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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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ANNUAL REPORT ON FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2001
Commission file number 0-27824
SPAR GROUP, INC.
Delaware 33-0684451
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
580 WHITE PLAINS ROAD, TARRYTOWN, NEW YORK 10591
Registrant's telephone number, including area code: (914) 332-4100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K .
The aggregate market value of the Common Stock of the Registrant held
by non-affiliates of the Registrant on March 27, 2002, based on the closing
price of the Common Stock as reported by the Nasdaq SmallCap Market on such
date, was approximately $43,675,787.
The number of shares of the Registrant's Common Stock outstanding as of
March 27, 2002 was 18,585,441 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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SPAR GROUP, INC.
ANNUAL REPORT ON FORM 10-K
INDEX
PART I
PAGE
Item 1. Business 1
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of 17
Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 25
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial 25
Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation and Other Information of SPAR Group, Inc. 28
Item 12. Security Ownership of Certain Beneficial Owners and Management 32
Item 13. Certain Relationships and Related Transactions 33
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 34
Signatures 36
-i-
PART I
THIS ANNUAL REPORT ON FORM 10-K INCLUDES "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
EXCHANGE ACT, INCLUDING, IN PARTICULAR AND WITHOUT LIMITATION, THE STATEMENTS
ABOUT THE SPAR GROUP'S PLANS AND STRATEGIES UNDER THE HEADINGS "BUSINESS" AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." ALTHOUGH THE SPAR GROUP BELIEVES THAT ITS PLANS, INTENTIONS AND
EXPECTATIONS REFLECTED IN OR SUGGESTED BY SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CANNOT ASSURE THAT SUCH PLANS, INTENTIONS OR EXPECTATIONS WILL BE
ACHIEVED. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE SPAR GROUP OR
PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED BY THE CAUTIONARY
STATEMENTS IN THE ANNUAL REPORT ON FORM 10-K.
ITEM 1. BUSINESS.
GENERAL
The SPAR Group, Inc., a Delaware corporation formerly known as PIA
Merchandising Services, Inc. ("SPAR Group" or the "Company") is a supplier of
in-store merchandising and marketing services throughout the United States and
Canada. The Company also provides database marketing, teleservices, marketing
research, and Internet-based software. As part of a strategic realignment in the
fourth quarter of 2001, the Company made the decision to divest its Incentive
Marketing Division, SPAR Performance Group, Inc. ("SPGI"). The Company is
exploring various alternatives for the sale of SPGI, including the sale of the
business to employees through the establishment of an employee stock ownership
plan. The Company anticipates that the divestiture of SPGI will occur in the
first half of 2002. As a result of this decision, the Company's continuing
operations are now divided into three divisions: the Merchandising Services
Division, the Technology Division and the International Division. The
Merchandising Services Division provides merchandising services, database
marketing, teleservices and marketing research to manufacturers and retailers
primarily in the mass merchandiser, video, discount drug store and grocery
industries. In March 2000, the Company announced the formation of a Technology
Division for the purpose of marketing its proprietary Internet-based computer
software. In November 2000, the Company established its International Division
to expand its merchandising services business off shore, with an initial focus
on Japan and the Pacific Rim region.
CONTINUING OPERATIONS
Merchandising Services Division
The Company's Merchandising Services Division consists of (1) SPAR
Marketing, Inc., a Delaware corporation ("SMI") (an intermediate holding
company), SPAR Marketing Force, Inc. ("SMF"), SPAR Marketing, Inc., a Nevada
corporation ("SMNEV"), SPAR/Burgoyne Retail Services, Inc. ("SBRS"), and SPAR,
Inc. ("SINC") (collectively, the "SPAR Marketing Companies"), and (2) PIA
Merchandising Co. Inc., Pacific Indoor Display d/b/a Retail Resources, Pivotal
Sales Company and PIA Merchandising Ltd. (collectively, "PIA" or the "PIA
Companies"). The SPAR Marketing Companies, the original predecessor of which was
founded in 1967, provide nationwide retail merchandising and marketing services
to home video, DVD, general merchandise, health and beauty care products,
consumer goods and food products companies. The PIA Companies, through a
predecessor of the Company first organized in 1943, also are suppliers of
in-store merchandising services throughout the United States and were "acquired"
by the SPAR Marketing Companies for accounting purposes pursuant to the Merger
on July 8, 1999 (See Merger and Restructuring, below). The PIA Companies provide
these services primarily on behalf of consumer product manufacturers and
retailers at mass merchandisers, drug and retail grocery stores. The Company
currently operates in all 50 states and Canada and provides a broad range of
in-store merchandising and other marketing services to many of the nation's
leading companies.
-1-
Merchandising services generally consist of special projects or
regularly scheduled routed services provided at stores for a specific retailer
or multiple manufacturers primarily under single or multi-year contracts.
Services also include stand-alone large-scale implementations. These services
may include sales enhancing activities such as ensuring that client products
authorized for distribution are in stock and on the shelf, adding new products
that are approved for distribution but not presently on the shelf, setting
category shelves in accordance with approved store schematics, ensuring shelf
tags are in place, checking for the overall salability of client products and
selling new and promotional items. Specific in-store services can be initiated
by retailers and manufacturers, such as new product launches, special seasonal
or promotional merchandising, focused product support and product recalls. The
Company also provides database marketing, teleservices and research services.
Technology Division
In March 2000, the Company established its Technology Division, SPAR
Technology Group, Inc., to separately market its application software products
and services. The Company has developed and is utilizing several Internet-based
software products. In addition, the Company has developed and sold
internet-based software in its other divisions. The Technology Division was
established to market these applications to businesses with multiple locations
and large workforces or numerous distributors desiring to improve day-to-day
efficiency and overall productivity.
International Division
The Company believes there is a significant market for its
merchandising services throughout the world. The domestic merchandising services
business has been developed utilizing Internet-based technology that can be
modified to accommodate foreign markets. In November 2000, the International
Division, SPAR Group International, Inc., was established to cultivate foreign
markets, modify the necessary systems and implement the Company's merchandising
services business model worldwide with an initial focus on Japan and the Pacific
Rim region.
In 2000, SPAR Group International, Inc. and a leading Japanese based
distributor established a jointly owned company to provide the latest in-store
merchandising services to the Japanese market. As part of the joint venture
agreement, the Company translated into Japanese and made available to the joint
venture several of its proprietary internet-based software applications. The
Joint Venture is currently utilizing these applications in their daily
operations.
DISCONTINUED OPERATIONS
Incentive Marketing Division
As part of a strategic realignment in the fourth quarter of 2001, the
Company made the decision to divest its Incentive Marketing Division, SPAR
Performance Group, Inc. ("SPGI"). The Company is exploring various alternatives
for the sale of SPGI, including the sale of the business to SPGI's employees
through the establishment of an employee stock ownership plan. The Company
anticipates that the divestiture of SPGI will occur in the first half of 2002.
The Company's Incentive Marketing Division was created in January 1999
through the Company's purchase of the business and substantially all of the
assets of BIMA Group, Inc., a Texas corporation ("BIMA" or "MCI") originally
founded in 1987 and formerly known as MCI Performance Group, Inc. The purchase
was made by the Company's indirect subsidiary SPGI, formerly known as SPAR MCI
Performance Group, Inc. SPGI provides a wide variety of consulting, creative,
program administration, travel and merchandise fulfillment, and training
services to companies seeking to retain and motivate employees, salespeople,
dealers, distributors, retailers, and consumers toward certain actions or
objectives. SPGI's strategy enables companies
-2-
to outsource the entire design, implementation and fulfillment of incentive
programs in a one-stop, "umbrella" shopping approach. SPGI typically consults
with a client to design the most effective plan to achieve the client's goals.
SPGI then provides services necessary to implement the program, generates
detailed efficiency progress reports, and reports on the return on investment
upon completion of the program.
INDUSTRY OVERVIEW
CONTINUING OPERATIONS
Merchandising Services Division
According to industry estimates over two billion dollars are spent
annually on domestic merchandising services. The merchandising industry includes
manufacturers, retailers, food brokers, and professional service merchandising
companies. The Company believes the continuing trend is for major manufacturers
to move increasingly toward third parties to handle in-store merchandising. The
Company also believes that its merchandising services bring added value to
retailers, manufacturers and other businesses. Retail merchandising services
enhance sales by making a product more visible and available to consumers. These
services primarily include placing orders, shelf maintenance, display placement,
reconfiguring products on store shelves, replenishing products, and other
services, such as test market research, mystery shopping, teleservices, database
marketing and promotion planning and analysis.
The Company believes merchandising services previously undertaken by
retailers and manufacturers have been increasingly outsourced to third parties.
Historically, retailers staffed their stores as needed to ensure inventory
levels, the advantageous display of new items on shelves, and the maintenance of
shelf schematics. In an effort to improve their margins, retailers increased
their reliance on manufacturers to perform such services. Initially,
manufacturers attempted to satisfy the need for merchandising services in retail
stores by utilizing their own sales representatives. However, manufacturers
discovered that using their own sales representatives for this purpose was
expensive and inefficient. Therefore, manufacturers have increasingly outsourced
the merchandising services to third parties capable of operating at a lower cost
by serving multiple manufacturers simultaneously.
Another significant trend impacting the merchandising segment is the
tendency of consumers to make product purchase decisions once inside the store.
Accordingly, merchandising services and in-store product promotions have
proliferated and diversified. Retailers are continually remerchandising and
remodeling entire stores to respond to new product developments and changes in
consumer preferences. The Company estimates that these activities have increased
in frequency over the last five years, such that most stores are re-merchandised
and remodeled approximately every twenty-four months. Both retailers and
manufacturers are seeking third parties to help them meet the increased demand
for these labor-intensive services.
Technology Division
The Company believes there is a current trend towards consolidation in
business. This trend is creating larger, more complex companies that have
multiple locations and large workforces covering wide geographical areas. The
Company also believes there is a growing trend of companies utilizing the
Internet and Internet-based software. The Company has historically developed and
utilized Internet-based software to manage its national businesses, including
its national field force, with greater efficiency and communication speed than
previously possible with paper based systems. In addition, the Company has
developed and sold internet-based software in its other divisions. The Company
believes its software transcends the merchandising services industry and can be
utilized in many other industries that have businesses with multiple locations
and large workforces or numerous distributors.
-3-
International Division
The Company believes another current trend in business is
globalization. As companies expand into foreign markets they will need
assistance in marketing their products. As evidenced in the United States,
retailer and manufacturer sponsored merchandising programs are both expensive
and inefficient. The Company also believes that the difficulties encountered by
these programs will only be exacerbated by the logistics of operating in foreign
markets. The Company believes this environment will create an opportunity to
exploit its Internet-based technology and business model that are successful in
the United States. In November 2000, the Company established its International
Division, SPAR Group International, Inc., to cultivate foreign markets, modify
the necessary systems and implement the Company's business model worldwide by
expanding its merchandising services business off shore. The Company has formed
an International Division task force consisting of members of the Company's
information technology, operations and finance groups to evaluate and develop
foreign markets. The initial focus of the International Division has been on the
Pacific Rim region. In Japan, SPAR Group International, Inc. and a leading
Japanese based distributor established a jointly owned company to provide the
latest in-store merchandising services to the Japanese market. As part of the
joint venture agreement, the Company translated into Japanese and made available
to the joint venture several of its proprietary internet-based software
applications. Upon successful implementation of the Company's business model in
these areas, the Company intends to expand to other markets.
DISCONTINUED OPERATIONS
Incentive Marketing Division
Industry surveys indicate that over $28 billion is spent annually on
premium incentive and promotion fulfillment. The Company believes that U.S.
companies are increasingly using third party incentive providers as a more
efficient and cost effective means to increase the productivity of their
employees. Premium incentives are performance-determined rewards used to
motivate employees, salespeople, dealers, and consumers, and are also used to
differentiate a product, service or store. Third party premium incentive
providers can offer a customized, unique, turnkey solution specifically tailored
to a company's needs. Additionally, incentive premium providers are able to
capitalize on supplier relationships and to realize volume discounts,
particularly on travel and merchandise.
MERGER AND RESTRUCTURING
On July 8, 1999, SG Acquisition, Inc., a Nevada corporation ("PIA
Acquisition"), a wholly owned subsidiary of the Company, then named PIA
Merchandising Services, Inc. ("PIA Delaware"), merged into and with SPAR
Acquisition, Inc., a Nevada corporation ("SAI") (the "Merger"), pursuant to the
Agreement and Plan of Merger dated as of February 28, 1999, as amended (the
"Merger Agreement"), by and among the Company and certain of the PIA Companies
and SPAR Marketing Companies (among others). In connection with the Merger, PIA
Delaware changed its name to SPAR Group, Inc. (which will be referred to
post-Merger individually as "SGRP" or the "Company"). Although the SPAR
Marketing Companies and SPGI became subsidiaries of PIA Delaware (now SGRP) as a
result of this "reverse" Merger, the transaction has been accounted for as a
purchase by SAI of the PIA Companies, with the books and records of SGRP being
adjusted to reflect the historical operating results of the SPAR Marketing
Companies and SPGI (together with certain intermediate holding companies, the
"SPAR Companies").
-4-
BUSINESS STRATEGY
As the marketing services industry continues to grow, consolidate and
expand internationally large retailers and manufacturers are increasingly
outsourcing their marketing needs to third-party providers. The Company believes
that offering marketing services in multi-use sectors on a national and global
basis will provide it with a competitive advantage. Moreover, the Company
believes that developing a sophisticated technology infrastructure, including
proprietary Internet-based software, is key to providing clients with a high
level of customer service while maintaining efficient, low cost operations. The
Company's objective is to become an international integrated service provider by
pursuing its operating strategy, as described below.
Capitalize on Cross-Selling Opportunities. The Company intends to
leverage its current client relationships by cross-selling the range of services
offered by the Company. The Company believes that its retail merchandising
services can be packaged with its database marketing services to provide a high
level of customer service, and that additional cross-selling opportunities will
increase if, as management intends, the Company acquires businesses in other
sectors of the marketing services industry. The Company also intends to offer
its proprietary Internet-based software to existing Merchandising Services
clients.
Achieve Operating Efficiencies. The Company intends to achieve greater
operating efficiencies within its Divisions. The Company believes that, its
existing field force and technology infrastructure can support additional
customers and revenue in the Merchandising Services Division. At the corporate
level, the Company will continue to combine certain administrative functions,
such as accounting and finance, insurance, strategic marketing and legal
support.
Leverage and Implement Technology. The Company intends to utilize
computer (including hand-held computers), Internet, and other technology to
enhance its efficiency and ability to provide real-time data to its customers.
Industry sources indicate that customers are increasingly relying on marketing
service providers to supply rapid, value-added information regarding the results
of marketing expenditures on sales and profits. The Company (together with
certain of its affiliates) has developed and owns proprietary Internet-based
software technology that allows it to utilize the Internet to communicate with
its field management, schedule its store-specific field operations more
efficiently, receive information and incorporate the data immediately, quantify
the benefits of its services to customers faster and respond to customers' needs
and implement programs more rapidly. The Company believes that the usefulness of
certain software applications it has developed transcends the merchandising and
marketing services industry and can be marketed to other industries. The Company
has successfully modified and is currently utilizing certain of its software
applications in connection with its Japanese joint venture. The Company also
believes that it can continue to modify and adapt its technology to support
merchandising and marketing services in other foreign markets. The Company
believes that its proprietary Internet-based software technology gives them a
competitive advantage in the marketplace.
DESCRIPTION OF SERVICES
The Company currently provides a broad array of merchandising and
marketing services on a national, regional and local basis to leading
entertainment, consumer goods, food, health and beauty care products and retail
companies through its Merchandising Services Division.
The Company currently operates in all 50 states and Canada serving some
of the nation's leading companies. The Company believes its full-line capability
of developing plans at one centralized division headquarter location, executing
chain wide, fully integrated national solutions, and implementing rapid,
coordinated responses to its clients' needs on a real time basis differentiate
the Company from its competitors. The Company also believes its national
presence, centralized decision-making ability, local follow-through, ability to
recruit, train and supervise merchandisers, ability to perform large-scale
initiatives on short notice,
-5-
and strong retailer relationships provide the Company with a competitive
advantage over local, regional or other competitors.
Merchandising Services Division
The Company provides a broad array of merchandising services on a
national, regional, and local basis to manufacturers and retailers. The Company
provides its merchandising and sales services primarily on behalf of consumer
product manufacturers at mass merchandiser, drug and retail grocery chains. The
Company currently provides three principal types of merchandising and sales
services: syndicated services, dedicated services and project services.
Syndicated Services
Syndicated services consist of regularly scheduled, routed
merchandising services provided at the store level for various manufacturers.
These services are performed for multiple manufacturers, including, in some
cases, manufacturers whose products are in the same product category. Syndicated
services may include activities such as:
o Reordering, replenishment of product
o Ensuring that the client's products authorized for distribution
are in stock and on the shelf
o Adding in new products that are approved for distribution but not
present on the shelf
o Designing store schematics
o Setting category shelves in accordance with approved store
schematics
o Ensuring that shelf tags are in place
o Checking for overall salability of the client's products
o Placing new product and promotional items
Dedicated Services
Dedicated services consist of merchandising services, generally as
described above, that are performed for a specific retailer or manufacturer by a
dedicated organization, including a management team, working exclusively for
that retailer or manufacturer. These services are primarily based on agreed-upon
hourly rates and fixed management fees under multi-year contracts.
Project Services
Project services consist primarily of specific in-store services
initiated by retailers and manufacturers, such as new product launches, special
seasonal or promotional merchandising, focused product support and product
recalls. These services are used typically for large-scale implementations
requiring over 30 days. The Company also performs other project services, such
as new store sets and existing store resets, re-merchandising, remodels and
category implementations, under shared service contracts or stand-alone project
contracts.
Other Marketing Services
Other marketing services performed by the Company include:
Test Market Research - Testing promotion alternatives, new products
and advertising campaigns, as well as packaging, pricing, and
location changes, at the store level.
-6-
Mystery Shopping - Calling anonymously on retail outlets (e.g.
stores, restaurants, banks) to check on distribution or display of a
brand and to evaluate products, service of personnel, conditions of
store, etc.
Database Marketing - Managing proprietary information to permit easy
access, analysis and manipulation for use in direct marketing
campaigns.
Data Collection - Gathering information systematically for analysis
and interpretation.
Teleservices - Maintaining a teleservices center in its Auburn Hills,
Michigan facility that performs inbound and outbound telemarketing
services, including those on behalf of certain of the Company's
manufacturer clients.
It is critical that the above services be provided timely, accurately,
and efficiently. Client reporting is also critical. The Company has developed
Internet-based information tracking and data accumulation system applications
that improve the productivity of its merchandising specialists and provide
timely data to its customers. The Company's merchandising specialists use
Interactive Voice Response (IVR) or utilize hand-held computers, personal
computers and laptop computers to report through the Internet the status of each
store they service upon completion. Merchandising specialists may report on
store conditions (e.g. out of stocks, inventory, display placement) or process
new orders for scanned products. This information is analyzed and displayed on
graphical execution maps, which can be accessed by both the Company and its
customers via the Internet. These execution maps visually depict the status of
every merchandising project in real time.
The Company has also developed an automated labor tracking system.
Merchandising specialists communicate work assignment completion information via
the Internet or telephone, enabling the Company to report hours, mileage, and
other completion information for each work assignment on a daily basis and
providing the Company with daily, detailed tracking of work completion. This
technology allows the Company to schedule its merchandising specialists more
efficiently, quickly quantify the benefits of its services to customers, rapidly
respond to customers' needs and rapidly implement programs. The Company believes
that its technological capabilities provide it with a competitive advantage in
the marketplace.
Technology Division
The Company believes there is a current trend towards consolidation in
business. This trend is creating larger, more complex companies that have
multiple locations and large workforces covering wide geographical areas. The
Company also believes there is a growing trend of companies utilizing the
Internet and Internet-based software. The Company has historically developed and
utilized Internet-based software to manage its national businesses, including
its national field force, with greater efficiency and communication speed than
previously possible with paper based systems (see preceding paragraph). In
addition, the Company has developed and sold internet-based software in its
other divisions. The Company believes its software transcends the merchandising
services industry and can be utilized in many other industries that have
businesses with multiple locations and large workforces or numerous
distributors.
International Division
The Company believes another current trend in business is
globalization. As companies expand into foreign markets they will need
assistance in marketing their products. As evidenced in the United States,
retailer and manufacturer sponsored merchandising programs are both expensive
and inefficient. The Company believes that the difficulties encountered by these
programs will only be exacerbated by the logistics of operating in foreign
markets. The Company believes this environment will create an opportunity to
exploit its Internet-based technology and business model that are successful in
the United States. The Company has
-7-
formed a task force consisting of information technology, operations and finance
to evaluate and develop foreign markets. The initial focus of the International
Division, SPAR Group International, Inc., has been on the Pacific Rim region.
SPAR Group International, Inc. and a leading Japanese based distributor
established a jointly owned company to provide the latest in-store merchandising
services to the Japanese market. Upon successful implementation of the Company's
business model in these areas, the Company intends to expand to other markets.
DISCONTINUED OPERATIONS
Incentive Marketing Division
SPGI provides a wide variety of consulting, creative, program
administration, and travel and merchandise fulfillment services to companies
seeking to retain and motivate employees, salespeople, dealers, distributors,
retailers, and consumers toward certain actions or objectives. SPGI's strategy
is to allow companies to outsource the entire design, implementation and
fulfillment of incentive programs in a one-stop, "umbrella" shopping approach.
SPGI consults with a client to design the most effective plan to achieve the
client's goals. SPGI then provides the services necessary to implement the
program, generates detailed efficiency progress reports and calculates the
return on investment upon completion of the program.
The SPGI process typically begins when a client desires assistance in
developing a performance improvement program. SPGI's senior consultants work
with the client to develop programs that improve productivity by delivering
positive reinforcement in ways that are meaningful to employees and supportive
of the client's business strategy. A wide range of reward options is available,
including cash, travel, and merchandise. Most formal compensation programs
deliver cash to plan participants, while premium incentives tend to make greater
use of non-financial rewards. SPGI has experience in all forms of incentives and
therefore can provide its clients with the most appropriate program design. SPGI
is capable of assisting its clients in the writing, designing and printing of
the program elements. Teams of creative directors, copywriters, graphic
designers and print specialists develop campaigns for incentive programs,
meetings, trade shows and consumer promotions.
In addition, SPGI provides its clients with travel or merchandise
fulfillment alternatives as well as a series of innovative product specific
alternatives. While the majority of SPGI's product fulfillment is in the travel
area, SPGI provides a wide variety of catalog merchandise awards. Through an
informal arrangement with some of the country's largest mass merchandise
retailers, SPGI can provide its clients with programs that offer the flexibility
of in-home reward ordering. SPGI also provides its clients with custom
merchandise, special catalogs, retail certificates and a Local Purchase Option
("LPO"). The LPO allows winning participants to select and redeem merchandise
from a series of participating merchants.
SALES AND MARKETING
CONTINUING OPERATIONS
Merchandising Services Division
The Company's sales efforts within its Merchandising Services Division
are structured to develop new business in national and local markets. The
Company's corporate business development team directs its efforts toward the
senior management of prospective clients. Sales efforts are principally guided
through the Company's sales workforce, located nationwide, who primarily work
from company and home offices. In addition, the Company's corporate account
executives play an important role in the Company's new business development
efforts within its existing manufacturer and retailer client base.
-8-
As part of the retailer consolidation, retailers are centralizing most
administrative functions, including operations, procurement and category
management. In response to this centralization and the growing importance of
large retailers, many manufacturers have reorganized their selling organizations
around a retailer team concept that focuses on a particular retailer. The
Company has responded to this emerging trend and currently has retailer teams in
place at select discount and drug chains.
The Company's business development process includes a due diligence
period to determine the objectives of the prospective client, the work to be
performed to satisfy those objectives and the market value of the work to be
performed. The Company employs a formal cost development and proposal process
that determines the cost of each element of work required to achieve the
prospective client's objectives. These costs, together with an analysis of
market rates, are used in the development of a formal quotation reviewed at
various levels within the organization. The pricing of this internal proposal
must meet the Company's objectives for profitability, which are established as
part of the business planning process. After approval of this quotation, a
detailed proposal is presented to the prospective client. After the elements of
service and corresponding rates are agreed upon, a contract is prepared and
executed.
Technology Division
The Company's sales effort within its Technology Division is structured
to develop new business in national and local markets. The Technology Division's
corporate business development team directs its efforts toward the senior
management of prospective clients. Current sales efforts are principally guided
through the Company's corporate headquarters in Tarrytown, New York. The Company
intends to leverage existing clients as well as generate new clients through a
focused sales and marketing approach.
International Division
The Company's marketing efforts within its International Division are
designed to develop new business internationally. The Division's corporate
business development team, located in the Company's corporate headquarters,
targets specific areas and develops strategic relationships to cultivate
business.
DISCONTINUED OPERATIONS
Incentive Marketing Division
The Company's Incentive Division sales effort is organized on a
regional basis to serve national clients. Today SPGI has three regional sales
operations, each with a senior sales person working from their home office. All
selling is done on a local market basis, while all program design and execution
is completed at the Dallas headquarters.
As in the Merchandising Services Division, the Incentive Division's
business development process encompasses a due diligence period to determine the
objectives of the prospective client, the work to be performed to satisfy those
objectives and the market value of the work to be performed. The Company employs
a formal cost development and proposal process that determines the cost of each
element of work required to achieve the prospective client's objectives. These
costs, together with an analysis of market rates, are used in the development of
a formal quotation that is reviewed at various levels within the organization.
The pricing of this internal proposal must meet the Company's objectives for
profitability, which are established as part of the business planning process.
After approval of this quotation, a detailed proposal is presented to the
prospective client. Following agreement regarding the elements of service and
corresponding rates, a contract is prepared and executed.
-9-
CUSTOMERS
Merchandising Services Division
In its Merchandising Services Division, the Company currently
represents numerous manufacturers and retail clients in a wide range of retail
outlets including:
o Mass Merchandisers
o Drug
o Grocery
o Other retail trade groups (e.g. Discount, Home Centers)
The Company also provides database, research and other marketing
services to the automotive and consumer packaged goods industries.
One customer accounted for 25% and 20% of the Company's net revenues
for the years ended December 31, 2001 and 2000, respectively. This customer also
accounted for approximately 23% of accounts receivable at both December 31, 2001
and 2000.
Approximately 31% and 18% of net revenues for the years ended December
31, 2001 and 2000, respectively, resulted from merchandising services performed
for others at the stores of one retailer that recently filed for protection
under the U.S. Bankruptcy Code. While the Company's customers and the resultant
contractual relationships are with the manufacturers and not this retailer, a
cessation of this retailer's business would negatively impact the Company.
Technology Division
The Company has historically developed and utilized Internet-based
software to manage its national businesses, including its national field force,
with greater efficiency and communication speed than previously possible with
paper based systems. In addition, the Company has developed and sold
internet-based software in its other divisions. The Company believes its
software transcends the merchandising services industry and can be utilized in
many other industries that have businesses with multiple locations and large
workforces or numerous distributors.
International Division
The Company believes that the potential international customers for
this division have similar profiles to its Merchandising Services Division
customers. The initial focus of the International Division has been on Japan and
the Pacific Rim region. Upon successful implementation of the Company's business
model in these areas, the Company intends to expand to other markets.
DISCONTINUED OPERATIONS
Incentive Marketing Division
In the Company's Incentive Marketing Division, SPGI currently provides
services to various clients. These clients are principally large corporate
clients that encompass a broad range of industries including the food, drug,
communications, and automotive manufacturing industry.
-10-
COMPETITION
The marketing services industry is highly competitive.
CONTINUING OPERATIONS
Merchandising Services Division
Competition in the Company's Merchandising Services Division arises
from a number of large enterprises, many of which are national in scope. The
Company also competes with a large number of relatively small enterprises with
specific client, channel or geographic coverage, as well as with the internal
marketing and merchandising operations of its clients and prospective clients.
The Company believes that the principal competitive factors within its industry
include development and deployment of technology, breadth and quality of client
services, cost, and the ability to execute specific client priorities rapidly
and consistently over a wide geographic area. The Company believes that its
current structure favorably addresses these factors and establishes it as a
leader in the mass merchandise and chain drug channels of trade, as well as a
leading provider of in-store services to the video industry. The Company also
believes it has the ability to execute major national in-store initiatives and
develop and administer national retailer programs. Finally, the Company believes
that, through the use of its proprietary Internet software, other technological
efficiencies and various cost controls, the Company will remain competitive in
its pricing and services.
Technology Division
Competition in the Company's Technology Division arises from a number
of large business application software developers, many of which are national
and international in scope. The Company also competes with a large number of
relatively small enterprises with specific industry, system or geographic
coverage, as well as with the internal information technology of its prospective
clients. The Company has historically developed and utilized Internet-based
software to manage its national businesses, including its national field force,
with greater efficiency and communication speed than previously possible with
paper based systems. In addition, the Company has developed and sold
internet-based software in its other divisions. The Company believes this
software transcends the merchandising services industry and can be utilized in
many other industries that have businesses with multiple locations and large
workforces or numerous distributors. The Company believes it can be competitive
in its pricing and services.
International Division
Competition in the Company's International Division arises from a
number of large enterprises, many of which are national and international in
scope. The Company also competes with a large number of relatively small
enterprises with specific client, channel or geographic coverage, as well as
with the internal marketing and merchandising operations of its clients and
prospective clients. The Company believes that the principal competitive factors
within its industry include development and deployment of technology, breadth
and quality of client services, cost, and the ability to execute specific client
priorities rapidly and consistently over a wide geographic area. The Company
believes its Internet-based technology and current business model are
competitive advantages that will allow it to compete in this area.
DISCONTINUED OPERATIONS
Incentive Marketing Division
The incentive marketing industry is populated by large national
players, each of which has significantly greater financial and marketing
resources than SPGI, and hundreds of small regional and local companies.
-11-
SPGI believes that the principle competitive factors in the industry are client
service and innovation.
TRADEMARKS
The Company has numerous registered trademarks. Although the Company
believes its trademarks may have value, the Company believes its services are
sold primarily based on breadth and quality of service, cost, and the ability to
execute specific client priorities rapidly and consistently over a wide
geographic area. See "--Industry Overview" and "--Competition".
EMPLOYEES
As of December 31, 2001, the Company's Merchandising Services
Division's labor force consisted of approximately 8,240 people, approximately
240 full-time employees, approximately 3,700 part-time employees and 4,300
independent contractors (furnished principally through related parties, see Item
13 - Certain Relationships and Related Affiliate Transactions, below), of which
approximately 180 full-time employees were engaged in operations and 17 were
engaged in sales. Approximately 7 of the Company's employees are covered by
contracts with labor unions. The Company considers its relations with its
employees and its employees' unions to be good. The Company's Merchandising
Services Division also utilized the services of its affiliates, SPAR Marketing
Services, Inc. ("SMS") and SPAR Management Services, Inc. ("SMSI"), to schedule
and supervise its field force, including its own part-time employees as well as
the independent contractors furnished by SMS (see Item 13 - Certain
Relationships and Related Affiliate Transactions, below).
The Company's Technology Division has 3 employees engaged in sales. The
Company currently utilizes its existing Merchandising Division's employees, as
well as, the services of certain employees of its affiliates, SMS, SMSI and SPAR
Infotech, Inc. ("SIT"), to staff the Technology Division and the International
Division. However, dedicated employees will be added to those divisions as the
need arises. The Company's affiliate, SIT, also provides programming and other
assistance to the Company's various divisions (see Item 13 - Certain
Relationships and Related Affiliate Transactions, below).
As of December 31, 2001, the Company's Incentive Marketing Division's
labor force consisted of approximately 68 full-time employees, of which 51 were
engaged in operations and 9 were engaged in sales.
ITEM 2. PROPERTIES.
The Company maintains its corporate headquarters in approximately 6,000
square feet of leased office space located in Tarrytown, New York, under a lease
with a term expiring in May 2004.
The Company leases certain office and storage facilities for its
divisions and subsidiaries under operating leases, which expire at various dates
during the next five years. Most of these leases require the Company to pay
minimum rents, subject to periodic adjustments, plus other charges, including
utilities, real estate taxes and common area maintenance.
-12-
The following is a list of the locations where the Company maintains
leased facilities for its division offices and subsidiaries:
Location Office Use
- --------------------------------------------------------------------------------
Tarrytown, NY Corporate Headquarters and Administration
Auburn Hills, MI Regional Office, Warehouse and Teleservices Center
Eden Prairie, MN Regional Office
Mahwah, NJ Regional Office
Cincinnati, OH Regional Office
Tampa, FL Regional Office
Carrollton, TX SPGI Headquarters and Warehouse
Although the Company believes that its existing facilities are adequate
for its current business, new facilities may be added should the need arise in
the future.
ITEM 3. LEGAL PROCEEDINGS.
On June 14, 2000, Argonaut Insurance Co. filed a complaint alleging
damages of approximately $883,000 plus interest against the Company in Orange
County Superior Court, Santa Ana, California, Case No. 00CC07125 with respect to
alleged breach of contract. On February 14, 2002 this case was settled for
$700,000.
On October 24, 2001, Safeway Inc. filed a complaint alleging damages of
approximately $3.6 million plus interest and costs and alleged punitive damages
in an unspecified amount against the Company in Alameda County Superior Court,
California, Case No. 2001028498 with respect to (among other things) alleged
breach of contract. This case is being vigorously contested by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
-13-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The following table sets forth the reported high and low sales prices
of the Common Stock for the quarters indicated as reported on the Nasdaq
National Market. Prior to July 9, 1999, the Company's stock was traded on the
Nasdaq National Market under the symbol "PIAM".
1999
----------------------------
High Low
First Quarter $5.630 $2.750
Second Quarter 5.000 1.880
Third Quarter -- --
Fourth Quarter -- --
Subsequent to July 9, 1999, the Company's stock was traded on the Nasdaq
National market under the symbol "SGRP" until November 15, 1999, when it moved
to the Nasdaq Small Cap Market.
1999 2000 2001
-------------------------- -------------------------- --------------------------
High Low High Low High Low
First Quarter -- -- $ 5.5000 $ 2.6250 $ 1.6094 $ .5625
Second Quarter -- -- 3.3750 1.2500 1.3000 .7000
Third Quarter $ 5.8100 $ 3.0000 2.0625 1.2188 2.2700 .8700
Fourth Quarter 5.1300 2.5000 1.8750 .2188 2.8000 .9200
As of December 31, 2001, there were approximately 722 beneficial
shareholders of the Company's Common Stock.
The Company has never declared or paid any cash dividends on its
capital stock and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. The Company currently intends to retain future
earnings to finance its operations and fund the growth of the business. Any
payment of future dividends will be at the discretion of the Board of Directors
of the Company and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions in respect to the payment of dividends and other factors that the
Company's Board of Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected condensed consolidated financial data sets
forth, for the periods and the dates indicated, summary financial data of the
Company and its subsidiaries. Included below are the statements of operations
with respect to the years ending December 31, 2001, December 31, 2000, and
December 31, 1999, and selected balance sheet data as of December 31, 2001,
December 31, 2000, and December 31, 1999.
-14-
SPAR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(unaudited)
(In thousands, except per share data)
====================================================================================================================================
NINE
MONTHS YEAR
YEAR ENDED ENDED ENDED
DEC 31, DEC 31, DEC 31, DEC 31, MAR 31,
2001 2000 1999 1998 1998
-------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Net revenues $ 70,891 $ 81,459 $ 79,613 $ 32,601 $ 36,804
Cost of revenues 40,883 50,278 50,499 16,217 19,417
-------- -------- -------- -------- --------
Gross profit 30,008 31,181 29,114 16,384 17,387
Selling, general and administrative expenses 19,380 24,761 23,213 9,978 12,087
Depreciation and amortization 2,682 2,383 1,204 142 161
-------- -------- -------- -------- --------
Operating income 7,946 4,037 4,697 6,264 5,139
Other expense (income) 107 (790) (90) (149) 36
Interest expense 561 1,326 976 304 354
-------- -------- -------- -------- --------
Income from continuing operations before provision for
income taxes 7,278 3,501 3,811 6,109 4,749
Income tax provision 3,123 780 3,743 -- --
-------- -------- -------- -------- --------
Income from continuing operations 4,155 2,721 68 6,109 4,749
Discontinued operations:
Loss from discontinued operations, net of tax benefits
of $935, $858 and $595, respectively (1,597) (1,399) (563) -- --
Estimated loss on disposal of discontinued operations,
including provision of $1,000 for losses during phase-out
period and disposal costs, net of tax benefit of $2,618 (4,272) -- -- -- --
-------- -------- -------- -------- --------
Net (loss) income $ (1,714) $ 1,322 $ (495) $ 6,109 $ 4,749
======== ======== ======== ======== ========
Unaudited pro forma data (1):
- -----------------------------
Income from continuing operations before provision for
income taxes $ 3,811 $ 6,109 $ 4,749
Pro forma income tax provision 1,840 2,253 1,751
-------- -------- --------
Pro forma income from continuing operations 1,971 3,856 2,998
Pro forma loss from discontinued operations net of pro
forma tax benefit of $429 (729) -- --
-------- -------- --------
Pro forma net income $ 1,242 $ 3,856 $ 2,998
======== ======== ========
Basic/diluted net income (loss) per common share:
- -------------------------------------------------
Actual/Pro forma income from continuing operations $ 0.23 $ 0.15 $ 0.13 $ 0.30 $ 0.24
-------- -------- -------- -------- --------
Discontinued operations:
Actual/Pro forma loss from discontinued operations (0.09) (0.08) (0.05) -- --
Estimated loss on disposal of discontinued operations (0.23) -- -- -- --
-------- -------- -------- -------- --------
Loss from discontinued operations (0.32) (0.08) (0.05) -- --
-------- -------- -------- -------- --------
Detail/Pro-forma net (loss) income $ (0.09) $ 0.07 $ 0.08 $ 0.30 $ 0.24
======== ======== ======== ======== ========
Actual/Pro forma weighted average shares outstanding
- basic 18,389 18,185 15,361 12,659 12,659
Actual/Pro forma weighted average shares outstanding
- diluted 18,467 18,303 15,367 12,659 12,659
-15-
YEARS ENDED
------------------------------------------------------------------
DEC 31, DEC 31, DEC 31, DEC 31, MAR 31,
2001 2000 1999 1998 1998
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
- -------------------
Working capital $ 8,476 $ (2,273) $ (639) $ (2,214) $ 3,412
Total assets 41,155 48,004 54,110 14,865 10,896
Current portion of long-term debt 57 1,143 1,147 685 675
Long-term debt net of current portion 13,287 10,093 16,009 311 828
Total stockholders' equity 10,934 12,240 10,886 (1,405) 3,142
====================================================================================================================================
(1) The unaudited pro forma income tax information is presented in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," as if the Company had been subject to federal and state
income taxes for all periods presented.
-16-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company provides merchandising services to manufacturers and
retailers principally in mass merchandiser, drug, grocery, and other retail
trade classes through its Merchandising Services Division. In March 2000, the
Company established its Technology Division to separately market its software
applications, products and services. Although such products and services were in
part available through the Company's other divisions prior to the establishment
of the Technology Division, the historical revenues and expenses related to such
software products and services generally were not maintained separately. In
November 2000, the Company established its International Division. Through a
joint venture with a leading Japan wholesaler, the Company provides in-store
merchandising services to the Japanese market. The Company accounts for its
investment in the joint venture utilizing the equity method. For 2001, the
Company recorded the joint venture results in Other Expense.
As required, upon an acquisition, the acquired company's results of
operations are not included in the acquirer's results of operations prior to the
date of acquisition. The merger between the SPAR Companies and the PIA Companies
completed on July 8, 1999 (the "Merger"), was deemed to be an acquisition of the
PIA Companies (including SGRP, then known as PIA) by the SPAR Companies (see
Notes 1 and 3 to the Financial Statements). Therefore, the following discussions
include only the results of SGRP and the other PIA Companies subsequent to July
8, 1999.
In December 2001, the Company concluded that the Incentive Marketing
Division (SPGI) business was no longer consistent with the Company's future
growth strategies and decided to divest SPGI. As a result of this decision, the
Company reviewed the goodwill associated with SPGI and recorded an estimated
loss on disposal of discontinued operations of approximately $4.3 million, net
of taxes. In addition, a $1.0 million reserve was recorded in 2001 for the
anticipated cost to divest SPGI and any anticipated losses through the
divestiture date.
As required, SPGI's results have been reclassified as discontinued
operations for all periods presented. The results of operations of the
discontinued business segment is shown separately below net income from
continuing operations. Accordingly, the 2001 consolidated statements of
operations of the Company have been prepared, and its 2000 and 1999 consolidated
statement of operations have been restated, to report the results of
discontinued operations of SPGI separately from the continuing operations of the
Company, and the following discussions reflect such restatement.
The Company's critical accounting policies, including the assumptions
and judgments underlying them, are disclosed in the Note 2 to the Financial
Statements. These policies have been consistently applied in all material
respects and address such matters as revenue recognition, depreciation methods,
asset impairment recognition, business combination accounting, and discontinued
business accounting. While the estimates and judgments associated with the
application of these policies may be affected by different assumptions or
conditions, the Company believes the estimates and judgments associated with the
reported amounts are appropriate in the circumstances. Two of the more
significant areas of estimation are unbilled receivables and the accounts
receivable allowance for bad debt. Historically, the Company's estimates on such
items have not differed materially from the actual results.
-17-
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net revenues for the periods indicated.
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
------------------------- ------------------------------ --------------------------
(amounts in millions)
Amount % Amount % Amount %
----------- ------------ ------------- ---------- ---------- ---------
Net revenues $ 70.9 100.0% $ 81.5 100.0% $ 79.6 100.0%
Cost of revenues 40.9 57.7 50.3 61.7 50.5 63.4
Selling, general & administrative expenses 19.4 27.4 24.8 30.4 23.2 29.2
Depreciation & amortization 2.7 3.8 2.4 2.9 1.2 1.5
Other expenses 0.6 0.8 0.5 0.7 0.9 1.1
Income from continuing operations before
income tax provision 7.3 10.3 3.5 4.3 3.8 4.8
Income tax provision 3.1 4.4 0.8 1.0 3.7 4.7
----------- ------------ ------------- ---------- ---------- ---------
Income from continuing operations 4.2 5.9 2.7 3.3 0.1 0.1
Discontinued operations:
Loss from discontinued operations of,
net of tax benefits (1.6) (1.4) (0.6)
Estimated loss on disposal of discontinued
operations (4.3) -- --
----------- ------------ ------------- ---------- ---------- ---------
Net (loss) income $ (1.7) $ 1.3 $ (0.5)
=========== ============ ============= ========== ========== =========
Unaudited pro forma data:
Income from continuing operations before
provision for income taxes $ 3.8 4.8%
Pro forma income tax provision 1.8 2.3
---------- ---------
Pro forma income from continuing
operations 2.0 2.5
Pro forma loss from discontinued
operations (0.7)
---------- ---------
Pro forma net income $ 1.2
========== =========
-18-
RESULTS FROM CONTINUING OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001
COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 2000
Net Revenues from continuing operations for the twelve months ended
December 31, 2001, were $70.9 million, compared to $81.5 million for the twelve
months ended December 31, 2000, a 12.9% decrease. In 2001, net revenues were
provided almost exclusively from the Merchandising Services Division. The
decrease of 12.9% in net revenues is primarily attributed to discontinued
in-store merchandising programs acquired in the Merger with the PIA Companies.
The Technology Division recorded $6,000 in net revenue in 2001.
Cost of revenues from continuing operations consists of in-store labor
and field management wages, related benefits, travel and other direct
labor-related expenses, of which approximately 37% were purchased from the
Company's affiliate, SMS in 2001 (see Item 13 - Certain Relationships and
Related Transactions, below). Cost of revenues as a percentage of net revenues
decreased 4.0% to 57.7% for the twelve months ended December 31, 2001, compared
to 61.7% for the twelve months ended December 31, 2000. This decrease is
principally attributable to reduced merchandiser labor costs due to efficiencies
realized in 2001 from the continued consolidation of the multi-level field
organization acquired in the Merger with the PIA Companies.
Operating expenses include selling, general and administrative expenses
as well as depreciation and amortization. Selling, general and administrative
expenses include corporate overhead, project management, information systems,
executive compensation, human resources expenses, legal and accounting expenses.
The following table sets forth the operating expenses as a percentage of net
revenues for the time periods indicated:
Year Ended Year Ended Increase
December 31, 2001 December 31, 2000 (decr.)
-------------------------------- ----------------------------------- -------------
(amounts in millions)
Amount % Amount % %
--------------- ------------- ---------------- --------------- -------------
Selling, general & administrative $ 19.4 27.4% $ 24.8 30.4% (21.7) %
Depreciation and amortization 2.7 3.8 2.4 2.9 12.6
--------------- ------------- ---------------- ---------------
Total operating expenses $ 22.1 31.2% $ 27.2 33.3% (18.7)%
=============== ============= ================ =============== =============
Selling, general and administrative expenses decreased by $5.4 million,
or 21.7%, for the twelve months ended December 31, 2001, to $19.4 million
compared to $24.8 million for the twelve months ended December 31, 2000. This
decrease was due primarily to efficiencies resulting from the Merger with the
PIA Companies. Selling, general and administrative expenses for the Technology
Division were $0.8 million and $0.4 million for the twelve months ended December
31, 2001, and December 31, 2000, respectively.
Depreciation and amortization increased by $0.3 million for the twelve
months ended December 31, 2001, due primarily to the amortization of customized
internal software costs capitalized under SOP 98-1.
-19-
OTHER EXPENSE
For 2001, the Company has recognized a loss of $107,000 from its share
in the Japan joint venture.
OTHER INCOME
In January 2000, the Company sold its investment in an affiliate for
approximately $1.5 million. The sale resulted in a gain of approximately $0.8
million, which is included in other income.
INTEREST EXPENSE
Interest expense decreased $0.7 million to $0.6 million for the twelve
months ended December 31, 2001, from $1.3 million for the twelve months ended
December 31, 2000, due to decreased debt levels, as well as decreased interest
rates in 2001.
INCOME TAXES
The provision for income taxes was $3.1 million and $0.8 million for
the twelve months ended December 31, 2001 and December 31, 2000, respectively.
The effective tax rate was 42.9% and 22.3% for 2001 and 2000, respectively. The
increase in the effective tax rate and the resultant taxes in 2001 is primarily
due to the $0.8 million deferred tax benefit that resulted from a change in the
Company's valuation allowance in 2000 that did not reoccur in 2001.
DISCONTINUED OPERATIONS
Year Ended Year Ended
December 31, 2001 December 31, 2000
------------------------- -------------------------
(amounts in millions)
Amount % Amount %
------------ ---------- ----------- ----------
Net revenues $ 31.2 100.0% $ 28.1 100.0%
Cost of revenue 26.0 83.4 22.7 81.0
Selling, general and administrative expenses 5.7 18.4 5.7 20.2
Depreciation & amortization 1.2 3.4 1.2 4.2
Net revenues from the Incentive Marketing Division for the twelve
months ended December 31, 2001, were $31.2 million, compared to $28.1 million
for the twelve months ended December 31, 2000, an 11.2% increase. The increase
in net revenues is primarily due to an increase in project revenues, principally
from new clients.
Cost of revenues in the Incentive Marketing Division consists of direct
labor, independent contractor expenses, food, beverages, entertainment and
travel costs. Cost of revenue as a percentage of net revenues increased 2.4% to
83.4% for the twelve months ended December 31, 2001, compared to 81.0% for the
twelve months ended December 31, 2000, primarily due to the program mix, with
higher cost programs accounting for a greater portion of the revenues in 2001.
Operating expenses include selling, general and administrative expenses
as well as depreciation and amortization. Selling, general and administrative
expenses which include corporate overhead, project management, information
systems, executive compensation, human resources expenses, legal and accounting
expenses were $5.7 million for the twelve months ended December 31, 2001, and
2000. Depreciation and amortization were $1.2 million for the twelve months
ended December 31, 2001, and 2000.
-20-
NET (LOSS)/INCOME
The SPAR Group had a net loss of approximately $1.7 million or $0.09
per basic and diluted share for the twelve months ended December 31, 2001,
compared to net income of $1.3 million or $0.07 per basic and diluted share for
the twelve months ended December 31, 2000. The decrease in net income of $3.0
million or $0.16 per basic and diluted share is primarily due to a net loss for
discontinued operations of approximately $4.3 million or $0.23 per basic and
diluted share, partially offset by an increase of approximately $1.4 million or
$0.07 per basic and diluted share of net income from continuing operations. The
increase in net income from continuing operations per basic and diluted share is
primarily the result of increased gross profit margins and substantial
reductions in selling, general and administrative expenses.
RESULTS FROM CONTINUING OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2000
COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 1999
Net revenues from continuing operations for the twelve months ended
December 31, 2000, were $81.5 million, compared to $79.6 million for the twelve
months ended December 31, 1999, a 2.3% increase. The increase in net revenues is
primarily attributed to an increase in the former SPAR Companies merchandising
net revenue of approximately $2.5 million for the twelve months ended December
31, 2000, over the net revenue for the twelve months ended December 31, 1999. In
addition, net revenues for the twelve months ended December 31, 2000, included
$23.4 million of net revenues of the former PIA companies' merchandising
operations for the first six months of 2000, with no comparable revenue in the
first six months of 1999, offset by discontinued programs of the PIA Companies
in 2000. Neither the Technology nor International Divisions recorded net
revenues for the period.
Cost of revenue from continuing operations consist of in-store labor
and field management wages, related benefits, travel and other direct
labor-related expenses, of which approximately 19% were purchased from the
Company's affiliate, SMS in 2000 (see Item 13 - Certain Relationships and
Related Transactions, below). Cost of revenues as a percentage of net revenues
decreased 1.7% to 61.7% for the twelve months ended December 31, 2000, compared
to 63.4% for the twelve months ended December 31, 1999. This decrease is
principally attributable to reduced merchandiser labor costs due to efficiencies
realized in 2000 from the consolidation of the multi-level field organization
acquired in the Merger with the PIA Companies, in part furnished through the
Company's affiliates, SMS and SMSI (see Item 13 - Certain Relationships and
Related Transactions, below).
Operating expenses include selling, general and administrative expenses
as well as depreciation and amortization. Selling, general and administrative
expenses include corporate overhead, project management, information systems,
executive compensation, human resources expenses and accounting expenses. The
following table sets forth the operating expenses as a percentage of net
revenues for the periods indicated:
Year Ended Year Ended
December 31, 2000 December 31, 1999 Increase
---------------------------- ---------------------------- -----------
(amounts in millions)
Amount % Amount % %
-------------- ----------- ------------ ------------- -----------
Selling, general & administrative $ 24.8 30.4% $ 23.2 29.2% 6.7%
Depreciation and amortization 2.4 2.9 1.2 1.5 97.9%
-------------- ----------- ------------ -------------
Total operating expenses $ 27.2 33.3% $ 24.4 30.7% 11.2%
============== =========== ============ ============= ===========
-21-
Selling, general and administrative expenses increased by $1.6 million
or 6.7% for the twelve months ended December 31, 2000, to $24.8 million compared
to $23.2 million for the twelve months ended December 31, 1999. This increase
was primarily due to the inclusion of the PIA Companies' selling, general and
administrative expenses for the first six months of 2000 totaling $5.9 million
with no comparable PIA expenses in the first six months of 1999, as well as
Technology Division and International Division selling, general and
administrative expenses in 2000 totaling $0.4 million offset by reductions in
the selling, general and administrative expenses of the PIA Companies in 2000
and non-recurring expenses totaling $1.4 million in 1999.
Depreciation and amortization increased by $1.2 million for the twelve
months ended December 31, 2000, due primarily to the amortization of goodwill
associated with the acquisition of the PIA Companies in the Merger and an
increase in depreciation and amortization of customized internal software costs
capitalized under SOP 98-1.
OTHER INCOME
In January 2000, the Company sold its investment in an affiliate for
approximately $1.5 million. The sale resulted in a gain of approximately $0.8
million, which is included in other income.
INTEREST EXPENSE
Interest expense increased $0.3 million for the twelve months ended
December 31, 2000, over the twelve months ended December 31, 1999, due to
increased debt associated with the PIA acquisition, as well as increased
interest rates in 2000.
INCOME TAXES
The provision for income taxes was $0.8 million and $3.7 million for
the twelve months ended December 31, 2000, and December 31, 1999, respectively.
In 1999, the Company incurred a one-time charge totaling $3.1 million dollars
for income taxes resulting from the termination of the Subchapter S status of
certain of the SPAR Companies for federal and state tax purposes. Exclusive of
the one-time charge, the effective tax rate was 22.3% and 16.9% for 2000 and
1999, respectively. The difference between the effective tax rate and the
statutory rates is primarily due to changes in the deferred tax valuation
allowance, in both 2000 and 1999 as well as a tax benefit attributable to
subchapter S earnings in 1999.
DISCONTINUED OPERATIONS
Year Ended Year Ended
December 31, 2000 December 31, 1999
-------------------------- --------------------------
(amounts in millions)
Amount % Amount %
------------ ----------- ----------- -----------
Net revenues $ 28.1 100.0% $ 36.9 100.0%
Cost of revenues 22.7 81.0 30.4 82.4
Selling, general and administrative expenses 5.7 20.2 6.0 16.2
Depreciation and amortization 1.2 4.2 1.0 2.7
Net revenues from the Incentive Marketing Division for the twelve
months ended December 31, 2000, were $28.1 million, compared to $36.9 million
for the twelve months ended December 31, 1999, a 24.0% decrease. The decrease in
net revenues is primarily due to a decrease in project revenue principally from
a single customer.
-22-
Cost of revenues in the Incentive Marketing Division consists of direct
labor, independent contractor expenses, food, beverages, entertainment and
travel costs. Cost of revenues from the Incentive Marketing Division, as a
percentage of net revenues decreased 1.4% to 81.0% for the twelve months ended
December 31, 2000, compared to 83.5% for the twelve months ended December 31,
1999, primarily due to a more favorable product mix in 2000.
Operating expenses include selling, general and administrative expenses
as well as depreciation and amortization. Selling, general and administrative
expenses which include corporate overhead, project management, information
systems, executive compensation, human resources expenses and accounting
expenses were $5.7 million and $6.0 million, a decrease of 5.5%, for the twelve
months ended December 31, 2000, and December 31, 1999, respectively.
ACTUAL/PRO FORMA NET INCOME
The SPAR Group had actual net income of approximately $1.3 million or
$0.07 per basic and diluted share for the twelve months ended December 31, 2000,
and pro forma net income of approximately $1.2 million or $0.08 per pro forma
basic and diluted share for the twelve months ended December 31, 1999. The
decrease in net income per basic and diluted share is the result of the shares
issued in conjunction with the reverse merger on July 8, 1999 being outstanding
for all of 2000.
LIQUIDITY AND CAPITAL RESOURCES
In the twelve months ended December 31, 2001, the Company had a net
loss of $1.7 million. Net cash used by operating activities for the twelve
months ended December 31, 2001, was $0.2 million, compared with net cash
provided by operations of $6.3 million for the twelve months ended December 31,
2000. Cash used by operating activities in 2001 was primarily a result of net
operating profits and decreases in prepaid expenses and deferred taxes, offset
by decreases in accounts payable and other liabilities, restructuring charges,
and deferred revenue.
Net cash used in investing activities for the twelve months ended
December 31, 2001, was $1.7 million, compared with net cash used of $0.5 million
for the twelve months ended December 31, 2000. The net cash used in investing
activities in 2001 resulted primarily from the purchases of property and
equipment. In 2000, purchases of property and equipment were offset by the gain
from the sale of an affiliate.
Net cash provided by financing activities for the twelve months ended
December 31, 2001, was $2.0 million, compared with net cash used by financing
activities of $7.9 million for the twelve months ended December 31, 2000. The
net cash provided by financing activities in 2001 was primarily due to
borrowings on the line of credit offset by repayments of debt.
The above activity resulted in no change in cash and cash equivalents
for the twelve months ended December 31, 2001.
At December 31, 2001, the Company had working capital of $8.5 million
as compared to negative working capital of $2.3 million at December 31, 2000.
The increase in working capital is due to increases in prepaid expenses and
deferred income taxes as well as decreases in accounts payable and other current
liabilities, restructuring and other charges and deferred revenue. The Company's
current ratio was 1.52 and 0.91 at December 31, 2001, and 2000, respectively.
In 1999, IBJ Whitehall Business Credit Corporation ("IBJ Whitehall")
and the members of the SPAR Group (other than PIA Canada) (collectively, the
"Borrowers") entered into a Revolving Credit, Term Loan and Security Agreement
as amended (the "Bank Loan Agreement"). The Bank Loan Agreement provides the
Borrowers with a $15.0 million Revolving Credit
-23-
facility and a $2.5 million term loan. The Revolving Credit facility allows the
Borrowers to borrow up to $15.0 million based upon a borrowing base formula as
defined in the Agreement (principally 85% of "eligible" accounts receivable).
The Bank Loan Agreement's revolving credit loans of $15.0 million were scheduled
to mature on September 21, 2002. On March 1, 2002, IBJ Whitehall extended the
maturity date to February 28, 2003. The Term Loan amortized in equal monthly
installments of $83,334 and was repaid in full as of December 31, 2001. The
revolving loans bear interest at IBJ Whitehall's "Alternate Base Rate" plus
one-half of one percent (0.50%) (a total of 5.25% per annum at December 31,
2001). In addition, the Borrowers are required to make mandatory prepayments in
an amount equal to 25% of Excess Cash Flow, as defined in the Bank Loan
Agreement, for each fiscal year, to be applied first to the Term Loan and then
to the revolving credit loans (subject to the Borrowers' ability to re-borrow
revolving advances in accordance with the terms of the Bank Loan Agreement). In
July 2001, the Company made an additional $250,000 payment on the Term Loan as a
result of the Excess Cash Flow requirement. The facility is secured with all the
assets of the Company and its subsidiaries.
The Bank Loan Agreement contains an option for the Bank to purchase
16,667 shares of common stock of the Company for $0.01 per share in the event
that the Company's average closing share price over a ten consecutive trading
day period exceeds $15.00 per share. This option expires September 22, 2002.
The Bank Loan Agreement contains certain financial covenants that must
be met by the Borrowers on a consolidated basis, among which are a minimum "Net
Worth", a "Fixed Charge Coverage Ratio", a minimum ratio of Debt to EBITDA, and
a minimum EBITDA, as such terms are defined in the Bank Loan Agreement. The
Company was in compliance worth such financial covenants on December 31, 2001,
with the exception of the minimum net worth covenant (due to the estimated loss
on disposal of discontinued operations), for which a waiver was obtained from
IBJ Whitehall.
The balances outstanding on the revolving line of credit were $11.3
million and $7.8 million at December 31, 2001, and December 31, 2000,
respectively. As of December 31, 2001, based upon the borrowing base formula,
the SPAR Group had availability of $2.9 million of the $3.7 million unused
revolving line of credit.
As of December 31, 2001, the Company is obligated, under certain
circumstances, to pay costs in connection with the Merger (restructure charges)
of approximately $2.2 million. In addition, the Company incurred substantial
cost in connection with the transaction, including legal, accounting and
investment banking fees estimated to be an aggregate unpaid obligation as of
December 31, 2001, of approximately $1.2 million. The Company has also accrued
approximately $1.2 million for expenses incurred by PIA prior to the Merger,
which have not been paid as of December 31, 2001. Management believes the
current bank credit facilities are sufficient to fund operations and working
capital, including the current maturities of debt obligations, but may not be
sufficient to reduce certain of the pre-Merger obligations of the PIA Companies
inherited in the Merger.
In 1999 and prior years, certain principal stockholders of the Company
each made loans to certain SPAR Companies in the aggregate amount of $4.3
million to facilitate the acquisition of the PIA Companies and the assets of Old
MCI. These stockholders were also owed $1.9 million in unpaid distributions
relating to the former status of certain of the operating SPAR Companies as
Subchapter S Corporations (see Note 12 to the Financial Statements). Those
amounts were converted into promissory notes issued to these certain
stockholders severally by SMF, SINC and SPGI prior to the Merger, which
aggregated $6.2 million. During 2001, with the consent of the Company those
stockholders applied approximately $402,000 of such indebtedness in payment of
the exercise price of certain of their respective stock options to purchase
shares of common stock of the Company. As of December 31, 2001, a total of $4.7
million remained outstanding under these notes with an interest rate of 8% and
are due on demand. The current Bank Loan Agreement contains certain restrictions
on the repayment of stockholder debt.
-24-
Management believes that based upon the Company's current working
capital position and the existing credit facilities, funding will be sufficient
to support ongoing operations over the next twelve months. However, delays in
collection of receivables due from any of the Company's major clients, or a
significant reduction in business from such clients, or the inability to acquire
new clients, would have a material adverse effect on the Company's cash
resources and its ongoing ability to fund operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk related to the variable interest
rate on the line of credit and the variable yield on its cash and cash
equivalents. The Company's accounting policies for financial instruments and
disclosures relating to financial instruments require that the Company's
consolidated balance sheets include the following financial instruments: cash
and cash equivalents, accounts receivable, accounts payable and long term debt.
The Company considers carrying amounts of current assets and liabilities in the
condensed consolidated financial statements to approximate the fair value for
these financial instruments because of the relatively short period of time
between origination of the instruments and their expected realization. The
carrying amounts of long-term debt approximate fair value because the obligation
bears interest at a floating rate. The Company monitors the risks associated
with interest rates and financial instrument positions. The Company's investment
policy objectives require the preservation and safety of the principal, and the
maximization of the return on investment based upon the safety and liquidity
objectives.
Currently, the Company's international operations are not material and,
therefore, the risk related to foreign currency exchange rates is not material.
INVESTMENT PORTFOLIO
The Company has no derivative financial instruments or derivative
commodity instruments in its cash and cash equivalents and investments. Excess
cash is normally used to pay down the revolving line of credit.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 of this Annual Report on form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-25-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information in connection with
each person who is or was at December 31, 2001, an executive officer and/or
director for the Company.
NAME AGE POSITION WITH SPAR GROUP, INC.
Robert G. Brown. . . . . . . . . . . . 59 Chairman, Chief Executive Officer, President and Director
William H. Bartels . . . . . . . . . . 58 Vice Chairman and Director
Robert O. Aders (1). . . . . . . . . 74 Director
Jack W. Partridge (1) . . . . . . . . 56 Director
Jerry B. Gilbert (1) . . . . . . . . . . 67 Director
George W. Off (1). . . . . . . . . . . 54 Director
Charles Cimitile. . . . . . . . . . . . . 47 Chief Financial Officer and Secretary
James H. Ross 68 Treasurer
- --------------------------
(1) Member of the Board's Compensation and Audit Committees
Robert G. Brown serves as the Chairman, the Chief Executive Officer,
the President and a Director of the Company and has held such positions since
July 8, 1999, the effective date of the merger of the SPAR Marketing Companies
with PIA Merchandising Services, Inc. (the "Merger"). Mr. Brown served as the
Chairman, President and Chief Executive Officer of the SPAR Marketing Companies
(SPAR/Burgoyne Retail Services, Inc. ("SBRS") since 1994, SPAR, Inc. ("SINC")
since 1979, SPAR Marketing, Inc. ("SMNEV") since November 1993, and SPAR
Marketing Force, Inc. ("SMF") since SMF acquired its assets and business in
1996).
William H. Bartels serves as the Vice Chairman and a Director of the
Company and has held such positions since July 8, 1999 (the effective date of
the Merger). Mr. Bartels served as the Vice-Chairman, Secretary, Treasurer and
Senior Vice President of the SPAR Marketing Companies (SBRS since 1994, SINC
since 1979, SMNEV since November 1993 and SMF since SMF acquired its assets and
business in 1996), and has been responsible for the Company's sales and
marketing efforts, as well as for overseeing joint ventures and acquisitions.
Robert O. Aders serves as a Director of the Company and has done so
since July 8, 1999. Mr. Aders has served as Chairman of The Advisory Board,
Inc., an international consulting organization since 1993, and also as President
Emeritus of the Food Marketing Institute ("FMI") since 1993. Immediately prior
to his election to the presidency of FMI in 1976, Mr. Aders was Acting Secretary
of Labor in the Ford
-26-
Administration. Mr. Aders was the Chief Executive Officer of FMI from 1976 to
1993. He also served in The Kroger Co., in various executive positions from
1957-1974 and was Chairman of the Board from 1970 to 1974. Mr. Aders also serves
as a Director of FMI, the Stedman Nutrition Foundation at Duke Medical Center,
Coinstar, Inc., The Source Information Management Company and Telepanel Systems,
Inc.
Jack W. Partridge serves as a Director of the Company and has done so
since January 29, 2001. Mr. Partridge is President of Jack W. Partridge &
Associates. He previously served as Vice Chairman of the Board of The Grand
Union Company from 1998 to 2000. Mr. Partridge's service with Grand Union
followed a distinguished 23-year career with The Kroger Company, where he served
as Group Vice President, Corporate Affairs, and as a member of the Senior
Executive Committee, as well as various other executive positions. Mr. Partridge
has been a leader in industry and community affairs for over two decades. He
also served as Chairman of the Food Marketing Institute's Government Relations
Committee, the Food and Agriculture Policy Task Force, and as Chairman of the
Board of The Ohio Retail Association. He has also served as Vice Chairman of the
Cincinnati Museum Center and a member of the boards of the United Way of
Cincinnati, the Childhood Trust, Second Harvest and the Urban League.
Jerry B. Gilbert serves as a Director of the Company and has done so
since June 4, 2001. Mr. Gilbert served as Vice President of Customer Relations
for Johnson & Johnson's Consumer and Personal Care Group of Companies from 1989
to 1997. Mr. Gilbert joined Johnson & Johnson in 1958 and from 1958-1989 held
various executive positions. Mr. Gilbert also serves on the Advisory Boards of
the Food Marketing Institute, the National Association of Chain Drug Stores and
the General Merchandise Distributors Council (GMDC) where he was elected the
first President of the GMDC Educational Foundation. He was honored with lifetime
achievement awards from GMDC, Chain Drug Review, Drug Store News and the Food
Marketing Institute. He is the recipient of the prestigious National Association
of Chain Drug Stores (NACDS) Begley Award, as well as the National Wholesalers
Druggist (NWDA) Tim Barry Award. In June 1997, Mr. Gilbert received an Honorary
Doctor of Letters Degree from Long Island University.
George W. Off serves as Director of the Company and has done so since
July 1, 2001. Mr. Off was Chairman of the Board of Directors of Catalina
Marketing Corporation, a New York Stock Exchange listed company, from July 1998
until he retired in July 2000. He served as President and Chief Executive
Officer of Catalina from 1994 to 1998. Prior to that, Mr. Off was President and
Chief Operating Officer from 1992 to 1994 and Executive Vice President from 1990
to 1992. Catalina is a leading supplier of in-store electronic scanner-activated
consumer promotions.
Charles Cimitile serves as the Chief Financial Officer and Secretary of
the Company and has done so since November 24, 1999. Mr. Cimitile served as
Chief Financial Officer for GT Bicycles from 1996 to 1999 and Cruise Phone, Inc.
from 1995 through 1996. Prior to 1995, he served as the Vice President Finance,
Treasurer and Secretary of American Recreation Company Holdings, Inc. and its
predecessor company.
James H. Ross serves as the Treasurer of the Company and has held such
positions since July 8, 1999 (the effective date of the Merger). Mr. Ross has
been the Chief Financial Officer of the SPAR Marketing Companies since 1991, and
was the General Manager of SBRS from 1994-1999. In September 2001, Mr. Ross
retired from full-time employment. Mr. Ross continues to serve the Company on a
consulting basis.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Exchange Act ("Section 16(a)") requires the
Company's directors and certain of its officers and persons who own more than
10% of the Company's Common Stock (collectively, "Insiders"), to file reports of
ownership and changes in their ownership of the Company's Common Stock with the
Commission. Insiders are required by Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file.
-27-
Based solely on its review of the copies of such forms received by
it, or written representations from certain reporting persons that no Forms 5
were required for those persons, the Company believes that its Insiders complied
with all applicable Section 16(a) filing requirements for 2001.
ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION OF SPAR GROUP, INC.
EXECUTIVE COMPENSATION
The following table sets forth all compensation received for services
rendered to the Company in all capacities for the years ended December 31, 2001,
December 31, 2000, and December 31, 1999, (i) by the Company's Chief Executive
Officer, and (ii) each of the other four most highly compensated executive
officers of the Company who were serving as executive officers at December 31,
2001 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION(1) COMPENSATION AWARDS
------------------------ -----------------------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITIONS YEAR SALARY($) BONUS($) OPTIONS(#)(2) ($)(3)
- ---------------------------- ---- --------- -------- ------------- ------------
Robert G. Brown 2001 141,202 -- 765,972 --
Chief Executive Officer, Chairman of the 2000 16,800 -- -- --
Board, President, and Director 1999 7,500 -- 765,972 --
William H. Bartels 2001 139,230 -- 471,992 --
Vice Chairman and Director 2000 16,800 -- -- --
1999 16,307 -- 471,992 --
Charles Cimitile 2001 188,000 -- 75,000 --
Chief Financial Officer 2000 188,000 -- 25,000 --
1999 17,090 -- 75,000 --
James H. Ross (4) 2001 101,773 7,500 43,000 1,557
Treasurer and Vice President 2000 94,800 9,000 5,000 3,337
1999 99,237 12,408 92,665 2,187
------------------------
(1) For accounting purposes, the Merger is treated as an acquisition
of PIA Merchandising Services, Inc., by the SPAR Marketing
Companies and related entities. Accordingly, these figures
represent the compensation paid by the Company since July 8,
1999, the effective date of the Merger, and the SPAR Marketing
Companies prior to that date.
(2) In January 2001, each of the above officers voluntarily
surrendered for cancellation their options for the purchase of
the following numbers of shares of common stock under the 1995
Plan: Mr. Brown - 765,972; Mr. Bartels - 471,992; Mr. Cimitile -
75,000; and Mr. Ross - 40,000.
(3) Other compensation represents the Company's 401k contribution.
(4) In September 2001, Mr. Ross retired from full-time employment.
Mr. Ross continues to serve the Company on a consulting basis.
-28-
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding each grant of
stock options made during the year ended December 31, 2001, to each of the Named
Executive Officers. No stock appreciation rights ("SAR's") were granted during
such period to such person.
INDIVIDUAL GRANTS
----------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL POTENTIAL REALIZABLE VALUE AT
UNDERLYING OPTIONS GRANTED ASSUMED ANNUAL RATES OF STOCK PRICE
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE PRICE EXPIRATION APPRECIATION FOR OPTION(1)
NAME (#) PERIOD (%) ($/SH) DATE 5% ($) 10% ($)
- --------------------- ---------------- --------------- -------------- ---------- ------------- ---------------
Robert G. Brown 382,986 (2) 14.9 1.30 8/2/11 274,496 676,097
191,493 (3) 7.5 10.00 8/2/11 -0- -0-
191,493 (3) 7.5 10.00 8/2/06 -0- -0-
---------------- --------------- ------------- ---------------
765,972 29.9 274,496 676,097
William H. Bartels 235,996 (2) 9.2 1.30 8/2/11 169,145 416,611
153,846 (3) 6.0 10.00 8/2/11 -0- -0-
82,151 (3) 3.2 10.00 8/2/06 -0- -0-
---------------- --------------- ------------- ---------------
471,992 18.4 169,145 416,611
Charles Cimitile 75,000 (2) 2.9 1.30 8/2/11 53,755 132,400
James H. Ross 41,000 (2) 1.6 1.30 8/2/11 29,386 72,378
2,000 (4) .1 1.10 5/9/11 1,213 2,987
---------------- --------------- ------------- ---------------
43,000 1.7 30,599 75,365
- ------------
(1) The potential realizable value is calculated based upon the term of the
option at its time of grant. It is calculated by assuming that the
stock price on the date of grant appreciates at the indicated annual
rate, compounded annually for the entire term of the option.
(2) These options vested 50% on the date of grant, 25% on the first
anniversary of the date of grant and 25% on the second anniversary of
the date of grant.
(3) These options vest 100% when the market price of the stock is equal to
$10.00.
(4) These options vest over four-year periods at a rate of 25% per year,
beginning on the first anniversary of the date of grant.
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth the number of shares that may be
purchased and value of the exercisable and unexercisable options held by each of
the Named Executive Officers at December 31, 2001.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT FISCAL
YEAR-END (#) YEAR-END ($)
--------------------------------------- -------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------ ------------------ ---------------- ------------------
Robert G. Brown -- 574,478 -- 93,831
William H. Bartels -- 353,994 -- 57,819
Charles Cimitile 43,750 56,250 25,656 40,219
James H. Ross 21,250 26,250 11,256 16,039
-29-
STOCK OPTION AND PURCHASE PLANS
The Company has five stock option plans: the 1990 Stock Option Plan
("1990 Plan"), the Amended and Restated 1995 Stock Option Plan ("1995 Plan"),
the 1995 Director's Plan ("Director's Plan"), the Special Purpose Stock Option
Plan and the 2000 Stock Option Plan ("2000 Plan").
The 1990 Plan is a nonqualified option plan providing for the issuance
of up to 830,558 shares of common stock to officers, directors and key
employees. The options have a term of ten years and one week and are either
fully vested or will vest ratably no later than five years from the grant date.
Since 1995, the Company has not granted any new options under this plan.
The 1995 Plan provided for the granting of either incentive or
nonqualified stock options to specified employees, consultants and directors of
the Company for the purchase of up to 3,500,000 shares of the Company's common
stock. The options have a term of ten years, except in the case of incentive
stock options granted to greater than 10% stockholders for which the term is
five years. The exercise price of nonqualified stock options must be equal to at
least 85% of the fair market value of the Company's common stock at the date of
grant. Since 2000, the Company has not granted any new options under this Plan.
During 2001, options to purchase 2,349,825 shares of the Company's common stock
under the 1995 Plan were voluntarily surrendered and cancelled. No options to
purchase shares of the Company's common stock were exercised under this Plan
during 2001. At December 31, 2001, options to purchase 81,125 shares of the
Company's common stock remain outstanding under this Plan. The 1995 Plan has
been replaced by the 2000 Plan.
The Director's Plan was a stock option plan for non-employee directors
and provided for the purchase of up to 100,000