<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 March 31, 1999
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: 5,233,106 shares as of March
31, 1999.
<PAGE> 2
THE M/A/R/C(R) GROUP
INDEX
(UNAUDITED)
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1999, and December 31, 1998..........................................1
Consolidated Statements of Operations
Three Months Ended March 31, 1999, and 1998....................................2
Consolidated Statement of Changes in Stockholders' Equity
Three Months Ended March 31, 1999..............................................3
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999, and 1998....................................4
Consolidated Notes to Financial Statements.......................................5
Report of Independent Accountants................................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................8-10
PART II. OTHER INFORMATION...........................................................................11
Item 4. Submission of Matters to a Vote of Security Holders.............................11
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
THE M/A/R/C(R) GROUP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, 1999 Dec. 31, 1998
-------------- --------------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments $ 5,111 $ 4,846
Trade accounts receivable, net 12,485 11,925
Expenditures billable to clients, net 6,748 6,851
Notes receivable 5 10
Federal income tax receivable 491 580
Deferred income taxes receivable 378 404
Prepaid expenses and other current assets 2,138 2,529
-------------- ------------
Total Current Assets 27,356 27,145
-------------- ------------
Notes receivable, less current portion -- 52
Property and equipment, less accumulated depreciation of
$18,508,000 and $17,471,000, respectively 32,333 32,678
Investments at cost 7,749 7,072
Intangibles, less accumulated amortization of $3,005,000
and $2,947,000, respectively 6,215 6,022
Prepaid pension costs and other assets 5,888 5,923
-------------- ------------
TOTAL ASSETS $ 79,541 $ 78,892
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion, long-term debt $ 1,440 $ 1,480
Trade accounts payable 2,059 2,845
Advance payments from clients 3,936 2,265
Other accrued liabilities 1,175 682
-------------- ------------
Total Current Liabilities 8,610 7,272
Long-term debt, less current portion 19,534 19,879
Deferred taxes payable and other liabilities 5,216 5,351
-------------- ------------
Total Liabilities 33,360 32,502
-------------- ------------
Stockholders' Equity:
Common stock, $1 par value, 15,000,000 shares authorized,
6,699,300 and 6,691,500 issued, respectively 6,699 6,692
Capital in excess of par value 13,470 13,226
Retained earnings 41,374 41,518
Accumulated other comprehensive income (1,641) (1,641)
Less treasury stock at cost 1,465,294 and 1,415,414 shares, respectively (9,741) (9,211)
Unearned compensation (2,467) (2,509)
Unearned ESOP shares (1,513) (1,685)
-------------- ------------
Total Stockholders' Equity 46,181 46,390
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 79,541 $ 78,892
============== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE> 4
THE M/A/R/C(R) GROUP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999, AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(Dollars in Thousands,
Except Per Share Data)
<S> <C> <C>
Revenues $ 21,575 $ 20,399
Costs and expenses 21,116 21,609
----------- -----------
Operating income (loss) 459 (1,210)
Interest and other income (expense) net (68) (41)
----------- -----------
Income (loss) before taxes 391 (1,251)
Federal and state income tax provision (benefit) 138 (522)
----------- -----------
NET INCOME (LOSS) $ 253 ($ 729)
=========== ===========
Net income (loss) per share (basic) $ .05 ($ .15)
=========== ===========
Net income (loss) per share (diluted) $ .05 ($ .15)
=========== ===========
Weighted average common shares outstanding (basic) 4,995,423 4,884,791
=========== ===========
Weighted average common shares outstanding (diluted) 5,082,924 4,884,791
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 5
THE M/A/R/C(R) GROUP
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Common Capital in Other Unearned Cost of
Stock, $1 Excess of Retained Comprehensive Unearned ESOP Treasury
Par Value Par Value Earnings Income Compensation Shares Stock
--------- --------- -------- ------------- ------------ -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 6,692 $ 13,226 $ 41,518 ($ 1,641) ($ 2,509) ($ 1,685) ($ 9,211)
Exercise options/warrants 7 62
Purchase treasury stock (530)
Amortization of compensation 11 42
Dividends paid ($0.075 per share) (397)
Release of ESOP shares 171 172
Net income (loss) 253
------- -------- -------- -------- -------- -------- --------
Balance at March 31, 1999 $ 6,699 $ 13,470 $ 41,374 ($ 1,641) ($ 2,467) ($ 1,513) ($ 9,741)
======= ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 6
THE M/A/R/C(R) GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------- -------
(Dollars in Thousands)
<S> <C> <C>
Net cash flow from operating activities:
Net income (loss) $ 253 ($ 729)
Noncash items:
Depreciation and amortization 1,306 1,016
ESOP Expense 172 119
Amortization of unearned compensation 42 54
(Gain) loss on sale of property and equipment 16 0
Bad-debt expense 1 534
(Gain) loss on equity-method investment (105) 0
Net (increase) in receivables and
expenditures billable to clients (457) 1,772
Net (increase) decrease in prepaid expenses and other assets 391 688
Increase (decrease) in trade accounts payable (786) (42)
Net (decrease) increase in customer advances 1,671 401
Increase (decrease) in accrued liabilities and other liabilities 358 (1,758)
------- -------
Net cash provided by operating activities 2,862 2,055
------- -------
Cash flows from investing activities:
Acquisition of property and equipment (887) (1,871)
Net (additions to) reductions in notes receivable 57 3
Net (increase in) reduction of investments (706) (76)
------- -------
Net cash used by investing activities (1,536) (1,944)
------- -------
Cash flows from financing activities:
Acquisition (payment) of long-term debt (385) (197)
Issuance of common stock 251 224
Cash dividends paid (397) (388)
Issue/(purchase of) treasury stock (530) (92)
------- -------
Net cash provided (used) by financing activities (1,061) (453)
------- -------
Net increase (decrease) in cash 265 (342)
Cash and short-term investments at December 31 4,846 6,374
------- -------
Cash and short-term investments at March 31 $ 5,111 $ 6,032
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 7
THE M/A/R/C(R) 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 March
31, 1999, the consolidated results of its operations for the three months
ended March 31, 1999, and March 31, 1998, and its consolidated cash flows
for the three months ended March 31, 1999, and March 31, 1998.
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, 1998, 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, 1998, 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.
5
<PAGE> 8
THE M/A/R/C(R) GROUP
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
5. In 1998, the Company adopted SFAS 131. Under SFAS 131, the Company is
comprised of two reportable segments: (1) Targetbase Marketing and (2)
M/A/R/C(R) Research.
The table below presents information about the reported segments for
the three months ended March 31, 1999, and 1998.
<TABLE>
<CAPTION>
1999 1998
---- ----
Targetbase M/A/R/C(R) Targetbase M/A/R/C(R)
(dollars in thousands) Marketing Research Consolidated Marketing Research Consolidated
--------- --------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues(1) $ 12,935 $ 8,634 $ 21,575 $ 11,476 $ 8,924 $ 20,399
---------- --------- ------------ ---------
Operating income
(loss)(2) 798 (367) 459 790 (2,000) (1,210)
---------- --------- ------------ --------- --------- ----------
Not reflected in
segments:
Interest and other
income (expense) net (68) (41)
------------ ----------
Income (loss) before
taxes $ 391 ($ 1,251)
---------- --------- ------------ --------- --------- ----------
Segments assets(3) $ 14,770 $ 5,133 $ 19,233 $ 11,938 $ 6,730 $ 18,094
</TABLE>
(1) Reserve adjustments totaling $6,000 in 1999 and ($1,000) in 1998
reflected in consolidated revenues were not allocated to the segments.
(2) Income totaling $28,000 in 1999 reflected in consolidated operating income
was not allocated to the segments.
(3) Reserve amounts totaling $670,000 in 1999 and $574,000 in 1998 are
reflected in consolidated segment assets. These reserves were not
allocated to the segments.
6
<PAGE> 9
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Shareholders of The M/A/R/C(R) Group:
We have reviewed the accompanying consolidated balance sheet of The M/A/R/C(R)
Group as of March 31, 1999 and the condensed consolidated statements of
operations and cash flows for the three-month periods ended March 31, 1999, and
1998, and the consolidated statement of changes in shareholders' equity for the
three-month period ended March 31, 1999. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as December 31, 1998, 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 18, 1999, 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, 1998, is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
PricewaterhouseCoopers LLP
April 21, 1999
7
<PAGE> 10
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The M/A/R/C(R) 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 segments: M/A/R/C(R) Research
and Targetbase Marketing.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999, WITH THREE MONTHS ENDED
MARCH 31, 1998
Revenues increased to $21,575,000 for the three-month period ended March
31, 1999, compared with revenues of $20,399,000 for the three-month period
ended March 31, 1998. Production and administrative expenses were 97.9% of
revenues, compared with 105.9% for the prior year.
The Company recorded operating income of $459,000 compared with an
operating loss of ($1,210,000) last year for the comparable quarter. The
improved first quarter results reflect the success of programs initiated last
year to drive sales in both Research and Targetbase segments.
Looking at the two businesses in more detail: Targetbase Marketing had
revenues of $12,935,000 in the first quarter of 1999, a 13% increase over last
year's first quarter, and generated operating margin of $798,000, or 6.2%,
compared with $790,000 last year. M/A/R/C(R) Research had first quarter 1999
revenues of $8,634,000, a 3% decline from the first quarter of 1998, and had an
operating loss of ($367,000), compared with an operating loss of ($2,000,000)
last year.
The increase in revenues in Targetbase includes $1,092,000 from our U.K.
subsidiary. Our profitability in this division continues to be impacted by the
costs associated with our new software platform as well as our interactive
capabilities.
Operating income improvement in M/A/R/C(R) Research has been driven
primarily by expense reduction; however, new business prospects appear to be
improving.
8
<PAGE> 11
THE M/A/R/C(R) GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Net interest and other income (expense) increased $27,000 to ($68,000)
for the comparable three-month period.
The Company recorded net income for the three-month period ended March
31, 1999, of $253,000 $.05 a share compared with a net loss of ($729,000) ($.15
a share) for the comparable three-month period ended March 31, 1998.
The weighted average number of shares outstanding increased to 4,995,083
from 4,884,791 last year. In accordance with Statement of Position 93-6,
"Employers' Accounting for Employee Stock Option Plans," the Company did not
treat as outstanding for calculating earnings per share 267,327 shares held in
the Employee Shareholders Ownership Plan that have not been released to
participants. The Company repurchased 50,000 shares of its stock during the
three-month period ended March 31, 1999.
CAPITAL RESOURCES AND LIQUIDITY
From December 31, 1998, to March 31, 1999, cash and short-term
investments increased $265,000 primarily because of the increased cash flow
from operations. The March 31, 1999, cash and short-term investments position
of $5,111,000 and the temporary investment position of $7,749,000, the working
capital position of $18,746,000, and the existing and unused lines of bank
credit totaling $7,311,997 are adequate to support the Company's cash
requirements for operating and capital expenditures.
YEAR 2000
The Company began work on the Year 2000 compliance issue in 1998. To
date we have inventoried our IT and non-IT environments, both internal and
external, and assessed them for compliance. Our primary exposure resides in
software that processes the databases we manage, software that is used in our
statistical analysis work, and our interviewing and tabulating software. Our
testing
9
<PAGE> 12
THE M/A/R/C(R) GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
environment has been built, and we are now systematically testing all software
and operating systems. The Company estimates it will spend approximately
$400,000 bringing our various applications, operating systems, and hardware
into compliance. Approximately $250,000 has been expended to date. We are
slated to complete testing, with all required remediation and contingency
planning, by the end of August 1999. Management believes the modifications to
our proprietary software are relatively minor and that our overall risks are
quite modest in nature. A reasonable worst-case scenario resulting from one or
more of these software systems being noncompliant might be our inability to
service one or more of our clients for a short period of time.
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> 13
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 11, 1999, subsequent to the close of the first quarter, The M/A/R/C(R)
Group held its annual shareholders' meeting for the fiscal year ended December
31, 1998. The shareholders voted on the following proposal:
A. To elect three directors, Elmer L. Taylor, Jr., John H. Friedman,
and Thomas Vacchiano, Jr., to hold office for a three-year term expiring
at the 2002 shareholders' meeting or until their successors are elected
and have qualified.
Incumbent directors serving for a three-year term expiring at the
2000 shareholders' meeting are Sharon M. Munger and Edward R. Anderson.
Incumbent directors serving for a three-year term expiring at the 2001
shareholders' meeting are Cecil B. Phillips, Rolan G. Tucker, and Jack D.
Wolf.
B. Results of the election are as follows: 4,535,302 votes, or 85.2%
of the quorum, were cast for Elmer L. Taylor, Jr., John H. Friedman, and
Thomas Vacchiano, declaring them elected.
11
<PAGE> 14
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(R) Group
------------------------------
(Registrant)
Date: May 15, 1999 /s/ Sharon M. Munger
---------------------- ------------------------------
Sharon M. Munger
(Chairman of the Board and
Chief Executive Officer)
Date: May 15, 1999 /s/ Harold R. Curtis
---------------------- -------------------------------
Harold R. Curtis
(Chief Financial Officer)
12
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,111
<SECURITIES> 7,749
<RECEIVABLES> 12,485
<ALLOWANCES> 393
<INVENTORY> 6,748
<CURRENT-ASSETS> 27,356
<PP&E> 50,841
<DEPRECIATION> 18,508
<TOTAL-ASSETS> 79,541
<CURRENT-LIABILITIES> 8,610
<BONDS> 19,534
0
0
<COMMON> 6,699
<OTHER-SE> 39,482
<TOTAL-LIABILITY-AND-EQUITY> 79,541
<SALES> 21,575
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 21,116
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> 391
<INCOME-TAX> 138
<INCOME-CONTINUING> 253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 253
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
