<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_______________________
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 0-13217
M/A/R/C INC.
(Exact name of Registrant as specified in its charter)
Texas 75-1781525
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7850 North Belt Line Road 75063
Irving, Texas (ZIP Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 506-3400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None --
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---
As of March 11, 1996, 3,103,382 common shares were outstanding, and the
aggregate market value of the common shares held by nonaffiliates (based upon
the closing price of these shares on the National Association of Securities
Dealers National Market System) was approximately $51,206,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated part or parts of this report:
The Registrant's Annual Report to Shareholders for the year ended December
31, 1995--Parts I, II and IV; the Registrant's definitive Proxy Statement
to be filed with the Securities and Exchange Commission not later than 120
days after the end of the fiscal year covered by this report--Part III; and
the Exhibits listed on page 16.
<PAGE> 2
TABLE OF CONTENTS
M/A/R/C INC.
FORM 10-K
<TABLE>
<CAPTION>
Page
----
PART I
------
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a
Vote of Security Holders 9
PART II
-------
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 11
PART III
--------
Item 10. Directors and Executive Officers of the Registrant 11
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial Owners
and Management 11
Item 13. Certain Relationships and Related Transactions 11
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 12
Index to Exhibits 16
Signatures 18
</TABLE>
2
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PART I
ITEM 1. BUSINESS.
BACKGROUND AND RECENT DEVELOPMENTS
Marketing And Research Counselors, Inc., the predecessor of M/A/R/C Inc.
(the "Registrant"), was organized in 1965 as a majority owned subsidiary of
Tracy-Locke Company, Inc. ("Tracy-Locke"), an advertising agency. In
connection with the acquisition of Tracy-Locke by BBDO International, Inc.
("BBDO"), the Registrant was organized in 1981 as a wholly owned subsidiary of
Tracy-Locke to hold the stock of Marketing And Research Counselors, Inc., and
certain of the Tracy-Locke film, audio, and advertising operations not to be
acquired by BBDO. All of the stock of the Registrant was distributed to the
shareholders of Tracy-Locke in February 1982. Once separated from Tracy-Locke,
the Registrant disposed of its operations unrelated to marketing research.
Effective August 27, 1984, the Registrant changed its name from Allcom,
Inc., to M/A/R/C Inc. to better reflect the Registrant's emphasis on marketing
research.
In January 1985, the Registrant and certain shareholders of the Registrant
offered an aggregate of 1,401,902 shares of common stock at a per share price
to the public of $6.67. The underwriters of such offering exercised their
option for an additional 187,500 shares to cover over-allotments. The
Registrant received net proceeds of approximately $5,500,000 from its sale of
937,500 shares of common stock.
Effective June 30, 1989, the Registrant acquired certain net assets of two
marketing research divisions from Information Resources, Inc., for
approximately $2.5 million. The ASSESSOR(TM) Group and the Custom Projects
Group had operations headquartered in Boston and Chicago.
In order to enhance the growth potential of its primary businesses,
M/A/R/C reorganized effective January 1, 1991. The firm renamed itself The
M/A/R/C Group, and each of its marketing information services businesses became
a separate operating company. At the time of this reorganization, the
operating companies were Marketing And Research Counselors, engaging in custom
marketing research; Targetbase Marketing, which creates targeted databases and
related marketing programs; Quality Strategies, which develops customer
satisfaction programs; and The M/A/R/C Consulting Group. The Registrant
established Marketing And Research Counselors of Canada Inc., a wholly owned
Canadian corporation in early 1991 for the purpose of expanding its business in
that country. During 1994 Quality Strategies and The M/A/R/C Consulting Group
were combined with Marketing And Research Counselors, comprising one operating
company in the Custom Marketing Research business. In August of 1995, the
Registrant organized Digital Marketing Services, Inc. (DMS) with America
Online. The Registrant owns 30% of DMS and accounts for its ownership position
under the equity method of accounting. In December of 1995 the Registrant
dissolved its Canadian corporation and now operates in Canada as a branch.
These designated primary businesses are considered one segment for accounting
purposes.
Information concerning the Registrant's revenues, operating profit, and
assets is included in the financial statements incorporated by reference into
Item 8 of this report.
The Registrant effected stock splits paid in the form of stock dividends
of three shares for each two shares held on December 7, 1984, and one share for
each two shares held on December 5, 1985. On February 25, 1992, the Registrant
declared a six-for-five stock split effected in the form of a 20 percent
dividend on its common shares, which was paid on March 31, 1992, to all
shareholders of record on March 11, 1992. All references in this report to
shares and per share data have been adjusted to reflect such stock splits.
3
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The Registrant's principal executive offices and corporate headquarters
are located at 7850 North Belt Line Road, Irving, Texas 75063, and its
telephone number is (214) 506-3400.
GENERAL
Through its two operating companies, M/A/R/C Research and Targetbase
Marketing, the Registrant provides marketing services to large consumer product
and service companies. The Registrant has designed and developed proprietary,
computer-based systems for providing marketing research services, such as
product and advertising testing; product, advertising, and industry trend
tracking; product positioning studies; marketing problem analysis; and market
simulation and sales forecasting. The Registrant further provides marketing
services designed to measure and track customer satisfaction and the design,
construction, and implementation of databases consisting of both existing, and
the most likely potential, customers for a given product.
ORGANIZATION
The Registrant provides marketing services to more than 200 clients who
market consumer, agricultural, business, or industrial products or services.
M/A/R/C RESEARCH
The majority of the Registrant's custom marketing research activities are
conducted through its M/A/R/C Research operating company.
The purpose of the custom marketing research performed by the Registrant
is to gather, process, and analyze data about clients' products or services and
the segments of the population to which they are marketed. Clients use the
data collected by the Registrant and the resulting analyses to assist in
determining, among other things, whether to introduce or discontinue products
or services and what marketing or advertising strategy to use.
The Registrant generally contracts separately with clients for each
research project. For a typical full-service project, the Registrant consults
with the client to define the nature of the information required. A study plan
is then prepared that outlines the proposed sampling universe from which data
is to be collected and the means of gathering and evaluating such data. The
study plan and a price estimate are then submitted to the client for approval.
Once approval is obtained, the Registrant designs questionnaires, selects
sample households, and specifies respondent qualifications. After interviewing
is completed, the Registrant validates and processes the data, analyzes the
results, and makes written reports and presentations as required.
M/A/R/C Research gathers data through telephone interviewers primarily
utilizing Wide Area Telephone Service ("WATS") centers located in Denton,
Texas, and Killeen, Texas. M/A/R/C Research has approximately 250 CRT-equipped
WATS interviewing positions. The Registrant also uses marketing research field
supervisors in local markets to conduct face-to-face or telephone interviews
through their interviewers. Data is further collected by mailed
questionnaires. The Registrant's data collection capabilities, when combined
with the ability of its ACRS software to fully integrate all aspects of the
marketing research process, significantly reduce the time required to complete
most projects.
In addition, M/A/R/C Research has a Marketing Science Department staffed
by professionals with training and experience in advanced marketing research
and analysis methods. The staff consults with the Registrant's clients and
account executives on market research design, statistical analysis, and
strategic marketing.
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The Registrant has developed a series of proprietary research and analysis
services styled "MACRO Market Modeling System." MACRO, an acronym for
"Marketing Assessment of Consumer Revenue Opportunities," provides guidance to
the Registrant's clients across all phases of the marketing process through its
computerized market modeling products MACRO ExplorerSM and MACRO AssessorTM.
The MACRO Assessor product combines the ASSESSOR model acquired by the
Registrant in June 1989 with the Registrant's ENTRO model.
The principal services provided by custom marketing research suppliers can
be divided into four categories: testing, tracking, positioning, and problem
analysis.
Testing may be conducted for any of several purposes:
Concept tests, which determine consumer acceptance of a new
product, service, or advertising concept;
Product tests, which determine the strengths and weaknesses of a
particular product among consumers;
Advertising pretests, which determine the ability of an
advertisement to communicate a message or to sell a product or
service;
Media tests, which determine the optimum media expenditure level or
media mix to advertise a product;
Package tests, which determine appeal, convenience, durability, and
other aspects of a package with consumers.
Tracking consists of conducting a continuing study or a series of similar
studies over a period of time to determine changes or trends in consumer
acceptance or reaction to products, services, advertising campaigns, or
industries. Tracking studies may last from a few months to several years.
Positioning studies determine how consumers perceive the benefits and
image of particular brands of products. The results indicate the extent
to which consumers perceive brands in the manner the client intended and
are used to develop strategies to enhance a product's position.
Positioning studies are often conducted in conjunction with segmentation
research. Segmentation studies identify distinct groups of customers
according to the similarity of their needs for products and/or the
benefits they are seeking. These results can be used to target the
advertising and image of a client's product to the segments that are most
favorably disposed toward it.
Problem analysis consists of attempting to determine why a product,
service, or advertisement is not performing as expected. The purpose of
such studies is to identify the reason or reasons for poor performance in
the marketplace and to make recommendations for corrective action.
The Registrant markets its ACTION customer satisfaction measurement system
through its M/A/R/C Research operating company. The ACTION System tracks
customer satisfaction, links it to manufacturing and marketing to allow
improvement of the product or service, and predicts how changes in the customer
satisfaction level will affect sales volume.
5
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TARGETBASE MARKETING
The Registrant's Targetbase Marketing operating company creates and
maintains highly refined databases of both existing and most likely potential
prospects of client products and creates and executes marketing and promotional
programs directed at these databases. Targetbase creates and executes
closed-loop marketing programs that can incorporate various techniques,
including contest, couponing, sweepstakes, and other types of response-oriented
strategies.
Targetbase was formed to develop and employ direct and interactive
marketing techniques to isolate and target specific market segments. This
enabled the Registrant to enter the business of database marketing, which
includes such services as consumer screening, database management, computerized
segmentation of advertising and promotion, automated processing of telephone
and mail response, and predictive forecasting. Targetbase also provides
support for techniques to identify primary prospects for a product or service.
The Registrant then aggressively pursues those prospective customers through
promotional programs and other means to gain trial and adoption of the client's
product. The Registrant's advanced computer technology assists in the
targeting process by providing a means to efficiently segment the marketplace
and tailor various marketing strategies to multiple target groups. When
Targetbase executes the promotion, the continued interaction with the target
group expands the client's information about its customers.
PROPRIETARY SOFTWARE
The Registrant has developed data processing and data communications
capabilities, with a large staff of systems analysts and programmers trained to
design software for marketing research, telemarketing, and database marketing.
The major software developed by the Registrant is the Automated Custom Research
System ("ACRS"). ACRS is an effective marketing research software system
because it integrates all facets of the marketing research process into one
on-line system and is capable of handling complex studies. The Registrant's
systems analysts and programmers continually enhance the system and
custom-tailor software to meet the specific needs of particular clients.
During the year ended December 31, 1995, the Registrant spent approximately
$674,000 for research and development and enhancement of existing systems.
CLIENTS
The Registrant directs its marketing efforts toward companies having
relatively sophisticated and comprehensive research and marketing needs; these
companies tend to be major suppliers of consumer goods and services.
During the year ended December 31, 1995, RJR Nabisco, a tobacco, food, and
beverage products company, accounted for approximately 16% of the Registrant's
revenues. Accordingly, the loss of such a customer could have a materially
adverse effect on the Registrant. During the year ended December 31, 1995, no
other client accounted for as much as 10% of the Registrant's revenues.
Because the Registrant generally performs its marketing research
assignments on a custom basis, it has no long-term contracts to perform custom
marketing research.
FEE ARRANGEMENTS
As is customary in the industry, the Registrant's research assignments
generally are obtained by competitive estimating based on a specified fee.
Therefore, the ability of the Registrant to realize a profit on a particular
product depends on its ability to accurately estimate in advance the costs
involved in such project. Revenues are recognized as services are performed
and billed to clients.
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COMPETITION
The business in which the Registrant is principally engaged is highly
competitive and is characterized by a large number of relatively small
organizations and a few concerns of substantial resources. The Registrant
frequently competes with small specialty companies having low overhead. While
precise information about the industry is not available, the October 30, 1995,
issue of Advertising Age rated the Registrant as the thirteenth largest
marketing research company in the United States. The Registrant is also
subject to competition from marketing and research departments of various
companies, advertising agencies, and business consulting firms. The Registrant
believes that the principal methods of competition are the quality of
information; consistency; the ability to direct, acquire and report on
marketing programs in a short period of time; and price.
EMPLOYEES
At December 31, 1995, the Registrant employed 459 full-time staff
employees and approximately 472 part-time hourly employees for data gathering
and processing purposes. The permanent staff is composed primarily of
marketing and research consultants and specialists. Turnover at the Registrant
is low at the present time; however, the possibility of key personnel leaving
always exists.
SERVICE MARKS
The Registrant has obtained federal and state registration of several
service marks and has filed service mark applications for certain other names
and designs. Management believes that the Registrant's marketing efforts,
timely implementation of technological advances, responsiveness to customer
requirements, depth of technical expertise, and high level of customer support
enhance the value of its service marks and overall goodwill of the Registrant.
These service marks are held by a wholly owned subsidiary of the Registrant and
are licensed to the Registrant's operating companies.
7
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EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive officers
of the Registrant:
<TABLE>
<CAPTION>
Name Age Position with the Registrant
---- --- ----------------------------
<S> <C> <C>
Cecil B. Phillips 71 Chairman of the Board since August 1993; Chairman of the Board and Chief
Executive Officer from May 1983 to August 1993; President of the
Registrant from July 1965 to November 1986; Chief Operating Officer of
the Registrant from February 1982 to May 1983; Director since 1981.
Sharon M. Munger 49 President and Chief Executive Officer since August 1993; President and
Chief Operating Officer of the Registrant from November 1986 to August
1993; President and Chief Operating Officer of the Registrant's Marketing
Services Group from December 1984 to November
1986; Executive Vice President of Marketing And
Research Counselors from May 1983 to December
1984; Senior Vice President of Marketing And
Research Counselors from January 1981 to May 1983;
Director since 1983.
Jack D. Wolf 42 Executive Vice President of the Registrant since November 1990; President
of Targetbase Marketing since January 1, 1991; Senior Vice President of
the Registrant from November 1986 to December 1990; Executive Vice
President from October 1984 to November 1986; Senior Vice President from
June 1984 to October 1984; Vice President from June 1981 to June 1984.
Corinne F. Maginnis 48 Executive Vice President of the Registrant since November 1990; President
of Quality Strategies from January 1991 to November 1994; Senior Vice
President of the Registrant from November 1986 to December 1990;
Executive Vice President from January 1985 to November 1986; Senior Vice
President from July 1984 to January 1985; Vice President from January
1983 to July 1984; Research Associates Manager from September 1982 to
January 1983. Ms. Maginnis is the sister of Sharon M. Munger, President
of the Registrant.
Michael P. Redington 51 Executive Vice President of the Registrant since April 1993; President of
M/A/R/C Research since April 1993; Executive Vice President of Marketing
And Research Counselors from February 1992 to April 1993; Senior Vice
President of Marketing And Research Counselors from January 1985 to
February 1992.
Harold R. Curtis 57 Senior Vice President of the Registrant
since November 1986; Chief Financial Officer,
Secretary, and Treasurer of the Registrant since 1982.
</TABLE>
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The executive officers of the Registrant were elected to hold office until the
annual meeting of the directors of the Registrant, which meeting immediately
follows the annual meeting of shareholders, or until their respective
successors are elected and have qualified. No arrangements or understandings
exist between the listed officers and other persons pursuant to which any of
the individuals listed above were to be selected as officers.
ITEM 2. PROPERTIES.
As of December 31, 1995, the Registrant was leasing 141,500 square feet of
office space for the Registrant's Dallas operations at 7850 North Belt Line
Road in Irving, Texas. In addition, the Registrant leases in the aggregate
approximately 70,867 square feet in Atlanta, Georgia; Chicago, Illinois;
Greensboro, North Carolina; Newport Beach, California; Norwalk, Connecticut;
Killeen, Texas; and Toronto, Canada. The aggregate lease payments of the
Registrant for the year ended December 31, 1995, amounted to $4,150,000.
The Registrant also owns a 16,000 square foot building in Denton, Texas.
The Registrant purchased a warehouse in December 1983 at an approximate cost of
$475,000 and completely refurbished and converted it into office space and a
WATS facility at an approximate cost of $1,100,000.
In May 1984 the Registrant purchased 9.36 acres of undeveloped land in the
Las Colinas area of Irving, Texas, for a purchase price of $1,643,000. In
April 1985, the Registrant sold approximately 4.3 acres of the land for
$816,000 and entered into related agreements with the purchaser of the property
to construct and lease to the Registrant a corporate headquarters facility on
that portion of the site. The Registrant's facilities were completed in April
1986 and presently serve as the principal offices of the Registrant. The
facility has approximately 141,500 net rentable square feet of space. On May
1, 1991, the Registrant renegotiated its lease for 9.25 years (111 months).
The Registrant exercised its option to purchase the facility in March 1996 for
approximately $20,500,000. The purchase price was financed with new debt in
the form of an $11,200,000 mortgage loan from a life insurance company and
approximately $9,300,000 in bank debt. Prior to the exercise of the purchase
option, the lease called for monthly base rental payments consisting of two
components. One component was fixed at $1,700,000 annually until May 1996.
The second component was tied to either prime or LIBOR and was approximately
$500,000. The Registrant pays all insurance, taxes, and operating costs and
was a guarantor for $6,500,000 of the lessor's bank debt.
The Registrant believes that the properties used in its operations are
fully utilized, suitable, and adequate for present operations.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant is not a party to any material legal proceedings, nor, to
the Registrant's knowledge, are there any other material legal proceedings
contemplated against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Registrant did not submit any matters to a vote of its security
holders during the fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Registrant's Common Stock was held by approximately 500 holders of
record as of March 11, 1996, as traded in the over-the-counter market under the
Nasdaq symbol "MARC."
The following table sets forth, for the periods indicated, the high and
low closing sale prices for the Registrant's Common Stock on the Nasdaq
National Market System. From February 1982 until the Registrant's public
offering on January 29, 1985 (see "Business--Background and Recent
Developments"), the Registrant's Common Stock was occasionally traded in the
over-the-counter market. The bid prices reflect inter-dealer prices without
retail markups, markdowns, or commissions and do not necessarily represent
actual transactions. Nasdaq National Market System quotations, which began on
January 29, 1985, are based on actual transactions and not bid prices.
<TABLE>
<CAPTION>
Bid Quotation
or Sale Price
-------------
High Low
---- ---
<S> <C> <C>
Calendar Year 1994
------------------
First Quarter $ 8.00 $ 7.25
Second Quarter 9.25 7.25
Third Quarter 10.50 8.50
Fourth Quarter 13.50 10.50
Calendar Year 1995
------------------
First Quarter $14.50 $11.75
Second Quarter 13.50 12.25
Third Quarter 14.25 12.25
Fourth Quarter 14.50 12.88
Calendar Year 1996
------------------
(Through January 1996) $15.00 $13.25
</TABLE>
From February 1982 to November 1984, the Registrant paid quarterly
dividends on its Common Stock at an annual rate of 32c. per share. However, in
November 1984, the Board of Directors determined that the Registrant would
discontinue paying cash dividends and retain all earnings for the Registrant's
operations. Beginning with the second quarter of 1995, the Registrant began
paying quarterly dividends at an annual rate of $.40 per share. Although the
terms of the credit agreement between the Registrant and its principal lending
bank impose requirements with respect to the Registrant's working capital,
ratio of current assets to current liabilities, tangible net worth and other
financial conditions, these requirements do not currently materially limit the
Registrant's ability to pay dividends.
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data on page 2 of the Annual Report to Shareholders for
the year ended December 31, 1995, is incorporated herein by reference.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 10 through 11 of the Annual Report to Shareholders for the
year ended December 31, 1995, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
The financial statement information and supplemental data required in
response to this Item is incorporated herein by reference to pages 12 through
28 of the Annual Report to Shareholders for the year ended December 31, 1995.
Certain financial statement schedules are included in Part IV (Item 14(b))
of this report.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
The Registrant has had no disagreements on accounting and financial
disclosures with its independent accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required in response to this item with respect to executive
officers of the Registrant is set forth above in "Item 1. Business." The
information with respect to directors of the Registrant is incorporated by
reference to the Registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required in response to this item is incorporated by
reference to the Registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required in response to this item is incorporated by
reference to the Registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required in response to this item is incorporated by
reference to the Registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
(1) Financial Statements and Supplementary Data.
The following consolidated financial statements and supplementary
data included in Part II of this report are incorporated by
reference from the Registrant's Annual Report to Shareholders for
the year ended December 31, 1995, from the respective page numbers
indicated:
<TABLE>
<CAPTION>
Page Reference in
Item Annual Report
---- -------------
<S> <C>
Report of independent accountants 29
Financial statements 12-28
Consolidated balance sheets as of December 31, 1995,
and December 31, 1994 12-13
Consolidated statements of income for the years ended
December 31, 1995, 1994, and 1993 14
Consolidated statements of changes in shareholders'
equity for the years ended December 31, 1995,
1994, and 1993 15
Consolidated statements of cash flows for the years
ended December 31, 1995, 1994, and 1993 16
Notes to consolidated financial statements 17-28
</TABLE>
(2) Financial Statement Schedules.
The following supplemental schedules can be found on the indicated
pages in this report:
<TABLE>
<CAPTION>
Page in This Report
-------------------
Item
----
<S> <C>
Consent of independent accountants 13
Report of independent accountants on
financial statement schedule 14
Financial statement schedule for the
years ended December 31, 1995, 1994, and 1993
Schedule II - Valuation and qualifying accounts 15
Schedules other than those listed above have been omitted since they are either not required, are not
applicable, or the required information is shown in the financial statements or related notes in the Annual
Report.
</TABLE>
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CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
M/A/R/C Inc. on Form S-8 (File No. 33-3061 and File No. 33-28750) of our report
dated February 29, 1996, on our audits of the consolidated financial statements
and financial statement schedule of M/A/R/C Inc. as of December 31, 1995, and
1994, and for the three years in the period ended December 31, 1995, which
report is included in the Annual Report incorporated by reference in this Form
10-K.
Coopers & Lybrand L.L.P.
Dallas, Texas
March 27, 1996
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REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULE
Our report on the consolidated financial statements of M/A/R/C Inc. has been
incorporated by reference in this Form 10-K from the 1995 annual report to
shareholders of M/A/R/C Inc. on page 29 therein. In connection with our audits
of such financial statements, we have also audited the related financial
statement schedule listed in the index on page 12 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Dallas, Texas
February 29, 1996
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M/A/R/C INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C(1) Column D Column E
(a)
Balance at Additions
Beginning of charged to costs Balance at
Description Period and expenses Deductions end of period
----------- ------------ ---------------- ---------- -------------
(amounts in thousands)
<S> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for
doubtful accounts $252 $ 10 $ 21 $241
---- ---- ---- ----
Year ended December 31, 1994
Allowance for
doubtful accounts $ 67 $205 $ 20 $252
---- ---- ---- ----
Year ended December 31, 1993
Allowance for
doubtful accounts $101 $ 34 $ 67
---- ---- ----
</TABLE>
Notes:
(a) Column "C(2)" is omitted as the answer would be "none."
15
<PAGE> 16
(3) Exhibits.
<TABLE>
<S> <C>
3.3 Restated Articles of Incorporation of the Registrant (3.3)***
3.4 Restated Bylaws of the Registrant (3.4)***
4.3 Loan Agreement, dated as of July 1, 1984, between City of Denton Industrial Development Authority and
Registrant, in the principal amount of $1,350,000, and related agreements (4.3)*
10.1 Registrant's Employee Stock Ownership Plan and Trust Agreement and Amendment Number One to the Plan
(10.1)**
10.2 Amendment Two to Registrant's Employee Stock Ownership Plan (10.2)*
10.3 Registrant's First Amended Pension Plan and Trust Agreement and Second Amendment to the Plan (10.2)**
10.4 Third Amendment to Registrant's Pension Plan (10.4)*
10.5 Registrant's 1983 Stock Option Plan (10.5)**
10.6 Amendment No. 1 to Registrant's 1983 Stock Option Plan (10.6)*
10.9 Supplemental Executive Retirement Plan (10.9)***
10.10 Office Complex Lease, dated as of May 1, 1991, between Registrant and SGA Development Partnership,
Ltd. (10.10) ****
10.11 1991 Executive Stock Plan (10.11) ****
11.1 Statement Re: Computation of Per Share Earnings
13.1 Annual Report to Shareholders of the Registrant for year ended December 31, 1995 (portions of which
are incorporated herein by reference)
27.1 Financial Data Schedule
</TABLE>
_________________
* Incorporated by reference to the exhibit shown in parentheses filed
with Registrant's Registration Statement on Form S-1 (File No.
2-94849).
** Incorporated by reference to the exhibit shown in parentheses filed
with Registrant's Annual Report on Form 10-K for the year ended March
31, 1984.
*** Incorporated by reference to the exhibit shown in parentheses filed
with Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990.
**** Incorporated by reference to the exhibit shown in parentheses filed
with Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992.
(b) None
18
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf
by the undersigned thereunto duly authorized, in Dallas, Texas, on the 27th day
of March, 1996.
M/A/R/C INC.
By: /s/ H. R. Curtis
-----------------------------------
Harold R. Curtis
Senior Vice President, Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/c/ Cecil B. Phillips Chairman of the Board March 27, 1996
- ----------------------------------------- and Director
Cecil B. Phillips
/s/ H. R. Curtis Senior Vice President, March 27, 1996
- ----------------------------------------- Principal Financial and
Harold R. Curtis Accounting Officer
/s/ Sharon M. Munger Principal Executive March 27, 1996
- ------------------------------------- Officer and Director
Sharon M. Munger
/s/ Alvin A. Achenbaum Director March 27, 1996
- -------------------------------------
Alvin A. Achenbaum
/s/ Rolan G. Tucker Director March 27, 1996
- ----------------------------------------
Rolan G. Tucker
/s/ Thomas J. Tierney Director March 27, 1996
- ---------------------------------------
Thomas J. Tierney
/s/ Elmer L. Taylor, Jr. Director March 27, 1996
- ----------------------------------------
Elmer L. Taylor, Jr.
</TABLE>
17
<PAGE> 18
Exhibit Index
Exhibit
No. Description
_______ ___________
<TABLE>
<S> <C>
3.3 Restated Articles of Incorporation of the Registrant (3.3)***
3.4 Restated Bylaws of the Registrant (3.4)***
4.3 Loan Agreement, dated as of July 1, 1984, between City of Denton Industrial Development Authority and
Registrant, in the principal amount of $1,350,000, and related agreements (4.3)*
10.1 Registrant's Employee Stock Ownership Plan and Trust Agreement and Amendment Number One to the Plan
(10.1)**
10.2 Amendment Two to Registrant's Employee Stock Ownership Plan (10.2)*
10.3 Registrant's First Amended Pension Plan and Trust Agreement and Second Amendment to the Plan (10.2)**
10.4 Third Amendment to Registrant's Pension Plan (10.4)*
10.5 Registrant's 1983 Stock Option Plan (10.5)**
10.6 Amendment No. 1 to Registrant's 1983 Stock Option Plan (10.6)*
10.9 Supplemental Executive Retirement Plan (10.9)***
10.10 Office Complex Lease, dated as of May 1, 1991, between Registrant and SGA Development Partnership,
Ltd. (10.10) ****
10.11 1991 Executive Stock Plan (10.11) ****
11.1 Statement Re: Computation of Per Share Earnings
13.1 Annual Report to Shareholders of the Registrant for year ended December 31, 1995 (portions of which
are incorporated herein by reference)
27.1 Financial Data Schedule
</TABLE>
_________________
* Incorporated by reference to the exhibit shown in parentheses filed
with Registrant's Registration Statement on Form S-1 (File No.
2-94849).
** Incorporated by reference to the exhibit shown in parentheses filed
with Registrant's Annual Report on Form 10-K for the year ended March
31, 1984.
*** Incorporated by reference to the exhibit shown in parentheses filed
with Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990.
**** Incorporated by reference to the exhibit shown in parentheses filed
with Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992.
18
<PAGE> 1
M/A/R/C INC.
EXHIBIT 11--STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 2,577,004 2,619,610 3,282,916
Assumed exercise of outstanding
options and warrants 652,443 940,727 478,011
Assumed purchase of treasury shares
from proceeds of option/warrant exercise (405,537) (507,636) (368,127)
--------- --------- ---------
2,823,911 3,052,701 3,392,800
========= ========= =========
Net income $3,275 $2,677 $1,178
Add assumed interest income from
investment of option/warrant proceeds - 115 -
--------- --------- ---------
$3,275 $2,792 $1,178
========= ========= =========
Primary net income per share $1.16 $0.91 $0.35
========= ========= =========
FULLY DILUTED
Average shares outstanding 2,577,004 2,619,610 3,282,916
Assumed exercise of outstanding
options and warrants 652,443 940,727 478,011
Assumed purchase of treasury shares
from proceeds of option/warrant exercise (382,943) (507,636) (351,892)
--------- --------- ---------
2,846,505 3,052,701 3,409,035
========= ========= =========
Net income $3,275 $2,677 $1,178
Add assumed interest income from
investment of option/warrant proceeds - 41 -
--------- --------- ----------
$3,275 $2,718 $1,178
========= ========= ==========
Primary net income per share $1.15 $0.89 $0.35
========= ========= ==========
</TABLE>
<PAGE> 1
EXHIBIT 13.1
THE M/A/R/C GROUP
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
The M/A/R/C Group:
We have audited the accompanying consolidated balance sheets of The M/A/R/C
Group as of December 31, 1995, and 1994, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
M/A/R/C Group as of December 31, 1995, and 1994, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Dallas, Texas
February 29, 1996
2
<PAGE> 3
THE M/A/R/C GROUP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<Cation>
December 31, December 31,
ASSETS (dollars in thousands) 1995 1994
-------------------------------------------- ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ - $ 1,669
Investments 1,848 1,668
Trade accounts receivable, less
allowance for doubtful accounts
of $241 and $252, respectively 13,292 9,131
Expenditures billable to clients 3,204 3,242
Notes receivable 284 248
Prepaid expenses 1,691 1,463
Federal income tax receivable 56 169
Deferred income taxes 168 188
Other current assets 650 559
------------ ------------
Total current assets 21,193 18,337
Notes receivable, less current portion 82 40
Property and equipment, net 7,377 7,149
Capitalized software costs, less accumulated
amortization of $0 and $546, respectively - 59
Investments - noncurrent 10,049 9,384
Cash surrender value of life insurance 3,211 3,070
Intangibles, less accumulated amortization
of $2,788 and $2,537, respectively 680 931
Prepaid pension costs and other assets 1,612 1,914
------------ ------------
Total assets $44,204 $40,884
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
THE M/A/R/C GROUP
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31, December 31,
LIABILITIES (dollars in thousands, 1995 1994
- ------------------------------------------------ ------------ ------------
except share and per share amounts)
<S> <C> <C>
Current liabilities:
Book overdraft $ 457 $ -
Trade accounts payable 2,072 2,876
Advance payments from clients 2,145 2,970
Accrued liabilities 1,457 1,662
-------------- --------------
Total current liabilities 6,131 7,508
Long-term debt 5 123
Deferred income taxes 99 1,058
Deferred compensation 2,672 2,052
Other liabilities 2,856 71
-------------- --------------
Total liabilities 11,763 10,812
-------------- --------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
- --------------------
Common stock, $1.00 par value, 15,000,000 shares
authorized, 3,783,541 shares and 3,544,666
shares issued, respectively 3,784 3,545
Capital in excess of par value 6,855 5,264
Retained earnings 34,758 32,346
-------------- --------------
45,397 41,155
Treasury stock at cost 877,059 and 861,744
shares, respectively (7,760) (7,546)
Unearned compensation (1,440) (1,440)
Pension liability (1,822) -
Unearned ESOP shares (1,934) (2,097)
-------------- --------------
Total shareholders' equity 32,441 30,072
-------------- --------------
Total liabilities and shareholders' equity $44,204 $40,884
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
THE M/A/R/C GROUP
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Operating revenues $74,387 $68,462 $62,156
Production and administrative expenses 70,242 64,793 60,915
--------- --------- ---------
Operating income 4,145 3,669 1,241
Other income (expense):
Interest and other income 976 725 808
Interest expense (121) (236) (223)
--------- --------- ---------
Income before taxes 5,000 4,158 1,826
Provision for income taxes 1,725 1,481 648
--------- --------- ---------
Net income $3,275 $2,677 $1,178
========= ========= =========
Earnings per share $1.16 $0.91 $0.35
========= ========= =========
Weighted average shares outstanding 2,823,911 3,052,701 3,392,800
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
THE M/A/R/C GROUP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
Common Capital in Treasury Stock Unearned
Stock, $1 Excess of Retained ------------------- Pension Unearned ESOP
(dollars in thousands) Par Value Par Value Earnings Shares Cost Liability Compensation Shares
- ---------------------- ------------ ---------- -------- --------- -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $3,884 $6,788 $30,847 888,087 ($8,280)
------ ------ ------- ------- --------
Exercise of common stock options
and warrants 86 461 68,403 (547) $547
Issue of restricted stock (437) (333,600) 3,106 (2,669)
Purchase of treasury stock 43,840 (346)
Loan to ESOP ($2,446)
Payment on ESOP loan 186
Adjustment for minimum pension liability ($1,018)
Net income 1,178
------ ------ ------- ------- -------- ------- ------- -------
Balance at December 31, 1993 3,970 7,249 31,588 666,730 (6,067) (1,018) (2,122) (2,260)
Exercise of common stock options
and warrants 83 438 85,152 (682) 682
Purchase of treasury stock 618,265 (5,670)
Retirement of treasury stock (508) (2,446) (1,919) (508,403) 4,873
Reduction of pension liability 1,018
Release of ESOP shares 23 163
Net income 2,677
------ ------ ------- ------- -------- ------- ------- -------
Balance at December 31, 1994 3,545 5,264 32,346 861,744 (7,546) - (1,440) (2,097)
Exercise of common stock options
and warrants 239 1,485
Purchase of treasury stock 15,315 (214)
Adjustment for minimum pension liability (1,822)
Dividends paid (863)
Release of ESOP shares 106 163
Net income 3,275
------ ------ ------- -------- ------ ------- ------- -------
Balance at December 31, 1995 $3,784 $6,855 $34,758 877,059 ($7,760) ($1,822) ($1,440) ($1,934)
====== ====== ======= ========= ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
THE M/A/R/C GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $3,275 $2,677 $1,178
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,563 2,910 2,951
Gain on sale of assets (27) (22) (91)
ESOP expense 269 186 -
(Increase) decrease in income taxes receivable 113 75 (244)
(Decrease) increase in deferred income taxes (939) 581 (304)
(Increase) decrease in receivables and
expenditures billable to clients (4,123) (3,458) 3,289
Increase in prepaids, intangibles, and
other assets (158) (296) (832)
(Decrease) increase in trade accounts payable (804) 605 27
(Decrease) increase in customer advances (825) (41) 1,209
(Decrease) increase in accrued liabilities (205) 556 (343)
Increase (decrease) in deferred compensation,
other liabilities, and income taxes payable 3,405 (1,830) 2,090
(Recognition) reduction of pension liability, net of tax (1,822) 1,018 (1,018)
------- ------- -------
Net cash provided by operating activities 722 2,961 7,912
------- ------- -------
Cash flows from investing activities:
Acquisition of property and equipment (2,287) (2,108) (1,093)
Proceeds from sale of assets 81 141 537
Purchase of investments - - (2,952)
Purchase of investments - held to maturity (2,950) (2,875) -
Maturity of investments - held to maturity 1,857 2,830 -
Sale of investments - available for sale - 943 -
Issuance of notes receivable (86) (37) (60)
Collection of notes receivable 8 133 12
------- ------- -------
Net cash used in investing activities (3,377) (973) (3,556)
------- ------- -------
Cash flows from financing activities:
Increase in book overdraft 457 - -
Issuance of debt - 7,894 -
Payment of debt (118) (7,896) (22)
Issuance of common stock 1,724 521 547
Purchase of treasury stock (214) (5,670) (346)
Payment of dividends (863) - -
Loan to ESOP - - (2,446)
Payment from ESOP loan - - 186
------- ------- -------
Net cash used in financing activities 986 (5,151) (2,081)
------- ------- -------
Net increase (decrease) in cash and cash equivalents (1,669) (3,163) 2,275
Cash and cash equivalents at beginning of period 1,669 4,832 2,557
------- ------- -------
Cash and cash equivalents at end of period $- $1,669 $4,832
======= ======= =======
</TABLE>
Cash payments for interest expense were $121, $137, and $8, and cash payments
for income taxes were $1,875, $1,350, and $1,147 for 1995, 1994, and 1993,
respectively.
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 8
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements include the accounts of M/A/R/C Inc. (the Company) and
its wholly owned companies and corporations. All intercompany accounts have
been eliminated in consolidation. The Company refers to itself as The M/A/R/C
Group.
The preparation of these consolidated financial statements in conformity with
generally accepted accounting principles requires the use of management's
estimates. These estimates are subjective in nature and involve matters of
judgment. Actual amounts could differ from these estimates.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Expenditures Billable to Clients
Expenditures billable to clients represent costs related to marketing research
and other services. Expenditures relating to presentations to prospective
clients are expensed as incurred.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
principally using the straight-line method over estimated useful lives as
follows:
Buildings........................................... 20 to 30 years
Furniture and equipment............................. 3 to 10 years
Leasehold improvements.............................. 1 to 10 years
When assets are sold, retired, or disposed of, any resulting gain or loss is
recognized.
8
<PAGE> 9
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Maintenance and Repairs
Maintenance and repairs for equipment and facilities are expensed, except that
substantial renewals which prolong the life of the asset beyond the date
previously contemplated are capitalized. Amounts expensed were $592,138,
$559,000, and $582,000, for the years ended December 31, 1995, 1994, and 1993,
respectively.
Capitalized Software Costs
Capitalized development and software costs relate to amounts expended during
the development of various products. Capitalized costs are amortized over the
estimated useful life of the product, typically ranging from three to five
years. Upon completion of development, future costs associated with
maintenance of the product are expensed as incurred. Total amortization
expense for capitalized software costs was $59,000, $201,000, and $239,000, for
the years ended December 31, 1995, 1994, and 1993, respectively.
Investments
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities ("SFAS No. 115"). SFAS No. 115 requires debt and
equity securities to be classified as trading, available-for-sale, or
held-to-maturity. The Company has deemed all of its securities to be
held-to-maturity securities, which are securities that management has the
positive intent and ability to hold until maturity. These securities include
tax-exempt governmental securities.
Held-to-maturity securities are stated at cost, adjusted for accretion of
discount or amortization of premium. Discount or premium on investment
securities is accredited or amortized to interest income over the terms of the
securities using the straight-line method, which approximates the interest
method. Realized gains and losses from the sale of securities are reflected in
earnings and are determined using the specific identification method.
Adoption of SFAS No. 115 had no effect on earnings.
9
<PAGE> 10
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Intangibles
Intangible assets are recorded at cost at the date of acquisition.
Amortization is provided using the straight-line method for periods of 7 to 30
years for identifiable assets.
Federal Income Taxes
Deferred tax liabilities and assets are recognized for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse (see Note 8).
Deferred income taxes arise from temporary differences between financial and
tax reporting, principally relating to depreciation, capitalized development
costs, the Company's supplemental executive retirement plan, installment sales,
and pension costs.
Revenues
Revenues from marketing research and consulting projects are recognized as
services are performed. Certain of these projects are fixed price in nature
and use the percentage-of-completion method for the recording of revenue. The
Company presents reimbursed client printing and mailing list costs on a net
basis.
Earnings Per Share
Earnings per common share and common share equivalents are based upon the
weighted average number of common shares outstanding during each year plus the
common stock equivalents which would arise from the exercise of stock options
and warrants, after assuming the proceeds from such exercise would be used to
repurchase treasury stock at the average market price during the respective
periods.
10
<PAGE> 11
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Accounting Issues
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This statement requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
circumstances indicate that the carrying amount of an asset may not be
recoverable. The impact of this standard, which the Company will adopt
effective January 1, 1996, has been assessed by management and will have an
immaterial effect.
In late 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation." This statement encourages, but
does not require, companies to recognize compensation expense for grants of
stock, stock options, and other equity instruments to employees based on new
fair value accounting rules. Companies that choose not to adopt the new rules
will continue to apply existing rules, but will be required to disclose pro
forma net income and earnings per share under the new method. The Company will
elect to provide the pro forma disclosures in its 1996 financial statements.
11
<PAGE> 12
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - NOTES RECEIVABLE
Notes receivable consisted of the following:
<TABLE>
<CAPTION>
December 31, December 31,
(dollars in thousands) 1995 1994
------------ ------------
<S> <C> <C>
Note receivable, monthly installments of $1
through September 1999, bearing interest of 7% $40 $48
Notes receivable from two directors bearing
interest at prime, due on demand 232 232
Note receivable from related party bearing interest at
prime plus 1%, interest only through January 1998,
thereafter due in equal annual installments through
January 2005 54 -
Noninterest-bearing note receivable from employee,
due on demand 40 8
--- ---
366 288
Less current portion 284 248
--- ---
$82 $40
=== ===
</TABLE>
The prime rate of interest at December 31, 1995, was 8.5%.
12
<PAGE> 13
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
(dollars in thousands) 1995 1994
----------- -----------
<S> <C> <C>
Land and buildings $2,036 $2,036
Furniture and equipment 15,582 13,421
Leasehold improvements 3,814 3,760
----------- -----------
21,432 19,217
Less accumulated depreciation 14,055 12,068
----------- -----------
$7,377 $7,149
=========== ===========
</TABLE>
13
<PAGE> 14
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INVESTMENTS
The amortized cost and estimated market value of investment securities as
of December 31, 1995, and 1994, were (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Approximate
1995 Cost Gains Losses Fair Value
- ---------------------------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Tax-exempt bonds:
Maturing within 1 year $1,848 $51 $7 $1,892
Maturing after 1 through 5 years 6,848 240 30 7,058
Maturing after 5 through 10 years 753 15 7 761
Maturing after 10 years 2,448 281 20 2,709
--------- ---------- ---------- -----------
$11,897 $587 $64 $12,420
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Approximate
1994 Cost Gains Losses Fair Value
- ---------------------------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Tax-exempt bonds:
Maturing within 1 year $1,668 $25 $2 $1,691
Maturing after 1 through 5 years 5,772 61 $139 5,694
Maturing after 5 through 10 years 884 - 26 858
Maturing after 10 years 2,728 58 60 2,726
--------- ---------- ---------- -----------
$11,052 $144 $227 $10,969
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value.
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
Investments
The fair values of most investments are estimated based on quoted market
prices for those or similar investments. For investments for which there
are no quoted market prices, a reasonable estimate of fair value could not
be made without incurring excessive costs. However, such investments are
not a significant portion of the Company's portfolio.
14
<PAGE> 15
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan to provide pension benefits
to substantially all employees. The benefits are based on years of service
and the employee's compensation. The Company's funding policy is to make
annual contributions that meet or exceed minimum funding requirements.
SFAS No. 87, "Employers' Accounting for Pension Costs" requires that an
additional pension liability be recognized when the accumulated pension
benefit obligation exceeds the fair value of pension plan assets. At
December 31, 1995, this liability was the sum of the unfunded accumulated
benefit obligation and the prepaid pension asset. Shareholders' equity
was reduced by a corresponding amount, net of tax.
The following table sets forth the plan's funded status and amounts
recognized in the Company's financial statements:
<TABLE>
<CAPTION>
December 31, December 31,
(dollars in thousands) 1995 1994
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $4,755 $2,676
============ ============
Accumulated benefit obligation $4,989 $2,786
============ ============
Projected benefit obligation $5,938 $3,340
Plan assets at fair value, primarily stocks
and bonds 3,549 3,363
------------ ------------
Excess (deficit) of plan assets over projected
benefit obligation (2,389) 23
Unrecognized net loss from experience,
different from actuarial assumptions 3,795 1,654
Prior service cost (credit) not yet recognized
in net periodic pension cost (70) (75)
Unrecognized transition asset
being amortized over 15 years (15) (18)
------------ ------------
Prepaid pension asset $1,321 $1,584
============ ============
</TABLE>
15
<PAGE> 16
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - EMPLOYEE BENEFIT PLANS (Continued)
Net pension costs were recorded as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
(dollars in thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Benefit cost for service during the year $255 $287 $238
Interest cost on projected benefit
obligations 378 375 315
Actual return on plan assets (611) 23 (53)
Net amortization and deferral 367 (263) (271)
----- ----- -----
$389 $422 $229
===== ===== =====
</TABLE>
The expected long-term rate of return on assets was 12% for the years ended
December 31, 1995, 1994, and 1993. The rate of salary progression was 3.9% for
the years ended December 31, 1995, and 1994, and 5.3% for the year ended
December 31, 1993. The settlement rates used to determine the actuarial present
value of projected benefits were 7.25% for the year ended December 31, 1995,
9.0% for the year ended December 31, 1994, and 7.5% for the year ended December
31, 1993. The vested benefit obligation includes the actuarial present value of
the vested benefits to which an active employee is entitled, if employment is
terminated immediately. Benefits are payable monthly commencing on the latter
of age 65, 66, or 67 (in accordance with Social Security retirement age policy)
or the participant's date of retirement.
Additionally, all salaried employees are eligible for participation in the
employer stock ownership plan (ESOP) and the health and benefit trust. The
ESOP allows employer contributions under Section 401(k) of the Internal Revenue
Code. Company contributions are determined by the Compensation Committee of
the Board of Directors based on the performance of the Company at the close of
each calendar year. The Company absorbs the costs incurred for the
administration of the ESOP/401(k). The health and benefit trust charges health
costs, as incurred, based upon amounts required to pay insurance premiums and
fund medical claims and administrative expenses incurred. Included in the
Company's results of operations are the following costs for the pension plan,
ESOP/401(k), and health and benefit trust:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
(dollars in thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Pension Plan $389 $422 $229
ESOP/401(k) 345 266 218
Health and Benefit Trust 1,455 1,322 1,359
</TABLE>
16
<PAGE> 17
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - EMPLOYEE BENEFIT PLANS (Continued)
In January 1993, the Company loaned $2.5 million to the ESOP for the
acquisition of 305,518 shares of the Company's common stock. The loan is being
repaid over a 15-year period. The rate of interest on the loan is 7.04%. As
of December 31, 1995, and 1994, shares allocated to plan participants totaled
63,768 and 43,393 shares, respectively. All remaining shares from the January
1993 acquisition are committed to be released ratably over the remaining life
of the ESOP loan. The fair market value of the unearned ESOP shares at
December 31, 1995, and 1994, was $3,385,000 and $3,080,000, respectively.
Prior to October 1993, the Company had individual supplemental executive
retirement plans for 27 executives. In October 1993, the Compensation
Committee of the Board of Directors discontinued the plans for all participants
except the Chairman of the Board and two Senior Vice Presidents. During 1995,
one Senior Vice President was reinstated and another was added to the plan. As
of December 31, 1995, the Chairman and one Senior Vice President were vested in
the plan. As of December 31, 1995, and 1994, the Company has accrued
$2,130,000 and $1,631,000, respectively, for benefits due under the plans. The
Company recognizes annual service cost for the plans, plus interest on the
accumulated balance. Amounts expensed, including interest, for the years ended
December 31, 1995, 1994, and 1993, were $372,000, $141,000, and $433,000,
respectively.
The Company follows the provisions of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" (SFAS No. 106), which requires recognition of the cost of
providing postretirement benefits, such as medical and life insurance coverage,
over the employee service period based upon the estimated amount and timing of
future benefit payments. The Company currently provides medical and life
insurance benefits for five retired employees. Seven officers and their
dependents are also entitled to receive benefits upon retirement. The costs of
these benefits charged to expense during the years ended December 31, 1995,
1994, and 1993, were approximately $12,000, $31,000, and $8,000, respectively.
The Company's obligation under SFAS No. 106 at
December 31, 1995, and 1994, was not material.
17
<PAGE> 18
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases space for its corporate headquarters facility under a lease
agreement expiring in 2000. The lease calls for monthly base rental payments
consisting of two components. One component is fixed at $1,700,000 annually.
The second component is based on prime or LIBOR. Currently, the second
component of the base rental payment is approximately $500,000. The Company
bears all insurance, taxes, and operating costs and is a guarantor for
$6,500,000 of the lessor's bank debt. In addition, the Company has pledged
land carried at $890,000 as collateral. The Company has the option to purchase
the facility in 1996.
The Company also leases office space and certain equipment under operating
lease agreements expiring through 1996. Minimum annual future rentals under
the terms of the above leases are as follows:
Year ending December 31:
<TABLE>
<S> <C>
1996................ $3,707,000
1997................ 3,423,000
1998................ 2,910,000
1999................ 2,237,000
2000................ 992,000
-----------
$13,269,000
===========
</TABLE>
Included in the results of operations is lease expense for facilities and
equipment of $4,959,000, $5,063,000, and $4,828,000, for the years ended
December 31, 1995, 1994, and 1993, respectively.
The Company provides a letter of credit from a bank for $106,000, in lieu of
paying deposits for facility rentals.
Through December 31, 1995, the Company, through the M/A/R/C Inc. Employee
Health and Benefit Trust, provided its employees and their dependents with
injury and hospitalization coverage up to $50,000 per person, per plan year,
with an insurance company covering claims in excess of this amount up to a
maximum aggregate amount of $1,285,000 per plan year. As of January 1, 1996,
the Company elected to participate in a fully insured health and benefit plan
with a major insurance carrier.
The Company maintains a revolving line of credit in the amount of $3,000,000,
which expires in May 1996. At the Company's option, outstanding borrowings
bear interest at prime or LIBOR plus 2.0% and are due upon demand. At December
31, 1995, the line of credit was unused.
<PAGE> 19
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CONCENTRATIONS OF CREDIT RISK
The Company provides marketing information services primarily to consumer
product companies. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company's ten largest
customers accounted for approximately 45% of sales in 1995 and approximately
51% and 36% of trade accounts receivable and work in process, respectively, at
December 31, 1995. One customer, RJR Nabisco Holdings Corporation, accounted
for revenues of $11,988,000, $9,158,000, and $13,148,000, for the years ended
December 31, 1995, 1994, and 1993, respectively.
The Company invests its excess cash in deposits with major banks, government
securities, tax-exempt securities, and money market type securities. The
Company has $6,077,000 of its $11,897,000 investment in tax-exempt bonds in the
state of Texas.
<PAGE> 20
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES
Income tax expense (benefit) on income before income taxes consists of (dollars
in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1995 1994 1993
-------- -------- -----
<S> <C> <C> <C>
Current provision:
Federal $1,556 $1,330 $516
State 169 130 (202)
-------- -------- -----
1,725 1,460 314
Deferred provision - 21 334
-------- -------- -----
Provision for income taxes charged
to operations 1,725 1,481 648
Stockholders' equity - pension component (939) 560 (560)
-------- -------- -----
Comprehensive provision for income taxes $786 $2,041 $88
======== ======== =====
</TABLE>
Reconciliations of the U.S. corporate income tax rate and the effective tax
rate on income before income taxes are summarized below (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1995 1994 1993
-------- -------- ------
<S> <C> <C> <C>
U.S. corporate tax rate 34% 34% 34%
Income before taxes $5,000 $4,158 $1,826
------ ------ ------
Tax expense at statutory rates 1,700 1,414 621
Tax-exempt income (227) (202) (160)
Officers' life insurance (188) 10 34
Meals and entertainment 60 48 19
State income (23) (44) 69
Differences between financial
reporting
and tax bases of fixed assets (28) - 61
Other 262 125 206
------ ------ ------
Federal tax provision 1,556 1,351 850
State tax provision (benefit) 169 130 (202)
------ ------ ------
Provision for income taxes charged
to operations 1,725 1,481 648
Stockholders' equity - pension
component (939) 560 (560)
------ ------ ------
Comprehensive provision for income
taxes $ 786 $2,041 $ 88
====== ====== ======
</TABLE>
<PAGE> 21
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (Continued)
The components of the net deferred tax asset (liability) as of December 31,
1995, and 1994, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
------------------------- ----------------------------
Current Noncurrent Current Noncurrent
------------------------ -----------------------------
<S> <C> <C> <C> <C>
ASSETS
- ------
Excess book over tax depreciation $ - $ 318 $ - $ 196
Reserve for expenditures billable
to clients 86 - 102 -
Accounts receivable allowance for
doubtful accounts 82 - 86 -
Reserve for director retirement plan - 185 - 143
Other reserves and liabilities - 182 - 116
Unrecognized net pension obligation - 939 - -
------- ------ ------ -------
Deferred tax asset 168 1,624 188 455
<Caption
LIABILITIES
- ----------------------------------------
Differences between financial reporting
and tax bases of building acquired - 856 - 692
Differences between financial reporting
and tax reporting of capitalized
development costs - - - 20
Pension costs - 628 - 519
Excess tax over book amortization
of intangibles - 42 - 98
Other differences between financial
reporting and tax reporting of asset
dispositions - 197 - 184
------- ------ ------ -------
Deferred tax liability - 1,723 - 1,513
------- ------ ------ -------
Net current/noncurrent deferred tax
asset (liability) $168 (99) $188 (1,058)
------- ------ ------ -------
Net deferred tax asset (liability) $69 ($870)
====== =======
</TABLE>
<PAGE> 22
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCK OPTIONS AND WARRANTS
1983 Stock Option Plan
In March 1993, the 1983 Incentive Stock Option Plan approved by
shareholders was terminated, leaving no additional options available for
grant under the plan. The 1983 Plan provided for issuance of shares upon
exercise of the options and Limited Stock Appreciation Rights (Limited
SARs).
Shares under option relating to the above stock option plan for the
periods ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Options outstanding at
beginning of period 382,526 473,203 445,747
Options granted - - 55,000
Canceled (9,563) (28,093) (9,630)
Exercised (101,085) (62,584) (17,914)
Options outstanding at end
of period 271,878 382,526 473,203
Options exercisable at end
of period 252,278 282,032 391,916
Average price of options:
Granted during period - - $7.56
Exercised $6.75 $6.50 5.95
Outstanding at end
of period 6.31 6.35 6.50
</TABLE>
<PAGE> 23
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCK OPTIONS AND WARRANTS (Continued)
Stock Warrants
The Company has issued warrants on 333,600 shares of its common stock to seven
senior executives. The warrants were sold for their estimated fair market
value of $.83 each. Each warrant represents the right to purchase one share of
the Company's common stock at prices ranging from $6.46 to $7.50 per share
prior to March 1, 1997. On January 18, 1993, the Board of Directors authorized
the issuance of 333,600 shares of restricted common stock of the Company. Such
shares were issued in tandem with the 333,600 warrants. The exercise of a
warrant results in the corresponding loss of a restricted share.
During 1994, two executives sold warrants for 85,152 shares of common stock to
parties outside of the Company and forfeited an equal number of the restricted
shares. Of the warrants sold, 20,000 were exercised during 1994 and 44,937 in
1995. At December 31, 1995, 20,215 of these warrants remained outstanding. In
1993, warrants for 68,403 shares of common stock were exercised. Concurrent
with the exercise of the warrants, an equal number of the restricted shares
were returned to the Company and retired. At December 31, 1995, there were
warrants outstanding on 172,045 shares and a corresponding number of restricted
shares remaining. The restriction on the common stock will lapse when the
Company has pretax earnings of $13,500,000 in any fiscal year. As the Company
did not achieve the target, there was no impact to the income statement for
1995. If the target is not met by March 1, 1997, the restricted stock will be
returned to the Company.
The Company has an additional 50,000 warrants on its common stock issued at an
exercise price of $10.75.
Executive Stock Plan
On April 19, 1991, the Board of Directors adopted a Nonstatutory
Executive Stock Plan, reserving 240,000 shares of the Company's common stock
for issuance. The term of each option shall not exceed ten years. The
Committee may set the price and exercise terms of options granted under the
Plan at its discretion. In September 1994, the Board of Directors amended the
plan changing the aggregate number of shares available for grant to 540,000
shares of common stock. During 1994, options on 249,550 shares were granted at
an average price of $9.39 per share; no options were canceled or exercised
during 1994. During 1995, 51,600 shares were canceled, 7,600 were exercised,
and no additional options were granted. At December 31, 1995, and 1994, there
were outstanding options of 310,350 for an average price of $9.59 per share and
369,555 for an average price of $9.52 per share, respectively.
<PAGE> 24
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - RELATED PARTY TRANSACTIONS, GUARANTEES, AND COMMITMENTS
At December 31, 1995, and 1994, the Company had outstanding loans of
approximately $336,000 and $240,000, respectively, to employees, directors, and
officers of the Company. The loans are for various periods up to one year at
the prime interest rate.
At December 31, 1995, and 1994, the Company had outstanding advances of $0 and
$200,000, respectively, to the Chairman of the Board of the Company. The
Company also guarantees a $200,000 bank loan on behalf of the Chairman of the
Board.
The Company has entered into a noncompetition agreement with the Vice Chairman
of the Board of Directors, under which the Vice Chairman will provide certain
consulting services to the Company. The agreement expires December 31, 1997,
and provides for the Company to pay fees of $60,000 during each calendar year.
The Company also provides him certain benefits including an automobile, health
insurance coverage, life insurance coverage, and operating expenses.
The Company sponsors a director retirement plan for all directors who are not
employees of the Company. Benefits are payable to any director who completes
five years or more of service when the director retires from the Board of
Directors and continue for a period of time equal to the term of service on the
Board. The directors' benefit under the plan is equal to the average of the
annual retainer and committee fees paid during the three years served with the
highest compensation. The Company is recognizing expense in connection with
this plan which includes the amortization of accumulated prior service costs of
$520,000 which is being recognized over ten years through 2001. The amounts
expensed in 1995, 1994, and 1993, were approximately $122,000, $155,000, and
$202,000, respectively.
In January 1993, the Company entered into a consulting agreement with a
director, under which the director would provide certain consulting services to
the Company. The agreement provided for the Company to pay fees of $150,000
during 1993. The Company also paid certain operating expenses which totaled
$76,000 during 1993. The agreement was amended January 1, 1994, to reflect
payments of $50,000 annually, plus furniture and equipment costs. The
agreement was again modified in mid-1994. In lieu of the $50,000 annual
payment, the Company paid the director based on the work performed. During
1994, the Company recorded total expenses of approximately $120,000 related to
this agreement. The Company canceled the agreement in early 1995; amounts paid
during the year were immaterial.
<PAGE> 25
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of common shares
outstanding during each year. Weighted average shares include the net number
of additional shares which would arise from the exercise of stock options and
warrants, after assuming that the Company would use the proceeds from such
exercise to repurchase shares of stock for the treasury at the average price
during the respective periods (the treasury stock method).
In calculating earnings per share for the year ended December 31, 1994, the
number of shares assumed to be issued from the exercise of outstanding options
and warrants exceeded 20% of the Company's outstanding shares. Furthermore,
the proceeds from the assumed exercise of the options and warrants would have
been sufficient for the Company to repurchase more than 20% of its outstanding
shares. Accordingly, the Company's application of the treasury stock method
was modified from the above description such that the Company was assumed to
have repurchased only 20% of its outstanding shares. The excess of the assumed
proceeds over the cost of repurchasing shares at the average market price was
assumed to have been invested in U.S. Government securities. The assumed
increase in net income from the investments of proceeds, which was reflected in
the calculation of earnings per share, was approximately $115,000.
<PAGE> 26
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SUBSEQUENT EVENT
The Company currently leases its corporate headquarters facility under an
operating lease. Subsequent to December 31, 1995, the Company entered into an
agreement to purchase the building for approximately $20,500,000. The purchase
will be financed through new debt.
<PAGE> 27
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - INTERIM FINANCIAL INFORMATION
(Unaudited)
The following represents unaudited interim financial information of the
quarterly periods for the years ended December 31, 1995, and 1994 (dollars in
thousands, except per share and share amounts).
<TABLE>
<CAPTION>
Year Ended December 31, 1995
------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $16,510 $18,020 $18,730 $21,127
Costs and expenses 15,782 17,023 17,673 19,764
--------- --------- --------- ---------
Operating income 728 997 1,057 1,363
Interest and other income 196 255 291 113
--------- --------- --------- ---------
Income before taxes 924 1,252 1,348 1,476
Income taxes 342 463 499 421
--------- --------- --------- ---------
Net income $582 $789 $849 $1,055
========= ========= ========= =========
Earnings per share $.21 $.28 $.30 $.37
========= ========= ========= =========
Weighted average shares
outstanding 2,786,639 2,841,000 2,882,000 2,891,200
========= ========= ========= =========
</TABLE>
<PAGE> 28
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - INTERIM FINANCIAL INFORMATION (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1994
------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $14,203 $18,262 $17,025 $18,972
Costs and expenses 13,748 17,333 16,026 17,686
--------- --------- --------- ---------
Operating income 455 929 999 1,286
Interest and other income 212 102 131 44
--------- --------- --------- ---------
Income before taxes 667 1,031 1,130 1,330
Income taxes 247 381 418 435
--------- --------- --------- ---------
Net income $420 $650 $712 $895
========= ========= ========= =========
Earnings per share $.14 $.22 $.27 $.28
========= ========= ========= =========
Weighted average shares
outstanding 3,064,715 2,842,220 2,848,200 2,801,583
</TABLE> ========= ========= ========= =========
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The M/A/R/C Group is a marketing information services company, providing
service to over 200 clients nationwide. The majority of our clients are
Fortune 500 companies. The M/A/R/C Group offers a wide range of marketing
information services through our two operating companies: M/A/R/C Research and
Targetbase Marketing.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995, WITH YEAR ENDED DECEMBER 31, 1994
Revenues increased to $74,387,000 for the year ended December 31, 1995,
compared with $68,462,000 for the prior year--an increase of $5,925,000 or
8.6%. Revenues from our largest client increased this year from a level of
$9,158,000 to $11,988,000. Revenues in our Targetbase Marketing business grew
20.1%. Targetbase added several major new accounts during the year. Revenues
in our M/A/R/C Research business grew a modest 2.5%. There were significant
spending reductions by some of our Research clients; however, those spending
reductions had more to do with the clients' business conditions than with the
loss of business to competitors. More importantly, our M/A/R/C Research
business was able to increase the aggregate spending among our other major
clients and add enough new accounts to show a slight increase in revenues when
measured against last year.
For the twelve months, operating income was $4,145,000 or 5.6% of revenues,
compared with $3,669,000 or 5.4% of revenues last year. Our M/A/R/C Research
business increased staffing levels during early 1995 in anticipation of
increased revenues. During the latter months of 1995, those staffing levels
were beginning to be reduced, largely through attrition. The increase in staff
cost without a corresponding increase in revenues impacted our operating income
performance this year. The increase we did experience was attributable to
increased revenues.
Net interest and other income increased to $855,000, partially because of
reduced interest expense. Other income included proceeds from life insurance
policies totaling $211,000.
Net income for the twelve months increased to $3,275,000 or $1.16 a share,
compared with $2,677,000 or $.91 a share for the prior period. The Company's
effective tax rate in calendar 1995 was 34.5% compared with 35.6% in calendar
1994.
Weighted average shares for 1995 were 2,823,911, down from 3,052,701 in 1994.
This reduction reflected the effect of share repurchases in calendar 1994.
<PAGE> 30
COMPARISON OF YEAR ENDED DECEMBER 31, 1994, WITH YEAR ENDED DECEMBER 31, 1993
Revenues increased to $68,462,000 for the year ended December 31, 1994,
compared with $62,156,000 for the prior year--an increase of $6,306,000 or 10%.
Though revenues from our largest client declined from a level of $13,148,000
or 21.1% of revenues last year to $9,158,000 or 13.4% this year, volume
increases from the rest of the business, $10,296,000 or 21%, more than offset
the decline. The majority of the revenue growth this year came in our M/A/R/C
Research business.
For the twelve months, operating income was $3,669,000 compared with $1,241,000
last year. Cost reductions effected during the latter part of 1993 contributed
substantially to the improvement; the remainder can be attributed to improved
revenues.
Net interest and other income decreased $96,000 to $489,000 for the comparable
periods. The decrease in part is reflective of interest expense paid on
$4,180,000 borrowed in June of 1994 to repurchase 440,000 shares of the
Company's common stock. The borrowed funds were repaid by December 31, 1994.
The provision for income taxes increased $833,000 from the 1993 level of
$648,000. The increased provision principally reflects the Company's improved
operating results. Income before taxes of $4,158,000 was $2,332,000 higher
than in 1993.
Net income for the twelve months increased to $2,677,000 or $.91 a share,
compared with $1,178,000 or $.35 a share for the prior year.
Weighted average shares for 1994 include incremental shares for the assumed
exercise of stock options and warrants limited to 20% of the outstanding shares
at December 31, 1994. For earnings per share calculations for 1994, the
balance of the funds from the exercise of options and warrants is assumed to be
invested in securities resulting in a $115,000 after-tax return.
CASH RESOURCES AND LIQUIDITY
As of December 31, 1995, working capital was $15,062,000 compared with
$10,829,000 at December 31, 1994. The primary reason for the change in working
capital was the increase in accounts receivable of $4,161,000. Our fourth
quarter billings with several major clients contributed to this elevated
receivables level. Collections on our accounts receivable in January of 1996
were $10,681,000.
During the year, the Company made capital expenditures of $2,287,000 and added
$1,093,000 to its investment portfolio of municipal bonds.
<PAGE> 31
The Company's December 31, 1995, working capital position and the existing
unused lines of bank credit totaling $3,000,000 are adequate to support the
Company's cash requirements for operating and capital expenditures for the
foreseeable future.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,848
<SECURITIES> 10,049
<RECEIVABLES> 13,292
<ALLOWANCES> 241
<INVENTORY> 3,204
<CURRENT-ASSETS> 21,193
<PP&E> 21,432
<DEPRECIATION> 14,055
<TOTAL-ASSETS> 44,204
<CURRENT-LIABILITIES> 6,131
<BONDS> 0
0
0
<COMMON> 3,784
<OTHER-SE> 28,657
<TOTAL-LIABILITY-AND-EQUITY> 44,204
<SALES> 74,387
<TOTAL-REVENUES> 74,387
<CGS> 70,242
<TOTAL-COSTS> 70,242
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (853)
<INCOME-PRETAX> 5,000
<INCOME-TAX> 1,725
<INCOME-CONTINUING> 3,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,275
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.15
</TABLE>
