SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended DECEMBER 31, 1997
Commission file number 1-7675
AUDITS & SURVEYS WORLDWIDE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-1809586
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
650 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10011
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-627-9700
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
- ------------------- -----------------------------------------
COMMON STOCK AMERICAN STOCK EXCHANGE
PAR VALUE $.01
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 17, 1998: $ 15,220,020
Number of shares of Common Stock outstanding at March 17, 1998: 13,111,137
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of Audits & Surveys Worldwide, Inc.'s 1998 Proxy
Statement are incorporated by reference into Part III of this Annual Report on
Form 10-K.
<PAGE>
ITEM 1. BUSINESS
Recent Developments
During 1997 Audits & Surveys Worldwide, Inc. ("ASW" or the "Company")
continued to implement its strategy of expanding its services globally through
the growth of its international consumer tracking studies and syndicated sales
measurement services. In addition, the Company opened an office in Manila, The
Philippines, to serve the rapidly growing Asia Pacific market and increased the
staff and facilities of its London-based subsidiary to provide expanded services
in Europe, the Middle East and Africa.
In September, 1997 the Company joined with two other leading market
research firms, NPD Marketing Services L.P. and GfK AG, to form a joint venture
to track the information technologies, consumer electronics, imaging and home
appliances markets. The new venture, INTELECT ASW Marketing Services, L.L.C.,
provides retail point-of-sale tracking through a comprehensive panel of
retailers and dealers in the U.S. and around the world.
During the year the Company completed the development of its Primary
and Total Audience Surveys ("PTAS"), 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. PTAS is unique in that it targets, by mail, magazine subscribers among
many magazines through a standard quantitative questionnaire as well as
providing traditional audience and pass-along readership levels. The service is
able to cover more than twice as many magazine titles as other existing products
and do so on a cost-effective basis. In January 1998, the Company formed ASW-KMR
Magazine Metrics, L.L.C., a joint venture with Kantar Media Research, to
substantially expand the size and scope of the services of the Primary and Total
Audience Surveys.
The Company also formed a strategic alliance with CyberGold, Inc. as
one step in positioning itself to provide Internet advertisers and businesses
with state-of-the-art marketing research. Both CyberGold's client and membership
bases offer new avenues of research for the Company. Internet advertisers
seeking independent verification of their CyberGold advertising/communications
efforts, profiling of viewers or visitors, evaluation of their website and
website image, or other related research, will be able to meet their needs by
working with the Company. Moreover, using CyberGold's membership base, the
Company will be able to target more precisely the Internet audience
characteristics of any of the Company's clients or prospects for research
services --saving time and costs associated with traditional screening.
Business. GENERAL. ASW, 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 80 countries, are
provided to major commercial, industrial, institutional and academic
organizations. The Company's most significant clients in terms of 1997 revenue
include AT&T, Amerada Hess, The Coca-Cola Company, IBM, MasterCard
International, Shell Oil Company, Sunstar Inc., Volvo Corporation of North
America, United Parcel Service and Xerox.
<PAGE>
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, 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:
1997 1996 1995
---- ---- ----
Custom Research Projects 27% 31% 36%
Continuous Tracking Studies 52% 49% 49%
Syndicated Studies 21% 20% 15%
--- --- ---
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
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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 syndicated multi-client tracking services include:
SERVICE DESCRIPTION
PETS A continuous tracking of the sales of pet
products through veterinarians, pet supply
stores and farm/feed dealers.
Hispanic Food Store Sales Index In-person audits and
point-of-sale information to measure sales
and distribution in small food stores
located in predominantly hispanic
neighborhoods of major cities.
VENDtrack The only national on-site continuous
tracking service of vending machine
distribution.
Automotive Aftermarket Sales Index Measurement of sales
of specific product categories in the retail
automotive chain store market.
The National Golf Audit A continuous measurement of the sales of
golf balls, clubs and related products
through pro shops, sporting goods stores and
mass merchandisers.
National Retail Census The largest in-person measurement of product
and services availability in the U.S.,
consisting of personal visits to over 35,000
retail and service outlets.
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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: Location
and in-store planning measurements, The Beauty Salon Index, National Jewelry
Index, 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 in avoiding 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.
AUDIT DIVISION: JOINT VENTURE AND STRATEGIC ALLIANCE In 1997 the
Company's Global Computer Products Sales Index was moved into a joint venture to
facilitate worldwide expansion and its National Home Improvement Products Sales
Index became the basis for a strategic alliance that increased domestic coverage
significantly:
SERVICE DESCRIPTION
Global Computer Products A monthly measurement of sales of personal
Sales Index computers and related products through all
major retail and commercial channels
throughout the world. In 1997 this became
part of a joint venture, INTELECT ASW
Marketing Services, L.L.C., with NPD
Marketing Services L.P. and GfK AG as the
other two partners.
National Home Improvement A monthly measurement of sales of
Products Sales Index do-it-yourself products through the rapidly
growing home center channel. In 1997 this
served as the basis for a strategic alliance
with ICI Triad, a major provider of computer
services to the hardware store market.
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.
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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 pan-regional 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 and Total
Audience Surveys ("PTAS"), 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.
In January 1998, the Company announced that it had formed a joint venture
partnership with Kantar Media Research, another leading international research
company, to expand PTAS. The joint venture, ASW-KMR Magazine Metrics, L.L.C.,
will be able to cover more than twice as many titles as other existing products.
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
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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, 1997, were AT&T, Amerada Hess, The Coca-Cola Company,
IBM, MasterCard International, Shell Oil Company, Sunstar Inc., Volvo
Corporation of North America, United Parcel Service and Xerox. The Coca-Cola
Company has been a client of ASW for over 30 years and represented approximately
33% of the Company's 1997 revenues. No other client accounted for more than 5%
of ASW's revenues during such fiscal year. Six of the other 9 clients listed
above 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 assist significantly 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. Early in 1997 the Company opened an
office in Manila, The Philippines, to provide on-site regional supervision of
U.S.-sourced research conducted in the Asia Pacific region and to provide
research services to that rapidly growing market. In Latin America the Company
has 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
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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 576 employees, 286 of whom are part-time
hourly support employees and 290 are full-time staff. The full-time staff
includes 105 professional employees, 90 support employees and 95 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.
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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, 1997, the Company had total unrecognized revenues of
approximately $14,000,000 compared with approximately $16,300,000 at December
31, 1996. Substantially all of such unrecognized revenues at December 31, 1997
are expected to be recognized in 1998.
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 33,000 square feet at
this location to unaffiliated parties through the date on which the primary
lease expires.
The Company also leases an aggregate of approximately 35,000 square
feet of office space in San Francisco, Chicago, Philadelphia, Minneapolis,
Portland (OR), Livonia (MI), Manila and London.
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
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").
Triangle's inactive subsidiary, Diamond Tool and Horseshoe Co., now
known as Tri-North, Inc., was one of a large number of third-party defendants in
an action brought by the U.S. Environmental Protection Agency (the "EPA
Action"). In prior years, Triangle had expensed $100,000, excluding legal costs,
relating to this action. Any further liability with respect to this action
constituted 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 to Cooper substantially all of the assets constituting Triangle's
mechanics hand tool, horseshoe and farrier tool business. Cooper was 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). The final conditional payment due from Cooper of $500,000 (plus
interest thereon) was due when the Company obtained a satisfactory settlement or
consent order releasing it from further liability with respect to this action.
During 1997, the Company obtained a consent order in the EPA Action, and Cooper
remitted to the Company an aggregate of $545,000 in final settlement of the
conditional payment. This matter is now closed.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
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:
1996 HIGH LOW
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
1997
First Quarter $ 4 - 7/16 $ 2 - 13/16
Second Quarter 3 - 1/16 2 - 7/16
Third Quarter 3 - 3/4 2 - 1/2
Fourth Quarter 3 - 5/8 2 - 1/2
(b) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
The number of record holders of the Company's common stock as of March
17, 1998 was 597.
(c) DIVIDENDS
No cash dividends were declared for the year ended December 31, 1997.
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.
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ITEM 6. SELECTED FINANCIAL DATA
(Dollar amounts in thousands except per share data)
<TABLE>
<CAPTION>
SELECTED INCOME YEARS ENDED DECEMBER 31, ONE MONTH
------------------------------------------------------- ENDED YEAR ENDED
STATEMENT DATA: 1997 1996 1995 1994 DEC. 31, 1993 NOV. 28, 1993
---- ---- ---- ---- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 68,870 $ 60,368 $ 54,626 $ 43,917 $ 2,568 $ 40,173
Income (Loss) Before
Taxes $ 2,395 $ 4,408 $ 1,553 $ 1,868 ($ 422) $ 1,485
Net Income:
Historical $ 1,418 $ 2,589 $ 846 $ 1,016 $538 (a) $ 1,323
Pro forma (b) -- -- -- -- -- $ 808
Basic earnings per
common share:
Historical $ .11 $ .20 $ .07 $ .10 $ .05 --
Pro forma (b) -- -- -- -- -- $ .08
Weighted average
common shares
outstanding 13,104,759 13,099,103 12,499,213 10,475,804 10,475,804 10,475,804
Diluted earnings
per common share:
Historical $ .11 $ .20 $ .07 $ .10 $ .05 --
Pro forma (b) -- -- -- -- -- $ .08
Weighted average
common shares
outstanding and
dilutive stock
options 13,268,318 13,170,286 12,499,213 10,475,804 10,475,804 10,475,804
SELECTED BALANCE
SHEET DATA:
Total assets $ 28,455 $ 26,509 $ 24,887 $ 16,478 $ 13,068 $ 12,642
Total debt $ 4,129 $ 2,739 $ 4,802 $ 2,454 $ 2,543 $ 1,869
Stockholders' equity $ 9,806 $ 8,467 $ 6,627 $ 1,132 $ 1,648 $ 1,110
Cash dividends
per share (c) -- $ .05 -- -- -- --
</TABLE>
(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 year ended November 28, 1993 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 this
year has been adjusted to reflect an estimate of the actual taxes that would
have been paid had the Company been a C Corporation.
(c) No cash dividends were declared for the year ended December 31, 1997. 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.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
1997 Compared with 1996
- -----------------------
Revenues for 1997 increased 14.1% to $68.9 million compared with $60.4 million
in 1996. The increase in revenues was principally attributable to higher
revenues from international and domestic consumer tracking studies as well as
from new or expanded custom and syndicated media and audit research services.
Direct costs were $5.8 million (20.0%) higher in 1997 compared with 1996,
primarily as a result of the increase in revenues. As a percentage of revenues,
direct costs were 49.5% in 1997 compared with 47.0% in 1996. The change in
direct costs, as a percentage of revenues, reflects changes in the mix of
research revenues. In addition, direct costs in 1997 included higher costs
incurred in the development of expanded syndicated research services. Such
syndicated services include a program which tracks personal computer sales in
seven Western European countries and a program to provide primary audience
database research to monitor household demographics, product usage and
lifestyles of subscribers and newsstand buyers of U.S. magazines.
Selling, general and administrative (SG&A) expenses increased $4.2 million
(16.7%) in 1997 compared with 1996. Approximately 75% 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 costs associated with additional personnel
include the staffing of the Asia Pacific office in Manila, which opened in early
1997, expansion of the research staffs in the U.S. as well as at Audits &
Surveys Europe, Ltd. in London and additions to technical support staff,
particularly in information services. The remainder of the increase in SG&A
expenses was spread over various expenses such as rent, utilities, depreciation,
computer costs and sales and promotion expenses.
The provision for incentive bonuses was approximately 9% lower in 1997 compared
with 1996. The lower provision resulted from the decrease in operating income on
which the incentive bonuses are calculated.
Other expense (income) increased in 1997 principally as a result of the
termination of a sublease between the Company and a sub-tenant for a portion of
the space at the Company's New York headquarters. A significant portion of the
space previously occupied by the sub-tenant was occupied by the Company in 1997
to accommodate additional personnel.
Income taxes for 1997 and 1996 have been provided at approximately 41% of
reported pretax income. See Note 7 of the Notes to Consolidated Financial
Statements for a detailed analysis of the provisions for income taxes.
1996 Compared with 1995
- -----------------------
Revenues for 1996 increased $5.7 million (10.5%) to $60.4 million
compared with $54.6 million in 1995. The increase 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 (6.4%) higher in 1996 compared with
1995, primarily as a result of
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the increase in revenues. As a percentage of revenues, direct costs were 47.0%
in 1996 compared with 48.9% 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 included
expenses related to the development of new research services and such
development expenses were lower in 1996 than in 1995.
SG&A expenses increased $1 million (4.0%) 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 46% in 1995. See Note 7 of the Notes to Consolidated
Financial Statements for a detailed analysis of the provisions for income taxes.
Financial Condition, Liquidity and Capital Resources
At December 31, 1997, the Company had working capital of $4.7 million
and a current ratio of 1.32 to 1 compared with working capital of $3.9 million
and a current ratio of 1.28 to 1 at December 31, 1996.
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. In June 1997
the Company's secured line of credit was renewed and increased to $4,000,000.
The Company's term loan with its bank 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 used by operating activities was $800,000, consisting
primarily of net income of $1,418,000 plus non-cash expenses of $1,723,000 and
increases in accounts payable and accrued expenses of $1,665,000 offset
primarily by increases in accounts receivable of $3,585,000 and other current
assets of $379,000 and decreases in customer billings in excess of revenues
earned of $1,337,000 and income taxes payable of $284,000.
Net cash used in investing activities was $1,575,000 from purchases of
property and equipment of $1,087,000 and an investment in a joint venture of
$488,000.
Net cash provided by financing activities was $195,000 consisting
primarily of proceeds from bank borrowings of $1,500,000 offset by repayments of
bank borrowings and other debt of $1,349,000.
The Company believes that its 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.
12
<PAGE>
Year 2000 Compliance
The Year 2000 issue arises because much of the computer software currently in
operation uses only the last two digits, rather than all four, to define the
applicable year. As a result, the "00" that would be used to denote the year
2000 may be incorrectly recognized as the year 1900. This could result in major
errors in date sensitive applications.
The Company has initiated a comprehensive program to identify internally used
software that may require reprogramming or replacement and the related
additional hardware requirements which may result. The program encompasses
software used to provide client service and software used by the Company's
financial and operational support systems. In addition to addressing internally
used software, discussions with the Company's significant suppliers and clients
have commenced in order to ensure that their software and the resultant data
exchanged will be in Year 2000 compliant format.
Internal and external resources will be used to identify, reprogram, replace and
test all of the Company's software for Year 2000 compliance. The Company expects
to complete the project by the latter part of 1999 and estimates the cost could
range from $500,000 to $750,000. The cost is currently being funded through
operating cash flows, however, it is possible that additional financing may be
required. Failure by the Company, its suppliers and clients to complete the Year
2000 compliance requirements in a timely manner could have a material adverse
effect on the Company's future operations.
Forward Looking Statements
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. As such, final results
could differ from estimates or expectations due to factors such as incomplete or
preliminary information or changes in government regulation and policies. For
any of these factors, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, as amended.
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. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
13
<PAGE>
PART III
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 1998 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 (74) 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. (60) 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.
Carl Ravitch (56) 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 (59) 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 (57) 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. EXECUTIVE COMPENSATION
The information required in response to this item is contained in the
Company's 1998 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).
14
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item is contained in the
Company's 1998 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. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is contained in the
Company's 1998 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).
15
<PAGE>
PART IV
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 Auditors' Report F-1
Consolidated Balance Sheets at December 31, 1997 F-2 to F-3
and December 31, 1996
Consolidated Statements of Income for the years ended F-4
December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity F-5
for the years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended F-6 to F-7
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements F-8 to F-19
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.
16
<PAGE>
Exhibit
Numbers Description
- ------- -----------
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.
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+ 1994 Stock Option Plan of Audits & Surveys Worldwide, Inc.
Incorporated by reference to Exhibit 4.6 to the Company's
Registration Statement on Form S-8 (File No. 333-22875).
10.02+ 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.
10.03+ 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.
10.04+ 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, 1995
10.05+ 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.
10.06+* Employment Agreement between the Company and Joel S. Klein,
dated October 1, 1997.
10.07 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.
17
<PAGE>
10.08 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.
10.09 Term Loan Agreement between the Company 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.
10.10+ Amendment dated March 25, 1997 to Employment Agreement between
the Company and Solomon Dutka dated March 24, 1995.
Incorporated by reference to Exhibit 10.14 to the Company's
Report on Form 10-Q for the quarter ended June 30, 1997.
10.11+ Amendment dated March 25, 1997 to Employment Agreement between
the Company and H. Arthur Bellows, Jr. dated March 24, 1995.
Incorporated by reference to Exhibit 10.15 to the Company's
Report on Form 10-Q for the quarter ended June 30, 1997.
10.12+ Amendment dated March 25, 1997 to Employment Agreement between
the Company and Carl Ravitch dated March 24, 1995.
Incorporated by reference to Exhibit 10.16 to the Company's
Report on Form 10-Q for the quarter ended June 30, 1997.
10.13+ Amendment dated June 30, 1997 to Employment Agreement between
the Company and H. Arthur Bellows, Jr. dated March 24, 1995.
Incorporated by reference to Exhibit 10.17 to the Company's
Report on Form 10-Q for the quarter ended June 30, 1997.
10.14+ Amendment dated June 30, 1997 to Employment Agreement between
the Company and Carl Ravitch dated March 24, 1995.
Incorporated by reference to Exhibit 10.18 to the Company's
Report on Form 10-Q for the quarter ended June 30, 1997.
10.15+ Amendment dated June 30, 1997 to Employment Agreement between
the Company and Alan Ritter dated September 13, 1995.
Incorporated by reference to Exhibit 10.19 to the Company's
Report on Form 10-Q for the quarter ended June 30, 1997.
10.16+* Amendment dated October 1, 1997 to Employment Agreement
between the Company and Carl Ravitch dated March 24, 1995
10.17+ 1997 Stock Option Plan of Audits & Surveys Worldwide, Inc.
Incorporated by reference to the Company's Proxy Statement
dated May 6, 1997.
21.01* List of subsidiaries of the Company.
23.01* Consent of Independent Auditors.
27.01* Financial Data Schedule.
- ------------------------
* Filed herewith.
+ Management contracts or 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.
18
<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.
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/ 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)
19
<PAGE>
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/ JOSEPH T. PLUMMER MARCH 27, 1997
-------------------------- --------------
Joseph T. Plummer 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
20
<PAGE>
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, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years ended December 31, 1997, 1996 and 1995. 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, 1997 and 1996 and the results of their
operations and their cash flows for the years ended December 31, 1997, 1996 and
1995 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.
DELOITTE & TOUCHE LLP
New York, New York
March 12, 1998
F-1
<PAGE>
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
------------
ASSETS 1997 1996
------- -------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,524 $ 3,827
Accounts receivable:
Billed (net of allowance for doubtful accounts of $100 and $30) 9,274 9,161
Unbilled 6,114 21714
Prepaid expenses and inventories 1,317 1,259
Deferred income taxes 479 346
Other current assets 563 483
------- -------
Total current assets 19,271 17,790
PROPERTY AND EQUIPMENT - Net 3,579 2,962
RECEIVABLE FROM SALE OF ASSETS -- 500
PREPAID PENSION COSTS 1,142 1,090
DEFERRED INCOME TAXES 2,406 2,442
OTHER ASSETS 2,057 1,725
------- -------
TOTAL ASSETS $28,455 $26,509
======= =======
</TABLE>
See notes to consolidated financial statements. (Continued)
F-2
<PAGE>
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
- --------------------------------------------------------------------------------
DECEMBER 31,
------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
-------- --------
CURRENT LIABILITIES:
Notes payable bank $ 1,500 $ --
Accounts payable and accrued expenses 6,148 4,483
Accrued payroll and bonuses 2,197 2,505
Dividends payable -- 655
Customer blllings in excess of revenues earned 3,897 5,234
Income taxes payable 133 417
Current portion of long-term debt 617 555
Current portion of capital lease obligations 80 88
-------- --------
Total current liabilities 14,572 13,937
LONG-TERM DEBT - Net of current portion 1,702 1,943
CAPITAL LEASE OBLIGATIONS - Net of current portion 230 153
OTHER LIABILITIES 2,043 2,009
-------- --------
Total liabilities 18,547 18,042
MINORITY INTEREST 102 --
STOCKHOLDERS'EQUITY:
Preferred stock, $ 1. 00 par value, 1,000,000 shares
authorized and unissued -- --
Common stock, $.Ol par value, 30,000,000 shares
authorized; 13,111,135 shares and 13,099,103 shares
issued at December 31, 1997 and 1996 respectively 131 131
Additional paid-in capital 4,413 4,369
Retained earnings 5,366 3,948
Cumulative foreign currency translation adjustment (104) 19
-------- --------
Total stockholders' equity 9,806 8,467
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 28,455 $ 26,509
======== ========
See notes to consolidated financial statements.
(Concluded)
F-3
<PAGE>
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES $ 68,870 $ 60,368 $ 54,626
------------ ------------ ------------
COSTS AND EXPENSES:
Direct costs 34,110 28,431 26,732
Selling, general and administrative expenses 29,636 25,396 24,410
Incentive bonuses 2,185 2,394 1,765
Interest expense 369 328 435
Other expense (income) - net 175 (589) (269)
------------ ------------ ------------
Total costs and expenses 66,475 55,960 53,073
------------ ------------ ------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,395 4,408 1,553
PROVISION FOR INCOME TAXES 977 1,819 707
------------ ------------ ------------
NET INCOME $ 1,418 $ 2,589 $ 846
============ ============ ============
BASIC EARNINGS PER COMMON SHARE $ .11 $ .20 $ .07
============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 13,104,759 13,099,103 12,499,213
============ ============ ============
DILUTED EARNINGS PER COMMON SHARE $ .11 $ .20 $ .07
============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING AND
DILUTIVE STOCK OPTIONS 13,268,318 13,170,286 12,499,213
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
- --------------------------------------------------------------------------------
[PART 1 OF 2]
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK ADDITIONAL
$.01 PAR VALUE NO PAR VALUE PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 -- $ -- 10,000 $ 14 $ 344
Net income -- -- -- -- --
Recapitalization and merger 13,094,755 131 (10,000) (14) 4,152
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 13,094,755 131 -- -- 4,486
Net Income -- -- -- -- --
Foreign currency adjustment -- -- -- -- --
Revaluation of assets
acquired in merger -- -- -- -- (124)
Stock bonuses 4,348 -- -- -- 7
Dividends -- -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 13,099,103 131 -- -- 4,369
Net income -- -- -- -- --
Exercise of stock options 12,032 -- -- -- 44
Foreign currency adjustment -- -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 13,111,135 $ 131 -- -- $ 4,413
=========== =========== =========== =========== ===========
</TABLE>
[PART 2 OF 2]
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY TREASURY
RETAINED TRANSLATION STOCK
EARNINGS ADJUSTMENTS SHARES AMOUNT TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ 1,168 $ (4) 2,558 $ (380) $ 1,132
Net income 846 -- -- -- 846
Recapitalization and merger -- -- (2,558) 380 4,649
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 2,014 (4) -- -- 6,627
Net Income 2,589 -- -- -- 2,589
Foreign currency adjustment -- -- -- -- 23
Revaluation of assets
acquired in merger -- -- -- -- (124)
Stock bonuses -- -- -- -- 7
Dividends -- -- -- -- (655)
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 3,948 19 -- -- 8,467
Net income 1,418 -- -- -- 1,418
Exercise of stock options -- -- -- -- 44
Foreign currency adjustment -- (123) -- -- (123)
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 $ 5,366 $ (104) -- -- $ 9,806
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net income $ 1,418 $ 2,589 $ 846
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,054 748 581
Provision for bad debts 72 108 92
Deferred income taxes (115) 373 240
Deferred compensation 40 34 31
Amortization of deferred charges 368 329 285
Increase in cash surrender value of officers'
life insurance (7) (22) 50
Accrued rent 209 58 160
Minority Interest 102 -- (54)
Changes in operating assets and liabilities:
Accounts receivable (3,585) (930) (1,709)
Prepaid expenses and inventories (58) 61 296
Other current assets (379) (45) 202
Net assets held for sale -- 33 (102)
Prepaid pension costs (52) (147) (64)
Other assets 595 (12) (1,156)
Accounts payable and accrued expenses 1,665 (394) 638
Accrued payroll and bonuses (309) 589 (1,516)
Customer billings in excess of revenues earned (1,337) 952 (331)
Income taxes payable (284) 716 (894)
Other liabilities (197) (60) 530
------- ------- -------
Net cash (used in) provided by operating activities (800) 4,980 (1,875)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,087) (583) (588)
Proceeds from sale of assets 650 --
Cash received from Triangle merger -- -- 1,090
Investment in joint venture (488) -- --
Payment of merger costs -- (124) (210)
------- ------- -------
Net cash (used in) provided by
investing activities (1,575) (57) 292
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt -- 1,931 --
Principal payments on notes payable
to officers/stockholders -- -- (1,500)
Principal payments on long-term debt (610) (2,737) (334)
Proceeds from short-term bank debt 1,500 -- 3,700
Repayment of short-term bank debt -- (1,200) --
Principal payments on capital lease obligations (84) (56) (101)
Dividends to stockholders (655) -- --
Issuance of common stock and director's options 44 7 --
------- ------- -------
Net cash provided by (used in) financing activities 195 (2,055) 1,765
------- ------- -------
</TABLE>
See notes to consolidated financial statements. (Continued)
F-6
<PAGE>
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH (123) 23 --
------- ------- -------
NET (DECREASE) INCREASE IN CASH (2,303) 2,891 182
CASH, BEGINNING OF YEAR 3,827 936 754
------- ------- -------
CASH, END OF YEAR $ 1,524 $ 3,827 $ 936
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 340 $ 430 $ 334
======= ======= =======
Income taxes $ 1,327 $ 784 $ 1,335
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTWUIES:
Employee stock bonuses $ 7
=======
Capital lease obligation incurred
for purchase of equipment $ 154 $ 250
======= =======
Debt related to the acquisition
of capital improvements $ 430 $ 333
======= =======
The Company issued common stock in order
to effect the merger with Triangle. Such
stock aggregated $4,488 (net of $1,323
of related merger costs). In conjunction
with the acquisition, liabilities were
assumed as follows:
Fair value of assets acquired (includes
$1,090 of cash acquired) $ 5,267
Value of common stock issued (net
of $1,323 of related merger costs) 4,488
--------
Liabilities assumed $ 779
========
See notes to consolidated financial statements. (Concluded)
F-7
<PAGE>
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"), its majority owned subsidiary, Audits & Surveys Europe Ltd.
("A&SE") and certain other currently inactive entities. Prior to 1997,
A&SE's results were consolidated based on A&SE's year ended September 30.
In 1997, consolidated results of operations include A&SE for 15 months in
order to conform both companies' reporting periods. The impact of
including A&SE's operations for 15 months in 1997 was immaterial. 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 is used by the
Company in connection with investments in its joint ventures. 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 - The carrying value of long-lived assets is
periodically reviewed to determine whether impairment exists. The review
is based on comparing the carrying amount of assets to the undiscounted
estimated cash flows over the remaining useful lives. No impairment is
indicated as of December 31, 1997.
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.
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.
F-8
<PAGE>
REVENUE RECOGNITION - The accompanying consolidated 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. Revenue from the distribution of certain marketing
research information is recognized pro rata over the life of the contract.
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." The standard 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 Accounting
Principles Board (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.
BASIC AND DILUTED EARNINGS PER COMMON SHARE - The Company has adopted the
provisions of SFAS No. 128 "Earnings Per Share." SFAS No.128 establishes
standards for computing and presenting earnings per share and applies to
entities with publicly held common stock or potential common stock such as
employee stock options. SFAS No.128 replaces the presentation of primary
earnings per share with a presentation of basic earnings per share and
also requires, among other things, dual presentation of basic and diluted
earnings per share for all entities with complex capital structures. Basic
earnings per share excludes dilution and is computed by dividing net
earnings by the weighted average number of shares outstanding for each
period presented. Diluted earning per share is computed by dividing net
earnings by the weighted average number of shares outstanding plus
dilutive potential common shares which will result from the exercise of
stock options. Prior periods have been restated to reflect the
requirements of the new statement .
The following is a reconciliation of the weighted average shares used in
the computations of basic and dilutive earnings per common share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average common shares outstanding
used for basic earnings per share 13,104,759 13,099,103 12,499,213
Dilutive stock options 163,559 71,183 --
---------- ---------- ----------
Weighted average common shares outstanding
used for dilutive earnings per share 13,268,318 13,170,286 12,499,213
========== ========== ==========
</TABLE>
F-9
<PAGE>
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." 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 was 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 statement of operations of the Company for 1995 that
would result from the merger and is presented as if the merger occurred on
January 1, 1995.
YEAR ENDED
DECEMBER 31, 1995
(UNAUDITED)
($000)
Revenues $ 54,766
===========
Net income $ 753
===========
Net income per share $ .06
===========
Weighted average shares outstanding 13,094,755
===========
F-10
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
------------
1997 1996
------ ------
($000)
Furniture and fixtures $ 552 $ 437
Equipment 2,319 1,936
Leasehold improvements 3,836 3,263
Assets held under capital leases (Note 6) 404 386
------ ------
7,111 6,022
Less accumulated depreciation and
amortization 3,532 3,060
------ ------
$3,579 $2,962
====== ======
Depreciation and amortization expense for the years ended December 31,
1997, 1996 and 1995 were $1,054,000, $748,000 and $581,000, respectively.
4. OTHER ASSETS
Other assets consist of the following:
DECEMBER 31,
------------
1997 1996
------ ------
($000)
Cash surrender value of officers' life insurance $ 273 $ 265
Property held for sale 300 --
Deferred charges 838 1,296
Security deposits 158 164
Investment in joint venture 488 --
------ ------
$2,057 $1,725
====== ======
Deferred charges at December 31, 1997 and 1996 principally include
approximately $686,000 and $986,000, 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.
F-11
<PAGE>
5. DEBT
DECEMBER 31,
-------------------------
1997 1996
($000)
NOTES PAYABLE BANK
Notes payable bank pursuant to a $4,000,000
credit facility; interest is payable at the
bank's prime rate (8.5 % at December 31,
1997) or LIBOR plus 25 0 basis points. The
line of credit expires in June 1998 and
outstanding borrowings are collateralized by
accounts receivable (a). $ 1,500 $ --
======= =======
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). $ 1,697 $ 2,218
Note payable to a former sub-tenant for
leasehold improvements, due in quarterly
installments of $15,000, including interest
at the rate of 1 1.02% through January 2003. 246 280
Note payable to a former sub-tenant for
leaschold improvements, due in quarterly
installments of $23,000, including interest
at the rate of 9.925/o through January 2003. 376 --
------- -------
2,319 2,498
Less current portion 617 555
------- -------
Long Term portion $ 1,702 $ 1,943
======= =======
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 secured line of credit was
renewed and increased to $4,000,000 in June 1997. 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, 1997 under the short-term credit facility was 8.63%.
F-12
<PAGE>
Long-term debt matures in each of the years subsequent to December 31,
1997, as follows:
YEAR ENDING
DECEMBER 31, ($000)
1998 $ 617
1999 627
2000 638
2001 259
2002 141
Thereafter 37
--------
$ 2,319
========
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, 1997, future minimum lease payments are as follows:
YEAR ENDING
DECEMBER 31, ($000)
1998 $ 110
1999 95
2000 95
2001 41
2002 30
--------
Total future minimum lease payments 371
Less amounts representing interest 61
--------
Present value of future minimum
payments (including $80,000 payable
currently) $ 310
========
Accumulated depreciation related to assets held under capital leases at
December 31, 1997 was $127,000.
F-13
<PAGE>
7. INCOME TAXES
The components of the provision for income taxes are as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------- ------- -------
($000)
Federal $ 648 $ 861 $ 237
State and local 412 579 200
Foreign 32 6 30
Deferred (115) 373 240
------- ------- -------
$ 977 $ 1,819 $ 707
======= ======= =======
The following reconciles Federal taxes at the statutory rate to the tax
expense recorded in the financial statements:
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
------- ------- -------
($000)
Federal taxes at statutory rate $ 814 $ 1,499 $ 528
State taxes, net of federal benefit 272 382 132
Other (109) (62) 47
------- ------- -------
$ 977 1,819 $ 707
======= ======= =======
The tax effects of temporary differences which give rise to deferred tax
assets and liabilities are as follows:
DECEMBER 31,
-----------------------
1997 1996
------- -------
($000)
Deferred income tax assets:
Net operating loss carryforwards $ 1,905 $ 2,141
Accrued vacation pay 117 97
Inventory valuation 84 --
Accrued rent 618 507
Basis of leaschold improvements 423 330
Deferred compensation 177 164
Other 42 13
------- -------
3,366 3,252
------- -------
Defeffed income tax liability:
Prepaid pension costs (481) (464)
------- -------
Net deferred tax assets $ 2,885 $ 2,788
======= =======
F-14
<PAGE>
8. DEFERRED COMPENSATION
The Company is a party to deferred compensation agreements with certain
key employees. Amounts due under such agreements amounted to $397,000 and
$358,000 at December 31, 1997 and 1996, respectively. The costs related to
these agreements for the years ended December 31, 1997, 1996 and 1995 were
$39,000, $34,000, and $31,000, respectively.
9. ACCRUED RENT
The Company has entered into various lease agreements which provide for
scheduled rent increases and free rent periods. Rent expense has been
recorded on the straight-line basis over the life of the leases. At
December 31, 1997 and 1996, accrued rent of $1,391,000 and $1,181,000,
respectively, represents that portion of rent expense (net of sublease
income) which has not yet been paid.
10. STOCKHOLDERS' EQUITY
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. There were no dividends
declared or paid for the years ended December 31, 1997 and 1995.
11. RELATED PARTY TRANSACTIONS
The Company has a 25% interest in INTELECT ASW Marketing Services, L.L.C.,
("INTELECT ASW"), a joint venture which provides retail point-of-sale
tracking through a comprehensive panel of retailers and dealers in the
U.S. and around the world. INTELECT ASW provides data to the information
technologies, consumer electronics and home appliance industries. The
Company's investment in the joint venture approximated $194,000 of which
$13,000 was in cash and the balance consisted of related customer
receivables. The joint venture began operations on October 1, 1997 and is
provided with various management and other services by each of the
partners pursuant to management service agreements ("Service Agreements").
During the fourth quarter of 1997, the Company billed $521,000 to INTELECT
ASW, consisting principally of pass-through costs pursuant to the Service
Agreements. At December 31, 1997, accounts receivable from the joint
venture were $521,000 of which $176,000 was billed and $345,000 was
unbilled. The Company's interest in this joint venture is recorded on the
equity method.
In January 1998, the Company acquired a 50.1% interest in ASW-KMR Magazine
Metrics, L.L.C., a joint venture partnership created to expand the Primary
and Total Audience Surveys, a magazine research service developed by the
Company. The Company contributed certain intangibles and agreed to make a
$100,000 capital contribution. This entity will be consolidated beginning
January 1, 1998.
12. STOCK OPTION PLANS
The Company has two stock option plans covering an aggregate of 1,650,000
shares of the Company's common stock which have been reserved for option
grants to officers, directors, employees and consultants. The 1994 Stock
Option Plan covers 650,000 shares of common stock and the 1997 Stock
Option Plan covers 1,000,000 shares of common stock. The Plans are
administered by a committee designated by the Board of Directors. Options
are granted at fair market value at date of grant and generally have a
term of 10 years. Options granted to employees are generally exercisable
over three years beginning one year after date of grant.
F-15
<PAGE>
Prior to 1996 there were no options granted under the 1994 Plan. The
following table summarizes stock option activity in both plans for 1996
and 1997:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
-------- --------
1996 Activity:
Granted 637,550 $ 2.19
Forfeited (46,500) $ 2.02
Options outstanding December 31, 1996 591,050 $ 2.20
(O exercisable)
1997 Activity:
Granted 334,800 $ 2.75
Exercised (12,032) $ 2.01
Forfeited (36,184) $ 2.25
--------
Options outstanding December 31, 1997
(189,611 exercisable at an average
price per share of $2.23) 877,634 $ 2.41
========
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, the Company would have recorded aggregate
compensation of approximately $485,000 in 1997 and $695,000 in 1996 which
would be expensed over the options' vesting periods.
Principal assumptions used in applying the Black-Scholes model were as
follows:
1997 1996
------ ------
Risk-free weighted average interest rate 5.5% 6.0%
Expected life 5.0 4.8
Volatility 55.2% 56.1%
The pro forma impact for the years ended December 31, 1997 and 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:
1997 1996
---------- ----------
Net income
As reported $1,418,000 $2,589,000
Pro forma $1,155,000 2,434,000
Basic earnings per share
As reported $ 0.11 $ 0.20
Pro forma $ 0.09 $ 0.19
Diluted earnings per share
As reported $ 0.11 $ 0.20
Pro forma $ 0.09 $ 0.18
F-16
<PAGE>
13. ECONOMIC DEPENDENCY AND CONCENTRATION OF CREDIT RISK
Approximately 33 percent, 28 percent, and 23 percent of the Company's
revenues for the years ended December 31, 1997, 1996 and 1995,
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
(401(k)) plan covering substantially all of its employees. Contributions
to the plan amounted to $179,000, $151,000 and $173,000 for the years
ended December 31, 1997, 1996 and 1995, respectively. Prior to 1997, the
Company's contributions were determined annually by management. Beginning
in 1997, the Company provided matching contributions to the plan at a rate
of 50% of an employee's monthly contribution on a maximum of 3% of the
employee's salary.
. DEFINED BENEFIT PLAN - Until December 31, 1996 the Company maintained a
retirement plan covering only the former employees of Triangle (the
"Triangle Salaried Pension Guarantee Plan"). 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 (the "ASW Retirement
Plan"), ( ii ) include all employees of the Company completing one year of
service and ( iii ) establish participant accounts which will 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.
Pension costs are based on the provisions of SFAS No. 87, "Employers'
Accounting for Pensions." The net periodic pension credits for the years
ended December 31, 1997 and 1996 and the period from March 31, 1995 (the
date of the merger) to December 31, 1995 included the following
components:
MARCH 31,
YEAR ENDED DECEMBER 31, 1995 TO
--------------------- DECEMBER 31,
1997 1996 1995
------- ------- -------
($000)
Service cost benefits $ 114 $ 14 $ 24
Interest cost on projected
benefit obligation 381 353 273
Return on plan assets (1,091) (514) (361)
Deferral 544 -- --
------- ------- -------
Net periodic pension credit $ (52) $ (147) $ (64)
======= ======= =======
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.0% for 1997, 7.5%
for 1996 and 7.0% 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 1997, 1996 and 1995.
F-17
<PAGE>
The following table indicates the funded status of the ASW Retirement Plan
and the amount recognized as prepaid pension costs in the consolidated
balance sheet at December 31, 1997 and 1996:
DECEMBER 31,
------------------
1997 1996
------- -------
($000)
Actuarial present value of benefit obligations:
Accumulated benefits obligation including vested
benefits of $5,436,000 and $5,073,000, respectively $(5,543) $(5,073)
======= =======
Projected benefit obligation $(5,543) $(5,073)
Plan assets at fair value, primarily listed stocks
and corporate obligations 7,309 6,657
------- -------
Plan assets in excess of projected benefit obligation 1,766 1,584
Unrecognized net gain (624) (494)
------- -------
Prepaid pension costs $ 1,142 $ 1,090
======= =======
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
$2,185,000, $2,394,000 and $1,765,000 in the years ended December 31,
1997, 1996 and 1995, 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, 1997, 1996 and 1995 was approximately $1,799,000,
$1,624,000 and $1,676,000, respectively. Sublease rental income for the
years ended December 31, 1997, 1996 and 1995 was approximately $393,000,
$748,000 and $667,000, respectively.
F-18
<PAGE>
Future minimum lease commitments and sublease income at December 31, 1997
are as follows:
YEAR ENDING LEASE SUBLEASE
DECEMBER 31, COMMITMENT INCOME
---------- ------
($000)
1998 $ 2,036 $ 738
1999 1,987 775
2000 1,929 783
2001 1,830 791
2002 1,833 799
Thereafter 391 369
------- -------
$10,006 $ 4,255
======= =======
EMPLOYMENT AGREEMENTS - The Company is obligated under employment
compensation agreements with five key executives which require annual
aggregate minimum base compensation payments of $1,435,000. These
agreements expire at various dates through March 24, 2002. All of these
agreements provide for discretionary and/or performance based bonuses in
addition to the base compensation.
SUPPLIER AGREEMENT - 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, 1997, the Company has
paid the supplier $1,200,000. The balance of $300,000 is payable over a
three-year period.
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Unaudited summary results of operations for 1997 and 1996 (in thousands,
except for per share data) were as follows:
<TABLE>
<CAPTION>
1997 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues $16,922 $16,011 $16,970 $18,967 $68,870
Income before taxes 1,043 700 633 19 2,395
Net income 615 413 374 16 1,418
Basic earnings per share 0.05 0.03 0.03 0.00 0.11
Diluted earnings per share 0.05 0.03 0.03 0.00 0.11
1996
Revenues $14,403 $15,897 $14,697 $15,371 $60,368
Income before taxes 1,116 1,241 1,113 938 4,408
Net income 609 683 612 685 2,589
Basic earnings per share 0.05 0.05 0.05 0.05 0.20
Diluted earnings per share 0.05 0.05 0.05 0.05 0.20
</TABLE>
******
F-19
<PAGE>
ITEM 14. FINANCIAL STATEMENT SCHEDULE
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARY
SCHEDULE 11 - VALUATION AND QUALIFYING ACCOUNTS (000'S)
- --------------------------------------------------------------------------------
ADDITIONS DEDUCTIONS
--------- ----------
BALANCE AT CHARGED BALANCE
BEGINNING TO PROFIT AT END
DESCRIPTION OF PERIOD AND LOSS (A) OF PERIOD
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31, 1995 $129 $ 92 $ 71 $150
Year ended December 31, 1996 $150 $108 $228 $ 30
Year ended December 31, 1997 $ 30 $ 72 $ 2 $ l00
(A) Represents writeoffs of uncollectible accounts receivable
S-1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT dated as of October 1, 1997, between Audits &
Surveys Worldwide, Inc., a Delaware corporation having an address at 650 Avenue
of the Americas, New York, New York 10011 (the "COMPANY"), and Joel S. Klein, an
individual residing at 13 Maple Way, Armonk, New York 10504-2602 ("EMPLOYEE").
W I T N E S S E T H:
--------------------
WHEREAS, Employee has been employed by the Company for more than 36
years; and
WHEREAS, the Company desires that Employee continue to be employed by
it and render services to it, and Employee is willing to be so employed and to
render such services to the Company, all upon the terms and subject to the
conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT. Subject to and upon the terms and conditions
contained in this Agreement, the Company hereby agrees to continue to employ
Employee and Employee agrees to continue in the employ of the Company, for the
period set forth in Paragraph 2 hereof, to render to the Company, its affiliates
and/or subsidiaries the services described in Paragraph 3 hereof.
2. TERM. Employee's term of employment under this Agreement shall
be four and one-half (4-1/2) years, commencing on October 1, 1997, and shall
continue for a period through and including March 31, 2002, unless extended in
writing as hereinbelow provided or earlier terminated pursuant to the terms and
conditions set forth herein (the "EMPLOYMENT TERM"). Such term shall be extended
for successive one (1) year terms unless either party hereto gives written
notice to the other of its desire to terminate this Agreement at least ninety
(90) days prior to the commencement of any such extension.
3. DUTIES. (a) Employee shall serve as the senior operations
executive of the Company subject to the authority of the Board of Directors, the
Chief Executive Officer and the President of the Company. If elected by the
Board of Directors, Employee will serve as the Executive Vice President,
Operations of the Company. Employee shall perform all duties and services
incident to the positions held by him.
<PAGE>
(b) Employee agrees to abide by all By-laws and policies
of the Company promulgated from time to time by the Company.
4. EXCLUSIVE SERVICES AND BEST EFFORTS. Employee agrees to devote
his best efforts, energies and skill to the discharge of the duties and
responsibilities attributable to his position, and to this end, he will devote
his full time and attention during regular business hours to the business and
affairs of the Company, subject to the provisions of the last sentence of
subparagraph 10(b) hereof
5. COMPENSATION. As compensation for his services and covenants
hereunder, Employee shall receive a salary ("SALARY"), payable pursuant to the
Company's normal payroll procedures in place from time to time, at the rate of
$225,000 per annum less all necessary and required federal, state and local
payroll deductions, and such bonuses as may be determined from time to time by
the Board of Directors of the Company.
6. BUSINESS EXPENSES. Employee shall be reimbursed for, and
entitled to advances (subject to repayment to the Company if not actually
incurred by Employee) with respect to, only those business expenses incurred by
him (a) which are reasonable and necessary for Employee to perform his duties
under this Agreement, and (b) for which Employee has submitted vouchers and/or
receipts in accordance with policies established from time to time by the
Company.
7. EMPLOYEE BENEFITS. (a) During the Employment Term, Employee
shall be entitled to such insurance, disability and health and medical benefits
and be entitled to participate in such retirement plans or programs as are from
time to time generally made available to executive employees of the Company
pursuant to the policies of the Company; PROVIDED THAT Employee shall be
required to comply with the conditions attendant to coverage by such plans and
shall comply with and be entitled to benefits only in accordance with the terms
and conditions of such plans. The Company may withhold from any benefits payable
to Employee all federal, state, local and other taxes and amounts as shall be
permitted or required to be withheld pursuant to any applicable law, rule or
regulation.
(b) Employee shall be entitled to vacation in accordance
with the Company's policy in effect for executive staff, which shall be taken at
such time or times as shall be mutually agreed upon with the Company.
8. DEATH AND DISABILITY. (a) The Employment Tenn shall terminate
on the date of Employee's death, in which event Employee's Salary, reimbursable
expenses and benefits owing to Employee through the date of Employee's death
shall be paid to his estate. Employee's estate will not be entitled to any other
compensation upon termination under this Agreement pursuant to this subparagraph
8(a).
(b) If, during the Employment Term, in the opinion of a
duly licensed physician selected by the Company, Employee, because of physical
or mental illness or incapacity,
-2-
<PAGE>
shall become substantially unable to perform the duties and services required of
him under this Agreement for a period of 120 consecutive days or 180 days in the
aggregate during any nine-month period, the Company may, upon at least ten (10)
days' prior written notice given at any time after the expiration of such 120 or
180-day period, as the case may be, to Employee of its intention to do so,
terminate his employment as of such date as may be set forth in the notice. In
case of such termination, Employee shall be entitled to receive his Salary,
reimbursable expenses and benefits owing to Employee through the date of
termination. Employee will not be entitled to any other compensation under this
Agreement upon termination of his employment pursuant to this subparagraph 8(b).
9. TERMINATION. The Company may terminate the employment of
Employee for cause, as such term is interpreted by the courts of New York. Upon
such termination, the Company shall be released from any and all further
obligations under this Agreement, except that the Company shall be obligated to
pay Employee his Salary, reimbursable expenses and benefits owing to Employee
through the day on which Employee is terminated. Employee will not be entitled
to any other compensation upon termination under this Agreement pursuant to this
Paragraph 9.
10. DISCLOSURE OF INFORMATION AND RESTRICTIVE COVENANT. Employee
acknowledges that, by his employment, he has been and will be in a confidential
relationship with the Company and will have access to confidential information
and trade secrets of the Company, its subsidiaries and affiliates. Confidential
information and trade secrets include, but are not limited to, customer,
supplier and client lists, panels and interviewers, price lists, marketing,
strategies and procedures, operational techniques, business plans and systems,
quality control procedures and systems, special projects and survey and market
research, including projects, research and reports for any entity or client, and
any other records, files, drawings, discoveries, applications, data and
information concerning the business of the Company and its customers and clients
which are not in the public domain. Employee agrees that in consideration of the
execution of this Agreement by the Company:
(a) Employee will not, during the term of this Agreement
or at any time thereafter, use, or disclose to any third party, trade secrets or
confidential information of the Company, including, but not limited to,
confidential information or trade secrets belonging or relating to the Company,
its subsidiaries, affiliates, customers and clients or proprietary procedures of
the Company, its subsidiaries, affiliates, customers and clients. Proprietary
procedures shall include, but shall not be limited to, all information which is
known only by employees of the Company, its subsidiaries and affiliates or
others in a confidential relationship with the Company or its subsidiaries and
affiliates which relates to business matters.
(b) Employee will not, during the term of this Agreement,
directly or indirectly, under any circumstance other than at the direction and
for the benefit of the Company, engage in or participate in any business
activity, including, but not limited to, acting as a director, officer,
employee, agent, independent contractor, partner, consultant, licensor or
licensee, franchisor or franchisee, proprietor, syndicate member, shareholder or
creditor or with a person having any other relationship with any other business,
company, firm, occupation or business activity, that is, directly
-3-
<PAGE>
or indirectly, competitive with any business carried on by the Company or any of
its subsidiaries or affiliates during the term of this Agreement. The ownership
by Employee of 3% or less of the issued and outstanding shares of a class of
securities which is traded on a national securities exchange or in the
over-the-counter market, shall not cause Employee to be deemed a shareholder
under this subparagraph 10(b) or constitute a breach of Paragraph 4 hereof.
(c) Employee will not, during the term of this Agreement
and for a period of three (3) years thereafter, on his behalf or on behalf of
any other business enterprise, directly or indirectly, under any circumstance
other than at the direction and for the benefit of the Company, solicit or
induce any creditor, customer, client, supplier, officer, employee or agent of
the Company or any of its subsidiaries or affiliates to sever his or its
relationship with or leave the employ of any of such entities.
(d) Nothing contained in this Paragraph 10 shall be
construed as prohibiting Employee from being engaged by a client or customer of
the Company upon his termination of employment by the Company.
(e) It is expressly agreed by Employee that the nature
and scope of each of the provisions set forth above in this Paragraph 10 are
reasonable and necessary. If, for any reason, any aspect of the above provisions
as it applies to Employee is determined by a court of competent jurisdiction to
be unreasonable or unenforceable, the provisions shall only be modified to the
minimum extent required to make the provisions reasonable and/or enforceable, as
the case may be. Employee acknowledges and agrees that his services are of
unique character and expressly grants to the Company or any subsidiary or
affiliate of the Company or any successor of any of them, the right to enforce
the above provisions through the use of all remedies available at law or in
equity, including, but not limited to, injunctive relief
(f) This Paragraph 10 and Paragraphs 11, 12 and 13 hereof
shall survive the expiration or termination of this Agreement for any reason.
11. COMPANY PROPERTY. (a) Any patents, inventions, discoveries,
applications or processes designed, devised, planned, applied, created,
discovered or invented by Employee in the course of Employee's employment under
this Agreement and which pertain to any aspect of the Company's or its
subsidiaries' or affiliates' business shall be the sole and absolute property of
the Company, and Employee shall promptly report the same to the Company and
promptly execute any and all documents reasonably requested to assure the
Company the full and complete ownership thereof.
(b) All records, files, lists, including
computer generated lists, drawings, documents, equipment and similar items
relating to the Company's business which Employee shall prepare or receive from
the Company shall remain the Company's sole and exclusive property. Upon
termination of this Agreement, Employee shall promptly return to the Company all
property of the Company in his possession. Employee further represents that he
will not copy or cause to be copied,
-4-
<PAGE>
print out or cause to be printed out any software, documents or other materials
originating with or belonging to the Company, except under Court order. Employee
additionally represents that, upon termination of his employment with the
Company, he will not retain in his possession any such software, documents or
other materials.
12. REMEDIES. It is mutually understood and agreed that Employee's
services are special, unique, unusual, extraordinary and of an intellectual
character giving them a peculiar value, the loss of which cannot be reasonably
or adequately compensated in damages in an action at law. Accordingly, in the
event of any breach of this Agreement by Employee, including, but not limited
to, the breach of the non-disclosure, non-solicitation and non-compete clauses
under Paragraph 10 hereof, the Company shall be entitled to equitable relief by
way of injunction or otherwise in addition to any damages which the Company may
be entitled to recover. In addition, the Company shall be entitled to
reimbursement from Employee, upon request, of any and all reasonable attorneys'
fees and expenses incurred by it in enforcing any term or provision of this
Agreement.
13. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE. (a) In order to
induce the Company to enter into this Agreement, Employee hereby represents and
warrants to the Company as follows: (i) Employee has the legal capacity and
unrestricted right to execute and deliver this Agreement and to perform all of
his obligations hereunder; (ii) the execution and delivery of this Agreement by
Employee and the performance of his obligations hereunder will not violate or be
in conflict with any fiduciary or other duty, instrument, agreement, document,
arrangement or other understanding to which Employee is a party or by which he
is or may be bound or subject; and (iii) Employee is not a party to any
instrument, agreement, document, arrangement or other understanding with any
person (other than the Company) requiring or restricting the use or disclosure
of any confidential information or the provision of any employment, consulting
or other services.
(b) Employee hereby agrees to indemnify and hold harmless
the Company from and against any and all losses, costs, damages and expenses
(including, without limitation, its reasonable attorneys' fees) incurred or
suffered by the Company resulting from any breach by Employee of any of his
representations or warranties set forth in subparagraph 13(a) hereof
14. WAIVER OF JURY TRIAL AND CONSENT TO NEW YORK JURISDICTION AND
VENUE. In any action, suit or proceeding in any jurisdiction brought against the
Employee by the Company, or vice versa, the Employee and the Company each waive
trial by jury. The Employee hereby consents and agrees that the Supreme Court of
the State of New York for the County of New York and the United States District
Court for the Southern District of New York each shall have personal
jurisdiction and proper venue with respect to any dispute between the Employee
and the Company. In any dispute with the Company, the Employee will not raise,
and hereby expressly waives, any objection or defense to any such jurisdiction
as an inconvenient forum.
15. NOTICE. Except as otherwise expressly provided, any notice,
request, demand or other communication permitted or required to be given under
this Agreement shall be in writing, shall be sent by one of the following means
to the Employee at his address set forth on the first page
-5-
<PAGE>
of this Agreement and to the Company at its address set forth on the first page
of this Agreement, Attention: Mr. Solomon Dutka, Chief Executive Officer, with a
copy to Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New
York, New York 10036, Attention: James Alterbaum, Esq. (or to such other address
as shall be designated hereunder by notice to the other parties and persons
receiving copies, effective upon actual receipt) and shall be deemed
conclusively to have been given: (i) on the first business day following the day
timely deposited with Federal Express (or other equivalent national overnight
courier) or United States Express Mail, with the cost of delivery prepaid or for
the account of the sender; (ii) on the fifth business day following the day duly
sent by certified or registered United States mail, postage prepaid and return
receipt requested; or (iii) when otherwise actually received by the addressee on
a business day (or on the next business day if received after the close of
normal business hours or on any non-business day).
16. INTERPRETATION; HEADING. The parties acknowledge and agree
that the terms and provisions of this Agreement have been negotiated, shall be
construed fairly as to all parties hereto, and shall not be construed in favor
of or against any party. The section headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
17. SUCCESSORS AND ASSIGNS; ASSIGNMENT; INTENDED BENEFICIARIES.
Neither this Agreement, nor any of Employee's rights, powers, duties or
obligations hereunder, may be assigned by Employee. This Agreement shall be
binding upon and inure to the benefit of Employee and his heirs and legal
representatives and the Company and its successors. Successors of the Company
shall include, without limitation, any corporation or corporations acquiring,
directly or indirectly, all or substantially all of the assets of the Company,
whether by merger, consolidation, purchase, lease or otherwise, and such
successor shall thereafter be deemed "the Company" for the purpose hereof
18. NO WAIVER BY ACTION; CUMULATIVE RIGHTS, ETC. Any waiver or
consent from the Company respecting any term or provision of this Agreement or
any other aspect of the Employee's conduct or employment shall be effective only
in the specific instance and for the specific purpose for which given and shall
not be deemed, regardless of frequency given, to be a further or continuing
waiver or consent. The failure or delay by either party hereto at any time or
times to require performance of, or to exercise any of his or its powers, rights
or remedies with respect to, any term or provision of this Agreement or any
other aspect of the Employee's conduct or employment in no manner (except as
otherwise expressly provided herein) shall affect such party's right at a later
time to enforce any such term or provision.
19. COUNTERPARTS; NEW YORK GOVERNING LAW; AMENDMENTS; ENTIRE
AGREEMENT. This Agreement may be executed in two counterpart copies, each of
which may be executed by one of the parties hereto, but all of which, when taken
together, shall constitute a single agreement binding upon all of the parties
hereto. This Agreement and all other aspects of the Employee's employment shall
be governed by and construed in accordance with the applicable laws pertaining
in the State of New York (other than those that would defer to the substantive
laws of another jurisdiction). Each and every modification and amendment of this
Agreement shall be in writing and
-6-
<PAGE>
signed by the parties hereto, and any waiver of, or consent to any departure
from, any term or provision of this Agreement shall be in writing and signed by
each affected party hereto. This Agreement contains the entire agreement of the
parties and supersedes all prior representations, agreements and understandings,
oral or otherwise, between the parties with respect to the matters contained
herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AUDITS & SURVEYS WORLDWIDE, INC.
By: /s/ H. Arthur Bellows, Jr.
-------------------------------
Name: H. Arthur Bellows, Jr.
Title: President
/s/ Joel S. Klein
------------------------------------
Joel S. Klein
AUDITS & SURVEYS WORLDWIDE, INC.
650 Avenue of the Americas
New York, New York 10011
October 1, 1997
Mr. Carl Ravitch
2602 Woodsview Drive
Bensalem, PA 19020
Dear Carl:
Reference is made to an Employment Agreement between you and Audits &
Surveys Worldwide, Inc. (the "COMPANY") dated as of March 24, 1995, as amended
on March 25, 1997 and June 30, 1997 (as so amended, the "EMPLOYMENT AGREEMENT").
It is hereby agreed that notwithstanding anything to the contrary contained in
the Employment Agreement, in the event of a change in control of the Company (as
defined below), you may, if you so desire, terminate your employment with the
Company; provided, however, that the provisions of Paragraphs 10, 11 and 12 of
the Employment Agreement shall remain in full force and effect as if the
Employment Agreement had continued in effect during the entire Employment Term
(as such term is defined in the Employment Agreement); and further provided,
that the term "affiliate", as used in Paragraph 10(b) of the Employment
Agreement, shall include INTELECT ASW Marketing Services, LLC during the
Employment Term.
For purposes of this letter agreement, the term "change of control"
shall mean (i) an event or series of events by which any person or entity or
group of persons shall, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases, merger, consolidation or otherwise,
becomes the beneficial owner (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of 50% or more of the voting power
of the Company; (ii) the Company is merged with or into another entity with the
effect that immediately after such transaction the stockholders or other equity
holders of the Company immediately prior to such transaction hold less than a
majority of the combined voting power of the entity surviving such transaction;
or (iii) the direct or indirect sale, lease, exchange or other transfer of all
or substantially all of the assets of the Company to any other person or group
of persons.
<PAGE>
Mr. Carl Ravitch -2- October 1, 1997
Except as set forth herein, the Employment Agreement shall remain in
full force and effect.
If the foregoing sets forth our understanding, please confirm the same
by so indicating below.
Very truly yours,
AUDITS & SURVEYS WORLDWIDE, INC.
By: /s/ H. Arthur Bellows
-------------------------------
H. Arthur Bellows, President
CONFIRMED AND AGREED TO:
/s/ Carl Ravitch
- -----------------------------
Carl Ravitch
Subsidiaries of the Company:
Audits & Surveys Europe Ltd. (UK)
A&S Spooner Realty Co. (Delaware)
Inactive subsidiaries:
The Triangle Tool Group, Inc. (Delaware)
Tri-South, Inc. (Delaware)
Tri-North, Inc. (Delaware)
Triangle International, Inc. (Delaware)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-22875 of Audits & Surveys Worldwide, Inc. And Subsidiaries on Form S-8 of
our report dated March 12, 1998, appearing in this Annual Report on Form 10-K of
Audits & Surveys Worldwide, Inc. for the year ended December 31, 1997.
/S/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
New York, New York
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1997
CONSOLIDATED FINANCIAL STATEMENTS OF AUDITS & SURVEYS WORLDWIDE, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> AUDITS & SURVEYS WORLDWIDE, INC.
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