravitch, Anthony Timiraos, Dexter Neadle, Lawrence Karp, George Fabian, Fred Winkel, Joel S. Klein, William Liebman, Nagesh Gupta, Thomas Ryan, Joel Dorfman, Josh Libresco, Donald Pace, Paul Donato, Fred Nicholson and Joel J. Klein, dated March 24, 1995. Incorporated by reference to Exhibit 4.4 to the Company's Report on Form 10-Q/A for the quarter ended March 31, 1995.
4.03 Shareholders Agreement between The Triangle Corporation and the Estate of Irving I. Roshwalb, dated February 9, 1995. Incorporated by reference to Exhibit 4.5 to the Company's Report on Form 10-Q/A for the quarter ended March 31, 1995.
10.01+ The Triangle Salaried Profit Sharing Plan. Incorporated by reference to Exhibit (10) (vi) to the Company's Report on Form 10-K for the year ended December 31, 1992.
10.02+ The Triangle Salaried Pension Guarantee Plan. Incorporated by reference to Exhibit (10) (vii) to the Company's Report on Form 10-K for the year ended December 31, 1992.
10.03+ The Triangle Salaried Incentive Savings Plan. Incorporated by reference to Exhibit (10) (viii) to the Company's Report on Form 10-K for the year ended December 31, 1992.
10.04+ The Triangle Retirement Savings Plan Trust Agreement. Incorporated by reference to Exhibit (10) (ix) to the Company's Report on Form 10-K for the year ended December 31, 1992.
10.05+ 1994 Stock Option Plan of Audits & Surveys Worldwide, Inc. Incorporated by reference to Exhibit 4.6 to the Company's Registration Statement or Form S-8 (File No. 333-22875).
10.06+ Employment agreement between the Company and Solomon Dutka, dated March 24, 1995. Incorporated by reference to Exhibit 10.2 to the Company's Report on Form 10-Q/A for the quarter ended March 31, 1995.
10.07+ Employment agreement between the Company and H. Arthur Bellows, Jr., dated March 24, 1995. Incorporated by reference to Exhibit 10.3 to the Company's Report on Form 10-Q/A for the quarter ended March 31, 1995.
10.08+ Employment agreement between the Company and Carl Ravitch, dated March 24, 1995. Incorporated by reference to Exhibit 10.4 to the Company's Report on Form 10-Q/A for the quarter ended March 31,
10.09+ Employment agreement between the Company and Alan J. Ritter, dated September 13, 1995. Incorporated by reference to Exhibit 10 to the Company's Report on Form 10-Q for the quarter ended September 30, 1995.
10.10+ Employment Agreement between the Company and Joseph T. Plummer dated August 8, 1996. Incorporated by reference to Exhibit 10.18 to the Company's report on Form 10-Q for the quarter ended September 30, 1996.
Exhibit Numbers Description - ------- -----------
10.11 Lease between Tobias Associates and Audits & Surveys, Inc., dated February 13, 1987. Incorporated by reference to Exhibit 10.12 to the Company's Report on Form 10-K for the year ending December 31, 1995.
10.12 Lease between Tobias Associates and Audits & Surveys, Inc., dated October 26, 1990. Incorporated by reference to Exhibit 10.13 to the Company's Report on Form 10-K for the year ending December 31, 1995.
10.13 Term Loan Agreement between Audits and Surveys Worldwide, Inc. and Chemical Bank dated as of June 5, 1996. Incorporated by reference to Exhibit 10.17 to the Company's report on Form 10-Q for the quarter ended June 30, 1996.
21.01* List of subsidiaries of the Company.
23.01* Consent of Independent Auditors.
27.01* Financial Data Schedule.
- -------------------------------
* Filed herewith.
+ Management contracts for compensatory plan or arrangement required to be noted pursuant to Item 14.(a)3 of Form 10-K.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the last quarter of the period covered by this report.
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.
Audits & Surveys Worldwide, Inc.
By: /S/ H. ARTHUR BELLOWS, JR. March 27, 1997 -------------------------- -------------- H. Arthur Bellows, Jr. Date President, Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on its behalf by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /S/ SOLOMON DUTKA March 27, 1997 -------------------------- -------------- Solomon Dutka Date Chairman, Chief Executive Officer and Director
By: /S/ H. ARTHUR BELLOWS, JR. March 27, 1997 -------------------------- -------------- H. Arthur Bellows, Jr. Date President and Chief Operating Officer and Director
By: /S/ JOSEPH T. PLUMMER March 27, 1997 -------------------------- -------------- Joseph T. Plummer Date Vice Chairman and Director
By: /S/ CARL RAVITCH March 27, 1997 -------------------------- -------------- Carl Ravitch Date Executive Vice President and Director
By: /S/ ALAN J. RITTER March 27, 1997 -------------------------- -------------- Alan J. Ritter Date Senior Vice President (Principal Financial and Accounting Officer)
By: /S/ CHARLES E. BRADLEY March 27, 1997 -------------------------- -------------- Charles E. Bradley Date Director
By: /S/ BRIAN G. DYSON March 27, 1997 -------------------------- -------------- Brian G. Dyson Date Director
By: /S/ MATTHEW GOLDSTEIN March 27, 1997 -------------------------- -------------- Matthew Goldstein Date Director
By: /S/ ROBERT C. MILLER March 27, 1997 -------------------------- -------------- Robert C. Miller Date Director
By: /S/ WILLIAM NEWMAN March 27, 1997 -------------------------- -------------- William Newman Date Director
By: /S/ SOL YOUNG March 27, 1997 -------------------------- -------------- Sol Young Date Director
By: /S/ WILLIAM A. ZEBEDEE March 27, 1997 -------------------------- -------------- William A. Zebedee Date Director
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Audits & Surveys Worldwide, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Audits & Surveys Worldwide, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for the years ended December 31, 1996, 1995 and 1994. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Audits & Surveys Worldwide, Inc. and Subsidiaries as of December 31, 1996 and 1995 and the results of their operations and their cash flows for the years ended December 31, 1996, 1995 and 1994 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP New York, New York March 3, 1997
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (DOLLAR AMOUNTS IN THOUSANDS) - --------------------------------------------------------------------------------
(Continued)
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Dollar Amounts in Thousands) - --------------------------------------------------------------------------------
See notes to consolidated financial statements. (Concluded)
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Dollar Amounts in Thousands Except for Per Share Data) - --------------------------------------------------------------------------------
See notes to consolidated financial statements.
(PART 2 OF 2))
CUMULATIVE FOREIGN TREASURY STOCK SHARES AMOUNT TOTAL ---------- ---------- ----------
BALANCE, DECEMBER 31, 1993 3,556 $ (528) $ 1,648
Net income -- -- 1,016
Foreign currency adjustment -- -- 50
Stock bonuses (998) 148 467
Distributions to stockholders -- -- (2,049) ---------- ---------- ----------
BALANCE, DECEMBER 31, 1994 2,558 (380) 1,132
Net income -- -- 846
Recapitalization and merger (2,558) 380 4,649 ---------- ---------- ----------
BALANCE, DECEMBER 31, 1995 -- -- 6,627
Net income -- -- 2,589
Foreign currency adjustment -- -- 23
Revaluation of assets acquired in merger -- -- (124)
Stock bonuses -- -- 7
Dividends -- -- (655) ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996 -- $ -- $ 8,467 ========== ========== ==========
See notes to consolidated financial statements.
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION - The consolidated financial statements include the accounts of Audits & Surveys Worldwide, Inc. (the "Company"), and its majority owned subsidiary, Audits & Surveys Europe Ltd. ("A&SE"). All significant intercompany transactions and balances have been eliminated.
BUSINESS ACTIVITY - The Company is an international marketing research firm providing its clients with a broad selection of services and information used to assist in the development of marketing, advertising and investment strategies for their products and services. These services are provided to a wide variety of commercial, industrial and academic organizations on a custom, continuous tracking or syndicated basis.
USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
INVESTMENTS IN AFFILIATES - The equity method of accounting was used by the Company in connection with investments in its Canadian and Pacific joint ventures. These ventures were sold during 1995. Under the equity method, original investments are recorded at cost and adjusted for the Company's share of earnings or losses and distributions.
INVENTORIES - Inventories, which consist primarily of components and finished goods, are stated at the lower of cost (principally on a first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of furniture and fixtures and equipment is provided using accelerated methods over five to ten years. Amortization of leasehold improvements and assets held under capital leases is provided using the straight-line method over the lease term.
LONG-LIVED ASSETS - In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." This statement is effective for fiscal years beginning after December 15, 1995. There was no impact to the Company from adopting this statement.
FAIR VALUE OF FINANCIAL INSTRUMENTS - For financial instruments including cash, accounts receivable, accounts payable and accrued expenses, it was assumed that the carrying amount approximated fair value because of their short maturities. The carrying amount of long-term debt, including capitalized lease obligations, approximates fair value because such debt is subject to floating interest rates or, with respect to capitalized leases, contain current market rates.
REVENUE RECOGNITION - The accompanying financial statements have been prepared using the percentage-of-completion method of accounting for certain contracts and, therefore, take into account the revenue, cost and estimated earnings on contracts not yet completed. Income is recognized on the excess of contract price over direct costs in the percentage that actual costs to date relate to total estimated costs to be incurred. At the time a loss on a contract becomes known, the entire amount of the estimated loss is recognized in the financial statements. In some instances, billing arrangements allow for amounts billed to exceed the revenue recognized, thus resulting in a liability. In those cases where revenue recognized exceeds billings to customers, an unbilled receivable is recorded.
Revenues for the distribution of certain marketing research information is recognized pro rata over the life of the contract.
INCOME TAXES - Deferred income taxes are recognized for the tax consequences of differences between the bases of assets and liabilities for income tax and financial statement reporting, based on enacted tax laws. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
STOCK OPTIONS AND WARRANTS - In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123," Accounting for Stock-Based Compensation," which became effective for the Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply APB Opinion No. 25, which recognized compensation cost based on the intrinsic value of the equity instrument awarded. The Company has elected to follow the provisions of APB Opinion No. 25 for stock based compensation to employees.
TRANSLATION OF FOREIGN CURRENCIES - Financial statements of the Company are reported in U.S. dollars based on the determination that the U.S. dollar is the Company's functional currency. A&SE, using the pound as its functional currency, translates its financial statements into U.S. dollars. Assets and liabilities are translated at the rates of exchange in effect at year end; common stock and additional paid-in capital are translated using historical rates and revenue and expense accounts are translated at the average rates of exchange in effect during the period. Translation adjustments are reflected as a separate component of stockholders' equity.
NET INCOME PER SHARE - The number of shares used in the determination of net income per share represents the weighted average number of common and common equivalent shares outstanding during the periods presented. Common stock equivalents include shares issuable under the Company's stock option plan when dilutive. Shares outstanding have been retroactively adjusted for the number of equivalent shares received in the Merger.
2. MERGER
On March 24, 1995, Audits and Surveys, Inc. (A&S) and The Triangle Corporation ("Triangle") consummated a merger pursuant to which A&S was merged with and into Triangle. Triangle was the surviving corporation and the separate existence of A&S ceased. The name of the merged corporation was changed to "Audits & Surveys Worldwide, Inc." Each share of Triangle's common stock outstanding prior to the consummation of the Merger remained outstanding. Each share of A&S' common stock outstanding prior to the Merger was exchanged for 1,407.565 shares of Triangle's common stock. Upon consummation of the Merger, the holders of Triangle's common stock immediately prior to the Merger owned 20% of the Company's common stock and the holders of A&S' common stock immediately prior to the Merger owned 80% of the Company's common stock.
For accounting and financial reporting purposes, the Merger has been treated as a reverse acquisition. Accordingly, A&S was deemed to have acquired Triangle's net assets in return for a 20% equity interest in the Company. Inasmuch as Triangle's operations were limited, the purchase price was recorded at the fair value of Triangle's net assets acquired plus approximately $1,323,000 of merger related expenses. Any excess purchase price has been charged to paid-in capital. No goodwill has been recorded in connection with this transaction.
At the date of Merger, Triangle had net operating loss carry forwards of approximately $7,600,000. No deferred tax assets were initially recognized by the Company due to the limitations in the tax laws relating to the change in Triangle's stock ownership and the planned disposition of Triangle's only two operating entities subsequent to the Merger. In the fourth quarter of 1995, management reevaluated its tax planning alternatives with respect to the disposition of one of Triangle's operating entities, thereby permitting the limited utilization of Triangle's operating loss carryforwards. Accordingly, in December 1995, the Company recognized approximately $2,600,000 of deferred tax assets with a corresponding increase in paid-in capital.
The accompanying consolidated financial statements include the accounts of Triangle subsequent to the Merger. Triangle's operations for the period March 24, 1995 to March 31, 1995 were not significant. For convenience, the acquisition has been recorded as of March 31, 1995 for accounting purposes.
The following unaudited pro forma condensed consolidated operating information is presented to illustrate the effects of certain adjustments to the historical statements of operations of the Company that would result from the merger and is presented as if the merger occurred on January 1, 1994.
YEAR ENDED DECEMBER 31, ---------------------------- 1995 1994 (UNAUDITED) ($000 EXCEPT PER SHARE DATA)
Revenues $ 54,766 $ 44,771 =========== ===========
Net income $ 753 $ 321 =========== ===========
Net income per share $ .06 $ .10 =========== ===========
Weighted average shares outstanding 13,094,755 13,094,755 =========== ===========
3. PROPERTY AND EQUIPMENT
DECEMBER 31, -------------------
1996 1995 ($000)
Furniture and fixtures $ 437 $ 413
Equipment 1,936 1,873
Leasehold improvements 3,263 3,183
Assets held under capital leases (Note 6) 386 386 ------ ------
Total 6,022 5,855
Less accumulated depreciation and amortization 3,060 2,728 ------ ------
Property and equipment - net $2,962 $3,127 ====== ======
Depreciation and amortization expense for the years ended December 31, 1996, 1995 and 1994 were $748,000, $581,000 and $531,000, respectively.
4. OTHER ASSETS
Other assets consist of the following:
DECEMBER 31, -----------------
1996 1995 ($000)
Cash surrender value of officers' life insurance $ 265 $ 243
Deferred charges 1,296 1,649
Security deposits 164 129 ------ ------
$1,725 $2,021 ====== ======
Deferred charges at December 31, 1996 and 1995 principally include approximately $986,000 and $1,286,000, respectively, representing the unamortized portion of costs related to an agreement with a supplier for retail sales data (see Note 15).
Deferred charges also include commission payments made in connection with the sublease of portions of the Company's premises. Such amounts have been deferred and are being amortized over the lease terms of the related subleases.
5. DEBT
DECEMBER 31, -------------------- NOTES PAYABLE BANK 1996 1995 ($000)
Notes payable bank pursuant to a $2,500,000 credit facility; interest is payable at the bank's prime rate (8.25% at December 31, 1996) or LIBOR plus 250 basis points. The line of credit matures in June 1997 and is collateralized by accounts receivable (a). $ - $ 1,200 ========= =========
LONG-TERM DEBT
Term loan payable to a bank with interest at 1/2% over the bank's prime rate or LIBOR plus 300 basis points. The loan is repayable in twenty quarterly installments of $130,500 which began in June 1996 and is collateralized by accounts receivable (a). $ 2,218 $ 2,500
Note payable to a bank with interest at 1% above the prime rate (a). - 500
Note payable to subtenant for leasehold improvements, due in quarterly installments of $15,000, including interest at the rate of 11.02% through January 2003. 280 303
Other - 2 --------- ---------
Total 2,498 3,305
Less current portion 555 658 --------- ---------
Long-term portion $ 1,943 $ 2,647 ========= =========
(a) On June 5, 1996 the Company refinanced its existing term loan and $5,000,000 credit facility into a $2,610,000 term loan and a $2,500,000 secured line of credit. The term loan and line of credit contain customary affirmative and negative covenants including those requiring the Company to maintain certain financial ratios and restricting the annual payment of dividends to an amount not in excess of 50% of the previous year's net income.. The weighted average interest rate in effect for the year ended December 31, 1996 under the short-term credit facility was 8.26%.
Debt matures in each of the years subsequent to December 31, 1996, as follows:
YEAR ENDED DECEMBER 31, ($000) - ------------
1997 $ 555 1998 559 1999 563 2000 568 2001 182 Thereafter 71 ------
$2,498 ======
6. CAPITAL LEASE OBLIGATIONS
The Company has entered into lease agreements for computer and office equipment that have been accounted for as capital leases due to the provisions of the lease agreements. The equipment has been recorded in the accompanying consolidated financial statements at the present value of the future minimum lease payments.
At December 31, 1996, future minimum lease payments are as follows:
YEAR ENDED DECEMBER 31, ($000) - ------------
1997 $ 91 1998 72 1999 59 2000 59 2001 20 ------
Total future minimum lease payments 301
Less amounts representing interest 60 ------
Present value of future minimum lease payments (including $88,000 payable currently) $ 241 ======
Accumulated depreciation related to assets held under capital leases at December 31, 1996 was $188,000.
7. INCOME TAXES
The components of the provision for income taxes are as follows:
Year Ended December 31, ------------------------ 1996 1995 1994
($000)
Federal $1,185 $ 237 $ 672 State and local 579 200 166 Foreign 6 30 1 Deferred 49 240 13 ------ ------ ------ $1,819 $ 707 $ 852 ====== ====== ======
The following reconciles Federal taxes at the statutory rate to the tax expense recorded in the financial statements:
YEAR ENDED DECEMBER 31, ----------------------------
1996 1995 1994 ($000)
Federal taxes at statutory rate $ 1,499 $ 528 $ 635 State taxes, net of federal benefit 382 132 110 Other (62) 47 107 ------- ------- -------
$ 1,819 $ 707 $ 852 ======= ======= =======
The tax effects of temporary differences which give rise to deferred tax assets and liabilities are as follows:
DECEMBER 31, ------------------
1996 1995
($000) Current deferred income tax assets: Net operating loss carryforwards $ 236 $ -- Accrued vacation pay 97 101 Other 13 67 ------- ------- $ 346 $ 168 ======= ======= Noncurrent deferred income tax assets: Net operating loss carryforwards $ 1,905 $ 2,468 Accrued rent 507 539 Basis of leasehold improvements 330 252 Deferred compensation 164 139 ------- ------- $ 2,906 $ 3,398 ======= ======= Deferred income tax liability: Prepaid pension costs $ (464) $ (405) ======= =======
8. DEFERRED COMPENSATION
The Company is a party to deferred compensation agreements with certain key employees. Amounts due under such agreements amounted to $358,000 and $324,000 at December 31, 1996 and 1995, respectively, and are included in "Other Liabilities." The costs related to these agreements for the years ended December 31, 1996, 1995 and 1994 were $34,000, $31,000, and $30,000, respectively.
9. ACCRUED RENT
The Company has entered into various lease agreements which provide for scheduled rent increases and free rent periods. In accordance with generally accepted accounting principles, rent expense has been recorded on the straight-line basis over the life of the leases. At December 31, 1996 and 1995, accrued rent of $1,181,000 and $1,124,000, respectively, represents that portion of rent expense (net of sublease income) which has not yet been paid. Such amounts are included in "Other Liabilities."
10. STOCKHOLDERS' EQUITY
On July 21, 1994, the Company issued 998 shares of common stock to certain key employees, some of whom were already shareholders of the Company. In connection with this transaction, the Company charged $779,000 to operations representing the estimated fair value of the stock of $467,000 plus the estimated tax cost to the recipients of $312,000. Upon the effectiveness of the merger (Note 2), all existing redemption agreements terminated and stockholders' agreements became effective which among other things, preclude the sale of the Company's stock by the parties to the agreements for a period of two years, subject to certain limited exceptions.
For the year ended December 31, 1996 the Company declared a dividend of $.05 per share ($655,000) which was paid on January 15, 1997 to stockholders of record as of December 31, 1996. No dividends were declared or paid for the year ended December 31, 1995. During the year ended December 31, 1994 the Company declared and paid $2,049,000 of distributions to shareholders which were the final distributions related to periods during which the Company was a Subchapter S Corporation for income tax purposes.
11. STOCK OPTION PLAN
The Company's 1994 Stock Option Plan (the "Plan") covers 650,000 shares of common stock which are available for future grants. The Plan, adopted in 1994 and expiring in 2004, is administered by a committee designated by the board of directors. Options granted to eligible employees are generally exercisable over three years.
Prior to 1996, there were no options granted under the Plan. A summary of the status of the Plan as of December 31, 1996 is presented below:
SHARES EXERCISE PRICE ------ --------------
Outstanding at the beginning of year 0 Granted 637,550 $2.00 - $2.75 Exercised 0 Forfeited 46,500 $2.00 - $2.75 --------- Outstanding at end of year 591,050 $2.00 - $2.75 ========= Options exercisable at year end 0 =========
The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock options. Accordingly, no compensation cost has been recognized for the options granted to employees. Had compensation cost for the employee options been determined using the Black-Scholes option-pricing model described in SFAS No. 123, the Company would have recorded aggregate compensation of approximately $695,000 which would be expensed over the options' vesting periods. The assumptions used in the option pricing model include risk-free interest rates of 5.8% to 6.5%, expected lives of 3 to 5 years and expected volatility of 50.8% to 57.3%. The pro forma impact for the year ended December 31, 1996 of following the provisions of SFAS No. 123 for employee options on the Company's net income and earnings per share would be as follows:
Net income - As Reported $2,589,000 ==========
- Pro Forma $2,434,000 ==========
Net Income per share - As Reported $.20 ====
- Pro Forma $.19 ====
12. RELATED PARTY TRANSACTIONS
On November 28, 1994, effective December 6, 1994, the Company sold its 20% investment in IPSA, an Argentinean affiliate, for an aggregate of $1,500,000, thereby realizing a net gain of $1,335,000.
On January 31, 1994, the Company entered into an agreement with one of its shareholders who owned approximately 9% of the Company's outstanding stock ("Retirement Agreement"), which provided for, among other things, the payment of salary, incentive bonuses and special bonuses and the repurchase of the shareholder's stock on November 30, 1995 at a price equal to two times the book value of those shares determined as of the redemption date. On August 19, 1994 the shareholder died. On February 9, 1995 the Company entered into a revised agreement with the estate of the deceased shareholder which amended the Company's obligations under the Retirement Agreement and provided for aggregate payments of $341,000 through August 1995 in full settlement of all obligations to the estate. Additionally, the estate will not be required to redeem the shares of common stock held by it.
13. ECONOMIC DEPENDENCY AND CONCENTRATION OF CREDIT RISK
Approximately 28%, 23% and 21% of the Company's revenues for the years ended December 31, 1996, 1995 and 1994, respectively, were derived from one client. No other client accounted for more than 10% of the Company's revenues.
14. EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION PLAN - The Company sponsors a defined contribution plan covering substantially all of its employees. Contributions to the plan amounted to $151,000, $173,000 and $192,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The Company's contributions are determined annually by management.
DEFINED BENEFIT PLAN - The Company maintains a retirement plan covering the former employees of Triangle (the "Triangle Salaried Pension Guarantee Plan"). Pension costs are based on the provisions of Statement of Financial Accounting Standards No. 87. The net periodic pension credits for the year ended December 31, 1996 and the period from March 31, 1995 (the date of the merger) to December 31, 1995 included the following components:
YEAR ENDED MARCH 31, 1995 TO DECEMBER 31,1996 DECEMBER 31,1995 ---------------- ---------------- $000)
Service-cost benefits $ 14 $ 24 Interest cost on projected benefit obligation 353 273 Return on plan assets (514) (361) ----- -----
Net periodic pension credit $(147) $ (64) ===== =====
The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.0% for 1996 and 7.5% for 1995. The rate of increase in future compensation levels was 4% and the weighted average long-term rate of return on assets was 8.5% for 1996 and 1995.
The following table indicates the funded status of the plan and the amount recognized as prepaid pension costs in the consolidated balance sheet at December 31, 1996 and 1995:
DECEMBER 31, ------------------- 1996 1995 ------- ------- ($000)
Actuarial present value of benefit obligations: Accumulated benefits obligation, including vested benefits of $5,073,000 and $5,202,000, respectively $(5,073) $(5,216) ======= =======
Projected benefit obligation $(5,073) $(5,268) Plan assets at fair value, primarily listed stocks 6,657 6,269 and corporate obligations ------- -------
Plan assets in excess of projected benefit obligation 1,584 1,001 Unrecognized net gain (494) (58) ------- -------
Prepaid pension costs $ 1,090 $ 943 ======= =======
Effective January 1, 1997, the Triangle Salaried Pension Guarantee Plan was amended to, among other things, (i) change the name of the plan to the Audits & Surveys Worldwide, Inc. Account Balance Retirement Plan, (ii) include all employees of the Company completing one year of service and (iii) establish participant accounts which shall be credited each year with an amount equal to one and one half percent of the participant's plan compensation ( as defined) and interest on the account balance at the rate applicable to 30 year U.S. Treasury securities.
15. COMMITMENTS AND CONTINGENCIES
INCENTIVE AGREEMENTS - The Company is obligated under various incentive compensation agreements with certain key employees. Such agreements provide for incentive bonuses based on the financial performance of their respective divisions. Total incentive bonuses amounted to approximately $2,394,000, $1,765,000 and $3,947,000 in the years ended December 31, 1996, 1995 and 1994, respectively.
OPERATING LEASES - The Company is obligated under lease agreements for office space which expire at various dates through February 28, 2003. Under the terms of the leases the Company is obligated to pay its portion of operating costs and real estate tax increases. Rent expense for the years ended December 31, 1996, 1995 and 1994 was approximately $1,624,000, $1,676,000, and $1,601,000, respectively. Sublease rental income for the years ended December 31, 1996, 1995 and 1994 was approximately $748,000, $667,000 and $937,000, respectively.
Future minimum lease commitments and sublease income at December 31, 1996 are as follows:
YEAR ENDED LEASE SUBLEASE DECEMBER 31, COMMITMENT INCOME ---------- ------ ($ 000)
1997 $ 1,610 $ 575 1998 1,769 525 1999 1,719 525 2000 1,669 525 2001 1,653 525 Thereafter 1,929 613 ------- ------- $10,349 $ 3,288 ======= =======
The Company is obligated under employment compensation agreements with five key executives which require annual aggregate minimum base compensation payments of $1,345,000. These agreements expire at various dates through March 24, 2002. All of theses agreements provide for discretionary and or performance based bonuses in addition to the base compensation.
On February 6, 1995, the Company entered into a five-year agreement with a supplier whereby the Company will pay $1,500,000 for retail sales data and other rights as specified in the agreement. In the event of termination, the amounts owed to the supplier would be prorated based on the proportion of sales data received during the period prior to termination. As of December 31, 1996, the Company has paid the supplier $1,100,000. The balance of $400,000 is payable over a four-year period.
Triangle's inactive subsidiary, Diamond Tool and Horseshoe Co., now known as Tri-North, Inc., is one of a large number of third-party defendants in an action brought by the U.S. Environmental Protection Agency. In prior years, Triangle expensed $100,000, excluding legal costs, relating to this action. Any further liability with respect to this action would constitute an Assumed Liability (as defined) under the terms of an agreement with Cooper Industries, Inc. ("Cooper") dated August 4, 1993 pursuant to which Triangle sold substantially all of the assets constituting its mechanics hand tool, horseshoe and farrier tool business. Cooper is obligated to indemnify the Company against any such liability (including the cost of obtaining a settlement or consent order releasing the Company from further liability). However, the final conditional payment due from Cooper of $500,000 (plus interest thereon) is due when and if the Company obtains a satisfactory settlement or consent order releasing it from further liability with respect to this action. The Company believes that the cleanup of the site has been completed and that it will collect substantially all of the $500,000 final conditional payment from Cooper.
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Unaudited summary results of operations for 1996 and 1995 (in thousands, except for per share data) were as follows:
******
ITEM 14. FINANCIAL STATEMENT SCHEDULE
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (000's) - --------------------------------------------------------------------------------
Additions Deductions ----------------------- Balance at Charged Beginning to Profit Balance at Description of Period and Loss (A) End of Period
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31, 1994 $ 0 $129 $ 0 $129
Year ended December 31, 1995 $129 $ 92 $ 71 $150
Year ended December 31, 1996 $150 $108 $228 $ 30
(A) Represents write-offs of uncollectible accounts receivable
S-1