-----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, QE1TNQtS6SUIca1mAPpXuKAHmVdMTGLKSW3MEIS2gITejJqmtn0RMd/UIbZ2bjtp 5bdGIQwn19taj7Of5XTVXA== 0000950134-96-001112.txt : 19960402 0000950134-96-001112.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950134-96-001112 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NASD 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13217 FILM NUMBER: 96542464 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-K 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1995 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, 1995 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: (214) 506-3400 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- None -- Securities registered pursuant to Section 12(g) of the Act: Common Stock 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 11, 1996, 3,103,382 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 $51,206,000. 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, 1995--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 16. 2 TABLE OF CONTENTS M/A/R/C INC. FORM 10-K
Page ---- 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 16 Signatures 18
2 3 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. Effective August 27, 1984, the Registrant changed its name from Allcom, Inc., to M/A/R/C Inc. to better reflect the Registrant's emphasis on marketing research. In January 1985, the Registrant and certain shareholders of the Registrant offered an aggregate of 1,401,902 shares of common stock at a per share price to the public of $6.67. The underwriters of such offering exercised their option for an additional 187,500 shares to cover over-allotments. The Registrant received net proceeds of approximately $5,500,000 from its sale of 937,500 shares of common stock. Effective June 30, 1989, the Registrant acquired certain net assets of two marketing research divisions from Information Resources, Inc., for approximately $2.5 million. The ASSESSOR(TM) Group and the Custom Projects Group had operations headquartered in Boston and Chicago. In order to enhance the growth potential of its primary businesses, M/A/R/C reorganized effective January 1, 1991. The firm renamed itself The M/A/R/C Group, and each of its marketing information services businesses became a separate operating company. At the time of this reorganization, the operating companies were Marketing And Research Counselors, engaging in custom marketing research; Targetbase Marketing, which creates targeted databases and related marketing programs; Quality Strategies, which develops customer satisfaction programs; and The M/A/R/C Consulting Group. The Registrant established Marketing And Research Counselors of Canada Inc., a wholly owned Canadian corporation in early 1991 for the purpose of expanding its business in that country. During 1994 Quality Strategies and The M/A/R/C Consulting Group were combined with Marketing And Research Counselors, comprising one operating company in the Custom Marketing Research business. In August of 1995, the Registrant organized Digital Marketing Services, Inc. (DMS) with America Online. The Registrant owns 30% of DMS and accounts for its ownership position under the equity method of accounting. In December of 1995 the Registrant dissolved its Canadian corporation and now operates in Canada as a branch. 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. The Registrant effected stock splits paid in the form of stock dividends of three shares for each two shares held on December 7, 1984, and one share for each two shares held on December 5, 1985. On February 25, 1992, the Registrant declared a six-for-five stock split effected in the form of a 20 percent dividend on its common shares, which was paid on March 31, 1992, to all shareholders of record on March 11, 1992. All references in this report to shares and per share data have been adjusted to reflect such stock splits. 3 4 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 (214) 506-3400. GENERAL Through its two operating companies, M/A/R/C Research and Targetbase Marketing, the Registrant provides marketing services to large consumer product and service companies. The Registrant has designed and developed proprietary, computer-based systems for providing marketing research services, such as product and advertising testing; product, advertising, and industry trend tracking; product positioning studies; marketing problem analysis; and market simulation and sales forecasting. The Registrant further provides marketing services designed to measure and track customer satisfaction and the design, construction, and implementation of databases consisting of both existing, and the most likely potential, customers for a given product. ORGANIZATION The Registrant provides marketing services to more than 200 clients who market consumer, agricultural, business, or industrial products or services. 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 gather, process, and analyze data about clients' products or services and the segments of 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, whether to introduce or discontinue products or services and what marketing or advertising strategy to use. The Registrant generally contracts separately with clients for each research project. For a typical full-service project, the Registrant consults with the client to define the nature of the information required. A study plan is then prepared that outlines the proposed sampling universe from which data is to be collected and the means of gathering and evaluating such data. The study plan and a price estimate are then submitted to the client for approval. Once approval is obtained, the Registrant designs questionnaires, selects sample households, and specifies respondent qualifications. After interviewing is completed, the Registrant validates and processes the data, analyzes the results, and makes written reports and presentations as required. M/A/R/C Research gathers data through telephone interviewers primarily utilizing Wide Area Telephone Service ("WATS") centers located in Denton, Texas, and Killeen, Texas. M/A/R/C Research has approximately 250 CRT-equipped WATS 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 is further collected by mailed questionnaires. The Registrant's data collection capabilities, when combined with the ability of its ACRS software to fully integrate all aspects of the marketing research process, significantly reduce the time required to complete most projects. In addition, M/A/R/C Research has a Marketing Science Department staffed by professionals with training and experience in advanced marketing research and analysis methods. The staff consults with the Registrant's clients and account executives on market research design, statistical analysis, and strategic marketing. 4 5 The Registrant has developed a series of proprietary research and analysis services styled "MACRO Market Modeling System." MACRO, an acronym for "Marketing Assessment of Consumer Revenue Opportunities," provides guidance to the Registrant's clients across all phases of the marketing process through its computerized market modeling products MACRO ExplorerSM and MACRO AssessorTM. The MACRO Assessor product combines the ASSESSOR model acquired by the Registrant in June 1989 with the Registrant's ENTRO model. The principal services provided by custom marketing research suppliers can be divided into four categories: testing, tracking, positioning, and problem analysis. Testing may be conducted for any of several purposes: Concept tests, which determine consumer acceptance of a new product, service, or advertising concept; Product tests, which determine the strengths and weaknesses of a particular product among consumers; Advertising pretests, which determine the ability of an advertisement to communicate a message or to sell a product or service; Media tests, which determine the optimum media expenditure level or media mix to advertise a product; Package tests, which determine appeal, convenience, durability, and other aspects of a package with consumers. Tracking consists of conducting a continuing study or a series of similar studies over a period of time to determine changes or trends in consumer acceptance or reaction to products, services, advertising campaigns, or industries. Tracking studies may last from a few months to several years. Positioning studies determine how consumers perceive the benefits and image of particular brands of products. The results indicate the extent to which consumers perceive brands in the manner the client intended and are used to develop strategies to enhance a product's position. Positioning studies are often conducted in conjunction with segmentation research. Segmentation studies identify distinct groups of customers according to the similarity of their needs for products and/or the benefits they are seeking. These results can be used to target the advertising and image of a client's product to the segments that are most favorably disposed toward it. Problem analysis consists of attempting to determine why a product, service, or advertisement is not performing as expected. The purpose of such studies is to identify the reason or reasons for poor performance in the marketplace and to make recommendations for corrective action. The Registrant markets its ACTION customer satisfaction measurement system through its M/A/R/C Research operating company. The ACTION System tracks customer satisfaction, links it to manufacturing and marketing to allow improvement of the product or service, and predicts how changes in the customer satisfaction level will affect sales volume. 5 6 TARGETBASE MARKETING The Registrant's Targetbase Marketing operating company creates and maintains highly refined databases of both existing and most likely potential prospects of client products and creates and executes marketing and promotional programs directed at these databases. Targetbase creates and executes closed-loop marketing programs that can incorporate various techniques, including contest, couponing, sweepstakes, and other types of response-oriented strategies. Targetbase was formed to develop and employ direct and interactive marketing techniques to isolate and target specific market segments. This enabled the Registrant to enter the business of database marketing, which includes such services as consumer screening, database management, computerized segmentation of advertising and promotion, automated processing of telephone and mail response, and predictive forecasting. Targetbase also provides support for techniques to identify primary prospects for a product or service. The Registrant then aggressively pursues those prospective customers through promotional programs and other means to gain trial and adoption of the client's product. The Registrant's advanced computer technology assists in the targeting process by providing a means to efficiently segment the marketplace and tailor various marketing strategies to multiple target groups. When Targetbase executes the promotion, the continued interaction with the target group expands the client's information about its customers. 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 major software developed by the Registrant is the Automated Custom Research System ("ACRS"). 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. The Registrant's systems analysts and programmers continually enhance the system and custom-tailor software to meet the specific needs of particular clients. During the year ended December 31, 1995, the Registrant spent approximately $674,000 for research and development and enhancement of existing systems. CLIENTS The Registrant directs its marketing efforts toward companies having relatively sophisticated and comprehensive research and marketing needs; these companies tend to be major suppliers of consumer goods and services. During the year ended December 31, 1995, RJR Nabisco, a tobacco, food, and beverage products company, accounted for approximately 16% 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, 1995, 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 As is customary in the industry, 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 product depends on its ability to accurately estimate in advance the costs involved in such project. Revenues are recognized as services are performed and billed to clients. 6 7 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 October 30, 1995, issue of Advertising Age rated the Registrant as the thirteenth largest marketing research company in the United States. 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 are the quality of information; consistency; the ability to direct, acquire and report on marketing programs in a short period of time; and price. EMPLOYEES At December 31, 1995, the Registrant employed 459 full-time staff employees and approximately 472 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. 7 8 EXECUTIVE OFFICERS Set forth below is certain information concerning the executive officers of the Registrant:
Name Age Position with the Registrant ---- --- ---------------------------- Cecil B. Phillips 71 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 49 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 42 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 48 Executive Vice President of the Registrant since November 1990; President of Quality Strategies 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 of the Registrant. Michael P. Redington 51 Executive Vice President of the Registrant since April 1993; President of M/A/R/C Research since April 1993; Executive Vice President of Marketing And Research Counselors from February 1992 to April 1993; Senior Vice President of Marketing And Research Counselors from January 1985 to February 1992. Harold R. Curtis 57 Senior Vice President of the Registrant since November 1986; Chief Financial Officer, Secretary, and Treasurer of the Registrant since 1982.
8 9 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, 1995, the Registrant was leasing 141,500 square feet of office space for the Registrant's Dallas operations at 7850 North Belt Line Road in Irving, Texas. In addition, the Registrant leases in the aggregate approximately 70,867 square feet in Atlanta, Georgia; Chicago, Illinois; Greensboro, North Carolina; Newport Beach, California; Norwalk, Connecticut; Killeen, Texas; and Toronto, Canada. The aggregate lease payments of the Registrant for the year ended December 31, 1995, amounted to $4,150,000. 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 WATS 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 rentable 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 $20,500,000. 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 $9,300,000 in bank debt. Prior to the exercise of the purchase option, the lease called for monthly base rental payments consisting of two components. One component was fixed at $1,700,000 annually until May 1996. The second component was tied to either prime or LIBOR and was approximately $500,000. The Registrant pays all insurance, taxes, and operating costs and was a guarantor for $6,500,000 of the lessor's 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. 9 10 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 11, 1996, 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.
Bid Quotation or Sale Price ------------- High Low ---- --- Calendar Year 1994 ------------------ First Quarter $ 8.00 $ 7.25 Second Quarter 9.25 7.25 Third Quarter 10.50 8.50 Fourth Quarter 13.50 10.50 Calendar Year 1995 ------------------ First Quarter $14.50 $11.75 Second Quarter 13.50 12.25 Third Quarter 14.25 12.25 Fourth Quarter 14.50 12.88 Calendar Year 1996 ------------------ (Through January 1996) $15.00 $13.25
From February 1982 to November 1984, the Registrant paid quarterly dividends on its Common Stock at an annual rate of 32c. per share. However, in November 1984, the Board of Directors determined that the Registrant would discontinue paying cash dividends and retain all earnings for the Registrant's operations. Beginning with the second quarter of 1995, the Registrant began paying quarterly dividends at an annual rate of $.40 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 2 of the Annual Report to Shareholders for the year ended December 31, 1995, is incorporated herein by reference. 10 11 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 10 through 11 of the Annual Report to Shareholders for the year ended December 31, 1995, 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 12 through 28 of the Annual Report to Shareholders for the year ended December 31, 1995. 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. 11 12 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, 1995, from the respective page numbers indicated:
Page Reference in Item Annual Report ---- ------------- Report of independent accountants 29 Financial statements 12-28 Consolidated balance sheets as of December 31, 1995, and December 31, 1994 12-13 Consolidated statements of income for the years ended December 31, 1995, 1994, and 1993 14 Consolidated statements of changes in shareholders' equity for the years ended December 31, 1995, 1994, and 1993 15 Consolidated statements of cash flows for the years ended December 31, 1995, 1994, and 1993 16 Notes to consolidated financial statements 17-28
(2) Financial Statement Schedules. The following supplemental schedules can be found on the indicated pages in this report:
Page in This Report ------------------- Item ---- Consent of independent accountants 13 Report of independent accountants on financial statement schedule 14 Financial statement schedule for the years ended December 31, 1995, 1994, and 1993 Schedule II - Valuation and qualifying accounts 15 Schedules other than those listed above have been omitted since they are either not required, are not applicable, or the required information is shown in the financial statements or related notes in the Annual Report.
12 13 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of M/A/R/C Inc. on Form S-8 (File No. 33-3061 and File No. 33-28750) of our report dated February 29, 1996, on our audits of the consolidated financial statements and financial statement schedule of M/A/R/C Inc. as of December 31, 1995, and 1994, and for the three years in the period ended December 31, 1995, which report is included in the Annual Report incorporated by reference in this Form 10-K. Coopers & Lybrand L.L.P. Dallas, Texas March 27, 1996 13 14 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 1995 annual report to shareholders of M/A/R/C Inc. on page 29 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 12 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 29, 1996 14 15 M/A/R/C INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
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) 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 ---- ---- ---- ---- Year ended December 31, 1993 Allowance for doubtful accounts $101 $ 34 $ 67 ---- ---- ----
Notes: (a) Column "C(2)" is omitted as the answer would be "none." 15 16 (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)*** 10.10 Office Complex Lease, dated as of May 1, 1991, between Registrant and SGA Development Partnership, Ltd. (10.10) **** 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, 1995 (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 18 17 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, 1996. 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.
Signature Capacity Date --------- -------- ---- /c/ Cecil B. Phillips Chairman of the Board March 27, 1996 - ----------------------------------------- and Director Cecil B. Phillips /s/ H. R. Curtis Senior Vice President, March 27, 1996 - ----------------------------------------- Principal Financial and Harold R. Curtis Accounting Officer /s/ Sharon M. Munger Principal Executive March 27, 1996 - ------------------------------------- Officer and Director Sharon M. Munger /s/ Alvin A. Achenbaum Director March 27, 1996 - ------------------------------------- Alvin A. Achenbaum /s/ Rolan G. Tucker Director March 27, 1996 - ---------------------------------------- Rolan G. Tucker /s/ Thomas J. Tierney Director March 27, 1996 - --------------------------------------- Thomas J. Tierney /s/ Elmer L. Taylor, Jr. Director March 27, 1996 - ---------------------------------------- Elmer L. Taylor, Jr.
17 18 Exhibit Index Exhibit No. Description _______ ___________ 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)*** 10.10 Office Complex Lease, dated as of May 1, 1991, between Registrant and SGA Development Partnership, Ltd. (10.10) **** 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, 1995 (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. 18 EX-11.1 2 COMPUTATION OF PER SHARE EARNINGS 1 M/A/R/C INC. EXHIBIT 11--STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
Year Ended December 31 ----------------------------------------- 1995 1994 1993 -------- -------- -------- PRIMARY Average shares outstanding 2,577,004 2,619,610 3,282,916 Assumed exercise of outstanding options and warrants 652,443 940,727 478,011 Assumed purchase of treasury shares from proceeds of option/warrant exercise (405,537) (507,636) (368,127) --------- --------- --------- 2,823,911 3,052,701 3,392,800 ========= ========= ========= Net income $3,275 $2,677 $1,178 Add assumed interest income from investment of option/warrant proceeds - 115 - --------- --------- --------- $3,275 $2,792 $1,178 ========= ========= ========= Primary net income per share $1.16 $0.91 $0.35 ========= ========= ========= FULLY DILUTED Average shares outstanding 2,577,004 2,619,610 3,282,916 Assumed exercise of outstanding options and warrants 652,443 940,727 478,011 Assumed purchase of treasury shares from proceeds of option/warrant exercise (382,943) (507,636) (351,892) --------- --------- --------- 2,846,505 3,052,701 3,409,035 ========= ========= ========= Net income $3,275 $2,677 $1,178 Add assumed interest income from investment of option/warrant proceeds - 41 - --------- --------- ---------- $3,275 $2,718 $1,178 ========= ========= ========== Primary net income per share $1.15 $0.89 $0.35 ========= ========= ==========
EX-13.1 3 ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13.1 THE M/A/R/C GROUP REPORT ON AUDITS OF FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 2 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of The M/A/R/C Group: We have audited the accompanying consolidated balance sheets of The M/A/R/C Group as of December 31, 1995, and 1994, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The M/A/R/C Group as of December 31, 1995, and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Dallas, Texas February 29, 1996 2 3 THE M/A/R/C GROUP CONSOLIDATED BALANCE SHEETS December 31, December 31, ASSETS (dollars in thousands) 1995 1994 -------------------------------------------- ------------ ------------ Current assets: Cash and cash equivalents $ - $ 1,669 Investments 1,848 1,668 Trade accounts receivable, less allowance for doubtful accounts of $241 and $252, respectively 13,292 9,131 Expenditures billable to clients 3,204 3,242 Notes receivable 284 248 Prepaid expenses 1,691 1,463 Federal income tax receivable 56 169 Deferred income taxes 168 188 Other current assets 650 559 ------------ ------------ Total current assets 21,193 18,337 Notes receivable, less current portion 82 40 Property and equipment, net 7,377 7,149 Capitalized software costs, less accumulated amortization of $0 and $546, respectively - 59 Investments - noncurrent 10,049 9,384 Cash surrender value of life insurance 3,211 3,070 Intangibles, less accumulated amortization of $2,788 and $2,537, respectively 680 931 Prepaid pension costs and other assets 1,612 1,914 ------------ ------------ Total assets $44,204 $40,884 ============ ============
The accompanying notes are an integral part of the financial statements. 3 4 THE M/A/R/C GROUP CONSOLIDATED BALANCE SHEETS December 31, December 31, LIABILITIES (dollars in thousands, 1995 1994 - ------------------------------------------------ ------------ ------------ except share and per share amounts) Current liabilities: Book overdraft $ 457 $ - Trade accounts payable 2,072 2,876 Advance payments from clients 2,145 2,970 Accrued liabilities 1,457 1,662 -------------- -------------- Total current liabilities 6,131 7,508 Long-term debt 5 123 Deferred income taxes 99 1,058 Deferred compensation 2,672 2,052 Other liabilities 2,856 71 -------------- -------------- Total liabilities 11,763 10,812 -------------- -------------- Commitments and contingencies SHAREHOLDERS' EQUITY - -------------------- Common stock, $1.00 par value, 15,000,000 shares authorized, 3,783,541 shares and 3,544,666 shares issued, respectively 3,784 3,545 Capital in excess of par value 6,855 5,264 Retained earnings 34,758 32,346 -------------- -------------- 45,397 41,155 Treasury stock at cost 877,059 and 861,744 shares, respectively (7,760) (7,546) Unearned compensation (1,440) (1,440) Pension liability (1,822) - Unearned ESOP shares (1,934) (2,097) -------------- -------------- Total shareholders' equity 32,441 30,072 -------------- -------------- Total liabilities and shareholders' equity $44,204 $40,884 ============== ==============
The accompanying notes are an integral part of the financial statements. 4 5 THE M/A/R/C GROUP CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Years Ended December 31, ------------------------------- 1995 1994 1993 --------- --------- --------- Operating revenues $74,387 $68,462 $62,156 Production and administrative expenses 70,242 64,793 60,915 --------- --------- --------- Operating income 4,145 3,669 1,241 Other income (expense): Interest and other income 976 725 808 Interest expense (121) (236) (223) --------- --------- --------- Income before taxes 5,000 4,158 1,826 Provision for income taxes 1,725 1,481 648 --------- --------- --------- Net income $3,275 $2,677 $1,178 ========= ========= ========= Earnings per share $1.16 $0.91 $0.35 ========= ========= ========= Weighted average shares outstanding 2,823,911 3,052,701 3,392,800 ========= ========= =========
The accompanying notes are an integral part of the financial statements. 5 6 THE M/A/R/C GROUP CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
Common Capital in Treasury Stock Unearned Stock, $1 Excess of Retained ------------------- Pension Unearned ESOP (dollars in thousands) Par Value Par Value Earnings Shares Cost Liability Compensation Shares - ---------------------- ------------ ---------- -------- --------- -------- --------- ------------ -------- Balance at January 1, 1993 $3,884 $6,788 $30,847 888,087 ($8,280) ------ ------ ------- ------- -------- Exercise of common stock options and warrants 86 461 68,403 (547) $547 Issue of restricted stock (437) (333,600) 3,106 (2,669) Purchase of treasury stock 43,840 (346) Loan to ESOP ($2,446) Payment on ESOP loan 186 Adjustment for minimum pension liability ($1,018) Net income 1,178 ------ ------ ------- ------- -------- ------- ------- ------- Balance at December 31, 1993 3,970 7,249 31,588 666,730 (6,067) (1,018) (2,122) (2,260) Exercise of common stock options and warrants 83 438 85,152 (682) 682 Purchase of treasury stock 618,265 (5,670) Retirement of treasury stock (508) (2,446) (1,919) (508,403) 4,873 Reduction of pension liability 1,018 Release of ESOP shares 23 163 Net income 2,677 ------ ------ ------- ------- -------- ------- ------- ------- Balance at December 31, 1994 3,545 5,264 32,346 861,744 (7,546) - (1,440) (2,097) Exercise of common stock options and warrants 239 1,485 Purchase of treasury stock 15,315 (214) Adjustment for minimum pension liability (1,822) Dividends paid (863) Release of ESOP shares 106 163 Net income 3,275 ------ ------ ------- -------- ------ ------- ------- ------- Balance at December 31, 1995 $3,784 $6,855 $34,758 877,059 ($7,760) ($1,822) ($1,440) ($1,934) ====== ====== ======= ========= ====== ======= ======= =======
The accompanying notes are an integral part of the financial statements. 6 7 THE M/A/R/C GROUP CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
Year Ended December 31, ------------------------- 1995 1994 1993 ------- ------- ------- Cash flows from operating activities: Net income $3,275 $2,677 $1,178 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,563 2,910 2,951 Gain on sale of assets (27) (22) (91) ESOP expense 269 186 - (Increase) decrease in income taxes receivable 113 75 (244) (Decrease) increase in deferred income taxes (939) 581 (304) (Increase) decrease in receivables and expenditures billable to clients (4,123) (3,458) 3,289 Increase in prepaids, intangibles, and other assets (158) (296) (832) (Decrease) increase in trade accounts payable (804) 605 27 (Decrease) increase in customer advances (825) (41) 1,209 (Decrease) increase in accrued liabilities (205) 556 (343) Increase (decrease) in deferred compensation, other liabilities, and income taxes payable 3,405 (1,830) 2,090 (Recognition) reduction of pension liability, net of tax (1,822) 1,018 (1,018) ------- ------- ------- Net cash provided by operating activities 722 2,961 7,912 ------- ------- ------- Cash flows from investing activities: Acquisition of property and equipment (2,287) (2,108) (1,093) Proceeds from sale of assets 81 141 537 Purchase of investments - - (2,952) Purchase of investments - held to maturity (2,950) (2,875) - Maturity of investments - held to maturity 1,857 2,830 - Sale of investments - available for sale - 943 - Issuance of notes receivable (86) (37) (60) Collection of notes receivable 8 133 12 ------- ------- ------- Net cash used in investing activities (3,377) (973) (3,556) ------- ------- ------- Cash flows from financing activities: Increase in book overdraft 457 - - Issuance of debt - 7,894 - Payment of debt (118) (7,896) (22) Issuance of common stock 1,724 521 547 Purchase of treasury stock (214) (5,670) (346) Payment of dividends (863) - - Loan to ESOP - - (2,446) Payment from ESOP loan - - 186 ------- ------- ------- Net cash used in financing activities 986 (5,151) (2,081) ------- ------- ------- Net increase (decrease) in cash and cash equivalents (1,669) (3,163) 2,275 Cash and cash equivalents at beginning of period 1,669 4,832 2,557 ------- ------- ------- Cash and cash equivalents at end of period $- $1,669 $4,832 ======= ======= =======
Cash payments for interest expense were $121, $137, and $8, and cash payments for income taxes were $1,875, $1,350, and $1,147 for 1995, 1994, and 1993, respectively. The accompanying notes are an integral part of the financial statements. 7 8 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation 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. 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. 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. Property and Equipment Property and equipment are stated at cost. Depreciation is provided principally using the straight-line method over estimated useful lives as follows: Buildings........................................... 20 to 30 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. 8 9 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 $592,138, $559,000, and $582,000, for the years ended December 31, 1995, 1994, and 1993, 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 for capitalized software costs was $59,000, $201,000, and $239,000, for the years ended December 31, 1995, 1994, and 1993, respectively. Investments Effective January 1, 1994, the Company adopted the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS No. 115"). SFAS No. 115 requires debt and equity securities to be classified as trading, available-for-sale, or held-to-maturity. 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. Discount or premium on investment securities is accredited or amortized to interest income over the terms of the securities using the straight-line method, which approximates the interest method. Realized gains and losses from the sale of securities are reflected in earnings and are determined using the specific identification method. Adoption of SFAS No. 115 had no effect on earnings. 9 10 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 (see Note 8). Deferred income taxes arise from temporary differences between financial and tax reporting, principally relating to depreciation, capitalized development costs, the Company's supplemental executive retirement plan, installment sales, and pension costs. Revenues Revenues from marketing research 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. 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. 10 11 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Other Accounting Issues In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever circumstances indicate that the carrying amount of an asset may not be recoverable. The impact of this standard, which the Company will adopt effective January 1, 1996, has been assessed by management and will have an immaterial effect. In late 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." This statement encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments to employees based on new fair value accounting rules. Companies that choose not to adopt the new rules will continue to apply existing rules, but will be required to disclose pro forma net income and earnings per share under the new method. The Company will elect to provide the pro forma disclosures in its 1996 financial statements. 11 12 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - NOTES RECEIVABLE Notes receivable consisted of the following:
December 31, December 31, (dollars in thousands) 1995 1994 ------------ ------------ Note receivable, monthly installments of $1 through September 1999, bearing interest of 7% $40 $48 Notes receivable from two directors bearing interest at prime, due on demand 232 232 Note receivable from related party bearing interest at prime plus 1%, interest only through January 1998, thereafter due in equal annual installments through January 2005 54 - Noninterest-bearing note receivable from employee, due on demand 40 8 --- --- 366 288 Less current portion 284 248 --- --- $82 $40 === ===
The prime rate of interest at December 31, 1995, was 8.5%. 12 13 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
December 31, ------------------------ (dollars in thousands) 1995 1994 ----------- ----------- Land and buildings $2,036 $2,036 Furniture and equipment 15,582 13,421 Leasehold improvements 3,814 3,760 ----------- ----------- 21,432 19,217 Less accumulated depreciation 14,055 12,068 ----------- ----------- $7,377 $7,149 =========== ===========
13 14 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, 1995, and 1994, were (in thousands):
Gross Gross Amortized Unrealized Unrealized Approximate 1995 Cost Gains Losses Fair Value - ---------------------------------- --------- ---------- ---------- ----------- 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 Gross Gross Amortized Unrealized Unrealized Approximate 1994 Cost Gains Losses Fair Value - ---------------------------------- --------- ---------- ---------- ----------- Tax-exempt bonds: Maturing within 1 year $1,668 $25 $2 $1,691 Maturing after 1 through 5 years 5,772 61 $139 5,694 Maturing after 5 through 10 years 884 - 26 858 Maturing after 10 years 2,728 58 60 2,726 --------- ---------- ---------- ----------- $11,052 $144 $227 $10,969
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Cash and Cash Equivalents The carrying amount approximates fair value because of the short maturity of those instruments. Investments The fair values of most investments are estimated based on quoted market prices for those or similar investments. For investments for which there are no quoted market prices, a reasonable estimate of fair value could not be made without incurring excessive costs. However, such investments are not a significant portion of the Company's portfolio. 14 15 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - 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. SFAS 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. The following table sets forth the plan's funded status and amounts recognized in the Company's financial statements:
December 31, December 31, (dollars in thousands) 1995 1994 ------------ ------------ Actuarial present value of benefit obligations: Vested benefit obligation $4,755 $2,676 ============ ============ Accumulated benefit obligation $4,989 $2,786 ============ ============ Projected benefit obligation $5,938 $3,340 Plan assets at fair value, primarily stocks and bonds 3,549 3,363 ------------ ------------ Excess (deficit) of plan assets over projected benefit obligation (2,389) 23 Unrecognized net loss from experience, different from actuarial assumptions 3,795 1,654 Prior service cost (credit) not yet recognized in net periodic pension cost (70) (75) Unrecognized transition asset being amortized over 15 years (15) (18) ------------ ------------ Prepaid pension asset $1,321 $1,584 ============ ============
15 16 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - EMPLOYEE BENEFIT PLANS (Continued) Net pension costs were recorded as follows:
Year Ended December 31, ----------------------- (dollars in thousands) 1995 1994 1993 ---- ---- ---- Benefit cost for service during the year $255 $287 $238 Interest cost on projected benefit obligations 378 375 315 Actual return on plan assets (611) 23 (53) Net amortization and deferral 367 (263) (271) ----- ----- ----- $389 $422 $229 ===== ===== =====
The expected long-term rate of return on assets was 12% for the years ended December 31, 1995, 1994, and 1993. The rate of salary progression was 3.9% for the years ended December 31, 1995, and 1994, and 5.3% for the year ended December 31, 1993. The settlement rates used to determine the actuarial present value of projected benefits were 7.25% for the year ended December 31, 1995, 9.0% for the year ended December 31, 1994, and 7.5% for the year ended December 31, 1993. 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) and the health and benefit trust. The ESOP 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 at the close of each calendar year. The Company absorbs the costs incurred for the administration of the ESOP/401(k). The health and benefit trust charges health costs, as incurred, based upon amounts required to pay insurance premiums and fund medical claims and administrative expenses incurred. Included in the Company's results of operations are the following costs for the pension plan, ESOP/401(k), and health and benefit trust:
Year Ended December 31, ----------------------- (dollars in thousands) 1995 1994 1993 ---- ---- ---- Pension Plan $389 $422 $229 ESOP/401(k) 345 266 218 Health and Benefit Trust 1,455 1,322 1,359
16 17 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - EMPLOYEE BENEFIT PLANS (Continued) In January 1993, the Company loaned $2.5 million to the ESOP for the acquisition of 305,518 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, 1995, and 1994, shares allocated to plan participants totaled 63,768 and 43,393 shares, respectively. All remaining shares from the January 1993 acquisition are committed to be released ratably over the remaining life of the ESOP loan. The fair market value of the unearned ESOP shares at December 31, 1995, and 1994, was $3,385,000 and $3,080,000, 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, 1995, the Chairman and one Senior Vice President were vested in the plan. As of December 31, 1995, and 1994, the Company has accrued $2,130,000 and $1,631,000, 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, 1995, 1994, and 1993, were $372,000, $141,000, and $433,000, respectively. The Company follows the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS No. 106), 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. Seven 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, 1995, 1994, and 1993, were approximately $12,000, $31,000, and $8,000, respectively. The Company's obligation under SFAS No. 106 at December 31, 1995, and 1994, was not material. 17 18 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES The Company leases space for its corporate headquarters facility under a lease agreement expiring in 2000. The lease calls for monthly base rental payments consisting of two components. One component is fixed at $1,700,000 annually. The second component is based on prime or LIBOR. Currently, the second component of the base rental payment is approximately $500,000. The Company bears all insurance, taxes, and operating costs and is a guarantor for $6,500,000 of the lessor's bank debt. In addition, the Company has pledged land carried at $890,000 as collateral. The Company has the option to purchase the facility in 1996. The Company also leases office space and certain equipment under operating lease agreements expiring through 1996. Minimum annual future rentals under the terms of the above leases are as follows: Year ending December 31: 1996................ $3,707,000 1997................ 3,423,000 1998................ 2,910,000 1999................ 2,237,000 2000................ 992,000 ----------- $13,269,000 ===========
Included in the results of operations is lease expense for facilities and equipment of $4,959,000, $5,063,000, and $4,828,000, for the years ended December 31, 1995, 1994, and 1993, respectively. The Company provides a letter of credit from a bank for $106,000, in lieu of paying deposits for facility rentals. Through December 31, 1995, the Company, through the M/A/R/C Inc. Employee Health and Benefit Trust, provided its employees and their dependents with injury and hospitalization coverage up to $50,000 per person, per plan year, with an insurance company covering claims in excess of this amount up to a maximum aggregate amount of $1,285,000 per plan year. As of January 1, 1996, the Company elected to participate in a fully insured health and benefit plan with a major insurance carrier. The Company maintains a revolving line of credit in the amount of $3,000,000, which expires in May 1996. At the Company's option, outstanding borrowings bear interest at prime or LIBOR plus 2.0% and are due upon demand. At December 31, 1995, the line of credit was unused. 19 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - CONCENTRATIONS OF CREDIT RISK The Company provides marketing information services primarily to consumer product companies. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company's ten largest customers accounted for approximately 45% of sales in 1995 and approximately 51% and 36% of trade accounts receivable and work in process, respectively, at December 31, 1995. One customer, RJR Nabisco Holdings Corporation, accounted for revenues of $11,988,000, $9,158,000, and $13,148,000, for the years ended December 31, 1995, 1994, and 1993, 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 $6,077,000 of its $11,897,000 investment in tax-exempt bonds in the state of Texas. 20 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - INCOME TAXES Income tax expense (benefit) on income before income taxes consists of (dollars in thousands):
Year Ended December 31, ------------------------- 1995 1994 1993 -------- -------- ----- Current provision: Federal $1,556 $1,330 $516 State 169 130 (202) -------- -------- ----- 1,725 1,460 314 Deferred provision - 21 334 -------- -------- ----- Provision for income taxes charged to operations 1,725 1,481 648 Stockholders' equity - pension component (939) 560 (560) -------- -------- ----- Comprehensive provision for income taxes $786 $2,041 $88 ======== ======== =====
Reconciliations of the U.S. corporate income tax rate and the effective tax rate on income before income taxes are summarized below (dollars in thousands):
Year Ended December 31, -------------------------- 1995 1994 1993 -------- -------- ------ U.S. corporate tax rate 34% 34% 34% Income before taxes $5,000 $4,158 $1,826 ------ ------ ------ Tax expense at statutory rates 1,700 1,414 621 Tax-exempt income (227) (202) (160) Officers' life insurance (188) 10 34 Meals and entertainment 60 48 19 State income (23) (44) 69 Differences between financial reporting and tax bases of fixed assets (28) - 61 Other 262 125 206 ------ ------ ------ Federal tax provision 1,556 1,351 850 State tax provision (benefit) 169 130 (202) ------ ------ ------ Provision for income taxes charged to operations 1,725 1,481 648 Stockholders' equity - pension component (939) 560 (560) ------ ------ ------ Comprehensive provision for income taxes $ 786 $2,041 $ 88 ====== ====== ======
21 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - INCOME TAXES (Continued) The components of the net deferred tax asset (liability) as of December 31, 1995, and 1994, are as follows (dollars in thousands):
1995 1994 ------------------------- ---------------------------- Current Noncurrent Current Noncurrent ------------------------ ----------------------------- ASSETS - ------ Excess book over tax depreciation $ - $ 318 $ - $ 196 Reserve for expenditures billable to clients 86 - 102 - Accounts receivable allowance for doubtful accounts 82 - 86 - Reserve for director retirement plan - 185 - 143 Other reserves and liabilities - 182 - 116 Unrecognized net pension obligation - 939 - - ------- ------ ------ ------- Deferred tax asset 168 1,624 188 455 22 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - 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 above stock option plan for the periods ended December 31 are summarized as follows:
1995 1994 1993 --------- -------- -------- Options outstanding at beginning of period 382,526 473,203 445,747 Options granted - - 55,000 Canceled (9,563) (28,093) (9,630) Exercised (101,085) (62,584) (17,914) Options outstanding at end of period 271,878 382,526 473,203 Options exercisable at end of period 252,278 282,032 391,916 Average price of options: Granted during period - - $7.56 Exercised $6.75 $6.50 5.95 Outstanding at end of period 6.31 6.35 6.50
23 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - STOCK OPTIONS AND WARRANTS (Continued) Stock Warrants The Company has issued warrants on 333,600 shares of its common stock to seven senior executives. The warrants were sold for their estimated fair market value of $.83 each. Each warrant represents the right to purchase one share of the Company's common stock at prices ranging from $6.46 to $7.50 per share prior to March 1, 1997. On January 18, 1993, the Board of Directors authorized the issuance of 333,600 shares of restricted common stock of the Company. Such shares were issued in tandem with the 333,600 warrants. The exercise of a warrant results in the corresponding loss of a restricted share. During 1994, two executives sold warrants for 85,152 shares of common stock to parties outside of the Company and forfeited an equal number of the restricted shares. Of the warrants sold, 20,000 were exercised during 1994 and 44,937 in 1995. At December 31, 1995, 20,215 of these warrants remained outstanding. In 1993, warrants for 68,403 shares of common stock were exercised. Concurrent with the exercise of the warrants, an equal number of the restricted shares were returned to the Company and retired. At December 31, 1995, there were warrants outstanding on 172,045 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 1995. If the target is not met by March 1, 1997, the restricted stock will be returned to the Company. The Company has an additional 50,000 warrants on its common stock issued at an exercise price of $10.75. Executive Stock Plan On April 19, 1991, the Board of Directors adopted a Nonstatutory Executive Stock Plan, reserving 240,000 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 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 540,000 shares of common stock. During 1994, options on 249,550 shares were granted at an average price of $9.39 per share; no options were canceled or exercised during 1994. During 1995, 51,600 shares were canceled, 7,600 were exercised, and no additional options were granted. At December 31, 1995, and 1994, there were outstanding options of 310,350 for an average price of $9.59 per share and 369,555 for an average price of $9.52 per share, respectively. 24 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - RELATED PARTY TRANSACTIONS, GUARANTEES, AND COMMITMENTS At December 31, 1995, and 1994, the Company had outstanding loans of approximately $336,000 and $240,000, respectively, to employees, directors, and officers of the Company. The loans are for various periods up to one year at the prime interest rate. At December 31, 1995, and 1994, the Company had outstanding advances of $0 and $200,000, respectively, to the Chairman of the Board of 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 him 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 Company is recognizing expense in connection with this plan which includes the amortization of accumulated prior service costs of $520,000 which is being recognized over ten years through 2001. The amounts expensed in 1995, 1994, and 1993, were approximately $122,000, $155,000, and $202,000, respectively. 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 provided for the Company to pay fees of $150,000 during 1993. The Company also paid certain operating expenses which totaled $76,000 during 1993. 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 the year were immaterial. 25 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - EARNINGS PER SHARE Earnings per share are based upon the weighted average number of common shares outstanding during each year. Weighted average shares include the net number of additional shares which would arise from the exercise of stock options and warrants, after assuming that the Company would use the proceeds from such exercise to repurchase shares of stock for the treasury at the average price during the respective periods (the treasury stock method). 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. 26 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - SUBSEQUENT EVENT The Company currently leases its corporate headquarters facility under an operating lease. Subsequent to December 31, 1995, the Company entered into an agreement to purchase the building for approximately $20,500,000. The purchase will be financed through new debt. 27 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 - INTERIM FINANCIAL INFORMATION (Unaudited) The following represents unaudited interim financial information of the quarterly periods for the years ended December 31, 1995, and 1994 (dollars in thousands, except per share and share amounts).
Year Ended December 31, 1995 ------------------------------------------ First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- --------- --------- 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 $.21 $.28 $.30 $.37 ========= ========= ========= ========= Weighted average shares outstanding 2,786,639 2,841,000 2,882,000 2,891,200 ========= ========= ========= =========
28 THE M/A/R/C GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 - INTERIM FINANCIAL INFORMATION (Continued) (Unaudited)
Year Ended December 31, 1994 ------------------------------------------ First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- --------- --------- Revenue $14,203 $18,262 $17,025 $18,972 Costs and expenses 13,748 17,333 16,026 17,686 --------- --------- --------- --------- Operating income 455 929 999 1,286 Interest and other income 212 102 131 44 --------- --------- --------- --------- Income before taxes 667 1,031 1,130 1,330 Income taxes 247 381 418 435 --------- --------- --------- --------- Net income $420 $650 $712 $895 ========= ========= ========= ========= Earnings per share $.14 $.22 $.27 $.28 ========= ========= ========= ========= Weighted average shares outstanding 3,064,715 2,842,220 2,848,200 2,801,583
========= ========= ========= ========= 29 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 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. COMPARISON OF YEAR ENDED DECEMBER 31, 1995, WITH YEAR ENDED DECEMBER 31, 1994 Revenues increased to $74,387,000 for the year ended December 31, 1995, compared with $68,462,000 for the prior year--an increase of $5,925,000 or 8.6%. Revenues from our largest client increased this year from a level of $9,158,000 to $11,988,000. Revenues in our Targetbase Marketing business grew 20.1%. Targetbase added several major new accounts during the year. Revenues in our M/A/R/C Research business grew a modest 2.5%. There were significant spending reductions by some of our Research clients; however, those spending reductions had more to do with the clients' business conditions than with the loss of business to competitors. More importantly, our M/A/R/C Research business was able to increase the aggregate spending among our other major clients and add enough new accounts to show a slight increase in revenues when measured against last year. For the twelve months, operating income was $4,145,000 or 5.6% of revenues, compared with $3,669,000 or 5.4% of revenues last year. Our M/A/R/C Research business increased staffing levels during early 1995 in anticipation of increased revenues. During the latter months of 1995, those staffing levels were beginning to be reduced, largely through attrition. The increase in staff cost without a corresponding increase in revenues impacted our operating income performance this year. The increase we did experience was attributable to increased revenues. Net interest and other income increased to $855,000, partially because of reduced interest expense. Other income included proceeds from life insurance policies totaling $211,000. Net income for the twelve months increased to $3,275,000 or $1.16 a share, compared with $2,677,000 or $.91 a share for the prior period. The Company's effective tax rate in calendar 1995 was 34.5% compared with 35.6% in calendar 1994. Weighted average shares for 1995 were 2,823,911, down from 3,052,701 in 1994. This reduction reflected the effect of share repurchases in calendar 1994. 30 COMPARISON OF YEAR ENDED DECEMBER 31, 1994, WITH YEAR ENDED DECEMBER 31, 1993 Revenues increased to $68,462,000 for the year ended December 31, 1994, compared with $62,156,000 for the prior year--an increase of $6,306,000 or 10%. Though revenues from our largest client declined from a level of $13,148,000 or 21.1% of revenues last year to $9,158,000 or 13.4% this year, volume increases from the rest of the business, $10,296,000 or 21%, more than offset the decline. The majority of the revenue growth this year came in our M/A/R/C Research business. For the twelve months, operating income was $3,669,000 compared with $1,241,000 last year. Cost reductions effected during the latter part of 1993 contributed substantially to the improvement; the remainder can be attributed to improved revenues. Net interest and other income decreased $96,000 to $489,000 for the comparable periods. The decrease in part is reflective of interest expense paid on $4,180,000 borrowed in June of 1994 to repurchase 440,000 shares of the Company's common stock. The borrowed funds were repaid by December 31, 1994. The provision for income taxes increased $833,000 from the 1993 level of $648,000. The increased provision principally reflects the Company's improved operating results. Income before taxes of $4,158,000 was $2,332,000 higher than in 1993. Net income for the twelve months increased to $2,677,000 or $.91 a share, compared with $1,178,000 or $.35 a share for the prior year. Weighted average shares for 1994 include incremental shares for the assumed exercise of stock options and warrants limited to 20% of the outstanding shares at December 31, 1994. For earnings per share calculations for 1994, the balance of the funds from the exercise of options and warrants is assumed to be invested in securities resulting in a $115,000 after-tax return. CASH RESOURCES AND LIQUIDITY As of December 31, 1995, working capital was $15,062,000 compared with $10,829,000 at December 31, 1994. The primary reason for the change in working capital was the increase in accounts receivable of $4,161,000. Our fourth quarter billings with several major clients contributed to this elevated receivables level. Collections on our accounts receivable in January of 1996 were $10,681,000. During the year, the Company made capital expenditures of $2,287,000 and added $1,093,000 to its investment portfolio of municipal bonds. 31 The Company's December 31, 1995, working capital position and the existing unused lines of bank credit totaling $3,000,000 are adequate to support the Company's cash requirements for operating and capital expenditures for the foreseeable future. EX-27.1 4 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1,848 10,049 13,292 241 3,204 21,193 21,432 14,055 44,204 6,131 0 0 0 3,784 28,657 44,204 74,387 74,387 70,242 70,242 0 0 (853) 5,000 1,725 3,275 0 0 0 3,275 1.16 1.15
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