<PAGE>P-i
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
Form 10-Q
/X/QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1997
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
BRC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1533071
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1111 West Mockingbird Lane, Suite 1400, Dallas, Texas 75247
(Address of principal executive including zip code)
Registrant's telephone number, including area code (214) 688-1800
None
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1997
Common Stock 6,905,817
$.10 Par Value
<PAGE>P-ii BRC HOLDINGS, INC.
INDEX
PAGE
Part I. Financial Information (Unaudited)
Consolidated Condensed Balance
Sheets - September 30, 1997 and
December 31, 1996 1
Consolidated Condensed Statements
of Income - Three Months Ended
September 30, 1997 and 1996 2
Consolidated Condensed Statements of
Income - Nine Months Ended September 30,
1997 and 1996 3
Consolidated Condensed Statements of
Cash Flows - Nine Months Ended September 30,
1997 and 1996 4
Notes to Consolidated Condensed Financial
Statements 5
Management's Discussion and Analysis 9
Part II. Other Information 14
<PAGE>P-1 PART I. FINANCIAL INFORMATION
BRC HOLDINGS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . $ 15,148,000 $ 7,089,000
Short-term investments . . . . . . . . . . 24,067,000 33,440,000
Accounts receivable, net . . . . . . . . . 21,980,000 21,417,000
Current portion of installment and
notes receivable. . . . . . . . . . . . . 6,237,000 7,950,000
Inventories (Note 4) . . . . . . . . . . . 1,685,000 1,462,000
Deferred tax asset . . . . . . . . . . . . 2,637,000 3,099,000
Other current assets . . . . . . . . . . . 2,176,000 5,573,000
Total current assets . . . . . . . . . . 73,930,000 80,030,000
Property, plant and equipment. . . . . . . 39,936,000 40,033,000
Less accumulated depreciation . . . . . . (28,946,000) (29,017,000)
10,990,000 11,016,000
Long-term investments. . . . . . . . . . . 34,350,000 24,211,000
Long-term installment and notes
receivable . . . . . . . . . . . . . . . 12,819,000 13,958,000
Purchased software and databases, net. . . 326,000 2,238,000
Goodwill and intangibles, net. . . . . . . 28,140,000 26,833,000
Other assets . . . . . . . . . . . . . . . 3,202,000 1,817,000
Net assets of discontinued operations
(Note 5). . . . . . . . . . . . . . . . . 12,199,000 18,141,000
Total assets . . . . . . . . . . . . . . . $175,956,000 $178,244,000
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable. . . . . . . . . . . . . $ 2,503,000 $ 2,522,000
Accrued liabilities . . . . . . . . . . . 18,940,000 18,987,000
Current portion of capital lease
obligations. . . . . . . . . . . . . . . 336,000 525,000
Total current liabilities. . . . . . . . 21,779,000 22,034,000
Long-term capital lease obligations. . . . 219,000 14,000
Deferred tax liability . . . . . . . . . . 1,792,000 2,000,000
Shareholders' Equity:
Common stock . . . . . . . . . . . . . . . 719,000 716,000
Additional paid-in capital . . . . . . . . 80,414,000 79,375,000
Retained earnings (Note 7) . . . . . . . . 80,494,000 74,105,000
Treasury stock (Note 7). . . . . . . . . . (9,461,000) ---
Total shareholders' equity . . . . . . . 152,166,000 154,196,000
Total liabilities and shareholders'
equity . . . . . . . . . . . . . . . . . $175,956,000 $178,244,000
See accompanying Notes to the Consolidated Condensed Financial Statements.
<PAGE>P-2 BRC HOLDINGS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended September 30,
1997 1996
Revenues . . . . . . . . . . . . . . . . . $ 26,321,000 $ 26,266,000
Cost of products and services. . . . . . . 18,985,000 18,459,000
Selling, general and administrative. . . . 4,492,000 5,030,000
Unusual Charges (See Note 9) . . . . . . . --- 15,266,000
23,477,000 38,755,000
Operating profit (loss). . . . . . . . . . 2,844,000 (12,489,000)
Interest income, net . . . . . . . . . . . 1,044,000 1,063,000
Income (loss) from continuing operations
before income taxes . . . . . . . . . . . 3,888,000 (11,426,000)
Income taxes . . . . . . . . . . . . . . . 1,565,000 (190,000)
Income (loss) from continuing operations 2,323,000 (11,236,000)
Income from discontinued operations
(Note 5) (net of income taxes of
$160,000 in 1997 and $79,000 in 1996) . . 241,000 119,000
Net income . . . . . . . . . . . . . . . . $ 2,564,000 $(11,117,000)
Earnings per share (Note 6):
Common and common equivalent share:
Income (loss) from continuing
operations . . . . . . . . . . . . . . $ .33 $ (1.70)
Income from discontinued operations. . . .03 .02
$ .36 $ (1.68)
Average shares. . . . . . . . . . . . . . 7,026,000 6,606,000
Assuming full dilution:
Income (loss) from continuing
operations . . . . . . . . . . . . . . $ .33 $ (1.70)
Income from discontinued operations. . . .03 .02
$ .36 $ (1.68)
Average shares. . . . . . . . . . . . . . 7,081,000 6,606,000
Cash dividends per share . . . . . . . . . $ --- $ ---
See accompanying Notes to the Consolidated Condensed Financial Statements.
<PAGE>P-3 BRC HOLDINGS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended September 30,
1997 1996
Revenues . . . . . . . . . . . . . . . . . $ 79,455,000 $ 75,247,000
Cost of products and services. . . . . . . 55,622,000 54,263,000
Selling, general and administrative. . . . 15,282,000 12,910,000
Unusual charges (See Note 9) . . . . . . . --- 15,266,000
70,904,000 82,439,000
Operating profit (loss). . . . . . . . . . 8,551,000 (7,192,000)
Interest income, net . . . . . . . . . . . 3,043,000 2,575,000
Income (loss) from continuing operations
before income taxes . . . . . . . . . . . 11,594,000 (4,617,000)
Income taxes . . . . . . . . . . . . . . . 4,639,000 2,534,000
Income (loss) from continuing operations . 6,955,000 (7,151,000)
Income (loss) from discontinued
operations (Note 5) (net of income tax
(benefit) expense of $(360,000) in 1997
and $2,090,000 in 1996) . . . . . . . . . (540,000) 3,135,000
Net income (loss). . . . . . . . . . . . . $ 6,415,000 $ (4,016,000)
Earnings per share (Note 6):
Common and common equivalent share:
Income (loss) from continuing
operations . . . . . . . . . . . . . . $ .97 $ (1.10)
Income (loss) from discontinued
operations. . . . . . . . . . . . . . . (.07) .48
$ .90 $ (0.62)
Average shares. . . . . . . . . . . . . . 7,141,000 6,513,000
Assuming full dilution:
Income from continuing operations. . . . $ .97 $ (1.10)
Income (loss) from discontinued
operations. . . . . . . . . . . . . . . (.07) .48
$ .90 $ (0.62)
Average shares. . . . . . . . . . . . . . 7,184,000 6,513,000
Cash dividends per share . . . . . . . . . $ --- $ ---
See accompanying Notes to the Consolidated Condensed Financial Statements.
<PAGE>P-4 BRC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
1997 1996
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . $ 6,415,000 $ (4,016,000)
Adjustments to reconcile net income to
net cash provided by continuing operations:
Loss (income) from discontinued operations . . 540,000 (3,135,000)
Depreciation and amortization. . . . . . . . . 7,358,000 7,174,000
Loss (gain) on disposition of assets . . . . . 269,000 (456,000)
Unusual charges. . . . . . . . . . . . . . . . --- 15,266,000
Deferred income tax. . . . . . . . . . . . . . . 256,000 (187,000)
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . 3,259,000 (3,208,000)
Inventories. . . . . . . . . . . . . . . . . . (223,000) 38,000
Other assets . . . . . . . . . . . . . . . . . 417,000 (1,278,000)
Accounts payable . . . . . . . . . . . . . . . (663,000) (960,000)
Other liabilities. . . . . . . . . . . . . . . (1,422,000) 1,594,000
Net cash provided by continuing operations . . 16,206,000 10,832,000
Net cash provided by discontinued operations . . . 7,808,000 8,411,000
Net cash provided by operating activities. . . . . 24,014,000 19,243,000
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . (2,470,000) (3,214,000)
Capital expenditures of discontinued operations. (1,038,000) (2,048,000)
Purchase of investments. . . . . . . . . . . . . (38,446,000) (39,736,000)
Redemption of investments. . . . . . . . . . . . 37,024,000 26,976,000
Proceeds from sale of assets . . . . . . . . . . --- 98,000
Acquired businesses. . . . . . . . . . . . . . . (4,824,000) 774,000
Additions to installment receivables . . . . . . (1,686,000) (8,117,000)
Proceeds from installment receivables. . . . . . 4,605,000 2,691,000
Net cash used in investing activities. . . . . . . (6,835,000) (22,576,000)
Cash flows from financing activities:
Principal payments on capital leases . . . . . . (424,000) (624,000)
Principal payments on notes of discontinued
operations . . . . . . . . . . . . . . . . . . --- (93,000)
Issuance of common and treasury stock. . . . . . 1,529,000 1,266,000
Purchases of treasury stock. . . . . . . . . . . (10,225,000) ---
Net cash (used in) provided by financing
activities . . . . . . . . . . . . . . . . . . . (9,120,000) 549,000
Increase (decrease) in cash and cash equivalents . 8,059,000 (2,784,000)
Cash and cash equivalents at beginning of period . 7,089,000 10,059,000
Cash and cash equivalents at end of period . . . . $ 15,148,000 $ 7,275,000
Supplemental disclosures -- Cash payments during the first nine months of 1997
for income taxes and interest were $1,054,000 and $22,000, respectively. Cash
payments during the first nine months of 1996 for income taxes and interest
were $6,242,000 and $70,000, respectively. See Note 8 for supplemental
disclosure of non-cash activity.
See accompanying Notes to the Consolidated Condensed Financial Statements.
<PAGE>P-5 BRC HOLDINGS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The interim consolidated condensed financial statements included herein
have been prepared by BRC Holdings, Inc. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements have been condensed or omitted pursuant
to such rules and regulations. These consolidated condensed financial
statements should be read in conjunction with the consolidated financial
statements and related notes contained in the Company's 1996 annual report
on Form 10-K. In the opinion of management, the consolidated condensed
financial statements contain all adjustments necessary to present fairly
the financial position as of September 30, 1997 and the results of
operations and cash flows for the nine months ended September 30, 1997 and
1996. These adjustments include recurring accruals and a pro rata portion
of certain estimated expenses. Management believes that the procedures
followed in preparing these consolidated condensed financial statements
are reasonable under the circumstances, but the accuracy of the amounts in
the financial statements are in some respects dependent upon facts that
will exist and procedures that will be performed by the Company later in
the fiscal year.
2. The provision for income tax is based on the estimated annual rate.
Certain reclassifications between current income tax and deferred income
tax may be necessary at December 31, 1997 to reflect the annual
computation of differences between book and tax income.
3. The results of operations for the nine months ended September 30, 1997 are
not necessarily indicative of the results to be expected for the full
year.
4. Inventories consist of the following:
September 30, December 31,
1997 1996
Finished goods. . . . . . . . . $ 148,000 $ 243,000
Raw materials and supplies. . . 1,537,000 1,219,000
Net inventories . . . . . . . . $ 1,685,000 $ 1,462,000
5. On November 21, 1996, the Company entered into a definitive agreement to
sell the assets of its election business to American Information Systems,
Inc., ("AIS") a privately-held information systems company headquartered
in Omaha, Nebraska. Accordingly, this business is reported as a
discontinued operation for accounting purposes and has been presented in
the Consolidated Condensed Balance Sheets as "net assets of discontinued
operations" and as "discontinued operations" in the Consolidated Condensed
Statements of Income.
<PAGE>P-6
Closing of the transaction is subject to the satisfactory conclusion of a
review currently being conducted by the United States Department of
Justice, Antitrust Division ("DOJ") pursuant to its authority under the
Hart Scott Rodino Antitrust Improvement Act. While the outcome of this
review cannot be determined at this time, the Company currently believes
the ultimate result will not preclude consummation of the planned
transaction.
The original terms of this transaction provided for the payment by AIS of
consideration consisting of $35 million in cash, $17.5 million in a
subordinated note and 19.9% of the resulting equity of AIS. The terms of
the purchase are subject to changes based on modifications to the
transaction necessitated by the DOJ review and changes in the net book
value of the election business through the date of closing. The Company
anticipates recording a pre-tax gain associated with this transaction.
The net assets of discontinued operations are summarized as follows
(000's):
September 30, December 31,
1997 1996
Current assets. . . . . . . . $ 11,347 $ 17,029
Plant and equipment, net. . . 4,073 4,538
Other assets. . . . . . . . . 1,978 2,187
Current liabilities . . . . . (4,604) (4,983)
Other liabilities . . . . . . (595) ( 630)
Net assets of discontinued
operations . . . . . . . . $ 12,199 $ 18,141
6. In February, 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" was issued. This statement cannot be adopted prior
to the Company's financial statements as of and for the year ending
December 31, 1997. However, pro forma earnings per share information
computed using this new standard is presented below for the periods ended
September 30.
Three Months Ended September 30,
1997 1996
Basic earnings (loss) per share:
Income (loss) from continuing
operations. . . . . . . . . . . $ .34 $ (1.70)
Income from discontinued
operations. . . . . . . . . . . .03 .02
$ .37 $ (1.68)
Average shares. . . . . . . . . . 6,898,000 6,606,000
Diluted earnings (loss) per share:
Income (loss) from continuing
operations. . . . . . . . . . . $ .33 $ (1.70)
Income from discontinued
operations. . . . . . . . . . . .03 .02
$ .36 $ (1.68)
Average shares. . . . . . . . . . 7,081,000 6,606,000
<PAGE>P-7
Nine Months Ended September 30,
1997 1996
Basic earnings (loss) per share:
Income (loss) from continuing
operations. . . . . . . . . . . $ .99 $ (1.10)
Income (loss) from discontinued
operations. . . . . . . . . . . (.07) .48
$ .92 $ (.62)
Average shares. . . . . . . . . . 7,001,000 6,513,000
Diluted earnings (loss) per share:
Income (loss) from continuing
operations. . . . . . . . . . . $ .97 $ (1.10)
Income (loss) from discontinued
operations. . . . . . . . . . . (.07) .48
$ .90 $ (.62)
Average shares. . . . . . . . . . 7,184,000 6,513,000
7. During the first nine months of 1997, the Company repurchased 255,000
shares of its common stock, in open market transactions, at an average
price of $33.53 per share, and 50,000 shares of its common stock in a
privately negotiated purchase at $33.50 per share. During 1997, common
stock was issued from treasury upon exercise of 23,696 employee stock
options. In connection with these exercise transactions, the difference
between the aggregate option exercise proceeds and the Company's basis in
the treasury stock of $26,000 was charged to retained earnings. At
September 30, 1997, the Company reflected treasury stock of $9,461,000.
8. On July 31, 1997, the Company acquired the assets and operations of
Management Consulting Solutions, Inc. ("MCSI"), a Pittsburgh,
Pennsylvania-based provider of systems consulting and integration
services, for $3.2 million. In connection with the purchase, the Company
recorded goodwill of $2,031,000 which is being amortized over 15 years.
MCSI had revenues of approximately $5.6 million for the twelve months
ended June 30, 1997.
<PAGE>P-8
On July 31, 1997, the Company divested its title services business unit
for a purchase price of $6.0 million, and other consideration, to Title
Records Corporation ("TRC"), a subsidiary of Government Records Services,
Inc., a privately-owned Dallas-based Company. TRC issued to the Company
a $6.0 million promissory note bearing interest at 9% per annum maturing
February, 2001. Due to the note receivable being collectible over an
extended period of time and repayment of the note being highly dependent
upon future successful operations of the buyers, management believes
there is currently no reasonable basis for estimating the degree of
collectibility. Accordingly, the Company has elected to record the gain
on divestiture of $4.2 million under the installment method of accounting.
This business unit had revenues of $5.1 million for the twelve months
ended December 31, 1996, and $2.4 million for the first six months of
1997.
On May 28, 1997, the Company purchased the assets and operations of Code
Rite, Inc., a Fort Worth, Texas provider of health care coding and
transcription services, for $1.5 million. In connection with the
purchase, the Company recorded $1.0 million of goodwill which will be
amortized over 15 years. Code Rite had annual revenues of approximately
$2.7 million for the twelve months ended March 31, 1997.
9. Results of operations for the quarter and nine months ended September 30,
1996 include a $15,266,000 pre-tax charge to earnings, primarily
associated with the write-off of goodwill and other intangible assets of
the Company's Health Care division.
<PAGE>P-9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain information contained herein may include forward-looking statements
that involve risks and uncertainties. The Company's actual results may differ
materially from those discussed in the forward-looking statements. Potential
risks and uncertainties include changes in product and service mix, results of
litigation, the timely development and acceptance of new products and services,
the outcome of regulatory reviews of the Company's planned divestiture of its
election business, changes in customer preferences and inventory risks due to
shifts in market demand and regulatory and economic changes affecting the
Company's customers. Consequently, the actual results realized by the Company
could differ materially from the statements made herein. Readers of this
report are cautioned not to place undue reliance on the forward-looking
statements made herein.
Three Months Ended September 30, 1997 and 1996
Revenues from continuing operations for the third quarter of 1997 of $26.3
million were consistent when compared to revenues reported during the same
period in the prior year. Government technology outsourcing services and
consulting service revenues increased by $1.4 million and $2.3 million,
respectively, however, revenues declined by $2.6 million in healthcare
technology services and by $1.0 million in other products and services. A
discussion of these changes in revenues is provided below.
Including revenues associated with the Company's discontinued operations of its
election business, revenues for the third quarter of 1997 were $34.6 million as
compared to $35.1 million for the same period last year. The election business
reported revenues of $8.3 million for the third quarter of 1997. A significant
portion of the Company's historical revenues has been derived from election
products and services which are subject to a two year business cycle.
Typically, revenues from these products and services are higher in even-
numbered "election" years as opposed to odd-numbered "non-election" years.
However, election revenues for the third quarters of 1997 and 1996 were
relatively comparable. The effect of the two year business cycle is more
clearly outlined in the discussion of year to date results for 1997 and 1996
below. (See Note 5 to the unaudited financial statements). In addition to a
discussion of the results from the Company's continuing operations, the
financial results of the election business are discussed below.
Revenues from government technology outsourcing services for the third quarter
of 1997 increased $1.4 million, or 23%, when compared to the third quarter of
1996. Increased revenues relate primarily to the initiation of outsourcing
services to the City of Riverside, California pursuant to a contract signed in
December of 1996, and to increased sales of computer hardware to existing
customers upgrading their systems to newer technologies.
Revenues from health care technology services for the third quarter of 1997
decreased by $2.6 million, or 23%, as compared to the third quarter of 1996.
This decrease relates primarily to the loss of certain health care technology
outsourcing contracts during 1996. These contracts produced $3.4 million of
revenue during the third quarter of 1996. The Company anticipates, from time
to time, that existing customers will not renew their contracts upon the
expiration thereof.
<PAGE>P-10
The loss of health care revenues was partially offset during the third quarter
of 1997 by revenues generated by newly acquired health care service businesses
in the second and third quarter of 1997. On July 31, 1997, the Company
acquired the assets and operations of Management Consulting Solutions, Inc.
("MCSI"), a Pittsburgh, Pennsylvania-based provider of systems consulting and
integration services, for $3.2 million. MCSI was a subsidiary of North
Pittsburgh Systems, Inc., a publicly-traded telecommunications company.
Additionally, as reported in the Company's second quarter 1997 Form 10-Q, on
May 28, 1997, the Company purchased the assets and operations of Code Rite,
Inc., a Fort Worth, Texas provider of health care coding and transcription
services for $1.5 million. The Company believes this purchase compliments its
emergency department software product and information services currently
provided to health care customers. (See Note 8 to the unaudited financial
statements).
The Company's third quarter revenues associated with government records
management was consistent with that of the previous year at $4.8 million. Due
to competition and market share considerations, the Company has not achieved
growth in revenues from these lines of service.
Third quarter 1997 consulting services revenues were $3.0 million, as compared
to $0.7 million for the third quarter of 1996, and represented 12% of revenues
from continuing operations. Increased consulting services revenues can
primarily be attributed to the Company's September, 1996 acquisition of The
Pace Group, Inc., a managed-care consulting firm.
The Company's millennium services group was established in the fourth quarter
of 1996 to address the Year 2000 conversion consulting needs of customers.
This business was in the start-up phase during the first nine months of 1997,
and, thus did not contribute revenues to the Company. The Company has received
several initial contracts for Year 2000 conversion services which it will begin
to process during the fourth quarter of 1997.
Third quarter 1997 revenues from election products and services decreased $0.7
million, or 7%, when compared to the third quarter of 1996. This decrease can
be partially attributed to the pending sale of the elections business to
American Information Systems, Inc. pursuant to the definitive agreement entered
into in November, 1996 (See Note 5 to the unaudited financial statements)and to
the normal two year sales cycle of these products. Specifically, full service
election revenues and election supply sales have decreased $3.0 million, or
54%, when compared to the second quarter of 1996. This decrease was offset
primarily by revenues recognized in connection with the sale of computerized
election hardware and software to the State of Rhode Island in the third
quarter of 1997. The divestiture of the elections business is currently under
review by the Anti-trust Division of the United States Department of Justice
("DOJ"). Revenues from other products and services decreased $1.0 million,
or 31%, when compared to the third quarter of 1996. This decrease can
primarily be attributed to the sale of the Company's title services business
unit. Effective July 31, 1997, the Company sold its title services business
for a purchase price of $6.0 million, and other consideration, to Title Records
Corporation, a subsidiary of Government Records Services, Inc., a
privately-owned Dallas-based Company. This business unit, which provides
certain title companies in North Central Texas with title plant update
services, had revenues of $1.2 million during the third quarter of 1996,
compared to $0.4 million in the third quarter of 1997 (See Note 8 to the
unaudited financial statements).
<PAGE>P-11
The Company's gross margins for the third quarters of 1997 and 1996 were 28%
and 30%, respectively. The decrease in 1997 gross margin over 1996 can
primarily be attributed to the loss of higher margin health care technology
outsourcing contracts discussed above. In addition, termination costs
associated with the sale of the title services business were incurred in
connection with the divestiture of this business unit during the third quarter.
Selling, general and administrative expenses decreased from 19% of revenues in
the third quarter of 1996 to 17% of revenues during the third quarter of 1997.
This decrease primarily relates to cost reductions at the corporate office and
within the government records management and government technology services
divisions.
Nine Months Ended June 30, 1997 and 1996
Revenues from continuing operations for the first nine months of 1997 were
approximately $4.2 million, or 6%, higher than those reported during the same
period last year. Including revenues associated with the Company's
discontinued operations of its election business, revenues for the first nine
months of 1997 decreased $12.1 million, or 11%, compared to the first nine
months of 1996. A significant portion of the Company's historical revenues has
been derived from election products and services which are subject to a two
year business cycle. Revenues from these products and services are typically
higher in even-numbered "election" years as opposed to odd-numbered
"non-election" years. The Company believes the divestiture of its election
business will result in a less cyclical revenue and earnings trend for the
Company. (See Note 5 to the unaudited financial statements). In addition to a
discussion of the results from the Company's continuing operations, the
financial results of the election business are discussed below.
Revenues from government technology outsourcing services for the first nine
months of 1997 increased $3.9 million, or 22%, when compared to the first nine
months of 1996. As previously discussed, additional revenues can be attributed
to the newly acquired outsourcing services contract with the City of Riverside,
California signed in December, 1996, and to increased sales of computer
hardware to existing customers upgrading their systems to newer technologies.
Year to date revenues from health care technology services decreased by $8.2
million, or 25%, as compared to the first nine months of 1996. This decrease
relates primarily to the loss of certain health care technology outsourcing
contracts during 1996. These contracts produced revenues of $10.3 million in
the first nine months of 1996. The Company anticipates, from time to time,
that existing customers will not renew their contracts upon the expiration
thereof. This loss of revenue was partially offset during the first nine
months of 1997 by increased sales of the Company's automated emergency
department systems and by the acquisition of MCSI and Code Rite, Inc. (See
discussion above and Note 8 to the unaudited financial statements).
The Company's revenues associated with government records management for the
first nine months of 1997 decreased $0.1 million, or 1%, when compared to the
first nine months of 1996. As stated in the previous discussion, the Company
has not achieved revenue growth in these lines of services due to competition
and market share constraints.
<PAGE>P-12
Consulting services revenues were $10.5 million for the first nine months of
1997, and represented 13% of revenues from continuing operations. Prior to the
fourth quarter of 1996, consulting services did not constitute a significant
portion of the Company's business. Increased consulting services revenues can
primarily be attributed to the Company's September 1996 acquisition of The Pace
Group, Inc.
The Company's millennium services group, established in the fourth quarter of
1996 to address the Year 2000 conversion consulting needs of customers, was in
the start up phase during the first nine months of 1997. Consequently, this
business has not contributed revenues to the Company. However, the Company has
received initial contracts for Year 2000 conversion services which it will
begin to process during the fourth quarter of the current year.
In the first nine months of 1997, revenues from election products and services
decreased $16.7 million, or 47%, when compared to the first nine months of
1996. This decrease can be partially attributed to fewer customer purchase
decisions due to the pending sale of the elections business to American
Information Systems, Inc. pursuant to the definitive agreement entered into in
November, 1996 (See Note 5 to the unaudited financial statements) and to the
normal two year sales cycle of these products. During the first nine months of
1997, computerized elections systems reflected a $3.5 million, or 38%, decrease
in sales when compared to the first nine months of 1996. Likewise, elections
supplies sales, including ballots, and full service election revenues decreased
$7.0 million, or 60%, and $5.6 million, or 73%, respectively.
During the first nine months of 1997, revenues from other products and services
decreased $0.9 million, or 10%, when compared to the first nine months of 1996.
Effective July 31, 1997, the Company sold its title services business unit for
a purchase price of $6.0 million, and other consideration, to Title Records
Corporation, a subsidiary of Government Records Services, Inc., a
privately-owned Dallas-based Company. This business unit, which provides
certain title companies in North Central Texas with title plant update services,
had revenues of $3.9 million during the first nine months of 1996, and $2.7
million in revenue in the first nine months of 1997 (See Note 8 to the
unaudited financial statements).
The Company's gross margins for the first nine months of 1997 and 1996 were 30%
and 28%, respectively. The increase in 1997 gross margin over 1996 can be
attributed to cost reductions in the Company's health care technology services
and government records management divisions. Additionally, the health care
technology services division experienced a $1.5 million increase in sales
associated primarily with its higher margin emergency room software when
compared to 1996. Selling, general and administrative expenses increased from
17% of revenues in the third quarter of 1996 to 19% of revenues during the
first nine months of 1997. This increase primarily relates to additional
administrative costs associated with the DOJ's review of the pending sale of
the election business in the first half of 1997, as well as start up costs
associated with the Company's millennium services group.
<PAGE>P-13
Liquidity and Capital Resources
At September 30, 1997, the Company had net working capital (total current
assets minus total current liabilities) of $52.2 million. This represents a
decrease of $5.8 million in the Company's working capital since December 31,
1996. This decrease relates to a $1.3 million reduction in cash equivalents
and short-term investments which were invested in long-term instruments. The
current portion of notes receivable decreased by $1.7 million. Of this amount,
$4.0 million is attributable to receivables collected in the first nine months
of 1997, and $0.8 million of write offs of bad debt. These reductions in
accounts receivable were offset by additions of $3.1 million. The Company's
current prepaid assets were depleted by $3.4 million during the first nine
months of 1997. The Company's total current assets were 3.4 times total
current liabilities as of September 30, 1997.
Net cash provided by operating activities from continuing operations during the
first nine months of 1997 increased by $5.4 million when compared to the first
nine months of 1996. This increase can be primarily attributed to the
collection of accounts and notes receivable and the depletion of current
prepaid assets discussed above, offset by a reduction of accrued liabilities.
Cash flows expended for investing activities of continuing operations
(excluding capital expenditures of discontinued operations) reflect a net
decrease of $14.7 million when compared to the third quarter of 1996. This
change is a result of a $11.3 million increase in cash from long and short term
investment activity in 1997 as compared to 1996, and an increase of $8.3
million provided by net installment receivable activity. These cash sources
were offset by uses of $4.8 million related to acquisitions of businesses.
Cash flows from financing activities of continuing operations reflect a net
decrease of $9.7 million as compared to the first nine months of 1996. This
change is primarily a result of treasury stock purchases by the Company in the
first and second quarters of 1997 of $10.2 million offset by a reduction in
principal payments on long-term obligations and cash flows from the issuance of
common and treasury stock.
The Company currently anticipates continuing positive cash flows from
operations and depletion of treasury stock associated with employee stock
option exercises in the short-term. In addition, if the pending sale of the
Company's election business currently under review by DOJ is consummated, the
Company will experience additional liquidity. Long-term cash flow trends may
be affected by acquisitions, changes in industry trends or other factors which
cannot be anticipated at this time. Currently, the Company believes its cash
and investment balances are sufficient to meet currently foreseeable working
capital commitments. The Company does not maintain an active line of credit.
<PAGE>P-14 PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
11. Computation of Earnings per Share
a. For the Three Months Ended September 30, 1997 and 1996.
b. For the Nine Months Ended September 30, 1997 and 1996.
27. Financial Data Schedule for the Nine Months Ended September 30,
1997. (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.)
B. Reports on Form 8-K
During the period from July 1, 1997 through September 30, 1997 the
Company did not file a Current Report on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRC HOLDINGS, INC.
(Registrant)
By
Date: November 13, 1997
P. E. Esping
Chairman, Chief Executive Officer
and Director (Principal Executive
Officer)
Date: November 13, 1997
J. L. Morrison
President and Chief Operating Officer
Date: November 13, 1997
Thomas E. Kiraly
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
EXHIBIT 11a
BRC HOLDINGS, INC.
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended September 30,
1997 1996
Primary:
Income (loss) from continuing operations . $ 2,323,000 $(11,236,000)
Income from discontinued operations. . . . 241,000 119,000
Net income (loss). . . . . . . . . . . . . $ 2,564,000 $(11,117,000)
Weighted-average number of shares
outstanding. . . . . . . . . . . . . . . 6,898,000 6,606,000
Additional weighted-average shares from
assumed exercise of dilutive stock
options, net of shares assumed to be
repurchased with proceeds at average
market price during the period . . . . . 128,000 ---
7,026,000 6,606,000
Earnings (loss) per common and common
equivalent share:
Continuing operations. . . . . . . . . . $ .33 $ (1.70)
Discontinued operations. . . . . . . . . .03 .02
$ .36 $ (1.68)
Assuming full dilution:
Income (loss) from continuing operations . $ 2,323,000 $(11,236,000)
Add net interest income earnings on
investments, net of tax. . . . . . . . 13,000 ---
Adjusted net income (loss) from
continuing operations. . . . . . . . . . 2,336,000 (11,236,000)
Income from discontinued operations. . . . 241,000 119,000
Net income (loss). . . . . . . . . . . . . $ 2,577,000 $(11,117,000)
Weighted-average number of shares
outstanding. . . . . . . . . . . . . . . 6,898,000 6,606,000
Additional weighted-average shares from
assumed exercise of dilutive stock
options, net of shares assumed to be
repurchased with proceeds at average
market price during the period . . . . . 183,000 ---
7,081,000 6,606,000
Earnings (loss) per share assuming full
dilution:
Continuing operations. . . . . . . . . . $ .33 $ (1.70)
Discontinued operations. . . . . . . . . .03 .02
$ .36 $ (1.68)
<PAGE>
EXHIBIT 11b
BRC HOLDINGS, INC.
COMPUTATION OF EARNINGS PER SHARE
Nine Months Ended September 30,
1997 1996
Primary:
Income (loss) from continuing operations . $ 6,955,000 $ (7,151,000)
Income (loss) from discontinued
operations . . . . . . . . . . . . . . . (540,000) 3,135,000
Net income (loss). . . . . . . . . . . . . $ 6,415,000 $ (4,016,000)
Weighted-average number of shares
outstanding. . . . . . . . . . . . . . . 7,001,000 6,513,000
Additional weighted-average shares from
assumed exercise of dilutive stock
options, net of shares assumed to be
repurchased with proceeds at average
market price during the period . . . . . 140,000 ---
7,141,000 6,513,000
Earnings (loss) per common and common
equivalent share:
Continuing operations. . . . . . . . . . $ .97 $ (1.10)
Discontinued operations. . . . . . . . . (.07) .48
$ .90 $ (.62)
Assuming full dilution:
Income from continuing operations. . . . . $ 6,955,000 $ (7,151,000)
Add net interest income earnings on
investments, net of tax. . . . . . . . 20,000 ---
Adjusted net income (loss) from
continuing operations. . . . . . . . . . 6,975,000 (7,151,000)
Income (loss) from discontinued
operations . . . . . . . . . . . . . . . (540,000) 3,135,000
Net income (loss). . . . . . . . . . . . . $ 6,435,000 $ (4,016,000)
Weighted-average number of shares
outstanding. . . . . . . . . . . . . . . 7,001,000 6,513,000
Additional weighted-average shares from
assumed exercise of dilutive stock
options, net of shares assumed to be
repurchased with proceeds at average
market price during the period . . . . . 183,000 ---
7,184,000 6,513,000
Earnings (loss) per share assuming full
dilution:
Continuing operations. . . . . . . . . . $ .97 $ (1.10)
Discontinued operations. . . . . . . . . (.07) .48
$ .90 $ (.62)
<TABLE> <S> <C>
<PAGE>
<ARTICLE>5
<LEGEND>
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from Form 10-Q
financial statements filed for the period ending September 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 15148
<SECURITIES> 24067
<RECEIVABLES> 28217
<ALLOWANCES> 0
<INVENTORY> 1685
<CURRENT-ASSETS> 73930
<PP&E> 39936
<DEPRECIATION> 28946
<TOTAL-ASSETS> 175956
<CURRENT-LIABILITIES> 21779
<BONDS> 0
<COMMON> 719
0
0
<OTHER-SE> 151447
<TOTAL-LIABILITY-AND-EQUITY> 175956
<SALES> 0
<TOTAL-REVENUES> 79455
<CGS> 0
<TOTAL-COSTS> 55622
<OTHER-EXPENSES> 15282
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11594
<INCOME-TAX> 4639
<INCOME-CONTINUING> 6955
<DISCONTINUED> (540)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6415
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
</TABLE>
