<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 June 30, 1998
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 June 30, 1998
Common Stock 14,163,328
$.10 Par Value
<PAGE> P-ii
BRC HOLDINGS, INC.
INDEX
PAGE
Part I. Financial Information (Unaudited)
Consolidated Condensed Balance
Sheets - June 30, 1998 and
December 31, 1997 1
Consolidated Condensed Statements of
Income - Three Months Ended June 30,
1998 and 1997 2
Consolidated Condensed Statements of
Income - Six Months Ended June 30,
1998 and 1997 3
Consolidated Condensed Statement of
Shareholders' Equity - June 30, 1998 4
Consolidated Condensed Statements of
Cash Flows - Six Months Ended June 30,
1998 and 1997 5
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. Other Information 15
<PAGE> P-1
PART I. FINANCIAL INFORMATION
BRC HOLDINGS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1998 1997
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . $ 12,908,000 $ 6,464,000
Short-term investments . . . . . . . . . . 45,518,000 25,084,000
Accounts receivable, net . . . . . . . . . 29,240,000 21,094,000
Current portion of installment and
notes receivable. . . . . . . . . . . . . 5,140,000 5,539,000
Inventories (Note 3) . . . . . . . . . . . 2,278,000 1,585,000
Deferred tax asset . . . . . . . . . . . . 6,783,000 4,623,000
Other current assets . . . . . . . . . . . 4,970,000 3,277,000
Total current assets . . . . . . . . . . 106,837,000 67,666,000
Property, plant and equipment. . . . . . . 39,661,000 39,268,000
Less accumulated depreciation . . . . . . (27,983,000) (28,084,000)
11,678,000 11,184,000
Long-term investments. . . . . . . . . . . 46,237,000 77,833,000
Long-term installment and notes
receivable . . . . . . . . . . . . . . . 8,775,000 19,398,000
Goodwill and intangibles, net. . . . . . . 27,016,000 22,867,000
Other assets . . . . . . . . . . . . . . . 4,308,000 3,162,000
Total assets . . . . . . . . . . . . . . . $204,851,000 $202,110,000
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable. . . . . . . . . . . . . $ 2,915,000 $ 2,671,000
Accrued liabilities . . . . . . . . . . . 17,600,000 18,692,000
Accrued income taxes. . . . . . . . . . . 2,823,000 11,148,000
Current portion of notes and capital
leases . . . . . . . . . . . . . . . . . 307,000 304,000
Total current liabilities. . . . . . . . 23,645,000 32,815,000
Long-term notes and capital leases . . . . 39,000 144,000
Deferred tax liability . . . . . . . . . . 2,036,000 1,723,000
Shareholders' Equity:
Common stock . . . . . . . . . . . . . . . 719,000 719,000
Additional paid-in capital . . . . . . . . 81,007,000 80,414,000
Retained earnings. . . . . . . . . . . . . 101,024,000 94,397,000
Treasury stock (Note 6). . . . . . . . . . (3,619,000) (8,102,000)
Total shareholders' equity . . . . . . . 179,131,000 167,428,000
Total liabilities and shareholders'
equity . . . . . . . . . . . . . . . . . $204,851,000 $202,110,000
See accompanying Notes to the Consolidated Condensed Financial Statements.
<PAGE> P-2
BRC HOLDINGS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30,
1998 1997
Revenues . . . . . . . . . . . . . . . . . $ 31,168,000 $ 27,755,000
Cost of products and services. . . . . . . 21,531,000 18,618,000
Selling, general and administrative. . . . 6,018,000 5,572,000
27,549,000 24,190,000
Operating profit . . . . . . . . . . . . . 3,619,000 3,565,000
Interest income, net . . . . . . . . . . . 1,941,000 1,042,000
Income from continuing operations
before income taxes . . . . . . . . . . . 5,560,000 4,607,000
Income taxes . . . . . . . . . . . . . . . 2,232,000 1,841,000
Income from continuing operations. . . . . 3,328,000 2,766,000
Income (loss) from discontinued
operations (Note 5) (net of income tax
of $625,000 in 1998 and $4,000 in 1997) . 938,000 6,000
Net income . . . . . . . . . . . . . . . . $ 4,266,000 $ 2,772,000
Earnings per share (Note 7):
Basic:
Income from continuing operations. . . . $ .23 $ .20
Income from discontinued operations. . . .07 ---
$ .30 $ .20
Average shares. . . . . . . . . . . . . . 14,160,000 13,900,000
Diluted:
Income from continuing operations. . . . $ .23 $ .20
Income from discontinued operations. . . .07 ---
$ .30 $ .20
Average shares. . . . . . . . . . . . . . 14,451,000 14,088,000
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)
Six Months Ended June 30,
1998 1997
Revenues . . . . . . . . . . . . . . . . . $ 59,369,000 $ 53,134,000
Cost of products and services. . . . . . . 42,427,000 36,637,000
Selling, general and administrative. . . . 11,750,000 10,790,000
54,177,000 47,427,000
Operating profit . . . . . . . . . . . . . 5,192,000 5,707,000
Interest income, net . . . . . . . . . . . 4,224,000 1,999,000
Income from continuing operations
before income taxes . . . . . . . . . . . 9,416,000 7,706,000
Income taxes . . . . . . . . . . . . . . . 3,773,000 3,074,000
Income from continuing operations. . . . . 5,643,000 4,632,000
Income (loss) from discontinued
operations (Note 5) (net of income tax
(benefit) expense of $656,000) in 1998
and $(521,000) in 1997) . . . . . . . . . 984,000 (781,000)
Net income . . . . . . . . . . . . . . . . $ 6,627,000 $ 3,851,000
Earnings per share (Note 7):
Basic:
Income from continuing operations. . . . $ .40 $ .33
Income (loss) from discontinued
operations. . . . . . . . . . . . . . . .07 (.06)
$ .47 $ .27
Average shares. . . . . . . . . . . . . . 14,089,000 14,106,000
Diluted:
Income from continuing operations. . . . $ .39 $ .32
Income (loss) from discontinued
operations. . . . . . . . . . . . . . . .07 (.05)
$ .46 $ .27
Average shares. . . . . . . . . . . . . . 14,399,000 14,362,000
Cash dividends per share . . . . . . . . . $ --- $ ---
See accompanying Notes to the Consolidated Condensed Financial Statements.
<PAGE> P-4
BRC HOLDINGS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDER'S EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Additional
Stock $.10 Paid-In Retained Treasury
par Value Capital Earnings Stock
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ 716,000 $ 79,375,000 $ 74,105,000 $ ---
Net income. . . . . . . . . . . --- --- 20,250,000 ---
Purchase of common stock for
treasury (Note 6). . . . . . . --- --- --- (10,225,000)
Exercise of stock options . . . 3,000 845,000 (154,000) 2,123,000
Stock option tax benefits . . . --- 194,000 196,000 ---
Balance at December 31, 1997 719,000 80,414,000 94,397,000 (8,102,000)
Net income. . . . . . . . . . . --- --- 6,627,000 ---
Exercise of stock options . . . --- (47,000) --- 1,245,000
Stock option tax benefits . . . --- 128,000 --- ---
Stock issued for acquisition
(Notes 4 and 6) . . . . . . . --- 512,000 --- 3,238,000
Balance at June 30, 1998 $ 719,000 $ 81,007,000 $101,024,000 $ (3,619,000)
</TABLE>
<PAGE> P-5
BRC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
1998 1997
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . $ 6,627,000 $ 3,851,000
Adjustments to reconcile net income to
net cash provided by continuing operations:
(Income) loss from discontinued operations . . (984,000) 781,000
Depreciation . . . . . . . . . . . . . . . . . 2,443,000 3,850,000
Amortization . . . . . . . . . . . . . . . . . 1,143,000 1,331,000
Amortization of bond premium . . . . . . . . . 425,000 550,000
Loss on disposal of assets . . . . . . . . . . 96,000 145,000
Deferred income tax. . . . . . . . . . . . . . (1,847,000) 330,000
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . (4,163,000) (25,000)
Inventories. . . . . . . . . . . . . . . . . . (503,000) 99,000
Other assets . . . . . . . . . . . . . . . . . (1,011,000) 2,252,000
Accounts payable . . . . . . . . . . . . . . . 8,000 (450,000)
Other liabilities. . . . . . . . . . . . . . . (5,217,000) (320,000)
Net cash (used in) provided by continuing
operations . . . . . . . . . . . . . . . . . . (2,983,000) 12,394,000
Net cash provided by (used in) discontinued
operations:
Operating/transition activities. . . . . . . 98,000 3,209,000
Payment of taxes on divestiture. . . . . . . (8,925,000) ---
Net cash (used in) provided by operating
activities . . . . . . . . . . . . . . . . . . . (11,810,000) 15,603,000
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . (2,040,000) (1,899,000)
Capital expenditures of discontinued operations. --- (28,000)
Purchase of investments. . . . . . . . . . . . . (6,828,000) (30,651,000)
Redemption of investments. . . . . . . . . . . . 17,229,000 25,612,000
Proceeds from sale of business units . . . . . . 11,309,000 47,000
Acquired businesses (Note 4) . . . . . . . . . . (5,194,000) (1,543,000)
Additions to installment receivables . . . . . . (374,000) (1,186,000)
Proceeds from installment receivables. . . . . . 3,056,000 4,845,000
Net cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . . . 17,158,000 (4,803,000)
Cash flows from financing activities:
Principal payments on capital leases . . . . . . (102,000) (401,000)
Issuance of common stock . . . . . . . . . . . . 1,198,000 1,157,000
Purchases of treasury stock. . . . . . . . . . . --- (10,225,000)
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . 1,096,000 (9,469,000)
Increase in cash and cash equivalents. . . . . . . 6,444,000 1,331,000
Cash and cash equivalents at beginning of period . 6,464,000 7,089,000
Cash and cash equivalents at end of period . . . . $12,908,000 $ 8,420,000
Supplemental disclosures -- Cash payments during the first six months of 1998
for income taxes and interest were $14,224,000 and $121,000, respectively.
Cash (receipts) payments during the first six months of 1997 for income taxes
and interest were $(110,000) and $16,000, respectively.
See accompanying Notes to the Consolidated Condensed Financial Statements.
<PAGE> P-6
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 1998 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 June 30, 1998 and the results of operations
and cash flows for the six months ended June 30, 1998 and 1997. These
adjustments include recurring accruals and a pro rata portion of certain
estimated expenses. The results of operations for the six months ended
June 30, 1998 are not necessarily indicative of the results to be expected
for the full year. 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.
On March 3, 1998, the Board of Directors of the Company voted to issue a
100% common stock dividend to shareholders of record on March 20, 1998.
The distribution date for the common stock was April 6, 1998. As a
result, all historical weighted-average shares and EPS data have been
retroactively restated.
Revenue Recognition - In October 1997, Statement of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2") was issued and addresses
software revenue recognition matters primarily from a conceptual level
and does not include specific implementation guidance. SOP 97-2
supersedes SOP 91-1 and is effective for transactions entered into during
fiscal years beginning after December 15, 1997. SOP 97-2 was adopted by
the Company effective January 1, 1998; however, on March 31, 1998,
Statement of Position 98-4, "Deferral of the Effective Date of a Provision
of SOP 97-2, Software Revenue Recognition", ("SOP 98-4") was issued,
which defers for one year the effective date of certain provisions of
SOP 97-2. The Company believes it is currently in compliance with
SOP 97-2, as amended by SOP 98-4.
Comprehensive Income - In June 1997, Statement of Financial Accounting
Standards No. 130, "Comprehensive Income" was issued. This statement was
adopted by the Company effective January 1, 1998. The Company has no
comprehensive income to report for the periods presented. The Company
expects to present any future comprehensive income amounts as a component
of the Consolidated Statements of Shareholder's Equity.
2. The provision for income tax is based on the estimated annual rate.
Certain reclassifications of the June 30, 1998 balances between current
income tax and deferred income tax may be necessary at year end to reflect
the annual computation of differences between book and tax income.
<PAGE> P-7
3. Inventories consist of the following:
June 30, December 31,
1998 1997
Finished goods. . . . . . . . . . . $ 1,520,000 $ 1,438,000
Work in progress. . . . . . . . . . 388,000 ---
Raw materials and supplies. . . . . 370,000 147,000
Total inventories . . . . . . . . . $ 2,278,000 $ 1,585,000
4. On February 28, 1998, a subsidiary of the Company purchased the assets and
operations of MIDS, Inc. ("MIDS"), a Tucson, Arizona-based provider of
specialized case management and quality measurement software and related
services for the healthcare industry. MIDS was purchased for $3.4 million
in cash and $3.8 million in common stock. In connection with the
purchase, the Company recorded $4.6 million in goodwill which will be
amortized over 25 years. MIDS had annual revenues of approximately $5.4
million in 1997.
On May 31, 1998, a subsidiary of the Company purchased the assets and
operations of The Tenacity Manufacturing Company ("Tenacity"), a
Cincinnati, Ohio-based producer of products used in government records
management. Tenacity was purchased for $1.8 million in cash. In
connection with the purchase, the Company recorded $0.6 million in
goodwill which will be amortized over 20 years. Tenacity had annual
revenues of approximately $2.7 million in 1997.
5. On November 20, 1997, the Company consummated its sale of the assets of
its election business to Election Systems and Software, Inc. ("ES&S") and
the Sequoia Pacific Systems Division of The Smurfit Packaging Corporation
("Sequoia"). As a result of the sale, the Company entered into transition
agreements to operate the Berkeley, California and Rockford, Illinois
facilities for a maximum period of two years for the benefit of ES&S and
Sequoia. Under its agreements with ES&S and Sequoia, BRC is to be
reimbursed for costs it incurs during these transition periods. During
July 1998, the Company received notice from ES&S and Sequoia that the
transition periods would be concluded in November 1998 for both
facilities. Accordingly, the Company will continue to reflect the
activity of these operations as a discontinued operation through November
1998. The Company had no material net assets of discontinued operations
as of June 30, 1998.
In June 1998, the Company sold a promissory note representing a portion of
the proceeds received in connection with the divestiture of its election
business. The note was sold for $11.2 million and a related pre-tax gain
of $1.5 million was recorded. This gain has been reported net of tax as
a component of income from discontinued operations for the period ended
June 30, 1998.
<PAGE> P-8
6. During the first six months of 1998 and 1997, common stock was issued from
treasury upon exercise of 74,782 and 25,000 employee stock options,
respectively. The difference between the aggregate option exercise
proceeds and the Company's basis in the treasury stock of $47,000 and
$154,000 was charged to additional paid-in capital and retained earnings,
respectively, during the first six months of 1998 and 1997. In addition,
on February 28, 1998, the Company issued 195,312 shares of common stock
from treasury in association with the acquisition of MIDS, Inc. The
difference, between the carrying value of the treasury stock and the
acquisition price, of $512,000 was recorded as additional paid-in
capital. See Note 4. At June 30, 1998, the Company reflected treasury
stock of $3,619,000.
7. The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128") which establishes standards for
computing and presenting earnings per share ("EPS"). This statement
requires dual presentation of basic and diluted EPS on the face of the
income statement for entities with complex capital structures and requires
a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. Basic EPS excludes the effect of potentially dilutive
securities while diluted EPS reflects the potential dilution that would
occur if securities or other contracts to issue common stock were
exercised, converted into or resulted in the issuance of common stock. In
addition, the statement requires restatement of all prior-period EPS data.
As such, EPS figures for 1997 have been restated.
The following sets forth the weighted-average number of shares outstanding
computation:
Basic EPS
Basic EPS data was calculated using the number of weighted-average shares
outstanding of 14,160,000 and 13,900,000 for the three months ended June
30, 1998 and 1997, respectively, and 14,089,000 and 14,106,000 for the six
months ended June 30, 1998 and 1997, respectively. Basic EPS is
calculated by dividing net income by the weighted-average number of shares
outstanding.
<PAGE> P-9
Diluted EPS
Three Months Ended June 30,
1998 1997
Weighted-average shares . . . . . . 14,160,000 13,900,000
Incremental shares from assumed
conversions of stock options. . . 291,000 188,000
Adjusted weighted-average shares. . 14,451,000 14,088,000
Six Months Ended June 30,
1998 1997
Weighted-average shares . . . . . . 14,089,000 14,106,000
Incremental shares from assumed
conversions of stock options. . . 310,000 256,000
Adjusted weighted-average shares. . 14,399,000 14,362,000
<PAGE> P-10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General Considerations
Except for the historical information contained herein, the matters discussed
may include forward-looking statements which 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 market
responses to pricing, competitive factors and pricing pressures, changes in
product and service mix required by the Company's customers, results of
litigation, the timely development and acceptance of new products and services,
changes in customer preferences, inventory risks due to shifts in market demand
and costs and liabilities associated with the compliance of the Company
provided computer software and hardware with the Year 2000 date convention.
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.
Discontinued Operations
On November 20, 1997, the Company and its wholly-owned subsidiary, Business
Records Corporation, consummated the divestiture of its business of providing
goods and services utilized by public authorities in the conduct of elections.
In connection with the divestiture, the Company agreed to operate its Berkeley,
California and Rockford, Illinois facilities for the benefit of the acquirers
for transition periods which are currently expected to end in November 1998.
Accordingly, the Company has continued to reflect the activity of these
operations as a discontinued operation through June 30, 1998. See Note 5 to
the unaudited consolidated condensed financial statements.
Revenues from election products and services associated with the Company's
provision of transition services to ES&S and Sequoia constituted approximately
3% of the Company's combined revenues from continuing and discontinued
operations during the second quarter and first six months of 1998. This
compared to 19% and 17% of total revenues during the second quarter and first
six months of 1997, respectively.
Acquisitions
In February, 1998, the Company's wholly-owned subsidiary, The Pace Group,
acquired the assets and operations of MIDS, Inc. ("MIDS") for $7.2 million.
MIDS is a Tucson, Arizona-based provider of specialized case management and
quality measurement software and related services for the healthcare industry.
MIDS had revenues of approximately $5.4 million in 1997. The purchase price
consisted of $3.4 million in cash and $3.8 million in the Company's common
stock. See Note 4 to the unaudited consolidated condensed financial
statements.
In May 1998, a subsidiary of the Company purchased the assets and operations of
The Tenacity Manufacturing Company, ("Tenacity") a Cincinnati, Ohio-based
producer of government records management products. Tenacity was purchased for
$1.8 million in cash. Tenacity had annual revenues of approximately $2.7
million in 1997. See Note 4 to the unaudited consolidated condensed financial
statements.
<PAGE> P-11
Other Considerations
The Company believes that the successful completion of its various efforts to
become Year 2000 compliant by the year 2000 is largely dependent on the
availability of labor resources. While the Company has not experienced
significant problems with the availability of labor resources to date, it has
been publicly speculated that labor resources are not adequate to address
reprogramming requirements and needs of all businesses affected by such issues.
Assuming the continued availability of resources, the Company does not
anticipate a significant risk associated with the completion of its Year 2000
projects. At this time, and based upon current labor costs, the Company has
estimated its total remaining internal costs to address Year 2000 issues will
be $4.1 million. These costs are exclusive of the costs associated with the
Company's sales, marketing and other costs related to the start up of its
millennium technology services business.
Three Months Ended June 30, 1998 and 1997
Revenues from continuing operations for the second quarter of 1998 increased
$3.4 million, or 12%, over those reported during the second quarter of 1997.
The Company experienced revenue growth in most of its product lines during the
second quarter. Specifically, information systems and services revenues to
governmental clients increased by $1.6 million, or 22%, as compared to the
second quarter of 1997. When including revenues associated with information
systems and services provided to health care clients, total information systems
and services increased by $1.3 million, or 9%. Revenues from the Company's
government records management businesses increased by $1.0 million, or 15%, as
compared to the previous year. Additionally, during the quarter, the Company
produced $1.4 million in revenues from its millennium services business. These
and other increases in revenues as compared to the second quarter of the
previous year were partially offset by a $1.2 million decrease in revenues
associated with the sale of the Company's title plant services business during
July of 1997. These changes in revenues are discussed in further detail below.
The increase in information systems and services revenues of $1.3 million
during the second quarter of 1998 is primarily related to revenues generated
from new on-site systems management contracts with the cities of Carrollton,
Texas and Riverside, California. These contracts and additional special
project revenues generated an increase in combined revenues of $1.6 million
over the second quarter of 1997. In addition, combined revenues totaling $2.1
million were reported by the Company's MCSI and CSI business units which were
acquired in July and May 1997, respectively. These revenue increases were
offset by a decrease in revenues of $1.9 million, or 35%, from on-site systems
management services provided to health care accounts. This decrease can be
attributed to the attrition of such accounts during 1997 and 1996.
Government records management revenues increased $1.0 million, or 15%, during
the second quarter of 1998 when compared to the second quarter of 1997. This
increase is attributed to a growth in customer base and favorable economic
conditions which have generated a significant increase in the number of real
estate transactions required to be recorded by government entities. In
addition, binder sales increased by $0.3 million, or 15%, over the second
quarter of 1997 primarily as a result of the acquisition of The Tenacity
Manufacturing Company during the second quarter of 1998. (See Note 4 to the
unaudited consolidated condensed financial statements).
<PAGE> P-12
Consulting services revenues increased $0.9 million, or 22%, in the second
quarter of 1998 as compared to the same period last year. This increase is a
result of the acquisition of MIDS in February of this year which reported
second quarter revenues of $2.2 million. This increase in revenues was offset
by a decrease in revenues of The Pace Group where several large, non-recurring
consulting engagements were completed in the second half of 1997.
Millennium Services revenues were $1.4 million for the second quarter of 1998.
This business unit did not generate revenues in 1997 during its start up phase.
While the Company currently anticipates continued growth in revenues from
millennium services within the next 18 months, there can be no certainty that
potential customers will select the Company's methodology for addressing their
Year 2000 concerns.
In July 1997 the Company sold its title services business which accounted for
other revenues during the second quarter of 1997 of $1.2 million.
The Company's gross margins for the second quarters of 1998 and 1997 were 31%
and 33%, respectively. This decrease in margins can be attributed to lower
margins from services sold to health care customers which declined from 28% in
1997 to 17% during 1998 as the Company's services to higher margin outsourcing
accounts were replaced by lower margin services provided by the Company's MCSI
and CSI business units.
Selling, general and administrative expenses decreased from 20% of revenues in
the second quarter of 1997 to 19% of revenues during the second quarter of
1998. In the second quarter of 1997, the Company incurred significant
additional administrative costs associated with the divestiture of the election
business and start up of its millennium services group. In addition, while
second quarter 1998 consulting revenues of The Pace Group have decreased when
compared to the second quarter of 1997, no offsetting decrease in general and
administrative costs have occurred.
Six Months Ended June 30, 1998 and 1997
Revenues from continuing operations for the first six months of 1998 were $6.2
million, or 12%, greater than those reported during the first six months of
1997. Year to date information systems and services and government records
management revenues increased $4.9 million, or 16%, and $1.4 million, or 11%,
respectively, when compared to the first six months of 1997. Millennium
services reported revenues of $2.2 million for the first half of 1998.
The increase in information systems and services revenues of $4.9 million, or
16%, during the first six months of 1998 is primarily related to new on-site
systems management contracts and additional special project revenues generated
in the government sector of $4.2 million over the first six months of 1997.
In addition, as previously discussed, MCSI and CSI acquired in July and May of
1997, respectively, jointly generated additional revenues of $4.0 million during
the first six months of 1998. The Company's vision care business unit also
reflected increased revenues during the first half of 1998 of $0.8 million, or
66%, over those reported in the first six months of 1997 as a result of a
large hardware and software sale. These revenue increases were offset by
decreases in revenues of $4.2 million from on-site systems management services
provided to health care accounts. This decrease can be attributed to the
cancellation of large contracts during 1997 and 1996.
<PAGE> P-13
Government records management revenues increased $1.4 million, or 11%, during
the first six months of 1998 when compared to the first half of 1997. This
increase is attributed to additional sales of indexing and micrographic
services and favorable economic conditions nationwide as previously discussed.
In addition, the Company's binders business unit sales increased in the first
six months of 1998 by $0.4 million, or 11%, over the first six months of 1997.
Consulting services revenues increased marginally by $0.1 million, or 1%, in
the first half of 1998 as compared to the same period last year. This increase
in revenues can primarily be attributed to additional revenues of $2.7 million
generated by the Company's acquisition of MIDS. This increase was partially
offset due to the completion of several large, non-recurring consulting
engagements by The Pace Group during 1997.
For the first six months of 1998, revenues from millennium services were $2.2
million. As previously mentioned, this business unit was in the start up phase
during 1997 and no revenues were generated during that period of time.
Other revenues associated with the Company's title services business sold in
July 1997 accounted for $2.4 million in revenues during the first half of 1997.
The Company's gross margins for the first six months of 1998 and 1997 were 29%
and 31%, respectively. This decrease in margins can be attributed to a shift
from higher margin on site systems management contracts with health care
institutions which terminated in 1997 and 1996 to lower margin services
provided by MCSI and CSI. In addition, the Company's margins in healthcare
systems and services, such as the Emstat emergency room software package, have
dropped as Year 2000 obligations to existing customers are being fulfilled.
During the first quarter, the Company also incurred increased one-time costs
associated with a special project for certain governmental software clients.
Selling, general and administrative expenses remained constant at 20% of
revenues for the first six months of 1998 and 1997.
Liquidity and Capital Resources
At June 30, 1998, the Company had net working capital (total current assets
minus total current liabilities) of $83.2 million. This represents an increase
of $48.3 million in the Company's working capital since December 31, 1997.
This relates primarily to a $26.9 million increase in cash equivalents and
short-term investments. During June, the Company received $11.3 million in
proceeds associated with the sale of a promissory note received in connection
with the sale of the Company's Election business. (See Note 5 to the unaudited
consolidated condensed financial statements). Proceeds from this note
contributed to the increase in short-term investment balances. Additionally,
there was an $8.1 million increase in accounts receivable primarily related to
the acquisition of MIDS in February 1998 and increased billings by the
millennium services business unit. The Company also had an $8.3 million
reduction in accrued income taxes which was primarily related to the payment
of taxes associated with the sale of the elections business. As of June 30,
1998, the Company's total current assets were 4.5 times total current
liabilities.
<PAGE> P-14
Net cash used in operating activities from continuing operations during the
first half of 1998 increased by $15.4 million when compared to the first half
of 1997. This change is primarily due to a decrease in other liabilities of
$4.9 million associated with the payment of liabilities accrued at December 31,
1997. In addition, accounts receivable has increased $4.2 million primarily
due to the Company's revenue growth. Other assets increased $3.3 million with
the prepayment of millennium consulting services and increases in the amount of
accrued interest receivables. Net cash used in operating activities of
discontinued operations included income taxes paid of $8.9 million in
connection with the gain on divestiture of the election business.
Cash flows provided by investing activities of continuing operations increased
$21.9 million in the first half of 1998 when compared to the first half of
1997. This change is primarily a result of a $23.8 million decrease in
long-term marketable security purchases, offset by a decrease in cash provided
from the redemption of long-term securities of $8.4 million. In addition, as
mentioned above, the Company received $11.3 million in payments from a
promissory note received in connection with the divestiture of the Company's
election business. The note was sold for $11.2 million at a gain, net of taxes
and commissions, of $0.8 million. These proceeds are offset by a $3.7 million
increase in funds used to acquire businesses.
Cash flows used in financing activities decreased $10.6 million as compared to
the first half of 1997. During the first six months of 1997 the Company
purchased $10.2 million in treasury stock, while no such treasury stock
purchases were made during the first six months of 1998.
Due to continuing positive cash flows from existing operations and anticipated
continuing exercises of stock options, the Company generally foresees
experiencing positive cash flows during the coming year.
During the upcoming year, the Company may seek acquisitions or mergers to
further its strategic and financial objectives. There can be no assurance,
however, that suitable acquisitions will be located or that any proposed
transaction will be consummated. To the extent the Company identifies an
appropriate acquisition candidate and consummates a transaction, 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 unforeseen change in business conditions, material
loss associated with legal proceedings 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 it will be subject to a
materially adverse long-term liquidity position. Due to the foregoing, and
its working capital position, the Company does not maintain any active lines
of credit.
<PAGE> P-15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
27. Financial Data Schedule for the Six Months Ended June 30, 1998.
(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 April 1, 1998 through June 30, 1998 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: August 13, 1998 /s/ J. L. Morrison
J. L. Morrison
President and Chief Operating Officer
Date: August 13, 1998 /s/ Thomas E. Kiraly
Thomas E. Kiraly
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
<TABLE> <S> <C>
<PAGE>
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<LEGEND>
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from Form 10-Q
financial statements filed for the period ended June 30, 1998 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
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