-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KHIBfUFV0idZCYqYlXRLrfva89WaiKMo0lJRP6ocH69yaNgLBaIim+bl1dnPwCJf f7aoHmdNokAK4EKv11LO9A== 0000950134-98-008564.txt : 19981110 0000950134-98-008564.hdr.sgml : 19981110 ACCESSION NUMBER: 0000950134-98-008564 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARC GROUP CENTRAL INDEX KEY: 0000356287 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 751781525 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13217 FILM NUMBER: 98740776 BUSINESS ADDRESS: STREET 1: 7850 N BELT LINE RD STREET 2: P O BOX 650083 CITY: IRVING STATE: TX ZIP: 75063 BUSINESS PHONE: 2145063400 MAIL ADDRESS: STREET 1: 7850 N BELT LINE RD STREET 2: P O BOX 650083 CITY: IRVING STATE: TX ZIP: 75063 FORMER COMPANY: FORMER CONFORMED NAME: M/A/R/C INC DATE OF NAME CHANGE: 19930602 FORMER COMPANY: FORMER CONFORMED NAME: MARC INC DATE OF NAME CHANGE: 19920324 FORMER COMPANY: FORMER CONFORMED NAME: ALLCOM INC DATE OF NAME CHANGE: 19841202 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1998 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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: 5,022,283 shares as of September 30, 1998. 2 THE M/A/R/C GROUP INDEX (UNAUDITED)
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Independent Accountant's Report..................................................i Consolidated Balance Sheets September 30, 1998, and December 31, 1997......................................1 Consolidated Statements of Income Three Months Ended September 30, 1998, and 1997................................2 Consolidated Statements of Operations Nine Months Ended September 30, 1998, and 1997.................................3 Consolidated Statement of Changes in Stockholders' Equity Nine Months Ended September 30, 1998...........................................4 Consolidated Statements of Cash Flows Nine Months Ended September 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.........................................7-11
3 PRICEWATERHOUSECOOPERS LLP INDEPENDENT ACCOUNTANT'S REPORT To the Board of Directors and Shareholders of The M/A/R/C Group We have reviewed the accompanying consolidated balance sheet of The M/A/R/C Group as of September 30, 1998, the related condensed consolidated statements of income and cash flows for the three-month periods ended September 30, 1998, and 1997, the condensed consolidated statements of operations, and cash flows for the nine-month periods ended September 30, 1998, and 1997, and the consolidated statement of changes in shareholders' equity for the nine-month period ended September 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 condensed 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 October 27, 1998 i 4 PART I. FINANCIAL INFORMATION THE M/A/R/C GROUP CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Sept. 30, 1998 Dec. 31, 1997 -------------- ------------- (Dollars in Thousands) ASSETS Current Assets: Cash and short-term investments $ 4,796 $ 6,374 Trade accounts receivable, net 11,467 14,512 Expenditures billable to clients, net 8,274 5,888 Notes receivable 10 12 Federal income tax receivable 588 741 Deferred income taxes receivable 378 400 Prepaid expenses and other current assets 2,440 2,307 ---------- ---------- Total Current Assets 27,953 30,234 ---------- ---------- Notes receivable, less current portion 54 67 Property and equipment, less accumulated depreciation of $18,072,000 and $15,802,000, respectively 31,744 29,344 Investments at cost 7,761 7,365 Intangibles, less accumulated amortization of $1,604,000 and $3,039,000, respectively 6,051 1,987 Prepaid pension costs and other assets 6,395 5,977 ---------- ---------- TOTAL ASSETS $ 79,958 $ 74,974 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion, long-term debt $ 747 $ 747 Trade accounts payable 1,605 1,425 Advance payments from clients 2,153 2,615 Other accrued liabilities 2,046 1,709 ---------- ---------- Total Current Liabilities 6,551 6,496 Long-term debt, less current portion 20,967 17,453 Deferred taxes payable and other liabilities 3,265 3,464 ---------- ---------- Total Liabilities 30,783 27,413 ---------- ---------- Stockholders' Equity: Common stock, $1 par value, 15,000,000 shares authorized, 6,688,500 and 6,530,033 issued, respectively 6,688 6,530 Capital in excess of par value 13,244 10,951 Retained earnings 42,347 42,907 Less treasury stock at cost, 1,383,614 and 1,356,197 shares, respectively (8,847) (8,286) Unearned compensation (2,563) (2,725) Unearned ESOP shares (1,694) (1,816) ---------- ---------- Total Stockholders' Equity 49,175 47,561 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 79,958 $ 74,974 ========== ==========
The accompanying notes are an integral part of the financial statements. 1 5 THE M/A/R/C GROUP CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998, AND 1997 (UNAUDITED)
1998 1997 ------------ ------------ (Dollars in Thousands, Except Per Share Data) Revenues $ 23,167 $ 23,747 Costs and expenses 21,542 21,187 ------------ ------------ Operating income 1,625 2,560 Interest and other income (expense) net (313) (270) ------------ ------------ Income before taxes 1,312 2,290 Federal and state income tax provision 465 802 ------------ ------------ NET INCOME $ 847 $ 1,488 ============ ============ Net income per share - Basic $ .17 $ .31 ============ ============ Net income per share - Diluted $ .16 $ .29 ============ ============ Weighted average common shares outstanding - Basic 5,017,585 4,837,018 ============ ============ Weighted average common shares outstanding - Diluted 5,190,931 5,170,366 ============ ============
The accompanying notes are an integral part of the financial statements. 2 6 THE M/A/R/C GROUP CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998, AND 1997 (UNAUDITED)
1998 1997 ------------ ------------ (Dollars in Thousands, Except Per Share Data) Revenues $ 67,641 $ 72,449 Costs and expenses 66,440 65,188 ------------ ------------ Operating income 1,201 7,261 Interest and other income (expense) net (368) (92) ------------ ------------ Income before taxes 833 7,169 Federal and state income tax provision 215 2,304 ------------ ------------ NET INCOME $ 618 $ 4,865 ============ ============ Net income per share - Basic $ .12 $ 1.02 ============ ============ Net income per share - Diluted $ .12 $ .97 ============ ============ Weighted average common shares outstanding - Basic 4,955,277 4,759,708 ============ ============ Weighted average common shares outstanding - Diluted 5,150,186 5,005,957 ============ ============
The accompanying notes are an integral part of the financial statements. 3 7 THE M/A/R/C GROUP CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
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) Balance at December 31, 1997 $ 6,530 $ 10,951 $ 42,907 ($ 2,725) ($ 1,816) ($ 8,286) Exercise options/warrants 56 316 Purchase treasury stock (561) Amortization of compensation 162 Dividends paid ($0.225 per share) (1,178) Release of ESOP shares 236 122 Acquisition of idm 102 1,741 Net income (loss) 618 --------- --------- --------- --------- --------- --------- Balance at June 30, 1998 $ 6,688 $ 13,244 $ 42,347 ($ 2,563) ($ 1,694) ($ 8,847) ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of the financial statements. 4 8 THE M/A/R/C GROUP CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
1998 1997 --------- --------- (Dollars in Thousands) Net cash flow from operating activities: Net income (loss) $ 618 $ 4,865 Noncash items: Depreciation and amortization 3,276 2,760 ESOP Expense 358 401 Amortization of unearned compensation 162 161 (Gain) loss on sale or property and equipment (13) 0 Bad-debt expense 571 354 (Gain) loss on equity-method investment (25) (114) Net (increase) in receivables and expenditures billable to clients 1,875 (6,907) Net (increase) decrease in prepaid expenses and other assets (684) (348) Increase (decrease) in trade accounts payable (309) (544) Increase (decrease) in accrued liabilities and other liabilities (137) (781) --------- --------- Net cash provided by operating activities 5,692 (153) --------- --------- Cash flows from investing activities: Acquisition of property and equipment (3,673) (3,707) Net (additions to) reductions in notes receivable 15 224 Purchase of idm (4,144) 0 Net (increase in) reduction of investments (474) (150) Disposition of property and equipment -- 127 --------- --------- Net cash used by investing activities (8,276) (3,506) --------- --------- Cash flows from financing activities: Net (decrease) increase in customer advances (462) (1,283) Acquisition (payment) of short-term debt -- 0 Acquisition (payment) of long-term debt 2,835 (826) Issuance of common stock 372 1,859 Cash dividends paid (1,178) (1,146) Issue/(purchase of) treasury stock (561) (83) --------- --------- Net cash provided (used) by financing activities 1,006 (1,479) --------- --------- Net increase (decrease) in cash (1,578) (5,138) Cash and short-term investments at December 31 6,374 9,327 --------- --------- Cash and short-term investments at September 30 $ 4,796 $ 4,189 ========= ========= Schedule of noncash investing activity: 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 =========
The accompanying notes are an integral part of the financial statements. 5 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 September 30, 1998, the consolidated results of its operations for both the three and nine months ended September 30, 1998, and September 30, 1997, and its consolidated cash flows for the nine months ended September 30, 1998, and September 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 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 nine months ended September 30, 1998, with the nine months ended September 30, 1997, and the three months ended September 30, 1998, with the three months ended September 30, 1997. COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998, WITH NINE MONTHS ENDED SEPTEMBER 30, 1997 Revenues decreased to $67,641,000 for the nine-month period ended September 30, 1998, compared with revenues of $72,449,000 for the nine-month period ended September 30, 1997. Production and administrative expenses were 98.2% of revenues, compared with 90.0% for the prior year. For the nine months this year, the Company recorded operating income of $1,201,000 compared with operating income of $7,261,000 last year for the same period. The Company's Research division has not performed well through nine months, a period in which it recorded revenues of $30,272,000 and operating losses totaling approximately $1,973,000. Most of the problems occurred in the first quarter when revenues dropped to $8,924,000, approximately a 31% decline from prior-year levels. Management reacted by reducing fixed costs. Revenues have now stabilized at 1997 levels with half of our top 15 clients in this division, and in the third quarter, we recorded operating income of approximately 6% on revenues of $10,929,000. Our focus now is on building the business back profitably. We continue to work toward realigning our business development 7 11 THE M/A/R/C GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) and client service functions to better support our suite of analytic products. We are tailoring our product offerings to specific opportunities in the telecommunications, energy, financial services, health care, and package goods segments. Targetbase, our database marketing division, has enjoyed a 21% increase in revenues for the nine-month period to a level of $37,369,000, including $2,287,000 from our U.K. subsidiary. Operating income in this division has been approximately $3,175,000 for the nine-month period. Operating income was negatively impacted this year by one-time charges in the first quarter of $1,131,000 associated with client work and the fact that costs for developing our new software platform as well as our interactive capabilities are outpacing revenues. The Company is planning to reduce our internal costs for developing interactive programs and is aggressively focusing on building an installed base for ARM(TM) 2.0 (our new software platform) so it can better demonstrate ARM's functional benefits for potential clients. Seven of our top ten clients in this division are showing individual revenue increases of more than 10% compared with 1997. Our U.K. subsidiary continues to enjoy revenue growth in the 35% range when compared with last year and has made a marginal contribution to profits after goodwill and interest charges associated with the acquisition. Net interest and other income decreased $276,000 to ($368,000) for the comparable nine 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 net income of $618,000, or $.12 a share on a diluted basis, for the nine months of 1998 compared with net income of $4,865,000, or $.97 per share on a diluted basis a year ago. 8 12 THE M/A/R/C GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The weighted average number of shares outstanding (diluted) increased to 5,150,186 from 5,005,957 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 282,603 shares held in the Employee Stock Ownership Plan that have not been released to participants. The Company repurchased 33,007 shares of its stock during the nine-month period ended September 30, 1998. COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998, WITH THREE MONTHS ENDED SEPTEMBER 30, 1997 Revenues for the third quarter ended September 30, 1998, were $23,167,000 compared with $23,747,000 for the similar period in 1997. Production and administrative expenses were 93.0% for the period compared with 89.2% for the prior year. Operating income declined to $1,625,000 from $2,560,000 for the prior-year comparable period. The Company's Research division performed better than expected in the third quarter. On revenues of $10,929,000, the division generated operating income of approximately 6%. Cost reductions combined with improvements in revenues when measured against the first quarter of 1998 restored the division to profitability. Targetbase Marketing continued to show solid sales increases in the third quarter, rising 27% to $12,238,000. Our U.K. subsidiary contributed sales of $1,212,000 in the quarter. Operating income in the quarter was approximately 8% reflecting the fact that revenues from our ARM(TM) brand and 9 13 THE M/A/R/C GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) customer management software product suite and our interactive business are not yet sufficient to cover the operating costs incurred associated with these important initiatives. Net interest and other income declined ($43,000) to ($313,000). Net income for the three-month period ended September 30, 1998, fell to a level of $847,000, or $.16 a share on a diluted basis, from 1,488,000, or $.29 a share on a diluted basis, the year before. The weighted average number of shares outstanding (diluted) increased to 5,190,931 from 5,170,336 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 282,603 shares held in the Employee Stock Ownership Plan that have not been released to participants. The Company repurchased 7,507 shares of its stock during the three-month period ended September 30, 1998. CAPITAL RESOURCES AND LIQUIDITY From December 31, 1997, to September 30, 1998, cash and short-term investments decreased $1,578,000. Most of the decline resulted from capital investments made during the nine months measured against decreased cash flow from operations. The Company feels its September 30, 1998, cash and short-term investment position of $4,796,000, the temporary investment position of $7,761,000, the working capital position of $21,402,000, and the remaining unused bank line of credit of approximately $5,900,000 are adequate to support the Company's cash requirements for operating and capital expenditures. 10 14 THE M/A/R/C GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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. We are currently building our test plans and our test environment. The Company will spend approximately $400,000 bringing our various applications, operating systems, and hardware into compliance. Very little funds have been spent to date. We are slated to complete testing by the end of April 1999, with all remediation and contingency planning completed by the end of June 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. 11 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: November 6, 1998 /s/ SHARON M. MUNGER --------------------------- ---------------------------- Sharon M. Munger (Chairman of the Board and Chief Executive Officer) Date: November 6, 1998 /s/ HAROLD R. CURTIS --------------------------- ---------------------------- Harold R. Curtis (Chief Financial Officer) 12 16 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------ ----------- Exhibit 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 4,796 7,761 11,863 396 8,274 27,953 49,816 18,072 79,958 6,551 20,967 6,688 0 0 42,487 79,958 67,641 0 0 66,440 0 0 368 833 215 618 0 0 0 618 0.12 0.12
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