-----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, BspIQXf6///ZEdt1pvovRkXRgOGD0hsmljRvUAUwaT0s26NgsKfj5N9bDbOMXe3g 7ppBN5UAzpMDYP0wDpizuA== 0000893220-96-000715.txt : 19960510 0000893220-96-000715.hdr.sgml : 19960510 ACCESSION NUMBER: 0000893220-96-000715 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960509 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRANDON SYSTEMS CORP CENTRAL INDEX KEY: 0000807782 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 132707203 STATE OF INCORPORATION: DE FISCAL YEAR END: 1002 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11564 FILM NUMBER: 96558330 BUSINESS ADDRESS: STREET 1: ONE HARMON PLZ CITY: SECAUCUS STATE: NJ ZIP: 07094 BUSINESS PHONE: 2013920800 MAIL ADDRESS: STREET 1: ONE HARMONM PLAZA STREET 2: ONE HARMONM PLAZA CITY: SECAUCUS STATE: NJ ZIP: 07094 10-Q 1 FORM 10-Q BRANDON SYSTEMS CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Quarter Ended Commission File Number March 31, 1996 0-15312 BRANDON SYSTEMS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-2707203 - ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) NINE POLITO AVENUE LYNDHURST, NEW JERSEY 07071 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (201) 842-0700 -------------- 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 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 -------- -------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of April 23, 1996 the registrant had 4,399,146 shares of its Common Stock, par value $.10, outstanding. 2 FORM 10-Q PAGE 1 BRANDON SYSTEMS CORPORATION - INDEX -
PAGE NO. -------- PART I - FINANCIAL INFORMATION ITEM 1 - Financial Statements Condensed Consolidated Balance Sheets 2 Condensed Consolidated Statements of Income 3 Condensed Consolidated Statement of Shareholders' Equity 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6-9 ITEM 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition 10-13 PART II - OTHER INFORMATION ITEM 6 - Exhibits and Reports on Form 8-K 14 Signatures 15
3 PART I - FINANCIAL INFORMATION FORM 10-Q PAGE 2 BRANDON SYSTEMS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, OCTOBER 1, 1996 1995 ---------- ---------- ASSETS Current assets Cash and cash equivalents....................... $ 1,655,000 $ 4,197,000 Marketable securities (Note 3).................. 15,381,000 14,347,000 Accounts receivable, less allowance for doubtful accounts............................. 15,007,000 12,580,000 Deferred income taxes (Note 4).................. 292,000 476,000 Prepaid expenses and other current assets....... 634,000 632,000 ----------- ----------- Total current assets.................... 32,969,000 32,232,000 Furniture and equipment, at cost, less accumulated depreciation and amortization....... 2,984,000 2,858,000 Other assets...................................... 219,000 227,000 ----------- ----------- $36,172,000 $35,317,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accrued expenses and other current liabilities................................... $ 4,362,000 $4,700,000 Dividend payable (Note 5)....................... 374,000 312,000 Income taxes payable............................ 452,000 127,000 ----------- ---------- Total current liabilities.............. 5,188,000 5,139,000 Commitments (Note 6) Shareholders' equity (Notes 2 and 5): Preferred stock, $1.00 par value; authorized 1,000,000 shares; issued and outstanding - None Common stock, $.10 par value; authorized 10,000,000 shares; issued 4,497,131 and 4,460,080 shares, respectively................ 450,000 446,000 Paid-in capital................................. 6,755,000 6,329,000 Unrealized gain on marketable securities, net of taxes (Note 3)............................. 30,000 22,000 Retained earnings............................... 25,554,000 23,381,000 ----------- ----------- 32,789,000 30,178,000 Less treasury stock, 100,000 shares at cost 1,805,000 ----------- ----------- Total shareholders' equity............ 30,984,000 30,178,000 ----------- ----------- $36,172,000 $35,317,000 =========== ===========
See accompanying notes to condensed consolidated financial statements. 4 FORM 10-Q PAGE 3 BRANDON SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED --------------------- --------------------- MARCH 31, APRIL 2, MARCH 31, APRIL 2, 1996 1995 1996 1995 --------- -------- -------- -------- Revenues..................... $22,311,000 $20,135,000 $44,151,000 $39,259,000 ----------- ----------- ----------- ----------- Cost of services............. 13,857,000 12,456,000 27,083,000 23,958,000 Selling, general and administrative expenses.... 6,160,000 5,381,000 12,209,000 10,602,000 Merger expenses (Note 2) 417,000 417,000 Other, net (principally interest income)......... (157,000) (161,000) (383,000) (311,000) ----------- ----------- ----------- ----------- 20,277,000 17,676,000 39,326,000 34,249,000 ----------- ----------- ----------- ----------- Income before provision for income taxes............ 2,034,000 2,459,000 4,825,000 5,010,000 Provision for income taxes (Note 3)................ 790,000 1,008,000 1,906,000 2,054,000 ----------- ----------- ----------- ----------- Net income................. $ 1,244,000 $ 1,451,000 $ 2,919,000 $ 2,956,000 =========== =========== =========== =========== Net income per primary and fully diluted common share (Note 1).............. $.27 $.32 $.65 $.65 ==== ==== ==== ==== Weighted average common shares outstanding (Note 1)....... 4,530,694 4,563,579 4,522,241 4,551,276
See accompanying notes to condensed consolidated financial statements. 5 FORM 10-Q PAGE 4 BRANDON SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED MARCH 31, 1996
UNREALIZED COMMON STOCK GAIN ON TOTAL ----------------- PAID-IN MARKETABLE RETAINED TREASURY SHAREHOLDERS' SHARES AMOUNT CAPITAL SECURITIES EARNINGS STOCK EQUITY ------ ------ ------- ---------- -------- -------- ----------- Balance, October 1, 1995 4,460,080 $446,000 $6,329,000 $22,000 $23,381,000 $30,178,000 Cash dividend declared, $.17 per share (Note 5) (746,000) (746,000) Issuance of common stock in connection with: Employee stock purchase plan 5,442 1,000 107,000 108,000 Dividend reinvestment and stock purchase plan 259 6,000 6,000 Stock options exercised 31,350 3,000 313,000 316,000 Purchase of treasury stock (Note 5) (100,000) $(1,805,000) (1,805,000) Unrealized gain on marketable securities (Note 3) 8,000 8,000 Net income 2,919,000 2,919,000 --------- -------- ---------- ------- ----------- ----------- ---------- Balance, March 31, 1996 4,397,131 $450,000 $6,755,000 $30,000 $25,554,000 $(1,805,000) $30,984,000 ========= ======== ========== ======= =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 6 FORM 10-Q PAGE 5 BRANDON SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED ------------------------- MARCH 31, APRIL 2, 1996 1995 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income..................................... $ 2,919,000 $ 2,956,000 Adjustments to reconcile net income to net cash provided by operations: Depreciation of furniture and equipment...... 495,000 384,000 Amortization of other assets................. 3,000 13,000 Deferred income taxes........................ 178,000 132,000 Other........................................ (73,000) Changes in assets and liabilities: Accounts receivable........................ (2,427,000) (1,561,000) Prepaid expenses and other current assets.. (2,000) (261,000) Accrued expenses and other current liabilities............................. (338,000) (326,000) Income taxes payable....................... 325,000 (169,000) ----------- ----------- Net cash provided by operating activities......................... 1,153,000 1,095,000 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of furniture and equipment............ (621,000) (915,000) Purchase of marketable securities.............. (2,884,000) (7,585,000) Proceeds from sales of marketable securities... 1,864,000 4,958,000 Decrease in deposits........................... 5,000 4,000 ----------- ---------- Net cash used for investing activities...... (1,636,000) (3,538,000) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid................................. (684,000) (621,000) Exercise of stock options...................... 316,000 162,000 Issuance of common stock under employee stock purchase plan......................... 108,000 90,000 Issuance of common stock under dividend reinvestment and stock purchase plan 6,000 Purchase of treasury stock..................... (1,805,000) ----------- ----------- Net cash used for financing activities..... (2,059,000) (369,000) Net decrease in cash and cash equivalents........ (2,542,000) (2,812,000) Cash and cash equivalents at beginning of period..................................... 4,197,000 6,268,000 ----------- ----------- Cash and cash equivalents at end of period....... $ 1,655,000 $ 3,456,000 =========== ===========
See accompanying notes to condensed consolidated financial statements. 7 FORM 10-Q PAGE 6 BRANDON SYSTEMS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The accompanying condensed consolidated financial statements are unaudited and include the accounts of Brandon Systems Corporation (the "Company") and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements and notes included herein have been condensed as permitted under the rules and regulations of the Securities and Exchange Commission, and therefore do not contain all disclosures required by generally accepted accounting principles. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the fiscal year ended October 1, 1995. In the opinion of the Company, the accompanying condensed consolidated financial statements contain all the adjustments (consisting only of normal and recurring accruals) necessary to present fairly the consolidated financial position of the Company as at March 31, 1996 and October 1, 1995, and the consolidated results of its operations for the three months and six months ended March 31, 1996 and April 2, 1995 and its cash flows for the six month periods then ended. The results of operations for the three months and six months ended March 31, 1996 and April 2, 1995 are not necessarily indicative of the results to be expected for the full year. Net income per share has been computed using the weighted average number of common and common equivalent shares outstanding during the periods. The Company's fiscal year ends on the Sunday nearest to the end of the month of September. The Company's fiscal year is generally 52 weeks, but periodically will consist of 53 weeks. 2. PENDING MERGER: On February 27, 1996, the Company and Interim Services Inc. ("Interim Services") entered into a definitive merger agreement. Under the terms of the merger agreement, the stockholders of the Company will receive 0.88 shares of Interim Services common stock in exchange for each share of the Company's common stock. The merger is expected to be accounted for as a pooling of interests and qualify as a tax-free reorganization. The transaction, which is subject to approval by the stockholders of both companies, is expected to close in May 1996. Ira B. Brown, the Company's chairman and CEO, and his wife, Myra Brown, who hold approximately 26% of the outstanding stock of the Company, have granted a proxy to the designees of Interim Services to vote in favor of the merger. Interim Services is a leading provider of customized staffing solutions including flexible staffing, home health care, full-time placement, consulting and other value-added services on a national basis to businesses, professional and service organizations, governmental agencies, health care facilities and individuals. Interim Services reported revenues of $781 million and net income of $17.5 million (net income per share of $1.50) for its fiscal year ended 8 FORM 10-Q PAGE 7 BRANDON SYSTEMS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS December 29, 1995. Interim Services common stock is traded on the Nasdaq stock market under the symbol "INTM". The results of operations of the Company for the three months and six months ended March 31, 1996 include pre-tax merger expenses of $417,000 (approximately $255,000 or $.06 per share after tax) related to this transaction. 3. MARKETABLE SECURITIES: At March 31, 1996, the net unrealized gains on marketable securities was $51,000 and are included in shareholders' equity net of applicable taxes of $21,000. Gross unrealized gains and losses were $59,000 and $8,000, respectively. There were $11,000 of gross realized gains and $40,000 of gross realized losses during the six months ended March 31, 1996. For the purpose of determining gross realized gains and losses, the amortized cost of securities sold is based upon specific identification. The contractual maturities of available for sale marketable debt securities, including accrued interest, at March 31, 1996, are as follows:
Amortized Fair (In Thousands) Cost Value -------------------------------------------------------------------- Due within one year $12,322,000 $12,359,000 Due after one through five years 2,843,000 2,861,000 Due five through ten years 10,000 10,000 Due after ten years 155,000 151,000 --------------------------- $15,330,000 $15,381,000 ===========================
4. INCOME TAXES: The provision for income taxes is comprised of the following:
THREE MONTHS ENDED SIX MONTHS ENDED --------------------- --------------------- MARCH 31, APRIL 2, MARCH 31, APRIL 2, 1996 1995 1996 1995 --------- ---------- ---------- ---------- Current: Federal............... $565,000 $ 800,000 $1,291,000 $1,430,000 State and local....... 195,000 276,000 437,000 492,000 -------- ---------- ---------- ---------- 760,000 1,076,000 1,728,000 1,922,000 -------- ---------- ---------- ---------- Deferred: Federal............... 21,000 (51,000) 132,000 98,000 State and local....... 9,000 (17,000) 46,000 34,000 -------- ---------- ---------- ---------- 30,000 (68,000) 178,000 132,000 -------- ---------- ---------- ---------- $790,000 $1,008,000 $1,906,000 $2,054,000 ======== ========== ========== ==========
The deferred tax provision relates primarily to the reversal of temporary differences resulting from payroll related costs that became tax deductible during the six months ended March 31, 1996. The components of the net deferred tax asset as of March 31, 1996 were allowance for doubtful accounts receivable, accumulated depreciation of furniture and equipment, compensated absences and deferred rent. Cash paid by the Company for income taxes during the first half of fiscal 1996 and 1995 was $1,337,000 and $2,579,000, respectively. 9 FORM 10-Q PAGE 8 BRANDON SYSTEMS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5. SHAREHOLDERS' EQUITY: On October 26, 1995, the Company repurchased 100,000 shares of its common stock for $1,805,000. On December 13, 1995 and March 12, 1996, the Board of Directors declared cash dividends of $.085 per share. The December 13, 1995 dividend was paid on January 12, 1996, to shareholders of record as of December 26, 1995, and the March 12, 1996 dividend was paid on April 12, 1996 to shareholders of record as of March 29, 1996. In view of the merger described in Note 2, no further dividends will be paid by the Company. 6. COMMITMENTS: In January, 1996 the Company entered into employment agreements (the "Agreements") with its President and five of its other executive officers which provide for continued employment through December 1998. The Agreements can be extended by either mutual agreement or on an at-will basis upon mutually agreeable terms. The Agreements contain provisions for annual base salary, discretionary bonus awards, severance and, under specified conditions, change in control payments. In addition, the Agreements contain non-compete provisions extending for three years beyond the term of the Agreements. The base salary for each individual is subject to increase or decrease at the discretion of the Compensation Committee of the Company's Board of Directors, provided the amount is not less than the initial base salary specified in the Agreements. In the event employment is not continued following the expiration of the term of the Agreements, severance will commence, payable in quarterly installments over two to three years, ranging in amounts from one to two times the individual's annual base salary plus the average cash bonus received during the preceding two years. The President's contract also provides for reduced payments for two years in the event of disability. In the event employment is terminated or the executive resigns under specified conditions within a period of 24 months following a change in control, the individuals are entitled to receive compensation equal to three times their most recent annual base salary plus the average cash bonus received during the preceding two years, subject to reduction if excise taxes are imposed. The aggregate minimum commitment for future salaries, excluding bonuses, under the Agreements through December 1998 is $2,565,000. The Agreements will not be terminated by virtue of the pending merger described in Note 2. The merger, however, will constitute a change in control event under the terms of the Agreements. If payments were required to be made as of July 1, 1996 under the change in control provisions of the Agreements the estimated aggregate amount of such payments, taking into account certain reductions for excise taxes, would be approximately $2,873,000. 10 FORM 10-Q PAGE 9 BRANDON SYSTEMS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Upon consummation of the pending merger with Interim Services, an amendment to Mr. Brown's employment agreement provides that he will retire as Chairman and that he will thereafter receive no compensation per the employment agreement but will retain certain medical benefits and registration rights. 7. STOCK-BASED COMPENSATION: In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation". The Statement allows companies to measure compensation cost in connection with employee stock compensation plans using a fair value based method or to continue to use an intrinsic value based method, which generally does not result in compensation cost. The Company currently plans to continue using the intrinsic value based method. 11 FORM 10-Q PAGE 10 BRANDON SYSTEMS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS OVERVIEW Brandon Systems Corporation is an Information Technology Staffing Company providing outsourcing, strategic staffing partnerships, and technical staffing solutions in computer operations, help desks, and programming. The Company's services are provided to clients from offices strategically located throughout the United States. A majority of Brandon's revenues is derived from providing its clients with short-term supplemental technical services, under its Systemp(R) trademark, covering computer operations, PC help desks and local area networks. Brandon also provides supplemental computer programming under the Brandon Professional Services trade name. Brandon Training offers clients training services for all computer platforms and environments. Brandon provides long-term contractual support to its clients by offering them unique outsourcing services under the Brandon Insourcing(TM) trade name. Under a typical Brandon Insourcing(TM) arrangement, the client retains complete strategic control over the functional areas of their information systems facility while Brandon assumes responsibility for day-to-day management, staffing, and meeting agreed-upon service criteria. A Brandon Insourcing(TM) arrangement can include technical, professional and training services. PENDING MERGER On February 27, 1996 the Company entered into a definitive merger agreement with Interim Services Inc. ("Interim Services"). See Note 2 of Notes to Condensed Consolidated Financial Statements. The operating results for the three months and six months ended March 31, 1996 include pre-tax merger expenses of $417,000, which after taxes were approximately $255,000, or $.06 per share. During the second quarter of 1996, the Company's executive officers and management team were involved in matters related to the merger which included reviewing and planning for cross-selling and other opportunities which will exist for the combined companies. Accordingly, as a result of the merger the Company's strategic growth plan may be modified to maximize the combined revenues and operating results of both companies. SECOND QUARTER FISCAL 1996 COMPARED TO SECOND QUARTER FISCAL 1995 REVENUES. The Company's revenues for the second quarter of 1996 were a new record high. Revenues for the three months ended March 31, 1996, were $22,311,000, representing a 10.8% increase from $20,135,000 for the three months ended April 2, 1995. The revenue increase in fiscal 1996 is primarily due to increases in the volume of services provided by the Company, as opposed to increases in prices. The Company believes that the adverse winter weather conditions which impacted its entire industry, significantly affected the Company's revenues for the second quarter of 1996 due to its concentration of business in the Northeast and Midwest. The Company also believes its revenues were adversely impacted by the necessary diversion of management resources to the proposed merger with Interim Services. Technical Services revenues increased by 10.4% to $15,654,000 from $14,181,000 in 1995, which is primarily attributable to a growth in client requirements for Technical Services in established market territories. Technical Services 12 FORM 10-Q PAGE 11 BRANDON SYSTEMS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION revenues accounted for 70% of total revenues in both the second quarter of 1996 and 1995. Brandon Professional Services revenues decreased by 24.7% to $2,494,000 for the second quarter of 1996 compared to $3,314,000 in 1995. Brandon Professional Services accounted for 11% of total revenues in the second quarter of 1996 compared to 16% in 1995. The decline in Professional Services is attributed to a decrease in billable hours in fiscal 1996. Brandon Insourcing(TM) revenues (long-term contractual support), increased by 47.5% to $3,713,000 from $2,518,000 primarily as a result of an increase in the number of data processing sites serviced by the Company. Brandon Insourcing(TM) revenues accounted for 17% of total revenues in the second quarter of 1996 compared to 13% in 1995. COST OF SERVICES. Cost of services consists primarily of compensation and related payroll costs for the Company's Technical, Professional and Insourcing personnel working on customer engagements. As a percentage of revenues, costs of services usually increase in the second quarter of the Company's fiscal year, because that quarter begins a new calendar year for payroll taxes for its employees working on customer engagements. Such costs were 62.1% of revenues for the three months ended March 31, 1996, and 61.9% of revenues for the three months ended April 2, 1995. The increase in cost of services as a percentage of revenues in the second quarter of fiscal 1996 primarily relates to the increase in Brandon Insourcing(TM) revenues (long-term contractual support), which has a higher cost of service percentage than Technical and Professional Services (short-term supplemental support). Accordingly, as the Company continues to realize increased revenue from Brandon Insourcing(TM), cost of services as a percentage of revenues will also continue to increase. However, the Company believes income from operations will not be adversely impacted because of the resulting overall increase in revenues. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company has continued with its strategic growth plan to expand its business in existing markets and entering new market territories. It is likely that its plan may be modified as a result of the pending merger so as to maximize the combined resources of both companies. During the first half of fiscal 1996, the Company opened two new offices in Kansas City and St. Louis, Missouri and has also been expanding its business in existing market territories which resulted in the Company incurring additional expenses related to staffing, market development and recruitment. Selling, general and administrative expenses increased $779,000 in the second quarter of 1996 compared to the second quarter 1995, primarily as a result of the continued expansion of its business, however, such expenses were partially offset by cost reductions implemented by the Company during the quarter. As a percentage of revenues, selling, general and administrative expenses were 27.6% of revenues in the second quarter of fiscal 1996, compared with 26.7% in the second quarter of fiscal 1995. The Company believes that selling, general and administrative costs will continue to increase as it expects to incur additional staffing, market development and recruitment costs related to its expansion. The Company also believes such expenses as a percentage of revenues may also increase in subsequent quarters unless and until such time as revenues are sufficient to absorb the additional expenses incurred. 13 FORM 10-Q PAGE 12 BRANDON SYSTEMS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OTHER, NET. Other, net which consists primarily of interest income was $157,000 in the second quarter of 1996 compared to $161,000 for the second quarter of 1995. The decrease in the second quarter of 1996 is primarily attributed to approximately $32,000 of net realized losses from the sale of marketable securities. PROVISION FOR INCOME TAXES. The Company's effective income tax rate as a percentage of income before income taxes was 38.8% for the second quarter of fiscal 1996 and 41.0% for the second quarter of fiscal 1995. NET INCOME. The Company's net income, excluding merger expenses of $417,000 (approximately $255,000, or $.06 per share after taxes) was $1,500,000, or $.33 per share, compared to $1,451,000 or $.32 per share for the second quarter in fiscal 1995. Including the merger expenses net income for the second quarter of 1996 was $1,244,000, or $.27 per share. FIRST SIX MONTHS FISCAL 1996 COMPARED TO FIRST SIX MONTHS FISCAL 1995 REVENUES. Revenues for the six months ended March 31, 1996 were $44,151,000 compared to $39,259,000 for the comparable first six months of fiscal 1995. The revenue growth in fiscal 1996 is primarily due to increases in volume of services provided by the Company, as opposed to increases in prices. Technical Services revenues for the comparable six months increased 11.6% to $30,728,000 from $27,536,000. Such increase is primarily attributable to a growth in client requirements for Technical Services in established market territories. Technical Services revenues accounted for 70% of total revenues in the first half of both fiscal 1996 and 1995. Brandon Professional Services revenues for the comparable six month periods was $5,260,000 in 1996 and $6,680,000 in 1995 and represented 12% and 17% of total revenues, respectively. The decline in Professional Services is attributed to a decrease in billable hours in fiscal 1996. Brandon Insourcing(TM) revenues (long-term contractual support), for the comparable six months increased by 54.5% to $7,281,000 from $4,713,000 in 1995, primarily as a result of an increase in the number of data processing sites serviced by the Company. Brandon Insourcing(TM) business represented 16% of total revenues in fiscal 1996 compared to 12% in fiscal 1995. COST OF SERVICES. Cost of services were 61.3% of revenues for the six months ended March 31, 1996, compared with 61.0% of revenues during the six months ended April 2, 1995. The slight increase in cost of services as a percentage of revenue in the first six months of fiscal 1996 primarily relates to the change in the mix of the Company's business. Brandon Insourcing(TM) (long-term contractual support) business typically has a higher cost of service percent compared to the Company's other service offerings. 14 FORM 10-Q PAGE 13 BRANDON SYSTEMS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased during the first six months of 1996 compared to the similar period of 1995 by $1,607,000, from $10,602,000 to $12,209,000. Such increase is primarily attributed to increased commissions, general and administrative payroll costs and other related expenses associated with the Company's growth which was partially offset by cost reductions implemented in the second quarter. Selling, general and administrative expenses for the six months ended March 31, 1996 were 27.7% of revenues compared to 27.0% during the six months ended April 2, 1995. OTHER, NET. Other, net which consists primarily of interest income increased to $383,000 from $311,000 primarily because of higher interest rates as well as an increase in the Company's portfolio of marketable securities. PROVISIONS FOR INCOME TAXES. The Company's effective tax rate was 39.5% in fiscal 1996, compared to an effective tax rate of 41% in fiscal 1995. NET INCOME. Net income for the six months ended March 31, 1996, excluding merger expenses of $417,000 (approximately $255,000, or $.06 per share after taxes) was $3,171,000, or $.70 per share as compared to $2,956,000, or $.65 per share for the six months ended April 2, 1995. Including the merger expenses net income for the six month period was $2,919,000, or $.65 per share. LIQUIDITY AND CAPITAL RESOURCES Working capital was approximately $27.8 million at March 31, 1996, compared to $27.1 million at October 1, 1995. The Company believes it has sufficient working capital to meet its immediately foreseeable capital requirements for expansion and funding of existing operations. The Company's geographic expansion and other growth have not required, and in the Company's view will not for the foreseeable future require, substantial cash commitments beyond amounts generated in the normal course of business. The Company has no bank or other indebtedness from borrowings and believes it has sufficient resources to support its long-term growth strategies through currently available cash, cash expected from future operations and its ability to obtain financing. The Company invests cash in excess of immediately foreseeable requirements in interest-bearing marketable securities, pending its use for operating needs. 15 FORM 10-Q PAGE 14 BRANDON SYSTEMS CORPORATION PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS The annual meeting of stockholders of Brandon Systems Corporation was held on March 12, 1996. All of the matters voted upon at the meeting were approved and the voting results were as follows: 1. Three Class of 1999 directors were elected, Messrs. Kenneth A. DeGhetto, Steven S. Elbaum and Peter Lordi. The number of votes cast for Mr. DeGhetto were 3,788,626 and 128,748 withheld authority. The number of votes cast for Mr. Elbaum were 3,788,856 and 128,518 withheld authority. The number of votes cast for Mr. Lordi were 3,789,326 and 128,048 withheld authority. The other directors whose terms continued after the meeting were Ira B. Brown, Myra Brown, William E. Hess, Martin M. Pollak, Domenica Schulz-Scarpulla, and Charles Y.C. Tse. 2. The appointment of Coopers & Lybrand LLP was ratified as the independent auditors of the Company for the fiscal year ending September 29, 1996. The number of votes cast were: 3,784,199 for, 126,098 against and 7,077 abstained. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits - Exhibit No. 27 - Financial Data Schedule (b) Reports on Form 8-K - none have been filed during the quarter ended March 31, 1996. 16 FORM 10-Q PAGE 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BRANDON SYSTEMS CORPORATION (Registrant) DATE: May 7, 1996 /s/ Domenica Schulz-Scarpulla ------------------------------ Domenica Schulz-Scarpulla President, Chief Operating Officer and Director (Principal Operating Officer) DATE: May 7, 1996 /s/ Peter Lordi ------------------------------ Peter Lordi Senior Vice President-Finance and Administration, Treasurer and Director (Principal Financial Officer) DATE: May 7, 1996 /s/ Raymond J. Bolan ------------------------------ Raymond J. Bolan Controller and Assistant Treasurer (Principal Accounting Officer) EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS SEP-29-1996 OCT-02-1995 MAR-31-1996 1,655 15,381 15,007 0 0 32,969 7,121 4,137 36,172 5,188 0 0 0 450 30,534 36,172 0 22,311 13,857 20,017 260 0 0 2,034 790 1,244 0 0 0 1,244 .27 .27 FOR PURPOSES OF PRESENTING INTERIM CONDENSED FINANCIAL INFORMATION THE ALLOWANCE AMOUNT HAS BEEN NETTED AGAINST RECEIVABLES.
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