<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 June 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: 5,152,526 shares as of June
30, 1997.
<PAGE> 2
THE M/A/R/C GROUP
INDEX
(UNAUDITED)
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Independent Accountant's Report................................ i
Consolidated Balance Sheets
June 30, 1997, and December 31, 1996......................... 1
Consolidated Statements of Income
Three Months Ended June 30, 1997, and 1996................... 2
Consolidated Statements of Income
Six Months Ended June 30, 1997, and 1996..................... 3
Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended June 30, 1997............................... 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997, and 1996..................... 5
Consolidated Notes to Financial Statements..................... 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 8-11
</TABLE>
<PAGE> 3
COOPERS & LYBRAND
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 June 30, 1997, the consolidated statements of income for the
three-month periods ended June 30, 1997, and 1996, and the consolidated
statements of income, changes in shareholders' equity, and cash flows for the
six-month periods ended June 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 of 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.
July 17, 1997
i
<PAGE> 4
PART I. FINANCIAL INFORMATION
THE M/A/R/C GROUP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1997 Dec. 31, 1996
------------- -------------
(Dollars in Thousands)
ASSETS
<S> <C> <C>
Current Assets:
Cash and short-term investments $ 8,133 $ 9,327
Trade accounts receivable, net 13,313 11,308
Expenditures billable to clients, net 8,847 5,401
Notes receivable 10 232
Prepaid expenses and other current assets 2,136 2,317
------- -------
Total Current Assets 32,439 28,585
------- -------
Notes receivable, less current portion 250 74
Property and equipment, less accumulated
depreciation of $13,532,000 and
$15,051,000, respectively 29,281 28,318
Investments at cost 7,689 7,640
Intangibles, less accumulated amortization
of $3,000,000 and $2,865,000, respectively 519 603
Prepaid pension costs and other assets 5,658 6,113
------- -------
TOTAL ASSETS $75,836 $71,333
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term bank debt $ 1,000 $ 0
Current portion, long-term debt 600 1,634
Trade accounts payable 1,365 2,060
Advance payments from clients 3,728 3,537
Other accrued liabilities 2,826 2,574
------- -------
Total Current Liabilities 9,519 9,905
Long-term debt, less current portion 18,355 17,961
Deferred taxes payable and other liabilities 3,774 3,905
------- -------
Total Liabilities 31,648 31,771
------- -------
Stockholders' Equity:
Common stock, $1 par value, 15,000,000 shares
authorized, 6,463,253 and 6,288,326
issued, respectively 6,507 6,288
Capital in excess of par value 9,561 8,152
Retained earnings 40,893 38,275
Less treasury stock at cost, 1,354,727 and
1,350,333 shares, respectively (8,257) (8,174)
Unearned compensation (2,827) (3,208)
Unearned ESOP shares (1,689) (1,771)
------- -------
Total Stockholders' Equity 44,188 39,562
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $75,836 $71,333
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE> 5
THE M/A/R/C GROUP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
(Dollars in Thousands,
Except Per Share Data)
<S> <C> <C>
Revenues $ 26,019 $ 22,240
Costs and expenses 23,529 19,910
--------- ---------
Operating income 2,490 2,330
Interest and other income (expense) net 340 (311)
--------- --------
Income before taxes 2,830 2,019
Federal and state income tax provision 765 727
--------- ---------
NET INCOME $ 2,065 $ 1,292
========= =========
Net income per share $ .41 $ .27
========= =========
Weighted average common shares outstanding 5,062,552 4,754,663
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 6
THE M/A/R/C GROUP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997, AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
(Dollars in Thousands,
Except Per Share Data)
<S> <C> <C>
Revenues $ 48,702 $ 41,531
Costs and expenses 44,000 38,224
---------- ----------
Operating income 4,702 3,307
Interest and other income (expense) net 177 (142)
---------- ----------
Income before taxes 4,879 3,165
Federal and state income tax provision 1,503 1,139
---------- ----------
NET INCOME $ 3,376 $ 2,026
========== ==========
Net income per share $ .68 $ .43
========== ==========
Weighted average common shares outstanding 4,948,470 4,634,375
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 7
THE M/A/R/C GROUP
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 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 253 1,495
Purchase treasury stock (83)
Retire restricted stock (34) (239) 274
Amortization of compensation 107
Dividends paid (758)
Release of ESOP shares 153 82
Net income 3,376
------- ------- ------- ------- ------- -------
Balance at June 30, 1997 $ 6,507 $ 9,561 $40,893 ($2,827) ($1,689) ($8,257)
======= ======= ======= ======= ======= =======
</TABLE>
4
<PAGE> 8
THE M/A/R/C GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
(Dollars in Thousands)
<S> <C> <C>
Net cash flow from operating activities:
Net income $ 3,376 $ 2,026
Noncash items:
Depreciation and amortization 1,812 1,320
ESOP Expense 237 82
Amortization of unearned compensation 107 -
(Gain) loss on sale or property and equipment 2 7
Bad-debt expense 301 -
(Gain) loss on equity-method investment 344 -
Net (increase) in receivables and
expenditures billable to clients (5,752) (2,891)
Net (increase) decrease in prepaid expenses and other assets 897 124
Increase (decrease) in trade accounts payable (695) (519)
Increase (decrease) in accrued liabilities and other liabilities (239) 101
-------- --------
Net cash provided by operating activities 390 161
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment (2,579) (21,710)
Disposition of property and equipment - 68
Net (additions to) reductions in notes receivable 45 56
Net (increase in) reduction of investments (508) (137)
-------- --------
Net cash used by investing activities (3,042) (21,723)
-------- --------
Cash flows from financing activities:
Net (decrease) increase in customer advances 191 1,320
Acquisition (payment) of short-term debt 1,000
Acquisition (payment) of long-term debt (640) 20,771
Issuance of common stock 1,748 635
Cash dividends paid (758) (625)
Issue/(purchase of) treasury stock (83) (132)
-------- --------
Net cash provided (used) by financing activities 1,458 (22,051)
-------- --------
Net increase (decrease) in cash (1,194) 489
Cash and short-term investments at December 31 9,327 1,848
-------- --------
Cash and short-term investments at June 30 $ 8,133 $ 2,337
======== ========
</TABLE>
The accompanying notes are an integral part of the financial
statements.
5
<PAGE> 9
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 June 30, 1997, the
consolidated results of its operations for the six months ended June 30,
1997, and June 30, 1996, and its consolidated cash flows for the six
months ended June 30, 1997, and June 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> 10
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 six months ending June 30, 1997, and 1996, basic
and fully diluted shares would be as follows.
<TABLE>
<CAPTION>
For the Six Months Ended
June 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 $3,376 4,720,409 $0.71
=====
Effect of dilutive securities 228,061
------ ---------
Diluted earnings per share $3,376 4,948,470 $0.68
====== ========= =====
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended
June 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 $2,026 4,268,064 $0.47
=====
Effect of dilutive securities 366,311
------ --------- -----
Diluted earnings per share $2,026 4,634,375 $0.43
====== ========= =====
</TABLE>
7
<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 six
months ended June 30, 1997, with the six months ended June 30, 1996, and the
three months ended June 30, 1997, with the three months ended June 30, 1996.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997, WITH SIX MONTHS ENDED
JUNE 30, 1996
Revenues increased to $48,702,000 for the six-month period ended June
30, 1997, compared with revenues of $41,531,000 for the six-month period ended
June 30, 1996. Production and administrative expenses were 90.3% of revenues,
compared with 92% 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 21% and 14%, respectively. Revenues derived from the
Company's ten largest clients this year were 40% higher in the first six months
of 1997 as compared with the same period last year.
Operating income increased to $4,702,000 (9.7% of revenues) from
$3,307,000 (8% of revenues) last year for the comparable six months. During the
six-month period ended June 30, 1997, costs and expenses increased $5,776,000,
or 15%, 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 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. THE M/A/R/C GROUP
8
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Net interest and other income increased $319,000 to $177,000 for the
comparable six-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 six-month period ended June 30, 1997, increased
$1,350,000 to $3,376,000 ($.68 a share), including the $391,000 ($.08 a share)
nonrecurring benefit, from $2,026,000 ($.43 a share) for the comparable
six-month period ended June 30, 1996.
The weighted average number of shares outstanding increased to 4,948,500
from 4,634,400 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 320,793 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
six-month period ended June 30, 1997.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997, WITH THREE MONTHS ENDED
JUNE 30, 1996
Revenues increased to $26,019,000 for the three-month period ended June
30, 1997, compared with revenues of $22,240,000 for the three-month period
ended June 30, 1996. Production and administrative expenses were 90.4% of
revenues, compared with 89.5% for the prior year.
The Company attributed the stronger quarterly financial performance
primarily to increased revenues in both of its core businesses. Targetbase
Marketing, in particular, had a strong quarter driven by increased sales
activity with existing clients. Targetbase experienced the best performing
quarter in its history in terms of revenues. M/A/R/C Research also posted a
strong quarter generating higher revenues and solid profitability.
9
<PAGE> 13
THE M/A/R/C GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Operating income increased to $2,490,000 from $2,330,000 last year for
the comparable quarter.
During the three-month period ending June 30, 1997, costs and expenses
increased $3,619,000, or 18%. 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 income (expense) increased $651,000 to $340,000
for the comparable three-month period and includes a nonrecurring benefit of
$391,000 ($.08 a share) associated with certain insurance proceeds and the
write-down of an investment.
Net income for the three-month period ended June 30, 1997, increased
$773,000 to $2,065,000 ($.41a share), including the nonrecurring benefit of
$391,000 ($.08 a share) from $1,292,000 ($.27 a share) for the comparable
three-month period ended June 30, 1996.
The weighted average number of shares outstanding increased to 5,062,552
from 4,754,663 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 320,793 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
three-month period ended June 30, 1997.
CAPITAL RESOURCES AND LIQUIDITY
From December 31, 1996, to June 30, 1997, cash and short-term
investments decreased $1,194,000 primarily because working capital needs during
the quarter increased. The June 30, 1997,
10
<PAGE> 14
THE M/A/R/C GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
cash and short-term investments position of $8,133,000 and the temporary
investment position of $7,689,000, the working capital position of $22,920,000,
and the existing lines of bank credit totaling $14,000,000 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.
11
<PAGE> 15
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: August 1, 1997 /s/ Sharon M. Munger
--------------------------- -----------------------------
Sharon M. Munger
(President and
Chief Executive Officer)
Date: August 1, 1997 /s/ Harold R. Curtis
--------------------------- -----------------------------
Harold R. Curtis
(Chief Financial Officer)
12
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------ ------- ----
<S> <C>
EX-27.1 FDS Template
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
NET INCOME INCLUDES A NET NON RECURRING GAIN OF $391,000 OR $.08 PER SHARE.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,133
<SECURITIES> 7,689
<RECEIVABLES> 13,313
<ALLOWANCES> 0
<INVENTORY> 8,847
<CURRENT-ASSETS> 32,439
<PP&E> 29,281
<DEPRECIATION> 13,532
<TOTAL-ASSETS> 75,836
<CURRENT-LIABILITIES> 9,519
<BONDS> 18,355
6,507
0
<COMMON> 0
<OTHER-SE> 37,681
<TOTAL-LIABILITY-AND-EQUITY> 75,836
<SALES> 26,019
<TOTAL-REVENUES> 26,019
<CGS> 0
<TOTAL-COSTS> 23,529
<OTHER-EXPENSES> (340)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,830
<INCOME-TAX> 765
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,065
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
