<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the 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 (I.R.S. Employer
Incorporation or Organization) Identification No.)
7850 North Belt Line Road, Irving, Texas 75063
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(972) 506-3400
- -------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
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 12 months (or for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- ----------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
-------- ----------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,172,446 shares as of
September 30, 1997.
<PAGE> 2
THE M/A/R/C GROUP
INDEX
(UNAUDITED)
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1997, and December 31, 1996................... 1
Consolidated Statements of Income
Three Months Ended September 30, 1997, and 1996............. 2
Consolidated Statements of Income
Nine Months Ended September 30, 1997, and 1996.............. 3
Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended September 30, 1997........................ 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997, and 1996.............. 5
Consolidated Notes to Financial Statements................... 6-7
Report of Independent Accountants............................ 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 9-12
PART II. OTHER INFORMATION
Item 5. Other Information............................................ 13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
THE M/A/R/C GROUP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Sept. 30, 1997 Dec. 31, 1996
-------------- -------------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments $ 4,189 $ 9,327
Trade accounts receivable, net 14,298 11,308
Expenditures billable to clients, net 8,964 5,401
Notes receivable 10 232
Prepaid expenses and other current assets 2,980 2,317
-------- --------
Total Current Assets 30,441 28,585
-------- --------
Notes receivable, less current portion 72 74
Property and equipment, less accumulated depreciation of
$15,134,000 and $15,051,000, respectively 29,407 28,318
Investments at cost 7,752 7,640
Intangibles, less accumulated amortization of $3,020,000
and $2,865,000, respectively 486 603
Prepaid pension costs and other assets 5,798 6,113
-------- --------
TOTAL ASSETS $ 73,956 $ 71,333
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion, long-term debt $ 600 $ 1,634
Trade accounts payable 1,516 2,060
Advance payments from clients 2,254 3,537
Other accrued liabilities 2,001 2,674
-------- --------
Total Current Liabilities 6,371 9,905
Long-term debt, less current portion 18,169 17,961
Deferred taxes payable and other liabilities 3,797 3,905
-------- --------
Total Liabilities 28,337 31,771
-------- --------
Stockholders' Equity:
Common stock, $1 par value, 15,000,000 shares authorized,
6,527,153 and 6,288,326 issued, respectively 6,527 6,288
Capital in excess of par value 9,783 8,152
Retained earnings 41,994 38,275
Less treasury stock at cost, 1,354,707 and 1,350,333
shares, respectively (8,257) (8,174)
Unearned compensation (2,779) (3,208)
Unearned ESOP shares (1,649) (1,771)
-------- --------
Total Stockholders' Equity 45,619 39,562
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 73,956 $ 71,333
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE> 4
THE M/A/R/C GROUP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997, AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
(Dollars in Thousands,
Except Per Share Data)
<S> <C> <C>
Revenues $ 23,747 $ 22,184
Costs and expenses 21,187 19,961
----------- -----------
Operating income 2,560 2,223
Interest and other income (expense) net (270) (326)
----------- -----------
Income before taxes 2,290 1,897
Federal and state income tax provision 802 683
----------- -----------
NET INCOME $ 1,488 $ 1,214
=========== ===========
Net income per share $ .29 $ .27
=========== ===========
Weighted average common shares outstanding 5,170,366 4,705,500
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 5
THE M/A/R/C GROUP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997, AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
(Dollars in Thousands,
Except Per Share Data)
<S> <C> <C>
Revenues $ 72,449 $ 63,715
Costs and expenses 65,188 58,185
----------- -----------
Operating income 7,261 5,530
Interest and other income (expense) net (92) (468)
----------- -----------
Income before taxes 7,169 5,062
Federal and state income tax provision 2,304 1,822
----------- -----------
NET INCOME $ 4,865 $ 3,240
=========== ===========
Net income per share $ .97 $ .70
=========== ===========
Weighted average common shares outstanding 5,005,957 4,581,989
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 6
THE M/A/R/C GROUP
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Capital in Unearned Cost of
Stock, $1 Excess of Retained Unearned ESOP Treasury
Par Value Par Value Earnings Compensation Shares Stock
--------- ---------- -------- ------------ ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $6,288 $8,152 $38,275 $(3,208) $ (1,771) $ (8,174)
Exercise options/warrants 273 1,586
Purchase treasury stock (83)
Retire restricted stock (34) (234) 268
Amortization of compensation 161
Dividends paid (1,146)
Release of ESOP shares 279 122
Net income 4,865
------ ------ ------- ------- -------- --------
Balance at September 30, 1997 $6,527 $9,783 $41,994 $(2,779) $ (1,649) $ (8,257)
====== ====== ======= ======= ======== ========
</TABLE>
4
<PAGE> 7
THE M/A/R/C GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
(Dollars in Thousands)
<S> <C> <C>
Net cash flow from operating activities:
Net income $ 4,865 $ 3,240
Noncash items:
Depreciation and amortization 2,760 2,014
ESOP Expense 401
Bad-debt expense 354 --
Amortization of unearned compensation 161
(Gain) loss on equity-method investment (114) --
Net increase in receivables and
expenditures billable to clients (6,907) (2,187)
Net increase in prepaid expenses and other assets (348) (57)
Decrease in trade accounts payable (544) (1,547)
Increase (decrease) in accrued liabilities
and other liabilities (781) 747
------- --------
Net cash provided by operating activities (153) 511
------- --------
Cash flows from investing activities:
Acquisition of property and equipment (3,707) (22,612)
Disposition of property and equipment 127 112
Net (additions to) reductions in notes receivable 224 59
Net (increase in) reduction of investments (150) (38)
------- --------
Net cash used by investing activities (3,506) (22,479)
------- --------
Cash flows from financing activities:
Net (decrease) increase in customer advances (1,283) 1,016
Acquisition (payment) of long-term debt (826) 20,061
Issuance of common stock 1,859 3,581
Cash dividends paid (1,146) (942)
Issue/(purchase of) treasury stock (83) (415)
------- --------
Net cash provided (used) by financing activities (1,479) 23,301
------- --------
Net increase (decrease) in cash (5,138) 1,333
Cash and short-term investments at December 31 9,327 1,848
------- --------
Cash and short-term investments at September 30 $ 4,189 $ 3,181
======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 8
THE M/A/R/C GROUP
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments necessary to present fairly
the Company's consolidated financial position as of September 30, 1997, the
consolidated results of its operations for the nine months ended September
30, 1997, and September 30, 1996, and its consolidated cash flows for the
nine months ended September 30, 1997, and September 30, 1996.
2. These consolidated financial statements are presented in accordance with
the requirements of Form 10-Q and consequently do not include all
disclosures normally required by generally accepted accounting principles
or those normally made in the Company's Annual Report on Form 10-K.
Accordingly, the financial statements and related notes in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, should be
read in conjunction with the accompanying consolidated financial
statements.
3. On January 24, 1997, the Board of Directors of the Company authorized a
three-for-two stock split to be effected in the form of a 50% stock
dividend. All share, per share, option and warrant amounts, and related
prices have been restated for all periods presented to reflect the split
paid on February 28, 1997, to shareholders of record on February 7, 1997.
6
<PAGE> 9
THE M/A/R/C GROUP
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Continued)
4. The Company will adopt Statement of Financial Accounting Standards No.
128, Earnings Per Share (SFAS 128) for the period ending December 31, 1997.
SFAS 128 specifies the computation, presentation, and disclosure
requirements for basic and fully diluted earnings per share. If SFAS 128
had been adopted for the nine months ending September 30, 1997, and 1996,
basic and fully diluted shares would be as follows.
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, 1997
------------------
Net Per Share
(dollars in thousands except Income Shares Amount
per share data) ------ ------ ---------
(Numerator) (Denominator)
<S> <C> <C> <C>
Basic earnings per share $4,865 4,759,706 $1.02
=====
Effect of dilutive securities 246,251
------ ---------
Diluted earnings per share $4,865 5,005,957 $0.97
====== ========= =====
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, 1996
------------------
Net Per Share
(dollars in thousands except Income Shares Amount
per share data) ------ ------ ---------
(Numerator) (Denominator)
<S> <C> <C> <C>
Basic earnings per share $3,240 4,320,606 $0.75
=====
Effect of dilutive securities 261,383
------ ---------
Diluted earnings per share $3,240 4,581,989 $0.70
====== ========= =====
</TABLE>
7
<PAGE> 10
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Shareholders of The M/A/R/C Group:
We have reviewed the accompanying consolidated balance sheet of The M/A/R/C
Group as of September 30, 1997, the consolidated statements of income for the
three-month periods ended September 30, 1997, and 1996, and the consolidated
statements of income, changes in shareholders' equity, and cash flows for the
six-month periods ended September 30, 1997, and 1996. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as December 31, 1996, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
February 28, 1997, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1996, is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
Coopers & Lybrand L.L.P.
November 7, 1997
8
<PAGE> 11
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 large
public companies. The Company offers a wide range of marketing information
services through its two operating companies: Marketing And Research Counselors
and Targetbase Marketing.
The following Management's Discussion is presented comparing the nine
months ended September 30, 1997, with the nine months ended September 30, 1996,
and the three months ended September 30, 1997, with the three months ended
September 30, 1996.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997, WITH NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues increased to $72,449,000 for the nine-month period ended September
30, 1997, compared with revenues of $63,715,000 for the nine-month period ended
September 30, 1996. Production and administrative expenses were 90.0% of
revenues, compared with 91.3% for the prior year.
The Company attributed the stronger quarterly financial performance to
increased revenues in both its Targetbase and M/A/R/C Research business units
where revenues increased 16% and 12%, respectively.
Operating income increased to $7,261,000 (10.0% of revenues) from
$5,530,000 (8.7% of revenues) last year for the comparable nine months. During
the nine-month period ended September 30, 1997, costs and expenses increased
$7,003,000, or 12%, compared with last year. Part of the increase represented
investments in personnel, technology, and facilities primarily directed toward
our Targetbase Marketing business in this country and internationally and the
interactive work we are doing in
9
<PAGE> 12
THE M/A/R/C GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Marketing Research. These investments in our future will have a modest impact on
our operating margins short term, but position us to take advantage of
marketplace opportunities.
Net interest and other expense declined $376,000 to ($92,000) for the
comparable nine-month period and includes a net nonrecurring benefit of $391,000
($.08 a share) associated with certain insurance proceeds and the write-down of
an investment.
Net income for the nine-month period ended September 30, 1997, increased
$1,625,000 to $4,865,000 ($.97 a share), including the $391,000 ($.08 a share)
nonrecurring benefit, from $3,240,000 ($.70 a share) for the comparable
nine-month period ended September 30, 1996.
The weighted average number of shares outstanding increased to 5,005,957
from 4,581,989 last year. In accordance with Statement of Position 93-6,
"Employers' Accounting for Employee Stock Option Plans," the Company did not
treat as outstanding for calculating earnings per share 313,155 shares held in
the Employee Shareholders Ownership Plan that have not been released to
participants. The Company repurchased 4,400 shares of its stock during the
nine-month period ended September 30, 1997.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997, WITH THREE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues increased to $23,747,000 for the three-month period ended
September 30, 1997, compared with revenues of $22,184,000 for the three-month
period ended September 30, 1996. Production and administrative expenses were
89.2% of revenues, compared with 90.0% for the prior year.
10
<PAGE> 13
THE M/A/R/C GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Company attributed the stronger quarterly financial performance
primarily to increased revenues in both of its core businesses.
Operating income increased to $2,560,000 from $2,223,000 last year for the
comparable quarter.
During the three-month period ending September 30, 1997, costs and expenses
increased $1,226,000, or 6.1%. Much of the increase is associated with key
investments in our future in the form of people, technology, and facilities.
These investments are being directed primarily toward our Targetbase Marketing
business domestically and internationally and the interactive services being
developed in M/A/R/C Research.
Net interest and other expense declined $56,000 to ($270,000) for the
comparable three-month period.
Net income for the three-month period ended September 30, 1997, increased
$274,000 to $1,488,000 ($.29 a share) from $1,214,000 ($.27 a share) for the
comparable three-month period ended September 30, 1996.
The weighted average number of shares outstanding increased to 5,170,366
from 4,705,500 last year. In accordance with Statement of Position 93-6,
"Employers' Accounting for Employee Stock Option Plans," the Company did not
treat as outstanding for calculating earnings per share 313,155 shares held in
the Employee Shareholders Ownership Plan that have not been released to
participants. The Company did not repurchase any shares of its stock during the
three-month period ended September 30, 1997.
11
<PAGE> 14
THE M/A/R/C GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
CAPITAL RESOURCES AND LIQUIDITY
From December 31, 1996, to September 30, 1997, cash and short-term
investments decreased $5,138,000 primarily because working capital needs during
the quarter increased. The September 30, 1997, cash and short-term investments
position of $4,189,000 and the temporary investment position of $7,752,000, the
working capital position of $24,070,000, and the existing unused lines of bank
credit totaling $4,300,000 are adequate to support the Company's cash
requirements for operating and capital expenditures.
EFFECT OF INFLATION ON OPERATIONS
Due to a wide diversity in terms of project size, costs, and project
duration, the Company is unable to estimate accurately the effects of inflation
on its revenue and profit. The major consequence of inflation is mitigated by
controlling cost estimating procedures in a timely manner where possible.
12
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On November 3, 1997, the Company acquired 25% of Intelligent Database
Marketing Limited (idm), a database marketing company headquartered in
Middlesbrough, England. As part of the agreement, the Company has the option to
acquire the remaining 75% of idm over the next two years. The Company paid
$1,300,000 million in cash for its 25% interest. Intelligent Database Marketing
generated revenues of approximately $4,000,000 in 1996.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The M/A/R/C Group
------------------------------
(Registrant)
Date: November 7, 1997 /s/ Sharon M. Munger
---------------------- ------------------------------
Sharon M. Munger
(President and
Chief Executive Officer)
Date: November 7, 1997 /s/ Harold R. Curtis
---------------------- ------------------------------
Harold R. Curtis
(Chief Financial Officer)
14
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,189
<SECURITIES> 7,752
<RECEIVABLES> 14,298
<ALLOWANCES> 0
<INVENTORY> 8,964
<CURRENT-ASSETS> 30,441
<PP&E> 29,407
<DEPRECIATION> 15,134
<TOTAL-ASSETS> 73,956
<CURRENT-LIABILITIES> 6,371
<BONDS> 18,169
0
0
<COMMON> 6,527
<OTHER-SE> 39,092
<TOTAL-LIABILITY-AND-EQUITY> 73,956
<SALES> 23,747
<TOTAL-REVENUES> 23,747
<CGS> 0
<TOTAL-COSTS> 21,187
<OTHER-EXPENSES> 270
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,290
<INCOME-TAX> 802
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,488
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
