SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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
For the Transition Period from to
Commission File Number: 0-8615
BUSINESS RECORDS CORPORATION HOLDING COMPANY
(Exact name of registrant as specified in its charter)
Delaware 75-1533071
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 West Mockingbird Lane
Suite 1400
Dallas, Texas 75247
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214)688-1800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.10 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants' knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
As of March 22, 1996, the aggregate market value of the voting stock held
by nonaffiliates of the registrant was $180,315,726. As of March 22,
1996, the number of shares outstanding of common stock of the registrant
was 6,461,603.
_____________________________
<PAGE>P-2
The following document is incorporated by reference into the indicated parts
of this Annual Report to the extent specified in such parts:
Part III of this Annual Report incorporates by reference information
in the Proxy Statement for the Annual Meeting of Stockholders of Business
Records Corporation Holding Company to be held on May 16, 1996.
PART I
Item 1. Business.
HISTORICAL BACKGROUND
Business Records Corporation Holding Company, a Delaware corporation (the
"Company"), provides a variety of information management and data processing
products and services to local governments and healthcare institutions
principally through two wholly-owned subsidiaries: Business Records
Corporation, Inc. ("BRC") and BRC Health Care, Inc. ("BRC Health Care"). BRC
Health Care was formerly known as CMSI, Inc. and is referred to herein as
"CMSI" for time periods inclusive of and prior to May 1993.
The Company was originally organized as Cronus Industries, Inc. in September
1976. In the years following its inception, the Company acquired and operated
several divisions in a diverse number of industries. In 1983, the Company
acquired BRC.
From 1984 through 1987, the Company's BRC subsidiary expanded its operations
through numerous acquisitions of small, privately-held corporations. BRC
focused its acquisitions on businesses which provided information systems and
services to county and local governments. The corporations acquired by BRC
generally provided products associated with land records indexing and
micrographic reproduction, election systems and supplies, and governmental
software.
During 1986 and 1987, the Company divested all its then existing operating
subsidiaries other than BRC. In May of 1990, the Company changed its name
from Cronus Industries, Inc. to Business Records Corporation Holding Company.
In recent years, the Company has expanded its strategic focus from its prior
focus of providing information management services to providing a broader
range of specialized information products and services. In particular, BRC
began developing marketing programs, methodologies and personnel to provide
information systems outsourcing and related data processing services to local
governments.
As a part of its efforts to enter the information systems outsourcing market,
the Company consummated the acquisition of CMSI, a privately-held Oregon
corporation, on May 14, 1993. CMSI was formed in 1970 and had grown since
that time primarily through providing information systems outsourcing
services, consulting services and other management services to local
governments and healthcare institutions. In August 1995, CMSI's name was
changed to BRC Health Care, Inc.
<PAGE>P-3
PRODUCTS AND SERVICES
The Company's information management and data processing products and services
can be classified into four major categories: Technology Outsourcing Services,
Election Products and Services, Governmental Records Management, and Other
Products and Services. The majority of these products and services are
distributed on a direct basis using several regional marketing organizations.
In addition to these direct sales organizations, the Company also sells
certain binders and local government office supplies through a distributor
network and a telemarketing organization.
Technology Outsourcing Services
The Company provides a variety of technology outsourcing services and related
products. These include on-site resource management, strategic planning,
remote data processing and a variety of implementation services. In addition
to these services, the Company also provides its customers with certain
related proprietary software.
When providing on-site resource management, the Company typically enters
multi year contracts with customers to provide direct management of a client's
information systems department. These contracts usually involve the Company's
hiring of a client's information systems personnel and the assumption of
responsibility for a client's ongoing information systems operations. In some
cases, the Company will also acquire a client's computer equipment.
Under on-site resource management contracts, the Company assumes the role of a
client's information systems department during the term of the contract.
Among other things, the Company will operate and maintain a client's
information management systems, including centralized data processing systems,
local area networks and personal computers. The Company's employees, in such
an arrangement, will work within a client's facility, providing essentially
the same function as the client's former in-house information management
personnel. In addition, the Company's personnel typically work with a
client's senior management through a strategic planning process to determine
the objectives and requirements which the institution has for its information
systems department. Then, pursuant to this plan, the Company will execute a
number of tasks to fulfill the client's objectives. These tasks may involve
providing assistance in the selection of new hardware and software, assisting
in changes to existing software and undertaking other related activities which
affect the performance of the information systems department.
The Company's on-site resource management contracts are typically negotiated
multi-year, fixed fee arrangements with provisions for annual inflation
adjustments. In addition, however, the Company often undertakes special
projects on the client's behalf on a time and materials, or project fee basis.
In addition to on-site resource management, the Company also provides remote
data processing services to certain customers from data centers it owns and
operates. In most cases, these data centers provide processing capacity for
non-proprietary applications which are specific to the client's industry.
However, the Company is currently undertaking an effort to market remote
processing of its proprietary software to local governments.
<PAGE>P-4
The Company also offers for license, or relies upon, certain specialized
proprietary software packages. The Company provides claims processing
software and services to HMO third party administrators, indemnity insurance
carriers and prepaid dental health plans. The Company relies on one of two
proprietary claims management systems in providing these services. The
Company also provides HealthCare customers an automated emergency department
system. This system assists emergency departments in the triage, clinical
order processing, charting, and charge capture activities of the emergency
room. Additionally, the Company provides specialized software to assist
manufacturers and retailers of eyewear. The Company also provides a variety
of specialized software to assist local and county governments in automating
financial, public protection, tax assessment and tax collection information
systems processing functions.
Technology outsourcing services constituted 49% of the Company's revenues
during 1995 as compared to 43% and 38% during 1994 and 1993, respectively.
Election Products and Services
The Company provides a variety of election products and services including
integrated election systems, ballots, election supplies, election coding
services and election night support services to governmental election
jurisdictions for use in conducting elections for public office.
The Company offers hardware systems which record and tabulate votes at
precinct and central count locations. Optical scan and punch card systems
comprise the primary election systems offered by the Company. Optical scan
systems allow voters to use a pencil to mark their choices directly on their
ballot card. Punch card systems require voters to indicate choices by using a
specialized stylus to punch their choices onto a ballot. More advanced punch
card and optical scan systems involve the integration of a microcomputer
tabulation system to coordinate and report summaries of various precinct
results. Improved voter ease, security and speed of tabulation are major
advantages offered by the Company's voting equipment.
To assist in the administrative and management functions of the election
process, the Company provides certain voter registration, election reporting
and other election management systems. The Company's voter registration
systems have been designed to address the requirements of the National Voter
Registration Act of 1993 as well as to provide other specialized functions and
features necessary for the voter registration process.
As a part of its election products and services, the Company currently
provides printing services for county governments and election jurisdictions.
These printing services include ballot printing, legal form printing and other
supplies, including a complete "precinct kit" which contains all supplies and
forms necessary for conducting an election. The Company also provides a
variety of election coding (programming) services and equipment rental
options. Additionally, the Company provides training for poll workers and
voting judges and election night support in the form of technicians, backup
equipment or telephone support to customers.
In the ordinary course of business, the Company holds patents and trademarks
in association with major election products which it manufactures. None of
these patents and trademarks are material to the Company's business as a whole.
Election products and services accounted for approximately 23%, 30% and 25%
of the Company's total revenues for 1995, 1994, and 1993, respectively.
<PAGE>P-5
Governmental Records Management
County and municipal governments are responsible for recording and indexing
real property transactions. Typically, these governmental entities have
relied upon manual methods to record deeds and other title documents and to
maintain alphabetical indexes of transactions. The Company provides
microfilm, optical recording and computer indexing services to counties and
municipal governments to organize and automated the recording and indexing of
deeds, real property liens and other legal documents.
The Company provides two types of computerized indexing services: data entry
performed by customers using the Company's microcomputers in the customers'
offices and data entry performed by Company personnel at centers operated by
the Company. With each type of indexing service, the Company provides
periodic updates for each customer using mainframe computers located in
Dallas, Texas and Syracuse, New York.
The Company also provides record re-creation services to a number of
customers. These services provide archival-quality reprints of old records
with microfilm backup copies, thereby reducing required storage space and
improving security in case of fire or other loss. As part of its current
recording and records re-creation services, the Company provides custom record
binders imprinted to the specifications of each customer.
Governmental records management constituted 16%, 17% and 24% of the Company's
revenues during 1995, 1994 and 1993, respectively.
Other Products and Services
In addition to providing Technology Outsourcing Services, Election Products
and Services and Governmental Records Management, the Company also provides a
variety of other products and services. These products and services include:
county records binders, title services and information reselling services.
The Company provides county records binders through its Enduro Binders
business unit ("Enduro"). Enduro markets high-quality, custom leather records
binders through a nationwide distributor market. These binders are typically
used by counties for the long-term storage of county records. Enduro
additionally markets several styles of commercial binders.
The Company provides certain title companies in North Central Texas with a
variety of title plant update services. Title companies in Texas are required
to maintain extensive files of real property data called "title plants."
Title plants contain the information needed to perform title searches and to
underwrite title insurance policies. The Company provides its customers with
daily updates of their title plants. These updates are offered in various
formats including copies of each deed (or other document) and installation
in the customer's office of microcomputer-based title plant storage products.
The Company also sells title plants of certain Texas counties to firms that
need title search capabilities.
The Company also resells a variety of public records data to nationwide credit
bureaus and other providers of information retrieval services.
Other products and services accounted for 12%, 10% and 13% of the Company's
revenues during 1995, 1994 and 1993, respectively.
<PAGE>P-6
CUSTOMERS
The majority of the Company's products and services are provided to county and
local governments throughout the United States. In addition to governmental
organizations, the Company also provides services to hospitals, third party
administrators, indemnity insurance carriers, prepaid dental health plans,
vision care specialists and other organizations providing healthcare related
services. The Company also provides services to title companies in North
Central Texas.
The Company typically enters into long-term contracts with customers for whom
it provides technology outsourcing services. While the Company has normally
been able to manage its activities and costs under these long-term contracts
such that it has been able to fulfill contract requirements in a profitable
manner; however, due to their long-term nature and the inherent risks
associated with changes in operating conditions, there can be no assurance
that such contracts will continue to be profitable on a prospective basis.
Certain long-term contracts with the Company's local government customers
contain clauses which enable the customer to cancel or reduce its contractual
commitment in the event that funding is not available in a given year. While
the Company has not experienced such a termination or reduction, there can be
no assurance that such events will not occur in future periods. For other
products and services, the Company has not historically entered into long-term
contracts with its customers. The Company typically provides payment terms on
a contract-by-contract basis. During 1995, 1994 and 1993, no customer
accounted for more than 10% of the Company's revenue.
BACKLOG
As of December 31, 1995, the Company had a backlog of approximately
$193,452,000 associated with long-term service contracts. These contracts
typically relate to providing the Company's technology outsourcing services to
healthcare institutions and local governments. The Company expects that
$69,210,000 of this backlog will be provided during the year ended December
31, 1996. The Company is unable to predict the impact, if any, on its future
revenues that may result from reductions in the budgets of government
jurisdictions.
INDUSTRY SEGMENTS
The Company considers its current operating units to operate in one industry
segment: specialized information technology management and related products
and services.
COMPETITION
The Company's major competitors for its technology outsourcing services are
other providers of information systems outsourcing services and certain
providers of healthcare software. Some of these competitors are substantially
larger and have greater resources than the Company. The Company's major
competitors for its other products and services are typically small, regional
providers of software products and services which may compete intensely in
certain market areas based on price. The Company is routinely subject to
competitive bidding. Management believes that the Company's competitiveness
is directly related to its ability to maintain effective pricing and service.
<PAGE>P-7
EMPLOYEES
At December 31, 1995, the Company had approximately 1,290 employees, none of
which are covered by a collective bargaining agreement. The Company generally
has enjoyed satisfactory relations with its employees.
OTHER
Due to the nature of its business, the Company is subject to natural cycles in
two major product and service areas. The amount of election activity, which
is higher in "even-numbered" years due to congressional and presidential
elections, affects the volume of election products and services (see Item 7,
Management's Discussion and Analysis of Financial Condition.) Additionally,
because the volume of real estate transactions tends to be higher from
February through October than in the months of November through January, the
revenues generated by governmental records management products and services
are somewhat seasonal.
Revenues from the Company's governmental records management products and
services are also affected by changes in the volume of nationwide real estate
transactions. To the extent economic and other factors affect real estate
sales nationwide, the Company's revenues associated with governmental records
management products and services may be affected in a similar fashion.
Since the Company's manufactured products are limited, the Company has not
been, and does not currently anticipate being, subject to materially adverse
financial effects from price inflation associated with its raw materials and
supplies purchases.
Raw materials used in the Company's manufacturing and other processes are
readily available. With the exception of inventory requirements associated
with election services products during election years, the Company is not
required to maintain extensive investment in working capital.
During recent years, numerous legislative proposals have been introduced or
proposed in Congress and in some state legislatures that would effect major
changes in the U.S. healthcare system nationally or at the state level.
Among the proposals under consideration are cost controls on hospitals,
insurance market reforms to increase the availability of group health
insurance to small businesses, requirements that all businesses offer health
insurance coverage to their employees and the creation of a single government
health insurance plan that would cover all citizens. It is not clear at this
time what proposals will be adopted, if any, or, if adopted, what effect, if
any, such proposals would have on the Company's business. There can be no
assurance that currently proposed or future healthcare legislation or other
changes in the administration or interpretation of governmental healthcare
programs will not have an adverse effect on the financial results or
operations of the Company. In addition, rapid changes are occurring in the
healthcare industry as a result of technological, economic and demographic
change. In general, consolidation is occurring among healthcare providers,
including hospitals, health maintenance organizations and professional
practices while healthcare cost payors, including employers and insurance
companies, are placing increasing pressure upon healthcare providers to
maintain costs. It is not clear what effect, if any, these changes in the
healthcare industry will have on the Company's business. There can be no
assurance, however, that such changes will not have an adverse effect on the
financial results or operations of the Company.
<PAGE>P-8
During 1995 and 1994, research and development expenses did not constitute a
material portion of the Company's expenses. During 1993, as a part of its
acquisition of CMSI in May of 1993 (see Note 13 to the Consolidated Financial
Statements), the Company acquired in-process research and development
associated with specialized "open-systems" software products for local
governments. Apart from this acquisition, research and development expenses
did not constitute a material portion of the Company's expenses during 1993.
Item 2. Properties.
As of March 1, 1996, the principal offices, plants, warehouses and shops used
by the Company, all of which are leased except as otherwise indicated in the
column captioned "Expiration Date of Lease," were as follows:
Approximate
Square Feet of Expiration Date
Location Floor Space of Lease Primary Use
Washington, Missouri 65,000 Owned }Office and
}processing
Birmingham, Alabama 56,520 April 30, 2002 }facilities
}
Addison, Texas 41,000 May 31, 1998 }
}
Dallas, Texas 35,082 July 31, 2001 }Corporate
}Headquarters
}
Dallas, Texas 30,906 Owned }Office and
}processing
Dallas, Texas 30,000 December 31, 1998 }facilities
}
Dewitt, New York 24,280 July 14, 1998 }
}
Berkeley, California 20,000 December 31, 2000 }
}
Long Beach, California 18,600 January 31, 2000 }
}
Chicago, Illinois 15,832 December 31, 2000 }
}
St. Cloud, Minnesota 14,000 February 28, 2004 }
}
St. Cloud, Minnesota 10,500 August 31, 2000 }
}
Portland, Oregon 8,458 September 24, 2000 }
}
Austin, Texas 6,526 June 28, 1998 }
}
Greensboro, North Carolina 6,500 April 30, 1998 }
}
Berkeley, California 6,440 December 31, 1996 }
}
Rockford, Illinois 5,960 April 30, 2000 }
}
Washington, Missouri 5,400 Monthly }
}
<PAGE>P-9
Approximate
Square Feet of Expiration Date
Location Floor Space of Lease Primary Use
Colorado Springs, Colorado 4,000 January 31, 2000 }Office and
}processing
Milpitas, California 3,811 September 30, 2000 }facilities
}
Sarasota, Florida 3,671 September 30, 1996 }
}
West Palm Beach, Florida 3,553 August 31, 1998 }
}
Austin, Texas 3,458 January 31, 1998 }
}
Seattle, Washington 3,456 October 31, 1996 }
}
Laguna Hills, California 2,932 January 31, 2000 }
}
Stockton, California 2,750 August 1, 1998 }
}
Parsippany, New Jersey 2,692 December 31, 1999 }
}
Glen Burnie, Maryland 1,862 Monthly }
}
Boyers, Pennsylvania 1,500 Monthly }
The Company also occupies various facilities provided by its clients pursuant
to its technology outsourcing contracts, but is not subject to lease payments
or related obligations associated with such locations.
The Company believes that the machinery, equipment, buildings and facilities
owned and leased by the Company are well maintained and are suitable and
adequate for the Company's operations for the foreseeable future.
Item 3. Legal Proceedings.
On March 4, 1988, Claude Morgan Lewenz filed a lawsuit in the United States
District Court for the District of Connecticut, styled Claude Morgan Lewenz
v. DLH/INE Corporation, Business Records Corporation, Hall and McChesney,
Inc. and Cronus Industries, Inc. Plaintiff asserted claims of breach of
contract, fraud, unjust enrichment and tortious interference allegedly
arising out of the termination of his former independent sales representative
contract with DLH/INE, a company acquired by BRC in December 1987. Plaintiff
alleged that his sales representative contract was not properly terminated.
Plaintiff also alleged that he was fraudulently induced to execute the stock
purchase agreement whereby he and other shareholders of DLH/INE sold that
company to BRC, by representations that his sales representative contract
would be continued after the closing. Plaintiff sought the recovery of
damages of $10,000,000, preliminary and permanent injunctive relief
reinstating him as an independent sales representative, rescission of BRC's
acquisition of DLH/INE, punitive damages, interest and attorneys' fees.
<PAGE>P-10
With respect to the above litigation, the lawsuit was tried during December
1993 and a jury found BRC liable for breach of contract, but found in BRC's
favor on the plaintiff's other claims. A judgement of $564,000 was awarded to
the plaintiff by this jury. BRC filed a motion for retrial and this motion
was granted by the Court in August 1994. The Company subsequently settled
this lawsuit with the plaintiff in May 1995. The Company had previously
established a reserve sufficient to satisfy the costs of the original
judgement, anticipated costs of appeal, and associated legal expense. As a
result of the settlement, the Company recorded, as other income, $823,000
during the second quarter of 1995.
The Company is also party to various other lawsuits arising in the ordinary
course of its business and does not believe that the outcome of these lawsuits
will have a material effect on the Company's financial position or results
from operations.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for Registrant's Equity Stock and Related Stockholder Matters.
The Company's common stock, $.10 par value per share (the "Common Stock"), is
the only class of common equity of the Company and represents the only voting
securities of the Company. As of March 22, 1996, there were approximately
2,091 stockholders of record of the Common Stock. The Company's Common Stock
trades on the NASDAQ Stock Market ("NASDAQ") under the symbol BRCP.
The following table provides the high and low sales quotations as reported by
NASDAQ for the Common Stock for each quarter during the two most recent
fiscal years:
Price Range
High Low
1995:
First Quarter $ 37 $ 32 1/2
Second Quarter 37 1/4 32
Third Quarter 43 36
Fourth Quarter 40 35 3/4
1994:
First Quarter $ 36 $ 31 1/2
Second Quarter 34 1/4 29 1/2
Third Quarter 34 3/4 29 3/8
Fourth Quarter 37 31 1/4
The prices indicated herein reflect inter dealer prices, without retail
markup, markdown or commission and may not necessarily represent actual
transactions. The Company has not paid cash dividends on the Common Stock
since its inception. The Company has no present plans to pay cash dividends
on the Common Stock.
<PAGE>P-11
Item 6. Selected Financial Data.
The following selected financial data presents results of the Company for each
of the previous five years ending with the year ended December 31, 1995.
These results were affected by the Company's acquisition of CMSI in May of
1993 and have been restated to reflect the treatment of the merger of a
wholly-owned subsidiary with Clinical Resource Systems, Inc. as a pooling of
interests (See Note 13 to the Consolidated Financial Statements).
<PAGE>P-12
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994 1993 1992 1991
(dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . $134,654 $145,260 $105,232 $ 88,383 $ 76,144
Cost of products
and services. . . . . . . . . . 97,887 97,557 70,870 56,128 51,735
Selling, general
and administrative. . . . . . . 23,269 26,432 23,958 19,488 18,091
Unusual charges. . . . . . . . . --- --- 6,548 3,083 ---
Equity plan expense. . . . . . . --- --- --- --- 149
Operating profit . . . . . . . 13,498 21,271 3,856 9,684 6,169
Other income . . . . . . . . . . 1,283 15 110 85 29
Interest income, net . . . . . . 3,052 665 43 997 1,211
Income before income tax
provision, extraordinary item
and cumulative effect of
change in accounting principle. 17,833 21,951 4,009 10,766 7,409
Income tax provision . . . . . . (7,138) (8,562) (1,604) (4,164) (2,946)
Income before extraordinary item
and cumulative effect of change
in accounting principle . . . . 10,695 13,389 2,405 6,602 4,463
Extraordinary item -
Utilization of net operating
loss carryforwards . . . . . . --- --- --- 75 996
Cumulative effect of change in
accounting principle. . . . . . --- --- 4,352 --- ---
Net income . . . . . . . . . $ 10,695 $ 13,389 $ 6,757 $ 6,677 $ 5,459
Earnings per share:
Common and common equivalent share:
Income before extraordinary item
and cumulative effect of change
in accounting principle . . . . $ 1.64 $ 2.20 $ .49 $ 1.33 $ .91
Extraordinary item. . . . . . --- --- --- .01 .20
Cumulative effect of change
in accounting principle. . . --- --- .75 --- ---
Net income. . . . . . . . . . $ 1.64 $ 2.20 $ 1.24 $ 1.34 $ 1.11
Assuming full dilution:
Income before extraordinary item
and cumulative effect of change
in accounting principle. . . . $ 1.61 $ 2.14 $ .50 $ 1.26 $ .86
Extraordinary item . . . . . --- --- --- .02 .17
Cumulative effect of change
in accounting principle. . --- --- .68 --- ---
Net income . . . . . . . . . $ 1.61 $ 2.14 $ 1.18 $ 1.28 $ 1.03
Total assets . . . . . . . . . . $161,979 $151,975 $135,532 $102,908 $ 90,056
Long-term obligations. . . . . . 579 1,361 3,102 81 83
The Company has declared no cash dividends since its inception. See Notes to
Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition.
</TABLE>
<PAGE>P-13
Item 7. Management's Discussion and Analysis of Financial Condition.
GENERAL CONSIDERATIONS
Except for the historical information contained herein, the matters discussed
are forward-looking statements that involve risks and uncertainties.
Potential risks and uncertainties include market responses to pricing actions,
continued competitive factors and pricing pressures, changes in product and
service mix, results from litigation, the timely development and acceptance
of new products and services, changes in customer preferences and inventory
risks due to shifts in market demand.
Results for the year 1993 were significantly affected by the Company's
acquisition of CMSI on May 14, 1993. In addition to the discussion of the
effects of this acquisition provided in the section concerning results for
1994 as compared to 1993 below, please also refer to Note 13 of the
Consolidated Financial Statements for information concerning the material
effects of this acquisition.
Revenues from the sales of election products and services to election
jurisdictions for use in conducting public elections constituted approximately
23% of the Company's revenue during 1995, as compared to 30% of the Company's
revenues during 1994. This decrease is due primarily to the cyclical decrease
in revenues from election products and services experienced during
odd-numbered, or "non-election" years. In addition to the normal discussion
of the Company's financial performance, a specific discussion of the effects
of this cycle is provided in this item.
On August 17, 1995, a wholly-owned subsidiary of the Company merged with
Clinical Resource Systems, Inc. This merger was treated as a pooling of
interests for accounting purposes. As such, the financial statements for
all years have been restated to reflect the combined results of the Company
and Clinical Resource Systems, Inc. In addition to the discussion of this
acquisition provided below, please refer to Note 13 of the Consolidated
Financial Statements.
1995 COMPARED TO 1994
Overview
Compared to the previous year, the Company's revenues decreased by $10.6
million, or 7%. The two-year cycle in the Company's election business
contributed greatly to this decrease. Primarily due to the effects of
decreased revenues from its election business, the Company's operating profit
decreased by $7.8 million as compared to 1994, or 37%. This decrease was
partially offset by $2.4 million in increased net interest income and $1.3
million in other income. These factors are discussed more fully below.
Revenues
The Company's revenues of $134.7 million were $10.6 million, or 7% lower than
those of the previous year. The Company experienced decreased revenues
associated with its elections and governmental records management businesses.
These decreases were partially offset by increased revenues associated with
technology outsourcing services and other products and services.
<PAGE>P-14
During 1995, the Company experienced a $12.6 million, or 29%, decrease in
revenues from election products and services as compared to the previous year.
The greatest contributing factor to this decrease related to a $10.7 million,
or 48%, reduction in revenues associated with election ballots and supplies.
The Company also experienced reduced revenues associated with election
"coding" services, full service elections, election support and maintenance.
The Company's sales of election systems increased slightly when compared to
the previous year. Sales of election systems were $12.0 million, an increase
of $0.3 million over those of 1994.
As discussed below, the Company's revenues from election products and services
are subject to substantial variation from even-numbered "election" years to
odd-numbered "non-election" years. During 1995, the Company's revenues were
significantly affected from a natural decrease in the number of elections held
for public office as compared to those which occurred during the previous
year. Likewise, absent currently unforseen events, the Company anticipates a
corresponding increase in its elections revenues during 1996 as a result of
the greater number of public elections which will be held in this upcoming
"election" year.
On September 13, 1995, the Company acquired the assets of Computer Election
Systems, Inc. ("CES"), a Florida-based provider of specialized punch-card
ballots and certain of the government records management accounts of
Government Records Services, Inc. ("GRS"), located in the Southeastern United
States. Both companies were under common ownership. The Company acquired
these assets in exchange for certain of its Texas government records
management accounts and the receipt of $1.7 million in additional
consideration (See also Note 13 to the Consolidated Financial Statements).
The effects of this transaction are currently anticipated to increase the
Company's revenues from punch card ballots and to reduce its revenues
associated with governmental records management.
On November 1, 1995, the Company acquired the assets of MegaLink, Inc.
("MegaLink"), a Florida-based provider of voter registration software for $2.0
million (See Note 13 to the Consolidated Financial Statements). The Company
currently plans to modify and sell MegaLink's voter registration software in
conjunction with its other offerings of election software.
The Company's revenues from governmental records management products and
services decreased by $3.4 million or 14% when compared to the previous year.
This decrease relates primarily to a reduced number of nationwide real estate
transactions as compared to the previous year. Since the Company relies upon
a unit pricing structure for many of its governmental records management
services, changes in national interest rates, to the extent they affect
nationwide real estate transactions, have a corresponding effect on the
Company's revenues associated with these services. At the conclusion of
1995, the Company also discontinued its government records services to the
Office of Recorder, Cook County, Illinois ("Cook County"). This customer
accounted for $2.0 million of the Company's government records management
revenues during 1995. Due to the comparative decrease in real estate
transactions, the effects of the CES and GRS transaction discussed above,
and the discontinuance of its services to Cook County, the Company
anticipates a continuation of the comparative decrease in revenues from
governmental records management products and services.
<PAGE>P-15
Revenues from technology outsourcing services increased $3.7 million, or 6%,
as compared to the previous year. Revenues from the Company's healthcare
business were $41.7 million during the year. This represents an increase
of $1.7 million, or 4%, as compared to the previous year. Increases in
revenues associated with the Company's on-site resource management services
were the primary cause of this increase. Revenues from the Company's on-site
resource management services to local governments were $14.9 million during
1995, an increase of $2.2 million, or 18%, over the previous year. The
remainder of the Company's technology outsourcing revenues relate to the
sales and maintenance of general purpose governmental software packages.
These revenues decreased by $0.3 million, or 3%, as compared to the
previous year.
On August 17, 1995, the Company consummated the merger of Clinical Resource
Systems, Inc. ("CRS"), with a wholly-owned subsidiary of the Company (See Note
13 to the Consolidated Financial Statements). Under the terms of the
agreement, the Company will issue, subject to certain escrow arrangements,
121,112 shares of its common stock in exchange for all of the recorded and
beneficial interest held by CRS security holders. CRS develops and markets
a specialized software system for use in hospital emergency rooms which
traces a patient's progress through the hospital's critical care facility and
allows real time access to relevant patient information. It is the Company's
plan to market this software nationwide to emergency departments wishing to
improve the administrative efficiency and cost effectiveness of their
operations. The results of such marketing programs can not be estimated
at this time.
Revenues from other products and services increased by $1.8 million, or 12%,
during 1995. Increases in revenues associated with the sales of tape media,
employment information, and specialized records binders contributed to the
majority of this increase. Due to low contribution margins and lack of
consistency with other product and service offerings by the Company, the
Company discontinued its sales of tape media and employment information
during December of 1995. These businesses accounted for a combined total of
$5.5 million of the Company's revenues from other products and services
during 1995. The discontinuance of these businesses did not have a material
effect on the Company's operating results or financial condition during the
fourth quarter.
Expenses and Net Income
The Company's gross margin decreased from 33% during 1994 to 27% during 1995.
This decline relates primarily to a reduction in the Company's revenues from
election product sales during 1995 as compared to the previous year, without
a commensurate reduction in fixed and overhead expenses.
The most significant portion of this decrease was reflected in the Company's
gross contribution from product sales which decreased from $19.0 million, or
40% of revenues during 1994 to $11.6 million, or 31%, of revenues during 1995.
Of this $7.4 million decrease in gross profit contribution, $7.3 million
relates to decreased contribution from ballots, supplies and election
products. The Company experienced a $10.7 million decrease in revenues from
the sales of these election products and a corresponding $3.4 million
decrease in related variable costs. The Company's retention of personnel
and fixed property, plant and equipment related to these product areas during
the non-election year contributed greatly to these decreases in gross product
contribution and gross contribution margin percent.
<PAGE>P-16
The Company's gross contribution from services decreased from $28.7 million,
or 29% of revenues to $25.2 million, or 26% of revenues when compared to 1994.
Decreased contribution from election services contributed to $2.5 million of
this $3.5 million decrease in gross service contribution. These decreased
election services relate primarily to reduced levels of election coding,
support and other election services and account fully for the decrease in
gross service margin percent. For reasons similar to those discussed
pertaining to the Company's lower utilization of fixed product overheads,
reductions in services revenues were not met with corresponding reductions in
personnel and overhead expenses associated with providing those services.
The remainder of the Company's reduction in gross service contribution
relates to decreased revenues from its governmental records management
products and services. These reductions relate to the factors discussed
in the "revenues" portion of this item.
The Company's selling, general & administrative expenses decreased by $3.2
million as compared to the previous year. This decrease relates primarily to
reduced sales commissions associated with lower revenues from election
products and services, comparative charges to earnings of $950,000 associated
with several software licenses and proprietary software packages taken during
1994 (See Note 7 to the Consolidated Financial Statements) and other
reductions in general and administrative expenses. As a result of these
decreased expense levels, selling, general and administrative expenses as a
percent of revenues decreased slightly from 18% during 1994 to 17% during
1995.
As a result of the foregoing factors, the Company's operating profits
decreased by $7.8 million, or 37%, as compared to the previous year.
During the year, the Company benefited from the resolution of several
litigation matters. In particular, the Company settled its litigation
with Claude Morgan Lewenz. This and other litigation settlements and
resolutions contributed $1.3 million to other non-operating income during
the year. (See Note 21 to the Consolidated Financial Statements).
Interest Income and Investments
In 1995, net interest income increased by $2.4 million over 1994. This
increase was primarily due to an increase in the Company's cash and
investment balances over that of the previous year and a reduction in the
Company's interest expense. Total cash and cash equivalents, short-term
marketable securities, long-term marketable securities and interest-bearing
long-term installment receivables increased by $5.4 million. The Company's
interest expense associated with its convertible exchangeable notes (the
"Notes") decreased during 1995 due to conversion of $7.7 million of the Notes
into common stock during 1994 and the remaining $1.3 million into common
stock during 1995.
Currently, the Company holds the majority of its investments in a variety of
U.S. Government treasury issues, low-risk money market instruments and
tax-exempt municipal bonds (see also Note 2 to the Consolidated Financial
Statements). These cash and investment balances are currently being held
for use in funding working capital, acquisitions and internal expansion.
Due to continuing increases in cash and investment balances, absent an
acquisition, share repurchase, dividend, or other use of the Company's
retained capital, the Company anticipates an increase in net interest
income during 1996.
<PAGE>P-17
Working Capital and Liquidity
During 1995, the Company's net working capital increased by $17.5 million
over 1994. This change is due primarily to a net increase of $2.4 million
in cash, cash equivalents and short-term investments, a $3.3 million
increase in accounts receivables, a $5.8 million increase in inventories
and a decrease of $7.1 million in current liabilities. As of December 31,
1995, the Company's total current assets were 3.7 times total current
liabilities.
The Company's cash flows from operating activities were $12.5 million during
1995, a decrease of $19.1 million, or 61%, as compared to the previous year
and $1.1 million when compared to 1993. The primary cause for this decrease
relates to a $8.9 million change in the Company's net cash flows associated
with a reduction in accrued liabilities and a net $5.1 million decrease in
cash flows associated with increased inventories. Changes in the Company's
accrued liabilities relate primarily to the Company's underlying two-year
election business cycle. Increases in inventories related to the purchase
of parts and assembly of equipment associated with the Company's Optech IIIP
"Eagle" product line for use in sales anticipated during the upcoming
"presidential election year." (See also Note 4 to the Consolidated
Financial Statements.)
Net cash flows used in investing activities increased by $2.7 million as
compared to 1994. This increase relates primarily to the Company's $2.0
million expenditure associated with its acquisition of MegaLink, Inc.
(See Note 13 to the Consolidated Financial Statements.) Net cash used in
investing activities also reflects a net increase of investments in
marketable securities of $14.5 million and installment receivables of
$3.8 million. These net investment increases reflect the Company's desire to
earn higher interest rate yields through the continual investment of cash
in either marketable interest-bearing securities or self-issued note and
lease agreements associated with sales of its products.
Primarily due to a $9.3 million decrease in the amount of cash used to
repurchase Company stock during 1995 as compared to the previous year, net
cash provided by financing activities increased by $5.9 million over 1994.
Due to continuing positive cash flow from existing operations, generally
improved prospects for its election business associated with the 1996
presidential election year and anticipated continuing exercises of employee
stock options, the Company generally foresees continuing positive cash flows
provided by operating and financing activities during the upcoming year.
During the upcoming year, the Company may seek acquisitions or mergers to
further its strategic and financial objectives. To the extent the Company
identifies and consummates such an acquisition or merger, the Company's cash
flows and financial position could be materially affected. Additionally, the
Company's short-term cash flows could be affected in a materially adverse
manner in the event of an unforseen change in business conditions, material
loss associated with legal proceedings, internal expansion of operations,
or other such events.
The Company is not currently subject to any material indebtedness or aware
of any liabilities which would cause it to believe that it will be subject
to a materially adverse longer term liquidity position. However, the
Company's long-term operating cash flows and liquidity may be subject to
materially adverse change based on the factors discussed above.
<PAGE>P-18
Due to the foregoing, and its working capital position, the Company does not
maintain any active lines of credit.
Other Items
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" was issued. This statement
requires the fair value of stock options and other stock-based compensation
issued to employees to either be included as compensation expense in the
income statement or the pro-forma effect on net income and earnings per
share of such compensation expense to be disclosed in the footnotes to the
Company's financial statements commencing with the Company's 1997 fiscal year.
The Company expects to adopt SFAS No. 123 on a disclosure basis only. As
such, implementation of SFAS No. 123 is not expected to impact the Company's
consolidated balance sheet or income statement.
1994 COMPARED TO 1993
Overview
Compared to the previous year, the Company's revenues grew by $40.0 million,
or 38%. The timing of the Company's acquisition of CMSI in mid-1993 and the
normal two-year cycle of the Company's election business contributed greatly
to this increase. The Company's net income increased from $6.8 million during
1993 to $13.4 million in 1994. A significant factor contributing to this
comparative increase in net income, as discussed below, included a pre-tax
charge to earnings during 1993 related to the acquisition of CMSI.
Revenues
The Company's revenues of $145.3 million were 38% greater than those of the
previous year. This represents an increase of $40.0 million over 1993.
During 1994, the Company had $51.5 million in revenues from technology
outsourcing services from business units acquired as a part of the BRC Health
Care acquisition. This compares to $30.1 million during 1993 and represents
an overall increase of $21.4 million. Due to the fact that BRC Health Care
was acquired in May of 1993, $16.2 million of this increase relates to the
Company's recording of only seven and one-half months of the operations of
BRC Health Care during 1993. The remaining $5.2 million represents increased
revenues from new technology outsourcing services contracts, contract
addendums and inflationary related price increases as compared to the
previous year.
The Company's revenues from election products and services increased by $17.4
million, or 66%, as compared to 1993. Increases in sales of ballots,
supplies, election systems and software accounted for the majority of this
increase. As discussed below, the Company's revenues from election products
and services are subject to substantial variation from odd-numbered
"non-election" years to even-numbered "election" years. During 1994,
the Company benefited from a natural increase in the number of elections held
for public office over those which occurred during the previous year.
The Company's governmental records management revenues increased by $.5
million, or 2%, as compared to the previous year. The Company's growth rate
in governmental records management revenues was lower than the 6% rate
experienced in 1993 due primarily to a flattening out of the nationwide
volume of real estate transactions.
<PAGE>P-19
Revenues from the Company's other products and services increased by $.7
million over the previous year. The strongest increases in revenues came
from the Company's sales of binders and through the resale of public records
information.
Expenses and Net Income
The Company's overall gross margin percent was consistent with the previous
year at 33%. However, the Company's gross margin associated with products
increased from 35% to 40% and its gross margin associated with services
decreased from 32% to 29% of revenues as compared to 1994.
The Company's increase of $8.7 million in gross contribution from product
sales relates primarily to increased sales of election equipment, ballots
and supplies as compared to the previous year. The Company's revenues from
election products increased by $15.4 million and corresponding variable costs
increased by $6.8 million, causing an increase in the Company's gross
contribution of $8.5 million due to improved utilization of overhead expenses
associated with its election business.
The Company's gross contribution from services increased by $4.6 million over
the previous year, but its gross contribution percent decreased from 32% to
29%. These changes relate primarily to the Company's acquisition of CMSI in
May of 1993 and the effect the timing of this acquisition had on the Company's
gross contribution and gross contribution margins.
Selling, general and administrative (SG&A) expenses as a percent of revenues
decreased from 23% during 1993 to 18% during 1994. This decrease in SG&A
expenses as a percent of revenues is due to the substantial increase in
revenues over the previous year. In absolute terms, the Company's SG&A
expenses increased by $2.5 million, or 10%. This increase is primarily due
to the timing of the acquisition of CMSI during 1993, as well as increased
commission compensation associated with higher revenues.
Current year net income also compares favorably to 1993 as a result of a $6.5
million pre-tax charge to earnings taken during 1993 primarily associated with
the Company's allocation of a portion of the purchase price for CMSI to
purchased in-process research and development (See Note 20 to the Consolidated
Financial Statements.)
During the second quarter of 1994, in accordance with the Company's accounting
policies concerning the periodic evaluation of recoverability of intangible
assets, the Company recognized a $950,000 pre-tax charge associated with
several software licenses and proprietary software packages (See Note 7 to
the Consolidated Financial Statements.)
EFFECTS OF THE ELECTION CYCLE
Approximately 23% of the Company's revenues during 1995, and 30% during 1994,
were generated from election products and services to governmental bodies
for use in conducting elections. The Company operates in a unique and
predictable two-year business cycle associated with its election products
and services. Throughout the United States, a substantially larger number of
elections for public office are held in even-numbered years than in
odd-numbered years. As a result, revenues and underlying production and
support activities for a majority of the Company's election products and
services increase dramatically in election years and correspondingly decrease
in non-election years.
<PAGE>P-20
During 1995, 1994 and 1993, revenues from election products and services were
$31.1 million, $43.7 million and $26.3 million, respectively.
As a result of the underlying election cycle, the Company will tend to show
higher margins and resulting profits in election years, and lower margins and
resulting profits in non-election years. When reviewing the financial
statements, the reader is encouraged to compare the Company's financial
performance on a two-year basis.
Item 8. Financial Statements and Supplementary Data.
See Item 14(a).
Item 9. Disagreements on Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information with respect to directors and executive officers of the Company
is incorporated herein by reference to the information under the captions
"DIRECTORS AND EXECUTIVE OFFICERS" contained in the Proxy Statement for
the Annual Meeting of Stockholders of the Company to be held on May 16, 1996
(the "Proxy Statement").
Item 11. Executive Compensation.
Information with respect to compensation of directors and executive officers
of the Company is incorporated herein by reference to the information under
the captions "MANAGEMENT COMPENSATION"-- Summary Compensation Table; Option
Grants During 1995 Fiscal Year; Option Exercises During 1995 Fiscal year
and Fiscal Year-End Option Values; Report of the Compensation Committee of
the Board of Directors on Executive Compensation; and Compensation of
Directors" contained in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information with respect to security ownership by persons known to the Company
to beneficially own more than five percent of the Common Stock, by each
director of the Company and by all directors and executive officers as a
group is incorporated herein by reference to the information under the
captions "PRINCIPAL STOCKHOLDERS" and "PROPOSAL ONE: ELECTION OF DIRECTORS"
contained in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
Information with respect to certain relationships and related transactions
is incorporated herein by reference to the information under the caption
"MANAGEMENT COMPENSATION--Certain Transactions" contained in the Proxy
Statement.
<PAGE>P-21
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) 1. Financial statements
Reference is made to the listing on page 25 of all financial
statements filed as a part of this report.
2. Financial statement schedule
Reference is made to the listing on page 25 of the schedule
filed as a part of this report.
3. Exhibits
Reference is made to the Index to Exhibits beginning on page
49 for a list of all exhibits filed as part of this report.
(b) The Company did not file any current Reports on Form 8-K during the
quarter ended December 31, 1995.
<PAGE>P-22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BUSINESS RECORDS CORPORATION
HOLDING COMPANY
By /s/ Perry E. Esping
Perry E. Esping,
Chairman and
Chief Executive Officer
Date: March 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Company in the capacities and on the date indicated.
Date
}
}
/s/ Perry E. Esping }
Perry E. Esping, }
Chairman, Chief Executive Officer }
and Director (Principal Executive Officer) }
}
}
}
}
/s/ J. L. Morrison }
J. L. Morrison }
President and } March 28, 1996
Chief Operating Officer }
}
}
}
}
/s/ Thomas E. Kiraly }
Thomas E. Kiraly, }
Chief Financial Officer }
(Principal Financial Officer and }
Principal Accounting Officer) }
}
}
}
}
/s/ L. D. Brinkman }
L. D. Brinkman, Director }
}
(Signatures continued on next page)
<PAGE>P-23
(Signatures continued from preceding page)
} Date
}
}
}
/s/ David H. Monnich }
David H. Monnich, }
Director and Member of the Audit Committee }
}
}
}
}
/s/ Paul T. Stoffel } March 28, 1996
Paul T. Stoffel, }
Director and Member of the Audit Committee }
}
}
}
}
/s/ Robert E. Masterson }
Robert E. Masterson, Director }
}
}
}
<PAGE>P-24
BUSINESS RECORDS CORPORATION HOLDING COMPANY AND
SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1995
<PAGE>P-25
BUSINESS RECORDS CORPORATION HOLDING COMPANY AND
SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
[Item 14(a)]
Page
Consolidated statements of income for each
of the three years ended December 31, 1995. . . 26
Consolidated balance sheets as of December 31,
1995 and 1994 . . . . . . . . . . . . . . . . 27
Consolidated statements of changes in
shareholders' equity for each of the three
years ended December 31, 1995 . . . . . . . . . 28
Consolidated statements of cash flows
for each of the three years ended
December 31, 1995 . . . . . . . . . . . . . . . 29
Notes to consolidated financial statements. . . 30
Report of Independent Accountants -
Price Waterhouse LLP. . . . . . . . . . . . . . 47
Financial statement Schedule II-Valuation and
Qualifying Accounts for the three years ended
December 31, 1995 . . . . . . . . . . . . . . . 48
All other schedules are omitted, since the required information is not present
or is not present in amounts sufficient to require submission of the schedule,
or because the information required is included in the financial statements
and notes thereto.
<PAGE>P-26
BUSINESS RECORDS CORPORATION HOLDING COMPANY AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
1995 1994 1993
Revenues
Products . . . . . . . . . . . . . . . $ 37,161,000 $ 47,189,000 $ 29,135,000
Services . . . . . . . . . . . . . . . 97,493,000 98,071,000 76,097,000
134,654,000 145,260,000 105,232,000
Costs and expenses
Cost of products . . . . . . . . . . . 25,553,000 28,160,000 18,830,000
Cost of services . . . . . . . . . . 72,334,000 69,397,000 52,040,000
Selling, general and administrative. 23,269,000 26,432,000 23,958,000
Unusual charges (Note 20). . . . . . --- --- 6,548,000
121,156,000 123,989,000 101,376,000
Operating profit . . . . . . . . . . . 13,498,000 21,271,000 3,856,000
Other income (Note 21) . . . . . . . . 1,283,000 15,000 110,000
Interest income. . . . . . . . . . . . 3,480,000 1,718,000 1,460,000
Interest expense
(Including $33,000 in 1995, $436,000
in 1994 and $925,000 in 1993
to a related party). . . . . . . . . (428,000) (1,053,000) (1,417,000)
Income before income tax provision,
extraordinary item and
cumulative effect of change in
accounting principle . . . . . . . . 17,833,000 21,951,000 4,009,000
Income tax provision (Note 18) . . . . (7,138,000) (8,562,000) (1,604,000)
Income before extraordinary item
and cumulative effect of change
in accounting principle. . . . . . . 10,695,000 13,389,000 2,405,000
Cumulative effect of change
in accounting principle. . . . . . . --- --- 4,352,000
Net income . . . . . . . . . . . . . . $ 10,695,000 $ 13,389,000 $ 6,757,000
Earnings per share (Note 19)
Common and common equivalent share
Income before extraordinary item
and cumulative effect of change
in accounting principle. . . . . $ 1.64 $ 2.20 $ .49
Cumulative effect of change
in accounting principle. . . . . --- --- .75
$ 1.64 $ 2.20 $ 1.24
Assuming full dilution
Income before extraordinary item
and cumulative effect of change
in accounting principle. . . . . $ 1.61 $ 2.14 $ .50
Cumulative effect of change
in accounting principle. . . . . --- --- .68
$ 1.61 $ 2.14 $ 1.18
See Notes to Consolidated Financial Statements.
<PAGE>P-27
BUSINESS RECORDS CORPORATION HOLDING COMPANY AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1995 1994
ASSET
Current assets
Cash and cash equivalents. . . . . . . . . . $ 10,059,000 $21,946,000
Short-term marketable
securities (Note 2). . . . . . . . . . . . 28,299,000 14,022,000
Accounts and notes receivable, net of
allowance for doubtful accounts of
$1,094,000 in 1995 and $1,345,000
in 1994 (Note 3) . . . . . . . . . . . . . 29,582,000 26,245,000
Inventories (Note 4) . . . . . . . . . . . . 11,750,000 5,967,000
Deferred tax asset (Note 18) . . . . . . . . 4,980,000 7,668,000
Other current assets . . . . . . . . . . . . 3,195,000 1,616,000
Total current assets . . . . . . . . . . . 87,865,000 77,464,000
Property, plant and equipment,
at cost (Note 5) . . . . . . . . . . . . . . 59,022,000 59,456,000
Less accumulated depreciation. . . . . . . . 42,141,000 41,384,000
16,881,000 18,072,000
Long-term marketable securities (Note 2) . . . 7,891,000 8,278,000
Long-term installment receivables (Note 6) . . 10,194,000 6,815,000
Purchased software and databases, net (Note 7) 4,049,000 2,883,000
Goodwill and related intangibles, net (Note 8) 33,414,000 36,399,000
Other assets, net (Note 9) . . . . . . . . . . 1,685,000 2,064,000
$161,979,000 $151,975,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . . $ 3,326,000 $ 3,271,000
Accrued liabilities (Note 10). . . . . . . . 19,543,000 22,497,000
Income tax payable . . . . . . . . . . . . . --- 2,099,000
Current portion of notes
and capital leases (Note 11) . . . . . . . 793,000 1,523,000
Convertible exchangeable notes to
officer/director (Note 11) . . . . . . . . --- 1,333,000
Total current liabilities. . . . . . . . . 23,662,000 30,723,000
Long-term notes
and capital leases (Note 11) . . . . . . . . 579,000 1,361,000
Deferred tax payable (Note 18) . . . . . . . . 3,920,000 4,736,000
Other noncurrent liabilities . . . . . . . . . --- 29,000
Commitments and contingencies (Note 12). . . . --- ---
Shareholders' equity (Notes 15 and 16)
Preferred stock, $10.00 par value; 2,000,000
shares authorized, none issued . . . . . . --- ---
Common stock, $.10 par value; 10,000,000
shares authorized, 6,449,870 shares issued
and outstanding in 1995 and 6,088,878
shares issued and outstanding in 1994. . . 645,000 618,000
Additional paid-in capital . . . . . . . . . 57,702,000 52,612,000
Retained earnings. . . . . . . . . . . . . . 75,471,000 64,776,000
Treasury stock (Note 16) . . . . . . . . . . --- (2,880,000)
Total shareholders' equity . . . . . . . . 133,818,000 115,126,000
$161,979,000 $151,975,000
See Notes to Consolidated Financial Statements.
<PAGE>P-28
<TABLE>
<CAPTION>
BUSINESS RECORDS CORPORATION HOLDING COMPANY AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'EQUITY
Common
Stock Additional
$.10 par Paid-In Retained Treasury
Value Capital Earnings Stock
<S> <C> <C> <C> <C>
Balance at January 1, 1993 . . . $ 499,000 34,811,000 44,630,000 (2,391,000)
Net income . . . . . . . . . . --- --- 6,757,000 ---
Exercise of stock options. . . 14,000 956,000 --- 2,522,000
Stock option tax benefits. . . --- 1,328,000 --- ---
Convertible exchangeable
notes converted. . . . . . . 7,000 993,000 --- ---
Purchase of common stock
for treasury (Note 16) . . . --- --- --- (211,000)
Balance at December 31, 1993 . . 520,000 38,088,000 51,387,000 (80,000)
Net income . . . . . . . . . . --- --- 13,389,000 ---
Exercise of stock options. . . 43,000 1,758,000 --- 7,450,000
Stock option tax benefits. . . --- 5,154,000 --- ---
Convertible exchangeable
notes converted. . . . . . . 55,000 7,612,000 --- ---
Purchase of common stock
for treasury (Note 16) . . . --- --- --- 10,250,000)
Balance at December 31, 1994 . . 618,000 52,612,000 64,776,000 (2,880,000)
Net income . . . . . . . . . . --- --- 10,695,000 ---
Exercise of stock options. . . 17,000 1,960,000 --- 3,858,000
Stock option tax benefits. . . --- 1,807,000 --- ---
Convertible exchangeable
notes converted. . . . . . . 10,000 1,323,000 --- ---
Purchase of common stock
for treasury (Note 16) . . . --- --- --- (978,000)
Balance at December 31, 1995 . . $ 645,000 $57,702,000 $ 75,471,000 $ ---
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>P-29
<TABLE>
<CAPTION>
BUSINESS RECORDS CORPORATION HOLDING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities
Net income. . . . . . . . . . . . . . . . . . . $ 10,695,000 $ 13,389,000 $ 6,757,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization . . . . . . . 10,684,000 11,126,000 8,086,000
(Gain) loss on sale of assets . . . . . . . (468,000) (19,000) (138,000)
Unusual charges . . . . . . . . . . . . . . --- --- 6,548,000
Deferred income tax . . . . . . . . . . . . --- --- (3,790,000)
Changes in assets and liabilities:
(Increase) decrease in accounts
and notes receivable. . . . . . . . . . (1,202,000) 1,339,000 (2,895,000)
(Increase) decrease in inventories. . . . (5,783,000) (692,000) (166,000)
(Increase) decrease in other assets . . . 1,904,000 1,529,000 (1,743,000)
Increase (decrease) in accounts payable . 55,000 (574,000) 1,566,000
Increase (decrease) in other liabilities. (3,405,000) 5,448,000 (712,000)
Total adjustments. . . . . . . . . . . . . . . 1,785,000 18,157,000 6,756,000
Net cash provided by operating activities. . . . 12,480,000 31,546,000 13,513,000
Cash flows from investing activities
Capital expenditures . . . . . . . . . . . . . (7,612,000) (6,920,000) (5,968,000)
Marketable securities purchased. . . . . . . . (37,782,000) (28,237,000) (1,716,000)
Marketable securities redeemed . . . . . . . . 23,317,000 12,923,000 5,099,000
Proceeds from sale of business units . . . . . 200,000 40,000 549,000
Acquired businesses (Note 13). . . . . . . . . (2,000,000) --- (35,486,000)
Proceeds from sale of assets . . . . . . . . . --- 340,000 170,000
Additions to installment receivables . . . . . (7,389,000) (4,754,000) (4,058,000)
Proceeds from installment receivables. . . . . 3,554,000 1,586,000 1,244,000
Net cash used in investing activities. . . . . . (27,712,000) (25,022,000) (40,166,000)
Cash flows from financing activities
Principal payments on notes and capital leases (1,512,000) (1,595,000) (3,217,000)
Issuance of common stock . . . . . . . . . . . 5,835,000 9,251,000 3,493,000
Repurchases of stock . . . . . . . . . . . . . (978,000) (10,250,000) (211,000)
Net cash provided by (used in)
financing activities . . . . . . . . . . . . . 3,345,000 (2,594,000) 65,000
Increase (decrease) in cash and cash equivalents (11,887,000) 3,930,000 (26,588,000)
Cash and cash equivalents at beginning of year . 21,946,000 18,016,000 44,604,000
Cash and cash equivalents at end of year . . . . $ 10,059,000 $ 21,946,000 $ 18,016,000
Supplemental disclosures - Cash payments for income taxes in 1995, 1994 and 1993 were $6,900,000,
$1,556,000 and $2,636,000, respectively. Cash payments for interest in 1995, 1994 and 1993 were
$428,000, $1,000,000 and $1,445,000, respectively.
In 1995, 95,238 shares of common stock were issued to a related party upon the conversion of
$1,333,333 of the Company's 10% convertible exchangeable notes. In 1994, 547,618 shares of common
stock were issued to a related party upon the conversion of $7,666,666 of the Company's 10%
convertible exchangeable notes. In 1993, 71,429 shares of common stock were issued to a related
party upon conversion of $1,000,000 of the Company's 10% convertible exchangeable notes.
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>P-30
BUSINESS RECORDS CORPORATION HOLDING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The accompanying financial statements include
the accounts of Business Records Corporation Holding Company ("BRCHC") and
subsidiaries, hereafter referred to as the "Company." BRCHC operates through
its wholly-owned subsidiaries, Business Records Corporation ("BRC") and BRC
Health Care, formally known as CMSI. All significant intercompany
transactions and balances have been eliminated.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents - For purposes of the statements of cash flows,
cash and cash equivalents include short-term liquid investments purchased
with remaining maturities of three months or less.
Marketable securities - Pursuant to Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," the Company's short- and long-term marketable equity securities
are classified as held to maturity and are carried at amortized portfolio
cost.
Inventories - Inventories are carried at the lower of cost (first-in,
first-out method) or market.
Property, plant and equipment - Depreciation and amortization of property,
plant and equipment, owned or leased, for financial statement purposes are
provided by the straight-line method over estimated useful lives ranging
from 5 to 25 years for buildings and leasehold improvements, from 3 to 15
years for machinery and equipment, from 3 to 4 years for microcomputer
equipment and from 3 to 5 years for mainframe computer equipment.
Purchased software and databases - Purchased software and databases reflect
the cost of acquired software, software licenses and databases. Purchased
software is amortized by straight-line method over 5 to 7 years. Capitalized
costs of databases and title plants are amortized over their estimated lives
of 20 years.
<PAGE>P-31
Goodwill and related intangibles - Goodwill and related intangibles reflect
the acquired cost of goodwill, customer lists and other items usually
resulting from acquisitions accounted for using the purchase method. These
intangible assets are amortized by the straight-line method over the
estimated period to be benefited by the acquisition ranging from five to
twenty-five years. The Company has adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," effective January 1,
1995. The carrying value of long-lived assets, including goodwill, is
evaluated whenever changes in circumstances indicate the carrying amount
of such assets may not be recoverable. In performing such review for
recoverability, the Company compares the expected future cash flows to the
carrying value of long-lived assets and identifiable intangibles. If the
anticipated discounted future cash flows are less than the carrying amount
of such assets, the Company recognizes an impairment loss for the difference
between the carrying amount of the assets and their estimated fair value.
Revenue recognition - It is the Company's policy to recognize revenues when
its products are shipped or services are performed. In the event that a
particular contract requires a right of return, the Company does not
recognize revenue until such right lapses. Depending on the nature of the
Company's contracts, certain long-term contracts are recognized on a
percentage-of-completion basis. Under such contracts, earned revenue is
based on the percentage that incurred costs to date bear to total estimated
costs after giving effect to the most recent estimates of total costs.
Losses expected to be incurred on contracts in process are recognized as
soon as such losses are known. Percentage-of-completion contracts have not
constituted a material portion of the Company's revenues for the periods
presented.
Deferred revenues - Advance billings for services are deferred and recorded
as revenue in the period in which the related services are rendered.
Income taxes - Income taxes are presented pursuant to Statement of Financial
Accounting Standard No. 109 (SFAS No. 109), "Accounting for Income Taxes."
In 1993, the Company adopted SFAS No. 109. The effect of the implementation
of SFAS No. 109 was to increase net income by $4,352,000 in 1993 (See Note
18 to the Consolidated Financial Statements).
Accounting for stock-based compensation - In October 1995, Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") was issued. This statement requires the
fair value of stock options and other stock-based compensation issued to
employees to either be included as compensation expense in the income
statement or the pro-forma effect on net income and earnings per share of
such compensation expense to be disclosed in the footnotes to the Company's
financial statements commencing with the Company's 1997 fiscal year. The
Company expects to adopt SFAS No. 123 on a disclosure basis only. As such,
implementation of SFAS No. 123 is not expected to impact the Company's
consolidated balance sheet or statement of income.
<PAGE>P-32
2. MARKETABLE SECURITIES
Marketable securities are classified as held to maturity and are carried at
amortized portfolio cost. The cost of these securities is adjusted for
amortization of premiums and accretion of discounts over the estimated life
of the underlying security. Such amortization and accretion are included in
interest income. The Company invests primarily in government and corporate
fixed income securities. Realized gains and losses on the sale of investments
are determined on a specific identification basis and are included in the
Consolidated Statements of Income.
1995
Gross
Amortized Unrealized Unrealized Fair
Dollars in Thousands Cost Gains Losses Value
State and municipal bonds . . $ 22,477 $ 144 $ 495 $ 22,126
U.S. Government Treasury
Notes. . . . . . . . . . . 13,445 71 --- 13,516
Other investments . . . . . . 268 --- --- 268
$ 36,190 $ 215 $ 495 $ 35,910
1994
Gross
Amortized Unrealized Unrealized Fair
Dollars in Thousands Cost Gains Losses Value
State and municipal bonds . . $ 22,177 $ 5 $ 90 $ 22,092
U.S. Government Treasury
Notes. . . . . . . . . . . 105 --- 2 103
Other investments . . . . . . 18 --- --- 18
$ 22,300 $ 5 $ 92 $ 22,213
The contractual maturities of debt securities at December 31, 1995 are as
follows (in thousands):
Amortized Fair
Cost Value
Due within one year . . . . . 28,299 27,949
Due after one year through
five years. . . . . . . . . 7,891 7,961
$ 36,190 $ 35,910
<PAGE>P-33
3. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable include the current portion of long-term notes
of $4,806,000 and $3,896,000 for 1995 and 1994, respectively.
Accounts and notes receivable include employee receivables of $1,076,000 and
$644,000 for 1995 and 1994, respectively.
4. INVENTORIES
1995 1994
Finished goods . . . . . . . . . . $ 4,187,000 $ 2,779,000
Work in progress . . . . . . . . . 3,023,000 1,355,000
Raw materials and supplies . . . . 4,540,000 1,833,000
$11,750,000 $ 5,967,000
5. PROPERTY, PLANT AND EQUIPMENT
1995 1994
Land . . . . . . . . . . . . . . . $ 294,000 $ 294,000
Buildings and leasehold
improvements . . . . . . . . . . 6,675,000 6,011,000
Machinery and equipment. . . . . . 52,053,000 53,151,000
$59,022,000 $59,456,000
For 1995, 1994 and 1993, the Company incurred depreciation expense of
$7,385,000, $7,557,000, and $5,688,000, respectively.
6. LONG-TERM INSTALLMENT RECEIVABLES
Long-term installment receivables generally relate to the sale of certain
assets, products and services. These receivables range in length from 3 to 6
years and bear interest at rates ranging from 4 to 11 percent. The carrying
value of these receivables approximates the market value at December 31, 1995.
7. PURCHASED SOFTWARE AND DATABASES
1995 1994
Software, net of accumulated
amortization of $5,797,000 in
1995 and $5,597,000 in 1994. . . . . $ 1,930,000 $ 445,000
Software licenses, net of accumulated
amortization of $322,000 in 1995
and $205,000 in 1994 . . . . . . . . 548,000 665,000
Databases, net of accumulated
amortization of $2,482,000 in 1995
and $2,280,000 in 1994 . . . . . . . 1,571,000 1,773,000
$ 4,049,000 $ 2,883,000
During the second quarter of 1994, in accordance with the Statement of
Financial Accounting Standards No. 86, the Company charged $950,000 against
earnings due to an assessment of the unamortized capitalized costs associated
with several software licenses and proprietary software packages as compared
to their net realizable value.
<PAGE>P-34
8. GOODWILL AND RELATED INTANGIBLES
1995 1994
Goodwill, net of accumulated
amortization of $5,004,000 in
1995 and $3,636,000 in 1994. . . . . $ 23,718,000 $ 25,502,000
Customer lists, net of accumulated
amortization of $2,687,000 in
1995 and $2,243,000 in 1994. . . . . 8,703,000 9,609,000
Other items, net of accumulated
amortization of $858,000 in
1995 and $564,000 in 1994. . . . . . 993,000 1,288,000
$ 33,414,000 $ 36,399,000
9. OTHER ASSETS
1995 1994
Noncompetition agreements, net
of accumulated amortization of
$1,483,000 in 1995 and $1,015,000
in 1994. . . . . . . . . . . . . . . $ 1,309,000 $ 1,423,000
Other, net of accumulated
amortization of $281,000 in 1995
and $279,000 in 1994 . . . . . . . . 376,000 641,000
$ 1,685,000 $ 2,064,000
Noncompetition agreements are amortized over the term of the underlying
agreements which range from one to five years.
10. ACCRUED LIABILITIES
1995 1994
Deferred revenues. . . . . . . . . . . $ 10,973,000 $ 9,153,000
Salaries and benefits. . . . . . . . . 3,679,000 4,236,000
Other accrued liabilities. . . . . . . 4,891,000 9,108,000
$ 19,543,000 $ 22,497,000
<PAGE>P-35
11. NOTES AND CAPITAL LEASES
1995 1994
Notes
10% convertible exchangeable
notes to officer/director. . . . . . $ --- $ 1,333,000
Capital Leases
7% lease payable to customer related
to acquisition of computer equipment
and related contract concession,
maturing through 1997. . . . . . . . $ 462,000 $ 1,426,000
7% lease payable to vendor providing
certain software licenses, maturing
through 1997 . . . . . . . . . . . . 598,000 844,000
Miscellaneous capital leases related
to equipment with rates of 5% to
10%, maturing through 1998 . . . . . 312,000 528,000
Miscellaneous capital leases related
to automobiles with rates of 7% to
11%, maturing through 1996 . . . . . --- 86,000
Total capital leases . . . . . . . . . $ 1,372,000 $ 2,884,000
Total notes and capital leases . . . . $ 1,372,000 $ 4,217,000
Less current maturities of leases. . . 793,000 1,523,000
Less notes classified as current . . . --- 1,333,000
Long-term notes and capital leases . . $ 579,000 $ 1,361,000
In March 1988, the Company sold to a then unrelated third party, who
subsequently became and continues as an officer and director of the Company
(the "Holder"), $10,000,000 10% convertible, exchangeable notes due in 1998
(the "Notes"). The Notes were convertible, at the option of the Holder, into
common stock, $.10 par value per share (the "Common Stock"), of the Company
at any time at $14.00 principal amount per share of Common Stock. During
1995, $1,333,333 of face value of the Notes were converted by the Holder into
95,238 shares of Common Stock. During 1994, $7,666,666 of face value of the
Notes were converted by the Holder into 547,618 shares of Common Stock.
During 1993, $1,000,000 of face value of the Notes were converted by the
Holder into 71,429 shares of Common Stock.
As of December 31, 1995, lease payments due under capital leases are as
follows:
Year Ending December 31:
1996 . . . . . . . . . . $ 855,000
1997 . . . . . . . . . . 578,000
1998 . . . . . . . . . . 18,000
1,451,000
Less Interest. . . . . . ( 79,000)
Principal amount of
net lease payments . . $ 1,372,000
<PAGE>P-36
Assets and liabilities resulting from capital lease obligations are included
in the balance sheet at December 31, 1995 as follows:
Assets:
Property, plant and equipment . . . . . $ 2,396,000
Purchased software and databases. . . . 291,000
Goodwill and related intangibles. . . . 1,467,000
4,154,000
Less accumulated depreciation
and amortization. . . . . . . . . . . 2,067,000
$ 2,087,000
Liabilities:
Current portion of notes and
capital leases. . . . . . . . . . . . $ 793,000
Long-term notes and capital leases. . . 579,000
$ 1,372,000
12. COMMITMENTS AND CONTINGENCIES
Minimum future rental payments for leased office space and property, plant and
equipment required under operating leases with initial or remaining
noncancellable lease terms in excess of one year are: 1996 - $2,771,000;
1997 - $2,673,000; 1998 - $2,271,000; 1999 - $1,868,000; 2000 - $1,150,000;
later years - $1,071,000; total - $11,804,000.
Total rent expense for operating leases was $2,998,000 in 1995, $2,866,000 in
1994 and $2,719,000 in 1993.
On March 4, 1988, Claude Morgan Lewenz filed a lawsuit in the United States
District Court for the District of Connecticut, styled Claude Morgan Lewenz
v. DLH/INE Corporation, Business Records Corporation, Hall & McChesney, Inc.
and Cronus Industries, Inc., in which he asserted claims of breach of
contract, fraud, unjust enrichment and tortious interference allegedly arising
out of the termination of his former independent sales representative contract
with DLH/INE, a company acquired by BRC in December 1987. The plaintiff
alleged that his sales representative contract was not properly terminated and
that he was fraudulently induced to execute the stock purchase agreement,
whereby he and other shareholders of DLH/INE sold that company to BRC, by
representations that his sales representative contract would be continued
after the closing. The plaintiff sought the recovery of damages of
$10,000,000, preliminary and permanent injunctive relief reinstating him as an
independent sales representative, rescission of BRC's acquisition of DLH/INE,
punitive damages, interest and attorney's fees.
With respect to the above litigation, the lawsuit was tried during December
1993 and a jury found BRC liable for breach of contract, but found in BRC's
favor on the plaintiff's other claims. A judgement of $564,000 was awarded to
the plaintiff by this jury. BRC filed a motion for retrial and this motion
was granted by the Court in August 1994. The Company subsequently settled
this lawsuit with the plaintiff in May of 1995. The Company had previously
established a reserve sufficient to satisfy the costs of the original
judgement, anticipated costs of appeal, and associated legal expense. As a
result of the settlement, the Company recorded, as other income, $823,000
during the second quarter of 1995.
<PAGE>P-37
The Company is also party to various other lawsuits arising in the ordinary
course of its business and does not believe that the outcome of these lawsuits
will have a material effect on the Company's financial position or results
from operations.
13. ACQUISITIONS
On August 17, 1995, the Company consummated the merger of Clinical Resource
Systems, Inc. (CRS), with a wholly-owned subsidiary of the Company. Under the
terms of the agreement, the Company will issue up to 121,112 shares of its
common stock, subject to certain escrow arrangements with regard to 12,111
shares, in exchange for all of the record and beneficial interest held by CRS
security holders. Additionally, outstanding options to acquire CRS common
stock were converted to options to acquire 14,381 of the Company's common
stock. CRS, headquartered in Austin, Texas, provides specialized software to
hospital emergency rooms.
The Company expects to treat the CRS merger as a tax-free reorganization.
This transaction was accounted for as a pooling of interests. Accordingly,
the Company's financial statements have been restated to include the results
of CRS for all periods presented.
Combined and separate results of BRC and CRS during the periods preceding the
merger were as follows:
Twelve Months ended December 31,
1995 1994 1993
Revenue:
BRC. . . . . . . $133,573,000 $144,204,000 $104,243,000
CRS. . . . . . . 1,081,000 1,056,000 989,000
Total. . . . . . $134,654,000 $145,260,000 $105,232,000
Net Income (Loss):
BRC. . . . . . . $ 11,093,000 $ 13,388,000 $ 6,328,000
CRS. . . . . . . (398,000) 1,000 429,000
Total. . . . . . $ 10,695,000 $ 13,389,000 $ 6,757,000
The combined financial results presented above include adjustments and
reclassifications made to conform the accounting policies of the two
companies. There were no material income adjustments or intercompany
transactions between the two companies for the periods presented.
On November 1, 1995, the Company acquired all of the assets and assumed
certain liabilities of Megalink, Inc. ("Megalink"), a Florida corporation.
Megalink develops and markets voter registration software for use in
conducting public elections. Megalink's primary operations were located in
West Palm Beach, Florida. In addition to other terms and conditions, the
Asset Purchase Agreement provided that the Company would pay $2,000,000 in
cash in consideration for the net assets of Megalink.
<PAGE>P-38
On September 13, 1995, the Company acquired the assets of Computer Election
Systems, Inc. ("CES"), a Florida-based provider of specialized punch card
ballots and certain of the government records management accounts of
Government Records Services, Inc. ("GRS"), located in the Southeastern United
States. Both companies were under common ownership. The Company acquired
these assets in exchange for the sale of certain of its Texas government
records management accounts and the receipt of notes payable in the aggregate
amount of $1,730,000 issued by GRS and secured by the underlying computer
equipment sold to GRS.
On May 14, 1993, the Company completed its acquisition of CMSI. CMSI is an
Oregon corporation with its operations principally in the states of
California, Oregon, Illinois and Washington. CMSI provided a variety of
professional technology and outsourcing services to healthcare institutions
and local governments.
In accordance with the terms of the Stock Purchase Agreement, the Company
expended $35,486,000 in cash to consummate the acquisition as follows:
Payments for common stock. . . . . . $31,554,000
Stock valuation plan,
agreements not to compete and
other related obligations. . . . . 4,550,000
Acquired cash and investments. . . . (618,000)
Net cash expended for acquisition. . $35,486,000
The following summarizes unaudited pro forma consolidated results of
operations for the 12-month period ended December 31, 1993, assuming the
acquisition occurred as of the beginning of the period presented, and
excluding the charge for purchased in-process research and development. The
pro forma results have been prepared for comparative purposes only and do not
propose to be indicative of the results of operations which actually would
have been in effect at the dates indicated, or which may occur in the future.
Twelve Months Ended December 31,
1993
Revenues. . . . . . . . . . . . . . . $120,356,000
Income before extraordinary
items and cumulative effect of
change in accounting principle. . . $ 2,988,000
Net income. . . . . . . . . . . . . . $ 6,778,000
Income per common share . . . . . . . $ 1.20
14. OTHER RELATED PARTY TRANSACTIONS
The Company leases real property owned by a partnership that includes as a
partner, an officer of the Company. The lease agreement covering this parcel
has a term expiring in February 2004. Annual rental payments paid by the
Company in 1995, 1994 and 1993 were $217,000, $211,000 and $203,000,
respectively. Management believes that the terms of the lease are at least as
favorable to the Company as those that could have been obtained in an
arm's-length transaction with unaffiliated parties.
<PAGE>P-39
A business, partly owned by a family member of a current officer/director,
leases real property from the Company. The lease agreement covers
approximately 5,600 square feet of production and warehouse space which was
otherwise unused by the Company. The Company collects approximately $20,000
annually under the lease which expires in May 1999. The lease rate negotiated
was based upon what the Company believes were existing market conditions at the
inception of the lease.
The Company subleases office space to a current officer/director for personal
use. The lease agreement covers 1,266 square feet of office space on which
the Company collects approximately $12,000 annually in rent. The lease rate
negotiated was based upon what the Company believes were existing market
conditions at the inception of the lease.
During 1995, the Company funded and recorded as an employee receivable
$595,000 as a relocation loan to a current officer of the Company. This
receivable bears an interest rate which was comparable to existing market
rates for home mortgages at the time of the loan and is due September 1996.
15. INCENTIVE COMPENSATION PLANS
The Company provides options to purchase its common stock to officers,
directors and employees of the Company through several stock option plans.
Additionally, through an equity participation plan adopted in 1989, the
Company may provide favorable terms to officers, and employees for the
purchase of common shares. Although it is not required to do so under each of
the plans, the Company typically grants options to purchase its common stock
at prices equal to the fair market value of the underlying shares of such
common stock on the date of grant. The Company has issued no shares under its
stock purchase program since 1989. Because the Company grants options to
purchase its common stock under these plans at the fair market value thereof
on the date of grant, and because it has not issued stock under its stock
purchase program since August of 1989, it has recorded no compensation expense
in connection with the grants of options or as a result of employee stock
purchases during the periods presented.
1993 Stock Option Plan
The Company's stock option plan, adopted in April 1993, approved by
shareholders at their annual meeting on May 13, 1993, and further modified by
shareholders at their annual meeting on May 17, 1995, provides for the grant
of options to key employees, who are selected by the Stock Option Committee of
the board of directors, to purchase up to 2,100,000 shares of common stock.
The Stock Option Committee determines the number of shares to be granted to
such individuals, the term of vesting and such conditions as to the manner of
exercise of such options as it may deem necessary. Generally, the options are
exercisable within the option period in periodic installments and all
installments that become exercisable are cumulative and may be exercised after
they become exercisable with the expiration of the option. At the discretion
of the Company, either common stock or cash may be paid by the option holder
upon excercise of the option. Options that have expired or that have been
canceled are available for future grants under the plan.
<PAGE>P-40
Transactions for stock options pursuant to the 1993 Stock Option Plan for
1995, 1994 and 1993 are as follows:
1995 1994 1993
Options outstanding January 1 . . . . 1,136,177 1,033,600 ---
Granted . . . . . . . . . . . . . . . 513,874 411,500 1,036,850
Exercised . . . . . . . . . . . . . . (171,795) (91,122) ---
Canceled. . . . . . . . . . . . . . . (231,186) (217,801) (3,250)
Options outstanding at December 31. . 1,247,070 1,136,177 1,033,600
Option Price Range at December 31 . . $22.50 $22.50 $22.50
to to to
$40.00 $33.50 $29.00
Options exercisable at December 31. . 598,933 370,821 ---
Options available for grant at
December 31 . . . . . . . . . . . . 590,013 22,701 216,400
Equity Participation Plans
Effective January 1989, the Company adopted equity participation plans (the
"Equity Plans") pursuant to which key management employees of the Company
(who were selected by the board of directors) were granted rights and options
to acquire shares of common stock. The Equity Plans consist of three parts:
(i) a Company purchase plan, (ii) a bonus stock plan and (iii) a stock option
plan.
Under the Company purchase plan, participants can be granted rights to
purchase up to an aggregate of 500,000 shares of common stock made available
from the Company's treasury or other authorized but unissued common stock at
a purchase price of $10.00 per share.
Under the related bonus stock plan, for each share of common stock purchased
by a participant under the Company purchase plan, the Company may grant to
such participant the right to purchase an additional one-half share of common
stock at a purchase price of $.10 per share up to a maximum of 250,000 shares
in the aggregate for all participants. The shares issued under the bonus
stock plan are typically subject to vesting and forfeiture provisions based on
a participant's continued employment with the Company. No rights were granted
during the periods presented.
Under the stock option plan, the Company authorized the granting of up to
1,200,000 nonqualified options exercisable at market price at the date of
grant. The Stock Option Committee determines the number of shares to be
granted to such individuals, the term of vesting and such conditions as to the
manner of exercise of such options as it may deem necessary. Generally, the
options are exercisable within the option period in periodic installments and
all installments that become exercisable are cumulative and may be exercised
after they become exercisable with the expiration of the option. At the
discretion of the Company, either common stock or cash may be paid by the
option holder upon exercise of the option. Options that have expired or been
canceled are available for future grants under the plan. No rights were
granted during the periods presented.
<PAGE>P-41
Transactions for stock options pursuant to the Equity Plans for 1995, 1994
and 1993 are as follows:
1995 1994 1993
Options outstanding January 1. . . . . . . 24,800 515,035 728,702
Granted. . . . . . . . . . . . . . . . . . 70,000 24,300 ---
Exercised. . . . . . . . . . . . . . . . . (833) (514,535) (213,667)
Canceled . . . . . . . . . . . . . . . . . (10,967) --- ---
Options outstanding at December 31 . . . . 83,000 24,800 515,035
Options price range at December 31 . . . . $32.25 $12.25 $11.375
to to to
$34.75 $33.25 $12.250
Options exercisable at December 31 . . . . 4,323 500 515,035
Options available for grant at December 31 13,935 72,968 97,268
1977 Stock Option Plan
The Company's stock option plan adopted in February 1977 and modified in
January 1991 provides for the granting of nonqualified options to certain of
its key employees to purchase up to 400,000 shares of Common Stock at prices
which represent fair market value at date of grant. The Stock Committee
determines the number of shares to be granted to such individuals, the term of
vesting and such conditions as to the manner of exercise of such options as it
may deem necessary. Generally, the options are exercisable within the option
period in periodic installments and all installments that become exercisable
are cumulative and may be exercised after they become exercisable with the
expiration of the option. At the discretion of the Company, either Common
Stock or cash may be paid by the option holder upon exercise of the option.
Options that have expired or been canceled are available for future grants
under the plan.
Transactions for 1995, 1994 and 1993 are as follows:
1995 1994 1993
Options outstanding January 1. . . . . . . 131,157 192,729 224,454
Granted. . . . . . . . . . . . . . . . . . 13,800 13,040 ---
Exercised. . . . . . . . . . . . . . . . . (64,590) (46,767) (28,308)
Canceled . . . . . . . . . . . . . . . . . (233) (27,845) (3,417)
Options outstanding at December 31 . . . . 80,134 131,157 192,729
Options price range at December 31 . . . . $17.50 $12.125 $12.125
to to to
$34.75 $33.250 $29.125
Options exercisable at December 31 . . . . 62,801 125,029 132,856
Options available for grant at December 31 6,925 20,492 5,687
1990 Director Stock Option Plan
The Company's director stock option plan, adopted in March 1990, provides for
the granting of nonqualified options to certain nonemployee members of the
board of directors of the Company to purchase up to a total of 100,000 shares
of Common Stock at market price at the date of grant. The options are
exercisable in 33-1/3% cumulative annual installments beginning one year from
the date of grant and are subject to certain forfeiture provisions if the
director ceases to serve as a director of the Company during the term of the
options. These options expire five years from the date granted.
<PAGE>P-42
Transactions for 1995, 1994 and 1993 are as follows:
1995 1994 1993
Options outstanding January 1. . . . . . . 50,000 50,000 58,333
Granted. . . . . . . . . . . . . . . . . . --- --- ---
Exercised. . . . . . . . . . . . . . . . . (50,000) --- (8,333)
Canceled . . . . . . . . . . . . . . . . . --- --- ---
Options outstanding at December 31 . . . . 0 50,000 50,000
Option price at December 31. . . . . . . .$ --- $12.25 $12.25
Options exercisable at December 31 . . . . --- 50,000 50,000
Options available for grant at December 31 8,333 8,333 8,333
1995 Directors Stock Option Plan
On August 1, 1995, the Board of Directors adopted, subject to shareholder
approval at the Company's Annual Meeting of Stockholders on May 16, 1996, the
Company's 1995 Option Plan for Non-Employee Directors ("1995 Directors Plan")
which provides for the granting of stock options to qualified individuals to
purchase up to an aggregate of 120,000 shares of common stock. The 1995
Directors Plan provides that non-employee directors will be granted 10,000
shares of common stock on August 1st of each year up to a maximum of 30,000
shares for each non-employee director. Options become exercisable in equal
20% cumulative annual installments commencing with the first anniversary of
the date of grant and remain exercisable for a period of up to ten years from
the date of grant and are subject to certain cancellation provisions if the
individual ceases to serve as a director of the Company during the term of the
options. Transactions for 1995 are as follows:
1995
Options Outstanding January 1 . . . . . . ---
Granted. . . . . . . . . . . . . . . . . . 40,000
Exercised. . . . . . . . . . . . . . . . . ---
Canceled . . . . . . . . . . . . . . . . . ---
Options outstanding at December 31 . . . . 40,000
Option price at December 31. . . . . . . . $37.50
Options Exercisable at December 31 . . . . ---
Options Available for grant at December 31 80,000
Clinical Resource Systems, Inc. Stock Option Plan
In connection with the merger of a wholly-owned subsidiary of the Company with
Clinical Resource Systems, Inc. ("CRS") on August 17, 1995, the Company
assumed responsibility for existing employee stock options of CRS (See Note
13 to the Consolidated Financial Statements). Such employee stock options
were converted in options to purchase common shares of the Company in a
manner consistent with the conversion factors relied upon in the merger. As a
result of the foregoing, as of December 31, 1995, the Company has 11,464
employee stock options outstanding which ranged in exercise price from $29.71
to $59.42 and were associated with the Company's merger with CRS. A total of
8,940 of such options were exercisable pursuant to the terms of such
agreements as of December 31, 1995. No further options are available for
grant in connection with the underlying stock option plans of CRS.
<PAGE>P-43
16. SHAREHOLDERS' EQUITY
As of December 31, 1995 and 1994, the Company had 2,000,000 shares of
preferred stock, par value $10.00 per share, authorized. The preferred stock,
if issued, will have such rights and preferences as may be designated by the
Company's board of directors. Of the 2,000,000 authorized shares of preferred
stock, 100,000 shares have been designated as Series A Junior Participating
Preferred Stock and 714,285 shares have been designated as 7% Series B
Cumulative Exchangeable Preferred Stock. No shares of preferred stock have
been issued.
During 1995, the Company repurchased a total of 25,834 shares of common stock
for $978,000, of which none were held as treasury stock at year end. During
1994, the Company repurchased a total of 303,371 shares of common stock for
$10,250,000. At December 31, 1994, the Company held 90,000 shares of treasury
stock. During 1993, the Company repurchased a total of 10,000 shares of
common stock for $211,000, of which 3,916 shares were held as treasury stock
at year-end.
17. EMPLOYEE BENEFIT PLANS
Substantially all employees of the Company and its subsidiaries are eligible
to participate in defined contribution plans. The costs associated with
Company contributions and administrative expenses were $660,000 in 1995,
$502,000 in 1994 and $318,000 in 1993.
18. INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
The adoption of SFAS No. 109 required the Company to change from the deferred
method of accounting for income taxes of APB Opinion 11 to the liability
method of accounting for income taxes. Under the liability method, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using the enacted tax rates
applicable to the years in which those differences are expected to be
recovered or settled.
The cumulative effect of the change in the method of accounting for income
taxes of $4,352,000 is determined as of January 1, 1993 and is reported
separately in the consolidated statement of earnings for the year ended
December 31, 1993. $562,000 of the cumulative effect is related to net
operating loss carryforwards acquired in the acquisition of Clinical Resource
Systems, Inc. (See Note 13 for detail of the transaction and an explanation
of the accounting treatment.) Prior years' financial statements have not been
restated to apply the provisions of SFAS No. 109.
<PAGE>P-44
The components of the provision (benefit) for federal and state income taxes
are as follows:
1995 1994 1993
Current:
Federal income tax . . . . . . $ 3,519,000 $ 3,125,000 $ 1,953,000
State income tax . . . . . . . 740,000 750,000 350,000
Total current. . . . . . . . . 4,259,000 3,875,000 2,303,000
Deferred:
Federal income tax . . . . . . 1,155,000 (349,000) (5,422,000)
State income tax . . . . . . . ( 83,000) (118,000) (957,000)
Total deferred . . . . . . . . 1,072,000 (467,000) (6,379,000)
Total. . . . . . . . . . . . . $ 5,331,000 $ 3,408,000 $(4,076,000)
The income tax provision (benefit) is included in the financial statements as
follows:
1995 1994 1993
Income tax provision
per statement of operations . . $ 7,138,000 $ 8,562,000 $ 1,604,000
Cumulative effect of change
in method of accounting
for income taxes. . . . . . . . --- --- (4,352,000)
Direct credits to equity -
compensation expense for tax
purposes in excess of amounts
recognized for financial
reporting purposes. . . . . . . (1,807,000) (5,154,000) (1,328,000)
Total . . . . . . . . . . . . . . $ 5,331,000 $ 3,408,000 $(4,076,000)
The following summarizes the difference between the federal statutory income
tax rate and the effective income tax rate for continuing operations:
1995 1994 1993
Federal income tax rate. . . . . . . 35% 35% 34%
State income tax, net of federal
benefit. . . . . . . . . . . . . . 4% 4% 6%
Amortization of intangibles. . . . . 3% 2% 8%
Tax exempt interest income
and other . . . . . . . . . . . . (2%) (2%) (8%)
Effective income tax rate. . . . . . 40% 39% 40%
<PAGE>P-45
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax payable at December 31,
are presented below:
1995 1994
Deferred tax asset:
Revenue not yet recognized for
financial reporting purposes. . . . $ 1,530,000 $ 1,631,000
Inventories . . . . . . . . . . . . 550,000 1,173,000
Accrued compensation. . . . . . . . 430,000 764,000
Bad debt reserves . . . . . . . . . 500,000 562,000
Net operating loss carryforward . . 850,000 812,000
Other accrued expenses. . . . . . . 710,000 1,593,000
Other liabilities . . . . . . . . . 410,000 1,133,000
Total deferred tax asset. . . . . . . $ 4,980,000 $ 7,668,000
Deferred tax payable:
Intangibles, net. . . . . . . . . . $(3,340,000) $(3,587,000)
Fixed assets and other, net . . . . (580,000) (1,149,000)
Total deferred tax payable. . . . . . $(3,920,000) $(4,736,000)
19. EARNINGS PER SHARE
Earnings per common and common equivalent shares are computed based on the
weighted average number of common and common equivalent shares outstanding
(6,532,000 in 1995, 6,074,000 in 1994 and 5,768,000 in 1993). Shares issuable
upon exercise of dilutive stock options are included in the weighted average
number of shares outstanding.
Earnings per share assuming full dilution, unless antidilutive, are computed
based on shares issuable upon exercise of dilutive stock options and
conversion of the Notes. The weighted average number of common and common
equivalent shares outstanding, assuming full dilution, was 6,644,000 in 1995,
6,392,000 in 1994 and 6,411,000 in 1993.
20. UNUSUAL CHARGES
During 1993, the Company recognized a one-time charge to earnings of
$6,548,000 primarily consisting of the allocation of a portion of the total
purchase price of CMSI to in-process research and development. This
in-process research and development relates to CMSI's "GT2000" project under
which CMSI had been developing specialized "open-systems" software for use by
local governments (See Note 13 to the Consolidated Financial Statements).
21. OTHER INCOME
During the second quarter of 1995, the Company settled its lawsuit with
Claude Morgan Lewenz. The case, styled "Claude Morgan Lewenz v. DLH/INE
Corporation, Business Records Corporation, Hall and McChesney, Inc. And
Cronus Industries, Inc. was scheduled for retrial in June of 1995. The
Company had previously established a reserve consistent with the original
judgement awarded to the plaintiff and associated legal expenses. As a
result of the settlement, the Company has recorded, as other income, $823,000
during the second quarter (See Note 12 of the Consolidated Financial
Statements). During the fourth quarter of 1995, the statute of limitations
expired on a dispute in which the Company had previously established a
reserve. An amount equal to approximately $460,000 associated with this case
was recorded as other income.
<PAGE>P-46
22. QUARTERLY FINANCIAL DATA (unaudited)
Summarized quarterly financial data for 1995 and 1994 are as follows
(in thousands, except share data):
Three months ended (1995)
March 31 June 30 Sept. 30 Dec. 31
Revenues. . . . . . . $32,788 $32,657 $34,728 $34,481
Gross profit. . . . . 9,329 8,005 9,801 9,632
Net income. . . . . . 2,694 2,358 2,748 2,895
Primary earnings
per share on
net income . . . . . .42 .36 .41 .44
Fully diluted
earnings per
share on net income. .42 .36 .41 .44
Three months ended (1994)
March 31 June 30 Sept. 30 Dec. 31
Revenues. . . . . . . $32,481 $36,507 $38,920 $37,352
Gross profit. . . . . 10,209 12,448 13,253 11,793
Net income. . . . . . 2,697 3,620 3,903 3,169
Primary earnings
per share on
net income . . . . . .47 .60 .62 .50
Fully diluted earnings
per share on
net income . . . . . .45 .57 .59 .49
<PAGE>P-47
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Business Records Corporation Holding Company
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a) on page 25 present fairly, in all material
respects, the financial position of Business Records Corporation Holding
Company and its subsidiaries at December 31, 1995 and 1994, and the 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. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the financial statements, the Company adopted FAS
109, "Accounting for Income Taxes," in 1993. We concur with the change in
accounting.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Dallas, Texas
March 22, 1996
<PAGE>P-48
<TABLE>
<CAPTION>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1995, 1994 and 1993
Additions
Balance at
Beginning Charged to Charged to Balance at
Description of Period Costs and Expenses Other Accounts(a) Deductions End of Period
<S> <C> <C> <C> <C> <C>
1995:
Reserve for bad debts -
accounts and notes
receivables $ 1,395,000 $ 279,000 $ (430,000) --- $ 1,244,000
Inventory reserves 998,000 (17,000) (51,000) --- 930,000
Total $ 2,393,000 $ 262,000 $ (481,000) --- $ 2,174,000
1994:
Reserve for bad debts -
accounts and notes
receivables $ 1,592,000 $ (84,000) $ (113,000) --- $ 1,395,000
Inventory reserves 715,000 320,000 (37,000) --- 998,000
Total $ 2,307,000 $ 236,000 $ (150,000) --- $ 2,393,000
1993:
Reserve for bad debts -
accounts and notes
receivables $ 1,352,000 $ 438,000 $ (198,000) --- $ 1,592,000
Inventory reserves 609,000 168,000 (62,000) --- 715,000
Total $ 1,961,000 $ 606,000 $ (260,000) --- $ 2,307,000
(a) Such amounts relate to the utilization of the valuation and qualifying
accounts to specific items for which they were established in the
accounts receivables and inventory reserve accounts.
Note: Certain amounts have been reclassified from prior year to conform to
current year presentation.
</TABLE>
<PAGE>P-49
INDEX TO EXHIBITS
(3) Articles of Incorporation and By-Laws:
a. By-Laws, as amended, of Cronus Industries, Inc. (filed as
Exhibit 3.2 to the Company's Registration Statement No.
2-94283 on Form S-2 and incorporated herein by reference).
b. Restated Certificate of Incorporation, as amended, of Cronus
Industries, Inc. (filed as Exhibit (3)b. to the Company's
Annual Report on Form 10-K for the year ended December 31,
1991, and incorporated herein by reference).
c. Certificate of Amendment of Certificate of Incorporation of
Cronus Industries, Inc. (filed as Exhibit (3)c. to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991, and incorporated herein by reference).
d. Certificate of Amendment to the Restated Certificate of
Incorporation of Cronus Industries, Inc. (filed as Exhibit
(3)d. to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, and incorporated herein by reference).
e. Certificate of Correction of the Certificate of Amendment to the
Restated Certificate of Incorporation of Cronus Industries,
Inc. (filed as Exhibit (3)e. to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, and
incorporated herein by reference).
f. Certificate of Designation of Series A Junior Participating
Preferred Stock of the Company (filed as Exhibit (3)f. to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991, and incorporated herein by reference).
g. Certificate of Designation, Preferences, Rights and Limitations
of 7% Series B Cumulative Convertible Exchangeable Preferred
Stock of the Company (filed as Exhibit (3)g. to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993,
and incorporated herein by reference).
h. Certificate of Amendment to the Restated Certificate of
Incorporation of Cronus Industries, Inc.
(4) Instruments Defining the Rights of Security Holders, Including
Indentures:
a. Note Purchase Agreement between the Company and P.E. Esping
(filed as Exhibit (4)a. to the Company's Annual Report on Form
10-K for the year ended December 31, 1993, and incorporated
herein by reference).
b. Amendment to Note Purchase Agreement between the Company and P.
E. Esping (filed as Exhibit (4)b. to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993, and
incorporated herein by reference).
<PAGE>P-50
c. Second Amendment to Note Purchase Agreement between the
Company and P. E. Esping (filed as Exhibit (4)c. to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993, and incorporated herein by reference).
d. 10% Convertible Exchangeable Note due April 1, 1998, dated
January 1, 1993 (filed as Exhibit (4)d. to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993, and incorporated herein by reference).
(10) Material Contracts:
a. The Company's Stock Option Plan:
1. Amended and Restated Business Records Corporation Stock
Option Plan (filed as Exhibit 4.1 to the Company's
Registration Statement No. 33-40503 on Form S-8 and
incorporated herein by reference).
2. Form of Nonqualified Stock Option Agreement (filed as
Exhibit 4.2 to the Company's Registration Statement No.
33-40503 on Form S-8 and incorporated herein by reference).
b. Lease Agreement dated February 27, 1986, between LBM and the
Company relating to real property in St. Cloud, Minnesota
(filed as Exhibit (10)c. to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991, and
incorporated herein by reference).
*c. Amended and Restated Equity Participation Plans dated July 9,
1990 (filed as Exhibit (10)d. to the Company's Annual Report
on Form 10-K for the year ended December 31, 1990, and
incorporated herein by reference).
d. The Company's Management Equity Participation Stock Option Plan:
1. Business Records Corporation Holding Company Management
Equity Participation Stock Option Plan (filed as Exhibit
4.1 to the Company's Registration Statement No. 33-47368
on Form S-8 and incorporated herein by reference).
2. Form of Stock Option Agreement (filed as Exhibit 4.2 to
the Company's Registration Statement No. 33-47368 on Form
S-8 and incorporated herein by reference).
e. The Company's 1990 Director Stock Option Plan:
1. Business Records Corporation Holding Company Nonqualified
Director Stock Option Plan (filed as Exhibit 4.1 to the
Company's Registration Statement No. 33-47369 on Form S-8
and incorporated herein by reference).
2. Form of Nonqualified Stock Option Agreement (filed as
Exhibit 4.2 to the Company's Registration Statement No.
33-47369 on Form S-8 and incorporated herein by reference).
f. The Company's 1990 Key Contributor Bonus Plan.
<PAGE>P-51
g. Promissory Note dated February 22, 1991, executed by P.E.
Esping and payable to the Company.
h. Promissory Note dated January 7, 1992, executed by P.E. Esping
and payable to the Company (filed as Exhibit (10)i. to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991, and incorporated herein by reference).
i. The Company's Nonqualified Performance Stock Option Plan for
Key Employees:
1. Nonqualified Performance Stock Option Plan for Key
Employees of Business Records Corporation Holding Company
(filed as Exhibit 4.1 to the Company's Registration
Statement No. 33-65410 on Form S-8 and incorporated herein
by reference).
2. Form of Nonqualified Stock Option Agreement (filed as
Exhibit 4.1 to the Company's Registration Statement No.
33-65410 on Form S-8 and incorporated herein by reference).
*(11) Statement regarding computation of earnings per share.
(16) Letter regarding change in certifying accountant (filed as
Exhibit 16 to the Company's Current Report on Form 8-K dated
September 18, 1992, and incorporated herein by reference).
(21) Subsidiaries of the Registrant.
(23) Consent of Certified Public Accountants.
*a. Consent of Price Waterhouse LLP
*(27) Financial Data Schedule for the Year Ended December 31, 1995.
(Pursuant to Item 601(c)(iv) of Regulation S-X, the Financial
Data Schedule is not deemed to be "filed" for purpose of
Section 11 of the Securities Act of 1933, as amended, or Section
18 of the Securities Exchange Act of 1934, as amended.)
(99) Additional Exhibits.
a. Company's undertaking regarding the Securities and Exchange
Commission's position on indemnification in connection with
the existing prospectus and registration statement on Form
S-8 regarding the Business Records Corporation 401(k)
Retirement Savings Plan and Trust (filed as Exhibit (28)a. to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1991, and incorporated herein by reference).
* Filed herewith
Exhibit (10)c
BUSINESS RECORDS CORPORATION HOLDING COMPANY
AMENDED AND RESTATED
EQUITY PARTICIPATION PLANS
Business Records Corporation Holding Company (formerly Cronus Industries,
Inc.) a Delaware corporation (the "Company"), adopted on July 9, 1990 and
effective as of January 11, 1989 the following three Amended and Restated
Equity Participation Plans (herein referred to as the "Plans"), amending and
restating the Equity Participation Plans originally adopted on January 11,
1989 and as previously amended on May 17, 1989 and June 16, 1989:
1. A Company Purchase Plan (the "Company Purchase Plan")(formerly
designated the "Open Market Purchase Plan");
2. A related Bonus Stock Plan (the "Bonus Stock Plan");
3. A Stock Option Plan (the "Stock Option Plan").
The terms and provisions of such three plans are as follows:
1. Participating Key Management Employees.
The key management employees eligible to participate in the three Plans
provided for herein, the number of shares of Common Stock of the Company
(the "Common Stock") to be offered to each participant under the Company
Purchase Plan and Bonus Stock Plan, and the number of options to be
awarded to each participant under the Stock Option Plan shall be
determined by the Board or Plans Committee, hereinafter defined.
2. Company Purchase Plan.
Under the Company Purchase Plan, the participants shall purchase an
aggregate of up to 500,000 shares of Common Stock from the Company at a
price of $10.00 per share. The Company shall make available shares to be
purchased under the Company Purchase Plan from its treasury or other
authorized but unissued Common Stock. The Company will sell shares of
Common Stock to participants on a private placement basis pursuant to
Regulation D under the Securities Act of 1933, as amended (the
"Securities Act") subject to execution by such participants of a
Subscription Agreement/Right of Refusal Agreement (the "Subscription
Agreement/ Right of Refusal Agreement"), and other evidences of
investment intent reasonably satisfactory to the Company and, in the case
of nonaccredited investors selected to participate, if any, subject to
such demonstration of financial means as may be reasonably acceptable to
the Company. The shares of Common Stock purchased under the Company
Purchase Plan shall be referred to as the "Purchase Plan Shares".
<PAGE>
3. Bonus Stock Plan.
Under the Bonus Stock Plan, for each share of Common Stock purchased by a
participant under the Company Purchase Plan described in paragraph 2, the
Company will offer one-half share of Common Stock to such participant at
a purchase price of $.10 per share, up to a maximum of 250,000 shares
(the "Bonus Shares") in the aggregate for all participants. No fractional
Bonus Shares will be issued; fractional Bonus Shares will be rounded
downward to the nearest whole number of Bonus Shares. The Bonus Shares
issued under the Bonus Stock Plan will be subject to vesting provisions
requiring continued employment with the Company over a three year period.
The vesting provisions with respect to the Bonus Shares is set forth in
the Subscription Agreement/Right of Refusal Agreement.
4. Stock Option Plan.
The Company has authorized and adopted a Stock Option Plan for the grant
of options to purchase 1,200,000 shares of Common Stock in the aggregate,
such options to be granted to the key management employees of the Company
as determined by the Board or the Plans Committee. Each participant in
the Stock Option Plan shall execute a Non-Qualified Stock Option
Agreement (the "Stock Option Agreement"). The exercise price for options
granted under the Stock Option Plan will be the fair market value of the
Common Stock as of the date of grant of the respective options. The
Stock Option Plan is intended to be a non-qualified plan. Each such
option shall be nontransferable other than by will or the laws to descent
and distribution. Options granted under the Stock Option Plan will be
subject to forfeiture and vesting on the terms set out in the Stock
Option Plan; options will not be exercisable until fully vested in
accordance therewith. Options granted under the Stock Option Plan that
by reason of the expiration or termination have not been exercised may be
re-offered under the Stock Option Plan.
5. Additional Restriction on Transfer; Registration Rights.
Any shares of Common Stock issued pursuant to the Bonus Stock Plan, the
Company Purchase Plan or the Stock Option Plan shall, if necessary in the
opinion of counsel for the Company, be legended to conspicuously reflect
their status as restricted stock and the restrictions on transferability
arising therefrom and, in the case of Bonus Shares, the vesting and
forfeiture provisions prescribed by the Bonus Stock Plan. Upon the
written request of the holders of at least fifty percent (50%) of the
stock originally purchased from the Company pursuant to the Company
Purchase Plan and Bonus Stock Plan made not later than sixty days after
the conclusion of the Company's fiscal year, the Company will, no more
often than once with respect to each fiscal year up to and including
1995, use its best efforts to register on Form S-3 (if then available for
use by the Company) as soon as possible following the filing of the
Company's annual report on Form 10-K for such fiscal year such number of
fully vested shares as may be requested by participants. The Company
will use its best efforts to register shares issuable pursuant to the
Stock Option Plan on Form S-3 as promptly as possible hereinafter. Such
registrations shall be at the Company's expense, except for brokerage
fees, commissions or transfer taxes incurred by the participants.
<PAGE>
6. Administration and Amendment of Plans.
The Plans shall be administered by a committee of at least three
directors at all times, to serve at the pleasure of the Board. The
committee administering such Plans is referred to herein as the "Plans
Committee." The initial members of the Plans Committee shall be L.D.
Brinkman, Gary Fernandes and David Monnich. No director may be selected
to be a member of the Plans Committee if he was eligible at any time
during the twelve-month period immediately preceding the date of his
selection to the Plans Committee, nor shall any member of the Plans
Committee be eligible while a member, to be allocated stock or to receive
stock options pursuant to the Plans. Any action taken by a majority of
the Plans Committee shall be the action of such Committee. The decision
of the Plans Committee on any questions concerning or involving the
interpretation or administration of the Plans shall as between the
Company and participants in such Plans be final and conclusive.
In addition, the Plans Committee may, from time to time, amend the Plans,
or any of them, as they in their sole and absolute discretion, deem in
the best interest of the Company and in any event in order to assure the
compliance by the Plans, the Plans Committee and the Company or any of
them with applicable securities and other laws. Amendments adopted by
the Plans Committee shall, upon ten days notice to participants, be
effective as against and with regard to such participants; provided,
however, that in no event shall the exercise price or vesting periods of
outstanding options be altered without the express written consent of the
holder thereof. Upon any amendment of the Plans, or any of them,
requiring an amendment of outstanding option agreements, each holder
thereof shall, upon notice from the Plans Committee, submit to the
Company for exchange the original of any existing option agreement then
applicable to such holder and shall receive in exchange therefor a new
agreement containing such amendments as have been approved and adopted by
the Plans Committee.
<TABLE>
<CAPTION>
BUSINESS RECORDS CORPORATION HOLDING COMPANY EXHIBIT (11)
COMPUTATION OF EARNINGS PER SHARE
Years ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Common and common equivalent share
Income (loss)
Continuing operations. . . . . . . . . . . . . . $10,695,000 $13,389,000 $ 2,405,000 $ 6,602,000 $ 4,463,000
Add interest income on assumed
investment of excess proceeds
from stock option exercises
under the modified treasury
stock method, net of tax . . . . . . . . . . . --- --- 429,000 --- 216,000
Adjusted income (loss) from
continuing operations. . . . . . . . . . . . . 10,695,000 13,389,000 2,834,000 6,602,000 4,679,000
Extraordinary items. . . . . . . . . . . . . . . --- --- --- 75,000 996,000
Cumulative effect of change
in accounting principals. . . . . . . . . . . . --- --- 4,352,000 --- ---
Net income (loss) applicable
to common shares . . . . . . . . . . . . . . $10,695,000 $13,389,000 $ 7,186,000 $ 6,677,000 $ 5,675,000
Weighted average number of
shares outstanding . . . . . . . . . . . . . . . 6,352,000 5,807,000 5,045,000 4,651,000 4,567,000
Additional weighted average shares
from assumed exercise of dilutive
stock options and warrants, net of
shares assumed to be repurchased
with proceeds at the average market
price during the period. . . . . . . . . . . . . 180,000 267,000 723,000 332,000 553,000
6,532,000 6,074,000 5,768,000 4,983,000 5,120,000
Earnings (loss) per common and
common equivalent share
Continuing operations. . . . . . . . . . . . . $ 1.64 $ 2.20 $ 0.49 $ 1.33 $ .91
Extraordinary items. . . . . . . . . . . . . . --- --- --- 0.01 0.20
Cumulative effect of change
in accounting principals. . . . . . . . . . . --- --- .75 --- ---
Net income (loss). . . . . . . . . . . . . . $ 1.64 $ 2.20 $ 1.24 $ 1.34 $ 1.11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BUSINESS RECORDS CORPORATION HOLDING COMPANY
COMPUTATION OF EARNINGS PER SHARE (Cont'd.)
Years ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Assuming full dilution
Income (loss)
Continuing operations. . . . . . . . . . . . . $10,695,000 $13,389,000 $ 2,405,000 $ 6,602,000 $ 4,463,000
Add interest income on assumed
investment of excess proceeds
from stock option exercises under
the modified treasury stock
method, net of tax . . . . . . . . . . . . . . --- --- 239,000 --- ---
Add interest expense on debentures
or convertible notes, net of
income taxes . . . . . . . . . . . . . . . . . 20,000 266,000 554,000 625,000 635,000
Adjusted income (loss) from
continuing operation . . . . . . . . . . . . . 10,715,000 13,655,000 3,198,000 7,227,000 5,098,000
Extraordinary items. . . . . . . . . . . . . . --- --- --- 83,000 996,000
Cumulative effect of change
in accounting principals. . . . . . . . . . . --- --- 4,352,000 --- ---
Adjusted net income (loss) . . . . . . . . . . . $10,715,000 $13,655,000 $ 7,550,000 $ 7,310,000 $ 6,094,000
Weighted average number of shares
outstanding. . . . . . . . . . . . . . . . . . . 6,352,000 5,807,000 5,045,000 4,651,000 4,567,000
Additional weighted average shares from
assumed exercise of dilutive stock options
and warrants, net of shares assumed to be
repurchased with proceeds at the greater of
average market price during the period or
year-end market price. . . . . . . . . . . . . . 197,000 274,000 723,000 337,000 630,000
Additional weighted average shares from
assumed conversion of debentures
or convertible notes . . . . . . . . . . . . . . 95,000 311,000 643,000 714,000 714,000
6,644,000 6,392,000 6,411,000 5,702,000 5,911,000
Earnings (loss) per share assuming
full dilution
Continuing operations. . . . . . . . . . . . . $ 1.61 $ 2.14 $ 0.50 $ 1.26 $ 0.86
Extraordinary items. . . . . . . . . . . . . . --- --- --- 0.02 0.17
Cumulative effect of change
in accounting principals. . . . . . . . . . . --- --- .68 --- ---
Net income (loss). . . . . . . . . . . . . . $ 1.61 $ 2.14 $ 1.18 $ 1.28 $ 1.03
</TABLE>
EXHIBIT (23)a
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 for the Management Equity Participation Stock Option
Plan, the Non-Qualified Performance Stock Option Plan for Key Employees, the
Business Records Corporation Holding Company Non-Qualified Director Stock
Option Plan, the Business Records Corporation 401(k) Retirement Plan and Trust
of Cronus Industries, Inc., the Amended and Restated Business Records
Corporation Stock Option Plan, and the Clinical Resource Systems, Inc. Stock
Option Plan and Clinical Resource Systems, Inc. Common Stock Purchase Warrent
of our report dated March 22, 1996 appearing on page 47 of this Form 10-K.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Dallas, TX
March 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from Form 10-K
financial statements filed for the period ending December 31, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER>1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 10059
<SECURITIES> 28299
<RECEIVABLES> 29582
<ALLOWANCES> 1094
<INVENTORY> 11750
<CURRENT-ASSETS> 87865
<PP&E> 59022
<DEPRECIATION> 42141
<TOTAL-ASSETS> 161979
<CURRENT-LIABILITIES> 23662
<BONDS> 579
<COMMON> 645
0
0
<OTHER-SE> 133173
<TOTAL-LIABILITY-AND-EQUITY> 161979
<SALES> 0
<TOTAL-REVENUES> 134654
<CGS> 0
<TOTAL-COSTS> 97887
<OTHER-EXPENSES> 23269
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 428
<INCOME-PRETAX> 17833
<INCOME-TAX> 7138
<INCOME-CONTINUING> 10695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10695
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.61
</TABLE>
