<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, 1996
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: (972) 506-3400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<Capton>
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
<S> <C>
Common stock NASDAQ
</TABLE>
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 6, 1997, 4,969,536 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 $51,342,789 (includes the
market value of shares in ESOT participants' accounts).
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, 1996--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 15. There is a total of 17 pages in this
document.
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TABLE OF CONTENTS
M/A/R/C INC.
FORM 10-K
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
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 15
Signatures 17
</TABLE>
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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.
In January 1985, the Registrant and certain shareholders of the
Registrant sold an aggregate of 2,860,923 shares of common stock at a per share
price to the public of $3.70. The Registrant received net proceeds of
approximately $5,500,000 from its sale of 1,687,500 shares of common stock.
In January 1991, the Registrant renamed itself The M/A/R/C Group, and
placed each of its marketing information businesses into four separate
operating companies. Consolidation of operations in 1994 resulted in the
Registrant's two current operating divisions: Targetbase Marketing, a
full-service database marketing agency, and M/A/R/C Research, a custom
marketing research firm. In August 1995, the Registrant organized Digital
Marketing Services, Inc. ("DMS") with America Online Incorporated and now owns
30% of DMS and accounts for its ownership under the equity method of
accounting. 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.
Since the Registrant's initial public offering in January 1985, three
stock splits have been paid in the form of stock dividends. In December 1985, a
three-for-two split; in February 1992, a six-for-five split; and in February
1997, a three-for-two split. All references to shares and per share data in
this report have been adjusted to reflect all such stock splits.
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 (972) 506-3400.
GENERAL
Through its two operating companies, M/A/R/C Research and Targetbase
Marketing, the Registrant provides marketing services to large consumer and
business product and service companies. The Registrant has designed and
developed proprietary, computer-based systems for providing an integrated
offering of marketing intelligence services. The marketing research services
include forecasting the business impact of marketing strategies through market
segmentation, market testing, market forecasting and market tracking. The
Registrant also provides a full complement of database marketing services that
include marketing consulting, database construction and management, creative
design and production, and strategic analysis.
ORGANIZATION
The Registrant provides marketing services to more than 200 clients
who market consumer, business, or industrial products or services.
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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 evaluate and forecast the business impact of clients'
marketing strategies and execution. Data is gathered, processed, and analyzed
about clients' products or services and 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, the most valuable
customer segments to pursue, what types of products or services to introduce or
discontinue, and what types of marketing and advertising strategies to use to
attract and retain customers.
The Registrant generally contracts separately with clients for each
research project. The typical project has a duration of several months except
for market tracking projects which generally run for a year with an option for
annual renewal. The process for initiating a project includes consultation with
the client to define the scope of information required, preparation of a study
plan outlining the specifications for data collection and analysis, and
negotiation of a price estimate. Upon approval, the Registrant designs the
questionnaire, designates the sampling requirements, and initiates the data
collection. After interviewing is completed, data are validated and processed,
analysis is conducted, and results accompanied by recommendations are presented
to the client.
M/A/R/C Research gathers data from target consumers and businesses
through the telephone, face-to-face, the mail, and online networks. The data is
gathered through telephone interviewers utilizing telephone service centers
located in Denton, Texas, and Killeen, Texas. M/A/R/C Research has
approximately 250 CRT-equipped 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 are further collected
by mailed questionnaires and through interactive online services by way of a
joint venture with America Online as well as an exclusive agreement with Peapod
Interactive. M/A/R/C Research's data collection capabilities, when combined
with the function of its ACRS software to fully integrate all aspects of the
marketing research process, significantly reduce the time required to complete
most projects.
Building upon the scope of advanced data collection technology and
resources, M/A/R/C Research is staffed by professionals with training and
experience in advanced marketing research methods and analysis as well as
business application of marketing intelligence. The staff consults with clients
on business problem definition, solution design, and marketing strategy
implementation.
The principle services provided by M/A/R/C Research are designed to
address strategic marketing intelligence needs and can be segmented into four
categories: market segmentation, market testing, market forecasting, and market
tracking:
Market segmentation studies identify distinct groups of consumers or
businesses according to their similarity on relevant dimensions such
as their need for products and/or the benefits they are seeking or
their purchase volume and brand loyalty. These results can be used to
identify unmet needs and corresponding new product opportunities as
well as to determine how consumers perceive particular brands versus
competition and how to develop strategies to enhance a product's
position. Additionally, these results can be used to target
advertising and marketing activities to the most desirable and
valuable groups of consumers.
Market testing studies may be conducted to evaluate any element of the
marketing mix. The predominant types of market testing conducted are
concept tests which determine consumer acceptance of a new product,
service or advertising concept, and product tests which determine the
strengths and weaknesses of a particular product among consumers.
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Market forecasting studies size the potential business impact of sales
and return on investment of different marketing strategies. M/A/R/C
Research has developed a family of proprietary research and modeling
services styled "Assessor Market Modeling System" that provides
guidance to clients across all phases of the marketing process through
its market modeling technology. It is used worldwide to forecast sales
potential for new as well as repositioned products and services.
Additionally, the results can be used to size target market
opportunities and to optimize spending across different advertising
media and promotion tactics.
Market tracking consists of conducting a continuing study or series of
similar studies over a period of time to determine changes or trends
in customer acceptance or reaction to products, services, advertising
campaigns, etc. The Customer Satisfaction tracking programs offered by
M/A/R/C Research are used to identify the drivers of satisfaction with
a product or service and to track changes in satisfaction over time.
The results of these programs are used to identify improvement
opportunities in manufacturing and marketing processes and are linked
to predictions of how these improvements will impact sales and return
on investment.
TARGETBASE MARKETING
The Registrant's Targetbase Marketing operating company is a
full-service database marketing agency offering the full complement of
analytic, technology, and creative services needed to target marketing
activities directly to clients' high potential customers and prospects. The
purpose of the database marketing performed by the Registrant is to improve the
return on marketing investments by targeting customers and prospects that
represent the most value to a product or service. Data is gathered, processed,
and analyzed to create a strategic business analysis that identifies the most
valuable target groups and appropriate direct marketing strategies for reaching
these target groups. Targetbase creates and maintains marketing databases of
both existing customers and high potential prospects of client products and
services and executes marketing and promotional programs directed at these
databases. The implementation of these closed-loop marketing programs can
incorporate a variety of response-oriented techniques, such as contests,
coupons, and frequency incentives as well as a variety of media, including
mail, telephone, direct TV, and online interactive.
Targetbase generally works on an exclusive basis with a client in a
product category. Once a client has selected Targetbase as its database
marketing agency, a scope of work is defined and a team of professional staff
with the skills required to accomplish the scope of work is assigned to the
client. Compensation formats generally include a retainer fee for the dedicated
team and/or management of a marketing database and variable fees for
project-specific costs.
The customer data housed in the marketing databases for clients
represent the foundation of the marketing intelligence used to build effective
direct marketing strategies and programs for clients. The Registrant has
developed proprietary software for managing and accessing marketing databases
to support the integration of its full complement of database marketing
services. Targetbase's proprietary ARM system is scalable to the size of the
database, allows for customization to individual clients, and provides
functional access to both internal staff groups as well as to clients for
planning and implementing programs.
Targetbase provides services in all three of the necessary segments of
strategic business analysis, technology, and creative production:
Strategic business analysis is performed to identify the high
potential customer and prospect target groups for client products and
services and to develop direct marketing strategies that will yield a
high return on related marketing investments. Services include market
segmentation, media mix analysis, ROI analysis of strategic options
and program concepts, and loyalty analysis. The results of these
analyses are used to screen and select additions to the
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database audience, develop communication strategies to the audience,
and select the appropriate media through which to reach the audience.
These techniques are also used to evaluate ROI on the investments that
are made by the client.
Technology services are used to enable the database marketing
strategy. Targetbase's advanced technology assists in the targeting
process by providing a means to efficiently segment the marketplace
and tailor various marketing strategies to multiple target groups.
Services include technology consulting for design and integration with
client systems as well as ongoing database management and development
of tailored decision support tools.
Creative services translate the marketing strategy into advertising
messages and promotional programs that attract and retain business for
client products and services. Full creative capabilities have been
developed with expertise in a variety of industries and a variety of
media including print, direct TV, and online interactive.
Response-oriented programs are designed to yield valuable customer
feedback which is incorporated into the database to expand client
information about its customers and to refine the targeting and
creative process for future programs.
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 proprietary software developed by the Registrant includes the Automated
Custom Research System ("ACRS") and the Acquisition Retention and Maximization
System ("ARM"). 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. ARM is the software used for
managing and accessing marketing databases. ARM is an advanced tool for
database marketing because it incorporates production and analytical processes
along with scalability and customization. The Registrant's systems analysts and
programmers continually enhance the systems.
CLIENTS
The Registrant directs its marketing efforts toward companies having
relatively sophisticated and comprehensive research and marketing needs; these
companies tend to be global suppliers of consumer goods and business services.
During the year ended December 31, 1996, RJR Nabisco, a tobacco, food, and
beverage products company, accounted for approximately 11.5% 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,
1996, 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
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 research project depends on its
ability to accurately estimate in advance the costs involved in the project.
Database marketing assignments, however, are usually defined in terms of the
scope of work and are longer term in nature. Typically a team of professional
staff is assigned to the client and compensation arrangements tend toward
retainers for the dedicated staff and variable fees for other work. 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 May 20, 1996,
issue of Advertising Age rated the Registrant as the fourteenth largest
marketing research company in the United States. Additionally, the Registrant's
database marketing agency was ranked as the twelfth largest direct response
agency in the United States by the Direct Marketing Association in its
September 1996 report. 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 in the custom marketing research business are the
quality of information; consistency; the ability to direct, acquire and report
on marketing programs in a short period of time; and price. The Registrant
believes that the principal methods of competition in the database marketing
business are the quality of database construction and management, creative
design and production, strategic analysis, price, and marketing consulting.
EMPLOYEES
At December 31, 1996, the Registrant employed 507 full-time staff
employees and approximately 723 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.
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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 72 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 50 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 43 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 49 Executive Vice President of the Registrant since November 1990;
President of the Registrant's Quality Strategies subsidiary 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 and Chief Executive Officer of the
Registrant.
Scott E. Bailey 39 Executive Vice President of the Registrant since November 1996;
President of M/A/R/C Research since November 1996; Senior Vice
President of M/A/R/C Research from February 1991 to November
1996; Vice President of M/A/R/C Research from November 1986 to
February 1991; Manager of Marketing Science from November 1985
to November 1986; Senior Statistical Analyst from January 1985
to November 1985; Research Analyst from July 1984 to January
1985.
Harold R. Curtis 58 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, 1996, the Registrant was leasing approximately 55,299
square feet in Atlanta, Georgia; Chicago, Illinois; Greensboro, North Carolina;
Newport Beach, California; Killeen, Texas; and Toronto, Canada.
The aggregate lease payments of the Registrant for the year ended December 31,
1996, amounted to $1,747,000.
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
telephone interviewing 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 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 $20,600,000. 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 $9,400,000 in 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 6, 1997, 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 1995
First Quarter $ 9.63 $ 7.75
Second Quarter 9.00 8.13
Third Quarter 9.50 8.13
Fourth Quarter 9.63 8.63
Calendar Year 1996
First Quarter 11.25 8.75
Second Quarter 14.63 10.13
Third Quarter `13.38 11.88
Fourth Quarter 15.63 12.63
Calendar Year 1997
(Through January 1997) 14.17 13.33
</TABLE>
Beginning with the second quarter of 1995, the Registrant began paying
quarterly dividends at an annual rate of $.27 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 1 of the Annual Report to Shareholders for
the year ended December 31, 1996, 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 9 through 10 of the Annual Report to Shareholders for the
year ended December 31, 1996, 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 11 through
30 of the Annual Report to Shareholders for the year ended December 31, 1996.
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, 1996, from the respective page
numbers indicated:
<TABLE>
<CAPTION>
Page Reference in
Item Annual Report
---- -------------
<S> <C>
Report of independent accountants 30
Financial statements 11-29
Consolidated balance sheets as of December 31, 1996,
and December 31, 1995 11-12
Consolidated statements of income for the years ended
December 31, 1996, 1995 and 1994 13
Consolidated statements of changes in shareholders'
equity for the years ended December 31, 1996,
1995, and 1994 14
Consolidated statements of cash flows for the years
ended December 31, 1996, 1995, and 1994 15
Notes to consolidated financial statements 16-28
</TABLE>
(2) Financial Statement Schedules.
The following supplemental schedules can be found on the indicated
pages in this report:
<TABLE>
<CAPTION>
Item Page in This Report
---- -------------------
<S> <C>
Report of independent accountants on
financial statement schedule 13
Financial statement schedule for the
years ended December 31, 1996, 1995, and 1994
Schedule II - Valuation and qualifying accounts 14
Schedules other than those listed above have been omitted since
they either are 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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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 1996 annual report to
shareholders of M/A/R/C Inc. on page 30 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 14 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 28, 1997
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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, 1996
Allowance for
doubtful accounts $241 $ 0 $ 0 $241
---- ---- --- ----
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
---- ---- --- ----
</TABLE>
Notes:
(a) Column "C(2)" is omitted as the answer would be "none."
14
<PAGE> 15
(3) Exhibits.
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)***
10.11 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, 1996 (portions of which are incorporated
herein by reference)
27.1 Financial Data Schedule
- -------------
* 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
(c) None
15
<PAGE> 16
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, 1997.
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>
/s/ Cecil B. Phillips Chairman of the Board March 27, 1997
- ----------------------------------------- and Director
Cecil B. Phillips
/s/ H. R. Curtis Senior Vice President, March 27, 1997
- ----------------------------------------- Principal Financial and
Harold R. Curtis Accounting Officer
/s/ Sharon M. Munger Principal Executive March 27, 1997
- ------------------------------------------ Officer and Director
Sharon M. Munger
/s/ Jack D. Wolf Executive Vice President March 27, 1997
- ------------------------------------------ and Director
Jack D. Wolf
/s/ Rolan G. Tucker Director March 27, 1997
- ----------------------------------------
Rolan G. Tucker
/s/ Thomas J. Tierney Director March 27, 1997
- ---------------------------------------
Thomas J. Tierney
/s/ Elmer L. Taylor, Jr. Director March 27, 1997
- ----------------------------------------
Elmer L. Taylor, Jr.
</TABLE>
17
<PAGE> 17
EXHIBIT INDEX
(3) Exhibits.
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)***
10.11 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, 1996 (portions of which are incorporated
herein by reference)
27.1 Financial Data Schedule
- -------------
* 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
(c) None
<PAGE> 1
EXHIBIT 11.1
M/A/R/C INC.
EXHIBIT 11.1--STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 4,387,809 3,865,506 3,929,415
Assumed exercise of outstanding
options and warrants 717,663 978,666 1,411,091
Assumed purchase of treasury shares
from proceeds of option/warrant exercise (443,012) (608,305) (761,454)
----------- ----------- -----------
4,662,460 4,235,867 4,579,052
Net income $ 4,690 $ 3,275 $ 2,677
Add assumed interest income from
investment of option/warrant proceeds -- -- 115
----------- ----------- -----------
$ 4,690 $ 3,275 $ 2,792
Primary net income per share $ 1.01 $ 0.77 $ 0.61
=========== =========== ===========
FULLY DILUTED
Average shares outstanding 4,387,809 3,865,506 3,929,415
Assumed exercise of outstanding
options and warrants 717,663 978,666 1,411,091
Assumed purchase of treasury shares
from proceeds of option/warrant exercise (407,128) (574,415) (761,454)
----------- ----------- -----------
4,698,344 4,269,757 4,579,052
Net income $ 4,690 $ 3,275 $ 2,677
Add assumed interest income from
investment of option/warrant proceeds -- -- 41
----------- ----------- -----------
$ 4,690 $ 3,275 $ 2,718
Primary net income per share $ 1.00 $ 0.77 $ 0.59
=========== =========== ===========
</TABLE>
16
<PAGE> 1
EXHIBIT 13.1
THE M/A/R/C GROUP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS (dollars in thousands) 1996 1995
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,075 --
Investments 3,252 $ 1,848
Trade accounts receivable, less
allowance for doubtful accounts
of $241 and $241, respectively 11,308 13,292
Expenditures billable to clients 5,401 3,204
Notes receivable 232 284
Prepaid expenses 1,349 1,691
Federal income tax receivable -- 56
Deferred income taxes 261 168
Other current assets 707 650
------- -------
Total current assets 28,585 21,193
Notes receivable, less current portion 74 82
Property and equipment, net 28,093 7,377
Investments - noncurrent 7,640 10,049
Cash surrender value of life insurance 3,542 3,211
Intangibles, less accumulated amortization
of $2,865 and $2,788, respectively 603 680
Other assets 2,796 1,612
------- -------
Total assets $71,333 $44,204
======= =======
</TABLE>
The accompanying notes are an integral part of the
financial statements.
1
<PAGE> 2
THE M/A/R/C GROUP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES (dollars in thousands, December 31, December 31,
except share and per share amounts) 1996 1995
-------- --------
<S> <C> <C>
Current liabilities:
Book overdraft -- $ 457
Trade accounts payable $ 2,060 2,072
Current portion of long-term debt 1,634 --
Advance payments from clients 3,537 2,145
Income tax payable 581 --
Accrued liabilities 2,093 1,457
-------- --------
Total current liabilities 9,905 6,131
Long-term debt 17,961 5
Deferred income taxes 1,186 99
Deferred compensation and other 2,719 2,672
Other liabilities -- 2,856
-------- --------
Total liabilities 31,771 11,763
-------- --------
Commitments and contingencies (Note 7)
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value, 15,000,000 shares
authorized, 6,288,326 shares and 5,675,312
shares issued, respectively 6,288 5,676
Capital in excess of par value 8,152 4,963
Retained earnings 38,275 34,758
-------- --------
52,715 45,397
Treasury stock at cost 1,350,333 and 1,315,588
shares, respectively (8,174) (7,760)
Unearned compensation (3,208) (1,440)
Pension liability -- (1,822)
Unearned ESOP shares (1,771) (1,934)
-------- --------
Total shareholders' equity 39,562 32,441
-------- --------
Total liabilities and shareholders' equity $ 71,333 $ 44,204
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 3
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,
-----------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues $ 85,459 $ 74,387 $ 68,462
Production and administrative expenses 77,487 70,242 64,793
----------- ----------- -----------
Operating income 7,972 4,145 3,669
Other income (expense):
Interest and other income 880 976 725
Interest and other expense (1,476) (121) (236)
----------- ----------- -----------
Income before taxes 7,376 5,000 4,158
Provision for income taxes 2,686 1,725 1,481
----------- ----------- -----------
Net income $ 4,690 $ 3,275 $ 2,677
=========== =========== ===========
Earnings per share $ 1.01 $ .77 $ .61
=========== =========== ===========
Weighted average shares outstanding 4,662,460 4,235,867 4,579,052
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
3
<PAGE> 4
THE M/A/R/C GROUP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Treasury Stock
Common Capital in ------------------- Unearned
Stock, $1 Excess of Retained Pension Compen- ESOP
(dollars in thousands) Par Value Par Value Earnings Shares Cost Liability sation Shares
--------- --------- --------- --------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 5,955 $ 5,264 $ 31,588 1,000,095 ($6,067) ($1,018) ($2,122) ($2,260)
--------- ------- --------- ---------- ------- ------- ------- -------
Exercise of common stock options
and warrants 125 397 127,728 (682) 682
Purchase of treasury stock 927,398 (5,670)
Retirement of treasury stock (762) (2,192) (1,919) (762,605) 4,873
Release of ESOP shares 23 163
Adjustment for minimum pension liability 1,018
Net income 2,677
--------- ------- --------- --------- ------- ------- ------- -------
Balance at December 31, 1994 $ 5,318 $ 3,492 $ 32,346 1,292,616 ($7,546) -- ($1,440) ($2,097)
--------- ------- --------- --------- ------- ------- ------- -------
Exercise of common stock options
and warrants 358 1,365
Purchase of treasury stock 22,972 (214)
Adjustment for minimum pension liability (1,822)
Dividends paid ($.20 per share) (863)
Release of ESOP shares 106 163
Net income 3,275
--------- ------- --------- --------- ------- ------- ------- -------
Balance at December 31, 1995 $ 5,676 $ 4,963 $ 34,758 1,315,588 ($7,760) ($1,822) ($1,440) ($1,934)
--------- ------- --------- --------- ------- ------- ------- -------
Exercise of common stock options
and warrants 612 2,019
Purchase of treasury stock 130,098 (1,432)
Retirement of treasury stock (96) (922) (95,353) 1,018
Issued restricted stock 315 2,835 (3,150)
Retirement of restricted stock (219) (954) 1,172
Amortization of compensation expense 210
Adjustment for minimum pension liability 1,822
Release of ESOP shares 211 163
Dividends paid ($.27 per share) (1,173)
Net income 4,690
--------- ------- --------- --------- ------- ------- ------- -------
Balance at December 31, 1996 $ 6,288 $ 8,152 $ 38,275 1,350,333 ($8,174) -- ($3,208) ($1,771)
========= ======= ========= ========== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
THE M/A/R/C GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,690 $ 3,275 $ 2,677
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,863 2,563 2,910
Gain on sale of assets (12) (27) (22)
ESOP expense 374 269 186
Decrease in income taxes receivable 56 113 75
(Decrease) increase in deferred income taxes 994 (939) 581
Increase in income taxes payable 581 -- --
(Increase) decrease in receivables and
expenditures billable to clients (213) (4,123) (3,458)
Increase in prepaids, intangibles, and
other assets (1,153) (158) (296)
(Decrease) increase in trade accounts payable (12) (804) 605
(Decrease) increase in customer advances 1,392 (825) (41)
(Decrease) increase in accrued liabilities 636 (205) 556
Increase (decrease) in deferred compensation,
other liabilities, and income taxes payable (4,577) 3,405 (1,830)
(Recognition) reduction of pension liability, net of tax 1,822 (1,822) 1,018
-------- ------- -------
Net cash provided by operating activities 7,441 722 2,961
-------- ------- -------
Cash flows from investing activities:
Acquisition of property and equipment (23,411) (2,287) (2,108)
Proceeds from sale of assets 6 81 141
Purchase of investments - held to maturity (600) (2,950) (2,875)
Maturity of investments - held to maturity 1,445 1,857 2,830
Sale of investments - available for sale -- -- 943
Issuance of notes receivable -- (86) (37)
Collection of notes receivable 60 8 133
-------- ------- -------
Net cash used in investing activities (22,500) (3,377) (973)
-------- ------- -------
Cash flows from financing activities:
(Decrease) increase in book overdraft (457) 457 --
Issuance of debt 20,920 -- 7,894
Payment of debt (1,332) (118) (7,896)
Issuance of common stock 3,590 1,724 521
Purchase of treasury stock (414) (214) (5,670)
Payment of dividends (1,173) (863) --
-------- ------- -------
Net cash provided by (used in) financing activities 21,134 986 (5,151)
-------- ------- -------
Net increase (decrease) in cash and cash equivalents 6,075 (1,669) (3,163)
Cash and cash equivalents at beginning of period -- 1,669 4,832
-------- ------- -------
Cash and cash equivalents at end of period $ 6,075 $ 1,669
======== =======
</TABLE>
Cash payments for interest expense were $1,080, $121, and $137, and cash
payments for income taxes were $1,055, $1,875, and $1,350 for 1996, 1995, and
1994, respectively.
The accompanying notes are an integral part of the
financial statements.
5
<PAGE> 6
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
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.
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.
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.
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. The carrying amount approximates fair value because of the
short maturity of those instruments.
Revenues
Revenues from marketing research, database marketing, 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.
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.
6
<PAGE> 7
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
provided principally using the straight-line method over estimated useful lives
as follows:
Buildings 20 to 40 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.
The Company periodically reviews its property and equipment to determine if its
carrying cost will be recovered from future operating cash flows. In cases when
the Company does not expect to recover its carrying cost, the Company
recognizes an impairment loss. No such losses have been recognized to date.
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 $641,000,
$641,000, and $559,000, for the years ended December 31, 1996, 1995, and 1994,
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 was $0,
$59,000, and $201,000, for the years ended December 31, 1996, 1995, and 1994,
respectively.
Investments
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. Discounts or premiums are
accreted or amortized to interest income over the terms of the securities using
the straight-line method, which approximates the interest method. The fair
values of investments are based on quoted market prices for those or similar
investments.
7
<PAGE> 8
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.
Deferred income taxes arise from temporary differences between financial and
tax reporting, principally relating to depreciation, capitalized development
costs, the supplemental executive retirement plan, installment sales, and
pension costs.
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.
8
<PAGE> 9
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) 1996 1995
---- ----
<S> <C> <C>
Note receivable, monthly installments of $1
through September 1999, bearing interest of 7% $ 30 $ 40
Notes receivable from two directors bearing
interest at prime, due on demand 222 232
Note receivable bearing interest at prime plus 1%, interest only through
January 1998, thereafter due in equal annual installments through
January 2005 54 54
Noninterest-bearing note receivable from employee,
due on demand -- 40
---- ----
306 366
Less current portion 232 284
---- ----
$ 74 $ 82
==== ====
</TABLE>
The prime rate of interest at December 31, 1996, was 8.25%.
9
<PAGE> 10
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, December 31,
(dollars in thousands) 1996 1995
------- -------
<S> <C> <C>
Land and buildings $22,653 $ 2,036
Furniture and equipment 16,414 15,582
Leasehold improvements 3,900 3,814
------- -------
42,967 21,432
Less accumulated depreciation and amortization 14,874 14,055
------- -------
$28,093 $ 7,377
======= =======
</TABLE>
10
<PAGE> 11
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, 1996, and 1995, were (dollars in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
1996 Cost Gains Losses Fair Value
---- ---- ----- ------ ----------
<S> <C> <C> <C> <C>
Tax-exempt bonds:
Maturing within 1 year $ 3,252 $ 46 $ 7 $ 3,291
Maturing after 1 through 5 years 4,823 225 2 5,046
Maturing after 5 through 10 years 407 12 4 415
Maturing after 10 years 2,410 214 26 2,598
------- ---- ------- -------
$10,892 $497 $ 39 $11,350
======= ==== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
1996 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
======= ==== ======= =======
</TABLE>
11
<PAGE> 12
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT
In March 1996, the Company exercised its option to acquire the corporate
headquarters for $20,617,000. The Company financed $11,212,000 of the purchase
price with a conventional mortgage. The mortgage loan, which bears interest at
a fixed rate of 8.93%, is scheduled for ten years of payments on an
amortization of 25 years. Annual payments are $1,122,000, with a final payment
of $9,307,000 due March 2006. The principal balance of the mortgage loan at
December 31, 1996, was $11,125,000. The remainder of the purchase price of the
corporate headquarters facility was financed on a five-year term loan.
Principal payments are scheduled quarterly at $150,000 with a minimum annual
reduction of $1,500,000 required with the final payment of $2,233,000 due March
2001. Interest on the bank debt is based on either the bank's prime rate or
LIBOR plus 1.25% at the option of the Company. The principal balance of the
bank loan at December 31, 1996, was $8,463,000. The five-year term loan with
the bank requires the Company to maintain minimum levels of working capital and
tangible net worth, restricts the use of certain assets, and limits additional
indebtedness.
Maturities of long-term debt for years ending December 31, are as follows:
<TABLE>
<S> <C>
1997 $ 1,634,000
1998 1,655,000
1999 1,660,000
2000 1,675,000
2001 and thereafter 12,971,000
-----------
$19,593,000
===========
</TABLE>
Based on the borrowing rates currently available to the Company for similar
types of borrowing arrangements, the fair value of the mortgage loan would be
$11,402,000. The bank debt associated with the purchase of the Company's
corporate headquarters is at an adjustable rate; therefore the carrying value
approximates fair value.
The Company maintains a revolving line of credit with a bank in the amount
of $3,000,000 which expires in April 1997. At the Company's option, outstanding
borrowings bear interest at prime rate or LIBOR plus 1.125% and are due upon
demand. At December 31, 1996, the line of credit was unused.
12
<PAGE> 13
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - 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.
Statement of Financial Accounting Standards 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. No
additional liability was required at December 31, 1996.
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) 1996 1995
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 4,465 $ 4,755
======= =======
Accumulated benefit obligation $ 4,708 $ 4,989
======= =======
Projected benefit obligation $ 5,860 $ 5,938
Plan assets at fair value, primarily stocks
and bonds 5,211 3,549
------- -------
Excess (deficit) of plan assets over projected
benefit obligation (649) (2,389)
Unrecognized net loss from experience,
different from actuarial assumptions 2,972 3,795
Prior service cost (credit) not yet recognized
in net periodic pension cost (65) (70)
Unrecognized transition asset
being amortized over 15 years (13) (15)
------- -------
Prepaid pension asset, excluding additional
liability 2,245 1,321
Additional pension liability -- (2,760)
------- -------
Net pension asset (liability) $ 2,245 ($1,439)
======= =======
</TABLE>
13
<PAGE> 14
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - EMPLOYEE BENEFIT PLANS (Continued)
Pension costs are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
(dollars in thousands) 1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Benefit cost for service during the year $ 453 $ 255 $ 287
Interest cost on projected benefit
obligations 488 378 375
Actual return on plan assets (667) (611) 23
Net amortization and deferral 510 367 (263)
----- ----- -----
$ 784 $ 389 $ 422
===== ===== =====
</TABLE>
The expected long-term rate of return on assets was 12% for the years ended
December 31, 1996, 1995, and 1994. The rate of salary progression was 3.9% for
the years ended December 31, 1996, 1995, and 1994. The settlement rates used to
determine the actuarial present value of projected benefits were 7.75% for the
year ended December 31, 1996, 7.25% for the year ended December 31, 1995, and
9.0% for the year ended December 31, 1994. 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), the fully insured health and benefit
contract in 1996, and the health and benefit trust in 1995 and 1994. The
ESOP/401(k) 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.
The Company absorbs the costs incurred for the administration of the
ESOP/401(k). The health and benefit trust charged health costs, as incurred,
based upon amounts required to pay insurance premiums and fund medical claims
and administrative expenses incurred. On January 1, 1996, the Company entered
into a fully insured health and benefit contract with a major insurance
carrier. Included in the Company's results of operations are the following
costs for the pension plan, ESOP/401(k), the fully insured health and benefit
contract in 1996, and health and benefit trust in 1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
(dollars in thousands) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Pension plan $ 784 $ 389 $ 422
ESOP/401(k) 552 345 266
Health and benefit 1,468 1,455 1,322
</TABLE>
14
<PAGE> 15
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - EMPLOYEE BENEFIT PLANS (Continued)
In January 1993, the Company loaned $2,500,000 to the ESOP for the acquisition
of 458,277 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,
1996, and 1995, shares allocated to plan participants totaled 122,208 and
91,656 shares, respectively. All remaining shares from the January 1993
acquisition are committed to be released ratably over the remaining life of the
ESOP loan. Dividends on allocated shares are paid to participant accounts.
Through 1996, dividends on the unallocated shares were reinvested in the
Company's common stock and allocated to participants. Beginning in 1997,
dividends on unallocated shares will be used to repay the loan. The fair market
value of the unearned ESOP shares at December 31, 1996, and 1995, was
$4,257,000 and $3,385,000, 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, 1996, of the five participants, the Chairman and two former Senior
Vice Presidents, or their beneficiaries, are vested in the plan and drawing
benefits. As of December 31, 1996, and 1995, the Company has accrued $2,047,000
and $2,130,000, 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,
1996, 1995, and 1994, were $229,000, $372,000, and $141,000, respectively.
The Company follows the provisions of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," 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. Executive 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,
1996, 1995, and 1994, were approximately $16,000, $12,000, and $31,000,
respectively. The Company's obligation under SFAS No. 106 at December 31, 1996,
and 1995, was not material.
15
<PAGE> 16
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Through March 1996, the Company leased space for its corporate headquarters
facility under an operating lease. Company exercised an option to purchase the
facility in March 1996. The Company also leases office space and certain
equipment under operating lease agreements. Minimum annual future rentals under
the terms of the above leases are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1997 $2,372,000
1998 1,321,000
1999 589,000
2000 387,000
2001 308,000
----------
$4,977,000
==========
</TABLE>
Lease expense for facilities and equipment was $2,559,000, $4,959,000, and
$5,063,000, for the years ended December 31, 1996, 1995, and 1994,
respectively.
The Company provides a letter of credit from a bank for $106,000, in lieu of
paying deposits for facility rentals.
16
<PAGE> 17
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - CONCENTRATIONS OF CREDIT RISK
The Company provides marketing information services primarily to
consumer-product companies. The Company performs ongoing credit evaluations of
its customers. The Company's ten largest customers accounted for approximately
48% of sales in 1996 and approximately 51% and 46% of trade accounts receivable
and work in process, respectively, at December 31, 1996. One customer, RJR
Nabisco Holdings Corporation, accounted for revenues of $9,818,000,
$11,988,000, and $9,158,000, for the years ended December 31, 1996, 1995, and
1994, 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 $6,073,000 of its, $10,892,000 investment in tax-exempt bonds in
the state of Texas.
17
<PAGE> 18
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES
Income tax expense (benefit) on income before income taxes consists of (dollars
in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
------ ------- ------
<S> <C> <C> <C>
Current provision:
Federal $2,373 $ 1,556 $1,330
State 259 169 130
------ ------- ------
2,632 1,725 1,460
Deferred provision 54 -- 21
------ ------- ------
Provision for income taxes charged
to operations 2,686 1,725 1,481
Stockholders' equity - pension component 939 (939) 560
------ ------- ------
Comprehensive provision for income taxes $3,625 $ 786 $2,041
====== ======= ======
</TABLE>
Reconciliation's 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,
-----------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
U.S. corporate tax rate 34% 34% 34%
Income before taxes $ 7,376 $ 5,000 $ 4,158
------- ------- -------
Tax expense at statutory rates 2,508 1,700 1,414
Tax-exempt income (203) (227) (202)
Officers' life insurance 41 (188) 10
Meals and entertainment 82 60 48
State income tax (88) (23) (44)
Differences between financial reporting
and tax bases of fixed assets 14 (28) --
Other 73 262 125
------- ------- -------
Federal income tax 2,427 1,556 1,351
State income tax 259 169 130
------- ------- -------
Provision for income taxes charged
to operations 2,686 1,725 1,481
Stockholders' equity - pension component 939 (939) 560
------- ------- -------
Comprehensive provision for income
taxes $ 3,625 $ 786 $ 2,041
======= ======= =======
</TABLE>
18
<PAGE> 19
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (Continued)
The components of the net deferred tax asset (liability) as of December 31,
1996, and 1995, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
----------------------- ----------------------
Current Noncurrent Current Noncurrent
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
ASSETS
Differences between book and tax
bases of property and equipment,
excluding building $ -- $ 338 $ -- $ 318
Allowance for expenditures billable
to clients 179 -- 86 --
Accounts receivable allowance for
doubtful accounts 82 -- 82 --
Liability for director retirement plan -- 226 -- 185
Other liabilities -- 128 -- 182
Unrecognized net pension obligation -- -- -- 939
----- ------- ---- -------
Deferred tax asset 261 692 168 1,624
----- ------- ---- -------
LIABILITIES
Differences between financial reporting
and tax bases of building acquired -- 937 -- 856
Differences between financial reporting
and tax reporting of sales of fixed
assets -- 215 -- --
Prepaid pension asset -- 719 -- 628
Excess tax over book amortization
of intangibles -- 7 -- 42
Other differences between financial
reporting and tax reporting of asset
dispositions -- -- -- 197
----- ------- ---- -------
Deferred tax liability -- 1,878 -- 1,723
----- ------- ---- -------
Net current/noncurrent deferred tax
asset (liability) $ 261 ($1,186) $168 ($ 99)
----- ------- ---- -------
Net deferred tax asset (liability) ($925) $ 69
======= =======
</TABLE>
19
<PAGE> 20
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - 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 1983 Stock Option Plan for the periods
ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Number Weighted Number Weighted Number Weighted
Of Shares Average Of Shares Average Of Shares Average
Underlying Exercise Underlying Exercise Underlying Exercise
Options Prices Options Prices Options Prices
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of period 407,817 $4.21 573,789 $4.23 709,805 $4.33
Options canceled (5,895) 5.17 (14,345) 4.80 (42,140) 5.17
Options exercised (357,054) 4.07 (151,628) 4.50 (93,876) 4.33
Options outstanding at
end of period 44,868 5.19 407,817 4.21 573,789 4.23
Options exercisable at
end of period 34,668 5.26 363,117 4.11 423,048 4.24
</TABLE>
20
<PAGE> 21
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
1991 Nonstatutory Executive Stock Plan
On April 19, 1991, the Board of Directors adopted a Nonstatutory Executive
Stock Plan, reserving 360,000 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, vesting requirement, 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 810,000
shares of common stock. As of December 31, 1996, 29,400 shares had been
exercised and 167,805 shares remained available for grant.
Shares under option relating to the 1991 Nonstatutory Executive Stock Option
Plan for the periods ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Number Weighted Number Weighted Number Weighted
Of Shares Average Of Shares Average Of Shares Average
Underlying Exercise Underlying Exercise Underlying Exercise
Options Prices Options Prices Options Prices
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of period 465,525 $ 6.39 554,325 $6.35 180,000 $6.53
Options granted 188,250 11.26 - - 374,325 6.26
Options canceled (22,980) 6.33 (77,400) 6.03 - -
Options exercised (18,000) 6.02 (11,400) 6.33 - -
Options outstanding at
end of period 612,795 7.91 465,525 6.39 554,325 6.35
Options exercisable at
end of period 298,260 6.91 234,543 6.46 180,000 6.53
</TABLE>
21
<PAGE> 22
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
The following summarizes information about all stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$4.33 to $6.00 39,240 1.94 $ 4.70 29,040 $ 4.67
$6.01 to $12.33 618,423 3.17 7.90 303,888 6.49
- --------------- ------- ------- ------- ------- -------
$4.33 to $12.33 657,663 3.10 $ 7.69 332,928 $ 6.30
</TABLE>
In 1995, the Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock-Based Compensation," which provides the Company the
option of recognizing the cost of options granted based on fair values of the
options at the time of grant. The Company has decided not to elect the
cost-recognition provisions of SFAS 123.
The weighted average fair value of the 188,250 options granted during 1996 was
$3.71 per option. The fair value of each stock option granted is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-averaged assumptions for grants in 1996: dividend yield
between 2.1% and 2.4%; risk-free interest rates are different for each grant
and range from 6.10% to 6.27%, expected lives of the options are five years,
and a volatility factor of 35.27% was used for all grants.
Had the compensation expense for the 188,250 shares granted during 1996 been
based on the fair value pricing model described above, additional compensation
expense (net of tax) of $66,000 would have been recognized, and net income and
net income per share would have been $4,624,000 and $.99, respectively.
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995.
The Company anticipates making awards in the future under its stock-based
compensation plans.
22
<PAGE> 23
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
Stock Warrants
The Company has issued warrants on 500,400 shares of its common stock to seven
senior executives. The warrants were sold for their estimated fair market value
of $.55 each. Each warrant represents the right to purchase one share of the
Company's common stock at prices ranging from $4.30 to $5.00 per share prior to
March 1, 1997. On January 18, 1993, the Board of Directors authorized the
issuance of 500,400 shares of restricted common stock of the Company. Such
shares were issued in tandem with the 500,400 warrants. The exercise of a
warrant results in the corresponding loss of a restricted share.
Warrants for 449,100 shares of common stock have been exercised, 237,090 of
those in 1996. Concurrent with the exercise of the warrants, an equal number of
the restricted shares were returned to the Company and retired. At December 31,
1996, there were warrants outstanding on 51,300 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 1996. If the target is not met by March 1, 1997, the restricted
stock must be returned to the Company.
The Company has an additional 75,000 warrants on its common stock issued at an
exercise price of $7.17.
Restricted Stock
In January 1996, the Company issued 315,000 shares of restricted common stock
valued at the then market price of $10 per share to the Chief Executive Officer
and one Executive Vice President of the Company. The related deferred
compensation is presented as a reduction to shareholders' equity. As the
restriction on these shares lapses ratably over the next 15 years, compensation
expense will be recognized.
23
<PAGE> 24
NOTE 11 - RELATED PARTY TRANSACTIONS
At December 31, 1996, and 1995, the Company had outstanding loans of
approximately $316,000 and $272,000, respectively, to employees, directors, and
officers of the Company. The loans are for various periods up to one year and
bear interest at the prime interest rate.
At December 31, 1996, the Company had outstanding advances of $110,000 to the
Chairman of the Board of the Company. Subsequent to year-end, the advances were
repaid to 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 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 amounts expensed in 1996, 1995, and 1994, were
approximately $122,000, $122,000, and $155,000, respectively. Subsequent to
year-end, the Board of Directors approved the discontinuation of the retirement
plan for all outside directors whose initial term of service begins after
January 24, 1997.
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 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 1995 were immaterial.
24
<PAGE> 25
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - EARNINGS PER SHARE
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.
25
<PAGE> 26
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - INTERIM FINANCIAL INFORMATION
(Unaudited)
The following represents unaudited interim financial information for the years
ended December 31, 1996, and 1995 (dollars in thousands, except per share and
share amounts).
<TABLE>
<CAPTION>
Year Ended December 31, 1996
---------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 19,292 $ 22,240 $ 22,184 $ 21,743
Costs and expenses 18,315 19,910 19,961 19,301
---------- ----------- ----------- -----------
Operating income 977 2,330 2,223 2,216
Interest and other income
(expense) 169 (311) (326) (128)
---------- ----------- ----------- -----------
Income before taxes 1,146 2,019 1,897 2,442
Income taxes 412 727 683 864
---------- ----------- ----------- -----------
Net income $ 734 $ 1,292 $ 1,214 $ 1,450
========== =========== =========== ===========
Earnings per share $ .16 $ .27 $ .27 $ .31
========== =========== =========== ===========
Weighted average shares
outstanding 4,609,500 4,755,000 4,705,500 4,917,300
</TABLE>
26
<PAGE> 27
THE M/A/R/C GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - INTERIM FINANCIAL INFORMATION (Continued)
(Unaudited)
<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 $ .14 $ .18 $ .20 $ .25
========== ========== ========== ==========
Weighted average shares
outstanding 4,180,000 4,261,500 4,323,000 4,336,800
========== ========== ========== ==========
</TABLE>
27
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,075
<SECURITIES> 10,892
<RECEIVABLES> 11,308
<ALLOWANCES> 241
<INVENTORY> 5,401
<CURRENT-ASSETS> 28,858
<PP&E> 28,093
<DEPRECIATION> 14,874
<TOTAL-ASSETS> 71,333
<CURRENT-LIABILITIES> 9,905
<BONDS> 19,595
0
0
<COMMON> 6,288
<OTHER-SE> 33,274
<TOTAL-LIABILITY-AND-EQUITY> 71,333
<SALES> 85,459
<TOTAL-REVENUES> 85,459
<CGS> 77,487
<TOTAL-COSTS> 77,487
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 596<F1>
<INCOME-PRETAX> 7,376
<INCOME-TAX> 2,686
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,690
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.00
<FN>
<F1>Item 5-03(b)(8) combines Interest Income of $880 with interest and other expense
of (1,476)
</FN>
</TABLE>
