SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 1-7675
AUDITS & SURVEYS WORLDWIDE, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-1809586
----------- --------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
650 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10011
- ---------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 627-9700
--------------
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of
common stock, as of August 11, 1998 was:
CLASS NUMBER OF SHARES
------- ------------------
Common Stock, $0.01 par value 13,116,136
<PAGE>
AUDITS & SURVEYS WORLDWIDE, INC.
INDEX PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets-
June 30, 1998 and December 31, 1997 3-4
Condensed Consolidated Statements of Income-
Three Months and Six Months ended June 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows-
Six Months ended June 30, 1998 and 1997 6
Condensed Consolidated Statement of Stockholders' Equity-
June 30, 1998 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 9-11
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security-Holders. 12
Item 6. Exhibits and Reports on Form 8-K. 13
Signatures 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(Dollar Amounts in Thousands Except for Per Share Data)
JUNE 30, 1998 DEC. 31, 1997
------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,174 $ 1,524
Accounts receivable:
Billed 7,249 9,274
Unbilled 5,679 6,114
Prepaid expenses and inventories 1,454 1,317
Deferred income taxes 479 479
Other current assets 204 563
---------- -------
Total current assets 16,239 19,271
---------- ------
PROPERTY AND EQUIPMENT, NET 3,634 3,579
PREPAID PENSION COSTS 1,142 1,142
DEFERRED INCOME TAXES 2,289 2,406
OTHER ASSETS 2,272 2,057
---------- ----------
TOTAL ASSETS $ 25,576 $ 28,455
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(Dollar amounts in thousands except for per share data)
JUNE 30, 1998 DEC. 31, 1997
------------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable bank $ 2,300 $ 1,500
Accounts payable and accrued expenses 3,697 6,148
Accrued payroll and bonuses 1,264 2,197
Customer billings in excess of revenues earned 3,969 3,897
Income taxes payable 88 133
Current portion of long-term debt 622 617
Current portion of capital lease obligations 106 80
---------- ----------
Total current liabilities 12,046 14,572
---------- ----------
LONG-TERM DEBT-net of current portion 1,390 1,702
CAPITAL LEASE OBLIGATIONS-net of current portion 209 230
OTHER LIABILITIES 1,875 2,043
---------- ----------
Total liabilities 15,520 18,547
---------- ----------
MINORITY INTERESTS 64 102
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 1,000,000 shares
authorized and unissued - -
Common stock, $.01 par value, 30,000,000 shares
authorized; 13,116,136 shares issued at June 30, 1998
and 13,111,135 shares issued at December 31, 1997 131 131
Additional paid-in capital 4,423 4,413
Retained earnings 5,565 5,366
Accumulated other comprehensive income (127) (104)
---------- ----------
Total stockholders' equity 9,992 9,806
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,576 $ 28,455
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- --------------------------------------------------------------------------------
(Dollar amounts in thousands except for per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES$ 14,148 $ 16,011 $ 27,737 $ 32,933
-------------- ------------- -------------- ------------
COSTS AND EXPENSES:
Direct costs 6,646 7,442 13,328 16,022
Selling, general and
administrative expense 7,207 7,149 14,417 14,037
Incentive bonuses 233 552 281 952
Interest expense 106 72 182 136
Other expense (income) - net (44) 96 (69) 43
Share of income in unconsolidated
joint venture (222) - (376) -
Minority interests in
consolidated subsidiaries (180) - (254) -
-------------- -------------- --------------- -------------
TOTAL COSTS AND EXPENSES 13,746 15,311 27,509 31,190
-------------- -------------- --------------- -------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 402 700 228 1,743
PROVISION FOR
INCOME TAXES 165 287 29 715
-------------- -------------- --------------- -------------
NET INCOME $ 237 $ 413 $ 199 $ 1,028
============== ============== =============== =============
BASIC EARNINGS PER
COMMON SHARE $ .02 $ .03 $ .02 $ .08
============== ============== =============== =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 13,113,609 13,103,549 13,112,380 13,101,338
============== ============== =============== =============
DILUTED EARNINGS
PER COMMON SHARE $ .02 $ .03 $ .02 $ .08
============== ============== =============== =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING AND
DILUTIVE STOCK OPTIONS 13,292,456 13,215,474 13,265,293 13,263,214
============== ============== =============== =============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 199 $1,028
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 599 497
Deferred income taxes 117 118
Amortization of deferred charges 116 184
Share of income in unconsolidated joint venture (376) -
Minority interest in consolidated subsidiary (38) -
Accrued rent (79) 96
Changes in operating assets and liabilities:
Accounts receivable 2,460 (2,014)
Prepaid expenses and inventories (137) (463)
Other current assets 358 91
Other assets 14 -
Income taxes payable (46) (534)
Accounts payable and accrued expenses (2,451) 758
Accrued payroll and bonuses (933) (1,788)
Customer billings in excess of revenues earned 72 (1,830)
Other (56) (87)
---------- ---------
Net cash used in operating activities (181) (3,944)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (618) (495)
---------- ---------
Net cash used in investing activities (618) (495)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings 800 2,100
Dividends to stockholders - (655)
Principal payments of debt (307) (304)
Principal payments of capital lease obligations (30) (27)
Issuance of common stock and director's options 10 22
---------- ---------
Net cash provided by financing activities 473 1,136
---------- ---------
EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH (24) (8)
---------- ---------
NET (DECREASE) IN CASH (350) (3,311)
CASH, BEGINNING OF PERIOD 1,524 3,827
---------- ---------
CASH , END OF PERIOD $ 1,174 $ 516
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for: Interest $ 196 $ 102
========== =========
Income taxes $ 532 $ 1,099
========== =========
SUPPLEMENTAL DISCLOSURE OF NON CASH
INVESTING AND FINANCING ACTIVITIES:
Financing of capital improvements $ 36 $ 430
========== =========
Contribution from minority interest in consolidated joint venture $ 216 $ -
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON STOCK PAID-IN RETAINED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME TOTAL INCOME
------ ------ ------- -------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE
DECEMBER 31, 1997 13,111,137 $131 $4,413 $5,366 $(104) $9,806
Net Income 199 199 $ 199
Exercise of stock options 4,999 10 10
Foreign Currency
Translation Adjustment (23) (23) (23)
--------
Comprehensive Income $ 176
========
------------------------------------------------------------------------------------
BALANCE
JUNE 30, 1998 13,116,136 $131 $4,423 $5,565 $(127) $9,992
===========================================================================
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE>
AUDITS & SURVEYS WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Audits & Surveys Worldwide, Inc. (the "Company"), and its majority
owned subsidiaries, Audits & Surveys Europe, Ltd. ("ASE") and ASW-KMR Magazine
Metrics, L.L.C., ("ASW-KMR") and certain other currently inactive entities. All
significant intercompany transactions and balances have been eliminated.
The 1998 and 1997 condensed consolidated financial statements have been prepared
by the Company and are unaudited. In the opinion of the Company's management all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows for
the interim periods have been made. Certain information and footnote disclosures
required under generally accepted accounting principles have been condensed or
omitted from the consolidated financial statements pursuant to the rules and
regulations of the Securities and Exchange Commission. The condensed
consolidated financial statements presented herein should be read in conjunction
with the year-end consolidated financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997. The results of operations for the three-month and six-month periods ended
June 30, 1998 are not necessarily indicative of the results to be expected for
any other interim period or for the entire year.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE QUARTER AND SIX MONTHS ENDED
- --------------------------------------------------------------------------------
JUNE 30, 1998 WITH THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1997
- -----------------------------------------------------------------
Revenues for the second quarter of 1998 were $14.1 million compared with $16.0
million in the second quarter of 1997. Revenues for the first six months of 1998
were $27.7 million compared with $32.9 million in the first six months of 1997.
The decreases of 11.6% in the second quarter and 15.8% in the first six months
of 1998 were primarily attributable to a client's decision to conduct a major
international consumer tracking study on an alternate year basis rather than
annually. All of the revenues from this study were reported in the first six
months of 1997 including a portion reported in the second quarter. The decreases
in revenues in the second quarter and first six months of 1998 also resulted
from lower revenues from several media research projects.
Direct costs decreased $.8 million (10.7%) in the second quarter and $2.7
million (16.8%) in the first six months of 1998 compared with the same periods
of 1997. The decreases in 1998 direct costs were primarily the result of the
decreases in revenues. In addition, direct costs in 1997 included higher costs
incurred in the development of expanded syndicated research services which were
not incurred in 1998. As a percentage of revenues, direct costs were 47.0% in
the second quarter and 48.1% in the first six months of 1998 compared with 46.5%
in the second quarter and 48.7% in the first six months of 1997. The changes in
1998 direct costs, as a percentage of 1998 revenues, are generally reflective of
the changes in the mix of research services compared with 1997 as well as the
effect of the syndicated research development costs incurred in 1997.
Selling, general and administrative (SG&A) expenses were approximately the same
in the second quarters of 1998 and 1997 and increased $.4 million (2.7%) in the
first six months of 1998. The increases in SG&A for the first six months of 1998
were principally in rent and related utilities, depreciation, professional and
consulting fees and additions to the allowance for doubtful accounts.
The lower provisions for incentive bonuses in the second quarter and six month
periods of 1998 compared with the same periods of 1997 resulted from the
decreases in year-to-date operating income on which the incentive bonuses are
calculated.
Interest expenses were higher in the second quarter and first six months of 1998
compared with the same periods of 1997 primarily because of higher average
short-term bank borrowings.
9
<PAGE>
Other expense (income) in the second quarter and first six months of 1997
included a charge for the effects of the termination of a sublease between the
Company and a subtenant for a portion of the space at the Company's New York
headquarters. There was no similar expense in 1998.
Share of income in unconsolidated joint venture represents the Company's 25%
interest in Intelect ASW Marketing Services, LLC, a joint venture which began
operations in late 1997.
Minority interests in consolidated subsidiaries represent the portions of the
losses of such subsidiaries, principally ASW-KMR, applicable to the minority
shareholders of such entities.
Income taxes for the second quarter and six month periods of 1998 and 1997 have
been provided at 41% of reported pretax income. The provision for income taxes
for the first six months of 1998 also includes a credit of $65,000, reported in
the first quarter, representing accumulated tax over-provisions of prior years
which are no longer required.
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
At June 30, 1998, the Company had working capital of $4.2 million and a current
ratio of 1.35 to 1 compared with working capital of $4.7 million and a current
ratio of 1.32 to 1 at December 31, 1997.
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 1998, the
Company's secured line of credit with its bank was extended to June 30, 1999 and
was increased from $4,000,000 to $5,000,000.
Net cash used in operating activities was $181,000 consisting principally of net
income of $199,000, adjusted for non-cash expenses of $339,000, and decreases in
accounts receivable of $2,460,000 offset primarily by decreases in accounts
payable and accrued expenses of $2,451,000 and accrued payroll and bonuses of
$933,000.
Net cash used in investing activities was $618,000 resulting from the purchases
of property and equipment.
Net cash provided by financing activities was $473,000 consisting principally of
proceeds from short term bank borrowings of $800,000 offset by repayments of
bank borrowings and other debt of $337,000.
The Company believes that its credit arrangements with its bank combined with
its capital base and funds expected to be 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.
10
<PAGE>
NEW ACCOUNTING PRINCIPLES
- -------------------------
During 1997, the Financial Accounting Standards Board issued the following
accounting standards: Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS No. 130), Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131) and Statement of Financial Accounting
Standards No. 132 "Employers Disclosures about Pension and Other Post Retirement
Benefit Plans" (SFAS No. 132). The Company does not expect any material effect
from adoption of SFAS No. 131 and 132. The Company adopted SFAS No. 130 in the
first quarter of 1998 and has reported comprehensive income as a component of
equity.
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 changes in
market conditions, loss of a significant client and changes in government
regulations and policies, among others. 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.
IMPACT OF INFLATION
- -------------------
General inflation in the economy has increased operating expenses of most
businesses. The Company has provided compensation increases generally in line
with the inflation rate and incurred higher prices for materials, goods and
services. The Company continually seeks methods of reducing costs and
streamlining operations while maximizing efficiency through improved internal
operating procedures and controls. While the Company is subject to inflation as
described above, management believes that inflation currently does not have a
material effect on the Company's operating results, but there can be no
assurance that this will continue to be so in the future.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On June 10, 1998 the Company held its 1998 Annual Meeting of Stockholders (the
"1998 Meeting"). At the 1998 Meeting, the Company's stockholders elected 10
directors to serve until the next Annual Meeting of Stockholders or until their
successors are duly elected and qualified. The vote for such directors was as
follows:
FOR WITHHELD
--- --------
Solomon Dutka 11,774,165 86,426
H. Arthur Bellows, Jr. 11,845,934 14,657
Carl Ravitch 11,846,091 14,500
Charles E. Bradley 11,846,091 14,500
Brian G. Dyson 11,846,091 14,500
Matthew Goldstein 11,846,091 14,500
Robert C. Miller 11,846,091 14,500
William Newman 11,846,091 14,500
Joseph Plummer 10,845,970 14,621
William A. Zebedee 11,846,091 14,500
In addition, at the 1998 Meeting the Company's stockholders voted with respect
to the ratification of the appointment of Deloitte & Touche LLP as the Company's
independent public accountants to audit the Company's consolidated financial
statements for 1998. In connection with this proposal, 11,851,546 shares were
cast for the proposal, 5,167 shares were cast against the proposal and the
holders of 3,878 votes abstained from voting.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.*
a. Exhibits:
27.01 Financial Data Schedule
b. Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the
quarterly period ended June 30, 1998.
- ------------------------
* There is no instrument defining the right of holders of long-term debt
of the Company or of any of its subsidiaries other than where the
total amount of securities authorized thereunder does not exceed 10%
of the total assets of the Company and its subsidiaries on a
consolidated basis. In accordance with paragraph (b)(4)(iii) of Item
601 of Regulation S-K, the Company agrees to furnish to the Securities
and Exchange Commission, upon request, copies of any such instrument.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AUDITS & SURVEYS WORLDWIDE, INC.
AUGUST 12, 1998 By: /S/ H. Arthur Bellows, Jr
--------------- ---------------------------
Date H. Arthur Bellows, Jr.
President
By:/S/ Alan J. Ritter
-----------------------------
Alan J. Ritter
Senior Vice President
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1998 CONSOLIDATED FINANCIAL STATEMENTS OF AUDITS & SURVEYS WORLDWIDE, INC. AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 1,174
<SECURITIES> 0
<RECEIVABLES> 13,079
<ALLOWANCES> (151)
<INVENTORY> 1,454
<CURRENT-ASSETS> 16,239
<PP&E> 7,661
<DEPRECIATION> (4,027)
<TOTAL-ASSETS> 25,576
<CURRENT-LIABILITIES> 12,046
<BONDS> 1,599
0
0
<COMMON> 131
<OTHER-SE> 9,861
<TOTAL-LIABILITY-AND-EQUITY> 25,576
<SALES> 0
<TOTAL-REVENUES> 27,737
<CGS> 0
<TOTAL-COSTS> 13,328
<OTHER-EXPENSES> 13,999
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 182
<INCOME-PRETAX> 228
<INCOME-TAX> 29
<INCOME-CONTINUING> 199
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 199
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
