<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, 1998
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: 5,307,873 shares as of June 30,
1998.
<PAGE> 2
THE M/A/R/C GROUP
INDEX
(UNAUDITED)
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountant's Report..................................................i
Consolidated Balance Sheets
June 30, 1998, and December 31, 1997...........................................1
Consolidated Statements of Income
Three Months Ended June 30, 1998, and 1997.....................................2
Consolidated Statements of Operations
Six Months Ended June 30, 1998, and 1997.......................................3
Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended June 30, 1998.................................................4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998, and 1997.......................................5
Consolidated Notes to Financial Statements.......................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................7-10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.............................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, 1998, the related condensed consolidated statements of
income and cash flows for the three-month periods ended June 30, 1998, and 1997,
the condensed consolidated statements of operations, cash flows for the
six-month periods ended June 30, 1998, and 1997, and the consolidated statement
of changes in shareholders' equity for the six-month period ended June 30, 1998.
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, 1997, 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 23, 1998, 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, 1997, is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
PricewaterhouseCoopers LLP
July 21, 1998
i
<PAGE> 4
PART I. FINANCIAL INFORMATION
THE M/A/R/C GROUP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1998 Dec. 31, 1997
------------- -------------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments $ 2,433 $ 6,374
Trade accounts receivable, net 13,614 14,512
Expenditures billable to clients, net 7,707 5,888
Notes receivable 10 12
Federal income tax receivable 1,005 741
Deferred income taxes receivable 378 400
Prepaid expenses and other current assets 2,698 2,307
-------- --------
Total Current Assets 27,845 30,234
-------- --------
Notes receivable, less current portion 63 67
Property and equipment, less accumulated depreciation of
$ 17,157,000 and 15,802,000 respectively 31,697 29,344
Investments at cost 8,735 7,365
Intangibles, less accumulated amortization of$ 3,139,000
and$ 3,039,000, respectively 6,094 1,987
Prepaid pension costs and other assets 6,291 5,977
-------- --------
TOTAL ASSETS $ 80,725 $ 74,974
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion, long-term debt $ 747 $ 747
Trade accounts payable 2,021 1,425
Advance payments from clients 2,120 2,615
Other accrued liabilities 1,718 1,709
-------- --------
Total Current Liabilities 6,606 6,496
Long-term debt, less current portion 22,181 17,453
Deferred taxes payable and other liabilities 3,268 3,464
-------- --------
Total Liabilities 32,055 27,413
-------- --------
Stockholders' Equity:
Common stock,$ 1 par value, 15,000,000 shares authorized,
6,684,000 and 6,530,033 issued, respectively 6,684 6,530
Capital in excess of par value 13,272 10,951
Retained earnings 41,797 42,907
Less treasury stock at cost, 1,376,127 and 1,356,197 shares, respectively (8,732) (8,286)
Unearned compensation (2,617) (2,725)
Unearned ESOP shares (1,734) (1,816)
-------- --------
Total Stockholders' Equity 48,670 47,561
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 80,725 $ 74,974
======== ========
</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, 1998, AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------- -------
(Dollars in Thousands,
Except Per Share Data)
<S> <C> <C>
Revenues $ 24,074 $ 26,019
Costs and expenses 23,288 23,529
--------- ---------
Operating income 786 2,490
Interest and other income (expense) net (14) 340
--------- ---------
Income before taxes 772 2,830
Federal and state income tax provision 272 765
--------- ---------
NET INCOME $ 500 $ 2,065
========= =========
Net income per share - Basic $ .10 $ .43
========= =========
Net income per share - Diluted $ .10 $ .41
========= =========
Weighted average common shares outstanding - Basic 4,961,995 4,811,342
========= =========
Weighted average common shares outstanding - Diluted 5,158,610 5,062,552
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 6
THE M/A/R/C GROUP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998, AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(Dollars in Thousands,
Except Per Share Data)
<S> <C> <C>
Revenues $ 44,473 $ 48,702
Costs and expenses 44,897 44,000
--------- ---------
Operating income (loss) (424) 4,702
Interest and other income (expense) net (55) 177
--------- ---------
Income (loss) before taxes (479) 4,879
Federal and state income tax provision (benefit) (250) 1,503
--------- ---------
NET INCOME (LOSS) $ (229) $ 3,376
========= =========
Net income (loss) per share - Basic ($ .05) $ .72
========= =========
Net income (loss) per share - Diluted ($ .05) $ .68
========= =========
Weighted average common shares outstanding - Basic 4,923,606 4,720,409
========= =========
Weighted average common shares outstanding - Diluted 4,923,606 4,948,470
========= =========
</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, 1998
(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, 1997 $ 6,530 $ 10,951 $ 42,907 ($ 2,725) ($ 1,816) ($ 8,286)
Exercise options/warrants 52 418
Purchase treasury stock (446)
Amortization of compensation 108
Dividends paid ($0.15 per share) (881)
Release of ESOP shares 162 82
Acquisition of idm 102 1,741
Net income (loss) (229)
-------- -------- -------- -------- -------- --------
Balance at June 30, 1998 $ 6,684 $ 13,272 $ 41,797 ($ 2,617) ($ 1,734) ($ 8,732)
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 8
THE M/A/R/C GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Net cash flow from operating activities:
Net income (loss) ($ 229) $ 3,376
Noncash items:
Depreciation and amortization 2,154 1,812
ESOP Expense 244 237
Amortization of unearned compensation 108 107
(Gain) loss on sale or property and equipment (14) 2
Bad-debt expense 560 301
(Gain) loss on equity-method investment (61) 344
Net (increase) in receivables and
expenditures billable to clients 306 (5,752)
Net (increase) decrease in prepaid expenses and other assets (1,186) 897
Increase (decrease) in trade accounts payable 107 (695)
Increase (decrease) in accrued liabilities and other liabilities (462) (239)
-------- --------
Net cash provided by operating activities 1,527 390
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment (2,610) (2,579)
Net (additions to) reductions in notes receivable 6 45
Purchase of idm (4,144) --
Net (increase in) reduction of investments (1,417) (508)
-------- --------
Net cash used by investing activities (8,165) (3,042)
-------- --------
Cash flows from financing activities:
Net (decrease) increase in customer advances (495) 191
Acquisition (payment) of short-term debt -- 1,000
Acquisition (payment) of long-term debt 4,049 (640)
Issuance of common stock 470 1,748
Cash dividends paid (881) (758)
Issue/(purchase of) treasury stock (446) (83)
-------- --------
Net cash provided (used) by financing activities 2,697 1,458
-------- --------
Net increase (decrease) in cash (3,941) (1,194)
Cash and short-term investments at December 31 6,374 9,327
-------- --------
Cash and short-term investments at June 30 $ 2,433 $ 8,133
======== ========
Schedule of noncash investing acitivity:
Acquisition of idm
Cash paid $ 4,144
Common stock issued 102
Capital in excess of par 1,741
--------
5,987
========
Net assets consolidated 1,542
Goodwill recorded 4,445
--------
$ 5,987
========
</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 condensed
consolidated financial statements reflect all adjustments necessary to
present fairly the Company's consolidated financial position as of June
30, 1998, the consolidated results of its operations for the three months
ended June 30, 1998, and June 30, 1997, and its consolidated cash flows
for the three months ended June 30, 1998, and June 30, 1997. Certain
prior-period amounts have been reclassified to be consistent with
current-year presentation.
2. These condensed 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. The December 31, 1997, condensed balance sheet data was derived from
audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. Accordingly, the
financial statements and related notes in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, should be read in
conjunction with the accompanying condensed 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.
4. The Company adopted 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.
6
<PAGE> 10
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, 1998, with the six months ended June 30, 1997, and the
three months ended June 30, 1998, with the three months ended June 30, 1997.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998, WITH SIX MONTHS ENDED
JUNE 30, 1997
Revenues decreased to $44,473,000 for the six-month period ended June 30,
1998, compared with revenues of $48,702,000 for the six-month period ended June
30, 1997. Production and administrative expenses were 100.1% of revenues,
compared with 90.3% for the prior year.
For the six months this year, the Company recorded an operating loss of
($424,000) compared with operating income of $4,702,000 last year for the same
period.
Results for the six months of 1998 were impacted by one-time charges in
the Company's Targetbase division occurring in the first quarter and amounting
to $1,131,000 before tax, or $.14 per share, and declining revenues and
profitability in M/A/R/C Research. The one-time charges were associated with
client work, in one case higher-than-expected expenses were incurred carrying
out a client program and were unrecoverable. In the second case, costs were
incurred to correct a problem. Overall, Targetbase has performed well during the
six-month period showing a sales increase of 18%, and excluding the one-time
charges discussed above, has recorded double-digit operating margins in the low
teens.
7
<PAGE> 11
THE M/A/R/C GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Our Acquire, Retain, and Maximize (ARM(TM)) software platform is ready
for launch, and we incurred approximately $250,000 in operating expenses during
the first six months associated with the system.
Though our Research business has had a very disappointing six months, the
months of May and June began to show some resurgence with the division being
marginally profitable in June. Management has reduced costs in this division
which began to show some revenue recoverability in the second quarter.
Net interest and other income decreased $232,000 to ($55,000) for the
comparable six months. The prior-year period includes a net nonrecurring benefit
of $391,000 ($.08 per share) associated with certain life insurance proceeds and
the write-down of an investment.
The Company reported a net loss of ($229,000), or ($.05) a share, for the
first six months of 1998 compared with net income of $3,376,000, or $.68 per
share a year ago.
The weighted average number of shares outstanding increased to 4,923,606
from 4,720,409 last year. In accordance with Statement of Position 93-6,
"Employer's Accounting for Employee Stock Option Plans," the Company did not
treat as outstanding for calculating earnings per share 290,241 shares held in
the Employee Stock Ownership Plan that have not been released to participants.
The Company repurchased 25,500 shares of its stock during the six-month period
ended June 30, 1998.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998, WITH THREE MONTHS ENDED
JUNE 30, 1997
Revenues for the second quarter ended June 30, 1998, were $24,074,000
compared with $26,019,000 for the similar period in 1997.
8
<PAGE> 12
THE M/A/R/C GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Production and administrative expenses were 96.7% for the period compared
with 90.4% for the prior year.
Operating income declined to $786,000 from $2,490,000 for the prior-year
comparable period. The primary reason for the decline in operating income was
the continuing losses associated with the Research business. The months of May
and June began to reflect improved results in this division as revenues improved
against a cost base that management has reduced.
Targetbase performed well during the second quarter generating a 21%
sales increase over the comparable period last year. Those results included
$1,075,000 in sales from the recently acquired Intelligent Database Marketing
(idm) business located in Middlesborough, England. idm was relatively earnings
neutral for the quarter after goodwill and interest charges associated with the
acquisition.
Net interest and other income declined ($354,000) to ($14,000). The
second quarter of 1997 included a nonrecurring benefit of $391,000, or ($.08)
per share, associated with certain insurance proceeds and the write-down of an
investment.
Net income for the three-month period ended June 30, 1998, fell to a
level of $500,000, or $.10 a share, on a diluted basis from 2,065,000, or $.41 a
share, the year before.
The weighted average number of shares outstanding increased to 4,961,995
from 4,811,342 last year. In accordance with Statement of Position 93-6,
"Employer's Accounting for Employee Stock Option Plans," the Company did not
treat as outstanding for calculating earnings per share 290,341 shares held in
the Employee Stock Ownership Plan that have not been released to participants.
The Company repurchased 20,000 shares of its stock during the three-month period
ended June 30, 1998.
9
<PAGE> 13
THE M/A/R/C GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
CAPITAL RESOURCES AND LIQUIDITY
From December 31, 1997, to June 30, 1998, cash and short-term investments
decreased $3,941,000. Most of the decline resulted from capital investments made
during the six months measured against decreased cash flow from operations.
During the second quarter, the Company incurred approximately $4,000,000 in
long-term debt associated with the acquisition of idm, a database company in
Middlesborough, England. The Company feels its June 30, 1998, cash and
short-term investment position of $2,433,000, the temporary investment position
of $8,735,000, the working capital position of $21,307,000, and the remaining
unused bank line of credit 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.
10
<PAGE> 14
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 30, 1998, subsequent to the close of the first quarter, The M/A/R/C
Group held its annual shareholders' meeting for the fiscal year ended December
31, 1997. The shareholders voted on the following proposal:
A. To elect three directors, Cecil B. Phillips, Rolan G. Tucker, and Jack
D. Wolf, to hold office for a three-year term expiring at the 2001
shareholders' meeting or until their successors are elected and have
qualified.
Incumbent director serving for a three-year term expiring at the 1999
shareholders' meeting is Elmer L. Taylor, Jr. Incumbent directors serving
for a three-year term expiring at the 2000 shareholders' meeting are
Sharon M. Munger and Edward R. Anderson.
B. Results of the election are as follows: 4,808,707 votes, or 99.59% of
the quorum, were cast for Cecil B. Phillips, 4,808,386, or 99.58% of the
quorum for Rolan G. Tucker, and 4,808,635, or 99.58% of the quorum for
Jack D. Wolf, declaring them elected.
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 10, 1998 /s/ SHARON M. MUNGER
------------------------ -------------------------------------
Sharon M. Munger
(Chairman of the Board and
Chief Executive Officer)
/s/ HAROLD R. CURTIS
Date: August 10, 1998 -------------------------------------
------------------------ Harold R. Curtis
(Chief Financial Officer)
12
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,433
<SECURITIES> 8,735
<RECEIVABLES> 13,614
<ALLOWANCES> 0
<INVENTORY> 7,707
<CURRENT-ASSETS> 27,845
<PP&E> 48,854
<DEPRECIATION> 17,157
<TOTAL-ASSETS> 80,725
<CURRENT-LIABILITIES> 6,606
<BONDS> 22,181
0
0
<COMMON> 6,684
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 48,670
<SALES> 44,473
<TOTAL-REVENUES> 44,473
<CGS> 0
<TOTAL-COSTS> 44,897
<OTHER-EXPENSES> 55
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (479)
<INCOME-TAX> (250)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (229)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
