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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark one)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 1, 1995
( ) 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: 0-15312
BRANDON SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-2707203
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(State of incorporation) (IRS Employer
Identification No.)
Nine Polito Avenue, Lyndhurst, New Jersey 07071
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 201-842-0700
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Securities registered pursuant to Section 12(b) of the Act:
Common stock, par value $.10 American Stock Exchange
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(Title of each class) (Name of each exchange
on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
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
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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 registrant's 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. / X /
As of December 18, 1995, the aggregate market value of the voting
stock held by non-affiliates of the registrant "(holders of record
other than officers, directors and 10% or more stockholders)" was
approximately $75,365,000.
As of December 18, 1995, the Registrant had 4,481,312 shares of its
Common Stock, par value $.10, issued of which 4,381,312 shares were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this form is incorporated by
reference from the Registrant's definitive Proxy Statement to be sent in
connection with its 1996 Annual Meeting of Stockholders.
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PART I
ITEM 1: BUSINESS
GENERAL
Brandon Systems Corporation (the "Company") is a Delaware corporation
and is a nationwide provider of Information Technology staffing services. The
Company has been in business since 1968, and its services include short-term
supplemental staffing and long-term outsourcing of computer operations,
communications operations, help desk support, client-server support, computer
programming and computer technology training.
The Company provides a broad range of services to its customers to
enable them to meet their information systems needs. Services provided by the
Company consist of computer services (technical and professional short-term
supplemental staffing services), Brandon Insourcing(TM) services (a unique type
of outsourcing service) and training services. The Company offers all of its
services from branch offices located in, or in close proximity to, major cities
throughout the United States under its SYSTEMP(R) trademark, Brandon Systems
trade name, Brandon Insourcing(TM) trademark, and the Brandon Training trade
name. The Company's business is not seasonal.
SYSTEMP(R) TECHNICAL SERVICES
Under its SYSTEMP(R) trademark, the Company offers technical
computer services on a temporary basis to commercial businesses and
governmental agencies to supplement its customer's staff. The
Company's technical staff performs a broad range of tasks required
for the operation of data centers, help desk, networks and personal
computers. Technical computer services include:
Computer Operations - performing all functions necessary to
operate mainframe computers and peripheral equipment,
including controlling job sequencing, and resource allocation.
Operations Analysis - preparing performance evaluations for
data processing centers.
Communications - providing problem resolution, monitoring and
testing of networks, support of voice and data communications
systems.
Operations Support - controlling the storage and retrieval of
data files.
Personal Computer Support - supporting PC help desks, local
area networks, client-server environments and PC users.
In fiscal 1995, the Company derived approximately 69% of its
revenues by providing SYSTEMP(R) technical computer support services
to its clients.
The Company's SYSTEMP(R) technical computer support services
are provided primarily by hourly employees, some of whom may have been
employed for five or more years with the Company. Many computer
operators, operations and network analysts and communications
technicians work on an hourly basis rather than hold traditional
salaried positions because of the opportunity to work on diverse
projects and to choose times of employment. While they are not
guaranteed steady employment, and receive fewer fringe benefits than
their salaried counterparts, these persons frequently are compensated
at higher hourly rates than equivalent salaried technicians with
similar backgrounds and have a greater opportunity for diversity and
involvement with a multitude of technological environments.
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Demand for SYSTEMP(R) services generally originates from
clients possessing in-house computers who desire staffing flexibility.
These clients supplement their staff in a particular skill or for a
specific project with technical support provided by the Company.
Although the Company has long-term relationships with many clients,
such engagements are normally terminable by the clients upon short
notice, generally less than thirty days. Engagements have involved
from one to as many as one hundred twenty Company technicians and may
range from one day to several years. Typically, a candidate is
assigned to a client subject to the client's right of approval. The
Company's technical employees work at the client's facility under
client supervision. The client is charged an hourly rate that
comprises the direct labor rate of the technician provided, associated
costs (such as fringe benefits and payroll taxes) and a mark-up to
cover the Company's overhead and profit.
BRANDON PROFESSIONAL SERVICES
Under its Brandon Systems trade name, the Company offers
professional computer services to systems developers and computer
users. Services provided by the Company primarily include systems
analysis, systems design, application development and programming for
most large scale computers, minicomputers and microcomputers,
emphasizing on-line and database applications.
Professional computer services are typically engaged by
clients to provide expertise for periods ranging from one month to
several years under a flexible contractual arrangement.
Brandon Systems' professional computer services are provided
by both hourly and salaried employees. Professional computer service
employees usually work at a client's facility under the client's
supervision. As with its technical computer service employees,
candidates are assigned to client engagements subject to the client's
right of approval.
In fiscal 1995, the Company derived approximately 17% of its
revenues from professional computer services.
BRANDON INSOURCING(TM) SERVICES
The Company provides a unique type of outsourcing service to its
clients under the name of Brandon Insourcing(TM). Unlike traditional
outsourcing arrangements, where the service provider takes full control of a
customer's information systems facility, under a typical Brandon Insourcing(TM)
contract, the customer maintains complete strategic control, and is relieved of
technology staffing and performance issues which might tend to detract customer
management from focusing on their core business. Brandon Insourcing(TM) takes
responsibility for the day-to-day performance of the customer's information
systems facility including the functions of staffing, day-to-day supervision,
and for meeting pre-determined service levels. The Company believes that
Brandon Insourcing(TM) engenders a partnering relationship, providing customers
with the traditional savings of outsourcing, yet enabling customers to preserve
strategic control over their information systems and data.
Unlike its short term temporary computer services, Brandon
Insourcing(TM) contracts require the Company to provide a pre-determined service
level. The service level may consist of either a continuous coverage
requirement, a guaranteed performance response time requirement, a performance
quality level requirement, or a combination thereof.
Under its Brandon Insourcing(TM) trademark, the Company supervises its
own staff in the operation of a customer's information systems facilities, help
desks, programming departments or other specific functional areas under the
general direction of the customer's existing information systems management.
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In providing Brandon Insourcing(TM) services, the Company believes that
it is not in direct competition with the major computer outsourcing firms and
on certain engagements, works as a subcontractor with four of the leading
outsourcing firms.
During fiscal 1995, Brandon Insourcing(TM) contracts accounted for
approximately 13% of the Company's revenues. The Company believes that there
are opportunities for revenue growth for Brandon Insourcing(TM) in existing
markets and through geographical expansion into new market areas.
The Company currently has Brandon Insourcing(TM) contracts to operate
twenty-three data processing centers, or functional areas thereof. Under a
typical Brandon Insourcing(TM) contract, the Company assumes responsibility for
one or more of a clients' functional data processing areas. These contracts
usually range from one to three years in duration and require the Company to
furnish its customers with a pre-determined performance level or staffing level
at a fixed price. The Company's contracts generally provide the Company with
the right to adjust its prices at periodic intervals, typically annually, and
upon the conclusion of each engagement term, subject to the customer's option
to agree to the adjustment or not extend the contract. The Company performs
these services at the customers' facilities. The Company's employees may be
either salaried or paid on an hourly basis. The Company's on-site management
typically reports directly to the customer's existing information systems
executive as well as to the Company's management team.
The Company has an in-house technical support organization which
provides technical assistance to its nationwide network of branch offices as
well as its on-site management. The Company believes that this resource helps
to contribute to the successful delivery of Brandon Insourcing(TM) service
offerings and to meet its contractual commitments. Brandon Insourcing(TM)
services typically are billed to customers on a monthly basis.
TRAINING SERVICES
Under its Brandon Training trade name, the Company provides
instruction in open systems technologies and traditional technologies to
information systems managers, software engineers and end users. Courses are
delivered at client sites and at the Company's training center in Jersey City,
New Jersey. Historically, training services have been offered to existing and
prospective customers, although this service has not been a significant revenue
source. During fiscal 1995, approximately 1% of the Company's revenues were
derived from training services.
CUSTOMERS AND MARKETING
Historically, the Company's customers have been among the largest
corporations in the United States with substantial data processing operations.
During fiscal 1995, the Company provided services to approximately 1,200
customers.
The Company's customers consist primarily of telecommunication
companies, banking and financial services firms, utilities, major corporations
and state governmental agencies. Most of the Company's customers are located
in or in close proximity to major metropolitan areas. During fiscal 1995, no
one customer represented 10% or more of the Company's revenues.
The Company relies on repeat orders and referrals from its existing
customers, as well as marketing to potential customers. Most of the Company's
engagements, except for Brandon Insourcing(TM) contracts, are terminable by
customers on short notice.
The Company markets its services primarily through direct solicitation
by its sales staff supplemented by its management team. In addition, the
Company markets its services by using national and local advertising,
participation in trade exhibitions and competitive bidding processes. The
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Company's sales staff is compensated on a fixed remuneration basis,
supplemented by commissions. Each member of its sales staff and each branch
office markets and supports all of the Company's computer services to clients.
PERSONNEL ASSIGNMENT AND RECRUITMENT
The Company maintains a salaried and hourly computer service staff, as
well as a large pool of candidates for future employment. A majority of the
Company's employees who perform technical or professional engagements are
employed by the Company on a contracted hourly basis. Each branch office of
the Company maintains a data base of information on pre-qualified technical and
professional support personnel classified by skill, residence, experience and
current availability for assignment. When called upon to fill an engagement,
the Company's technical staffing specialists in each branch office match the
client's specifications with the information in the data base on these
potential employees. Each branch office usually conducts the assignment and
recruitment of potential employees independently, although, branch offices
within a close proximity share candidate data base information. On occasion,
the Company uses its nationwide network of branch offices as a resource when
staffing for specific assignments.
The Company recruits qualified candidates through advertisements in
local media, trade journals, industry specific job fairs and referrals by
current and past employees. Employees and candidates for employment listed in
the Company's data base may not work exclusively for the Company. Technical
skills, experience, and work habits are among the criteria which the Company
uses when selecting employees. Generally, candidates are technically tested
and references are checked as part of the Company's selection process. The
Company considers its pay scale to be competitive.
EMPLOYEES
At October 1, 1995, the Company employed 268 salaried employees in its
headquarters and branch offices other than billable salaried and hourly
technicians on assignment to clients. During the fiscal year ended October 1,
1995, the Company employed approximately 7,100 hourly technicians and 45
salaried technicians on assignments to approximately 1,200 clients.
The Company is not a party to any collective bargaining agreements and
considers its relationships with its employees to be satisfactory.
COMPETITION
The Company believes that it is a leading provider of its SYSTEMP(R)
Technical Services to computer users in a majority of the market areas in which
its branch offices are presently located. The Company competes with temporary
help services, contract programming companies, training companies, system
integrators and technical staffing companies.
Competition in the market areas in which the Company provides its
computer services is intense. The Company's competitors include a large number
of small local firms, public companies or divisions thereof. A number of the
Company's competitors are significantly larger and have greater capital
resources than the Company. The Company competes with these firms for
potential employees as well as for customers. The Company competes both on the
basis of cost and quality of its services.
MARKET AREAS
The Company currently maintains offices in Los Angeles, Oakland and
Orange, California; Denver, Colorado; Stamford, Connecticut; Wilmington,
Delaware; Maitland and Tampa, Florida; Atlanta, Georgia; Chicago and
Schaumburg, Illinois; Boston, Massachusetts; Southfield, Michigan;
Bloomington, Minnesota; Kansas City and St. Louis, Missouri; East Rutherford,
Edison, Jersey City and Lyndhurst, New Jersey; New York City and Westbury, New
York; Raleigh, North Carolina; Independence, Ohio; Trevose, Pennsylvania;
Dallas, Houston and San Antonio, Texas; Reston, Virginia; Seattle, Washington;
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Madison and Milwaukee, Wisconsin. The Company is considering expansion to
other areas both within and outside the United States which the Company
believes have a significant concentration of computers. Any decision to expand
in these areas will depend on general and local market conditions, including
the availability of skilled technicians, and the Company's assessment of
potential demand for its services in those areas.
TRADEMARK
SYSTEMP(R) is a registered trademark of the Company. The Company
considers the SYSTEMP(R) trademark to have name recognition and significant
value in the marketing of its temporary technical computer services in the
areas in which its offices are located. Brandon Insourcing(TM) is also a
trademark, which the Company believes will achieve name recognition and value
to the Company.
REGULATION
The Company's operations as currently conducted are subject to
governmental regulation in the State of New Jersey, where the Company has
registered with the Temporary Help Service Section, Division of Consumer
Affairs of the Department of Law and Public Safety. Compliance with such New
Jersey regulations has not and is not expected to have a material effect on the
Company's business. The Company is unaware of any other jurisdictions in which
its operations are subject to industry specific material governmental
regulation.
Federal, state and local provisions regulating discharge of materials
into the environment are not expected to have a material effect on the
Company's business.
ITEM 2: DESCRIPTION OF PROPERTY
The Company leases approximately 16,400 square feet at its corporate
headquarters in Lyndhurst, New Jersey at an annual rent of approximately
$294,000 from an unaffiliated party. Thirty-one additional facilities
aggregating approximately 73,000 square feet of space are leased from
unaffiliated parties at rentals and under other terms and conditions prevailing
in the various locations.
ITEM 3: LEGAL PROCEEDINGS
The Company is not a party to any pending material legal proceeding.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No items were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1995.
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PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, par value $.10 ("Common Stock") is traded
on the American Stock Exchange under the symbol BRA. The following table sets
forth, for the periods indicated, the range of the high and low closing prices
per share of the Company's Common Stock as reported by the American Stock
Exchange.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
Fiscal 1994
<S> <C> <C>
1st quarter 12 7/8 9 3/8
2nd quarter 16 11 5/8
3rd quarter 17 1/8 11 7/8
4th quarter 17 1/4 14
Fiscal 1995
1st quarter 19 1/8 15 3/8
2nd quarter 22 1/2 17 1/4
3rd quarter 24 3/8 20 1/2
4th quarter 22 18 1/4
</TABLE>
As of December 13, 1995, the Company had 596 stockholders of record.
The Company believes that banks, brokerage firms and certain institutional
investors hold, through nominees, shares of the Company's common stock on
behalf of approximately 1,850 beneficial owners.
On December 13, 1995, the Company increased its quarterly cash
dividend to $.085 per share. During fiscal 1995, the Company's Board of
Directors declared four quarterly cash dividends of $.07 per share. During
fiscal 1994, the Company's Board of Directors declared three quarterly cash
dividends of $.055 per share and one quarterly cash dividend of $.07 per share.
Determination as to future dividends and dividend amounts will depend
upon the Company's financial condition, capital requirements, results of
operations and other factors deemed relevant by the Company's Board of
Directors.
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ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company included in
this table for the fiscal years ended 1991 through 1995 have been derived from
the Company's consolidated financial statements. Reference is made to the
Company's consolidated statements of income for each of the three fiscal years
in the period ended October 1, 1995 and consolidated balance sheets as of
October 1, 1995 and October 2, 1994, which appear on pages F-2 and F-3 of this
Form 10-K.
The selected consolidated financial data should be read in conjunction
with, and are qualified in their entirety by reference to, the Company's
consolidated financial statements and notes thereto.
The Company operates under a 52/53 week fiscal year ending on the
Sunday nearest to the end of the month of September. All fiscal years
presented contain 52 weeks except fiscal year 1993 which contains 53 weeks.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEARS 1995 1994 1993* 1992 1991
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenues ..................... $80,645 $66,961 $56,654 $45,293 $37,898
Cost and expenses:
Cost of services ........... 49,122 40,151 34,724 27,301 22,680
Selling, general and
administrative expenses 22,108 18,800 17,187 14,176 12,948
------ ------ ------ ------ ------
Total cost and expenses 71,230 58,951 51,911 41,477 35,628
------ ------ ------ ------ ------
Income from operations ........ 9,415 8,010 4,743 3,816 2,270
Income before provision for
income taxes ............ 10,145 8,362 5,061 4,300 2,854
Provision for income taxes..... 4,109 3,428 2,024 1,677 879
Net Income............... 6,036 4,934 3,037 2,623 1,975
PER SHARE DATA (1):
Net income per common share $1.32 $1.10 $ .69 $ .60 $ .45
Cash dividends per
common share............... $ .28 $ .24 $ .21 $ .20 $ .18
Weighted average common
shares outstanding ........ 4,564 4,476 4,390 4,361 4,350
BALANCE SHEET DATA:
Total current assets .......... $32,232 $27,498 $22,293 $19,395 $16,825
Total current liabilities .... 5,139 5,014 3,796 2,768 1,819
Total assets.................. 35,317 29,988 24,437 21,152 18,333
Shareholders' equity ......... 30,178 24,974 20,641 18,384 16,514
</TABLE>
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(1) All per share data has been retroactively restated to reflect the
five-for-four stock split declared May 19, 1992 and effected June 18,
1992.
* 53 week year.
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ITEM 7:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
OVERVIEW
Brandon Systems Corporation is an Information Technology staffing company,
providing outsourcing, strategic staffing partnerships, and technical staffing
solutions in computer operations, help desks, and programming. The Company's
services are provided to clients from offices strategically located throughout
the United States. A majority of Brandon's revenues is derived from providing
its clients with short-term supplemental technical services, under its
SYSTEMP(R) trademark, offering clients a broad range of staffing services
covering computer operations, PC help desks and local area networks. Brandon
also provides supplemental computer programming, under the Brandon Professional
Services trade name. Brandon Training offers clients training services for all
computer platforms and environments. Brandon provides long-term contractual
support to its clients by offering them unique outsourcing services under the
BRANDON INSOURCING(TM) trade name. Under a typical BRANDON INSOURCING(TM)
arrangement, the client retains complete strategic control over the functional
areas of their information systems facility while Brandon assumes
responsibility for day-to-day management, staffing, and meeting agreed-upon
service criteria. A BRANDON INSOURCING(TM) arrangement can include technical,
professional or training services.
The Company's fiscal year ends on the Sunday nearest to the end of
September. The Company's fiscal year usually contains 52 weeks and
occasionally will consist of 53 weeks.
The Company's revenues, income from operations and net income set new record
highs for fiscal 1995. These results mark the fourth consecutive record year
for the Company. Four new offices were opened during fiscal 1995 and as of
October 1, 1995, the Company had 30 offices as compared to 26 at October 2,
1994.
The following table sets forth the percentage relationship to revenues of
certain items in the Company's consolidated statements of income for fiscal
years 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Percentage of % Period-to-Period
Total Revenues Increase (Decrease)
-------------- -------------------
1995 1994
vs. vs.
1995 1994 1993* 1994 1993*
---- ---- ---- ---- ----
<C> <C> <C> <C> <C>
Revenues:
Technical Services 69.0% 68.0% 64.0% 21.5% 26.6%
Professional Services 17.0 20.0 24.0 0.0 (1.9)
BRANDON INSOURCING(TM) Services 13.0 10.0 11.0 59.3 10.6
Training Services 1.0 2.0 1.0 (13.1) 32.6
------ ----- -----
Total revenues 100.0 100.0 100.0 20.4 18.2
Cost and expenses:
Cost of services 60.9 60.0 61.3 22.3 15.6
Selling, general and administrative expenses 27.4 28.0 30.3 17.6 9.4
------ ----- -----
Total cost and expenses 88.3 88.0 91.6 20.8 13.6
Income from operations 11.7 12.0 8.4 17.5 68.9
Other, net .9 .5 .5 107.4 10.7
------ ----- -----
Income before provision for income taxes 12.6 12.5 8.9 21.3 65.2
Provision for income taxes 5.1 5.1 3.5 19.9 69.4
------ ----- -----
Net income 7.5% 7.4% 5.4% 22.3% 62.5%
===== ===== =====
</TABLE>
*53 weeks
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ITEM 7: (continued)
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES. The Company's revenues in fiscal 1995 reached a record $80.6
million, representing an increase of $13.6 million over fiscal 1994 revenues of
$67.0 million. Net income increased to $6.0 million in fiscal 1995, also a new
record high, compared to $4.9 million in fiscal 1994. The increase in revenues
resulted primarily from an increase in the volume of services provided by the
Company, as opposed to an increase in prices. This increased volume is
primarily a result of the Company's success in expanding its business with
existing clients, as well as its ability to attract new clients. The Company
attributes this success to its marketing strategy of providing information
systems managers with a range of service offerings to assist them in meeting
their information technology requirements and its geographic expansion program.
Fiscal 1995 is the 20th consecutive year the Company achieved record revenues,
and the 4th consecutive year of record net income. The Company's three- year
compounded annual growth rates for revenues and net income were 21.2% and
32.0%, respectively.
SYSTEMP(R) Technical Services revenues accounted for approximately 72% of the
total revenue increase. Technical Services increased by 21.5% to $55.7 million
in fiscal 1995 from $45.8 million in fiscal 1994. This result is primarily
attributable to a growth in client requirements for Technical Services in
established market territories.
Brandon Professional Services revenues of $13.2 million in fiscal 1995 were
comparable to the fiscal 1994 results.
BRANDON INSOURCING(TM) Revenues for long-term contractual support increased by
59.3% to $10.8 million from $6.8 million, primarily as a result of an increase
in the number of data processing sites serviced by the Company. BRANDON
INSOURCING(TM) revenues accounted for 13% of total revenues in fiscal 1995
compared to 10% in fiscal 1994.
The Company believes there are opportunities for continued revenue growth for
all of its services in existing markets and through geographical expansion to
new market areas. The Company plans to continue its strategy to expand its
business to new market areas and to market all of its services in each of its
market areas. Historically, Brandon has derived a majority of its revenues from
SYSTEMP(R) Technical Services and expects that SYSTEMP(R) Technical Services
will continue to represent a majority of its revenues. Brandon believes,
however, that BRANDON INSOURCING(TM) revenues will increase as a percentage of
its total revenues as businesses continue the trend of outsourcing their
information systems needs, to gain the efficiency and cost savings of
outsourcing, while still retaining strategic control of their Information
Systems operations.
COST OF SERVICES. Cost of services consists primarily of compensation and
related payroll costs for the Company's Technical, Professional and Insourcing
personnel working on customer engagements. As a percentage of revenues, such
costs were 60.9% of revenues in fiscal 1995 and 60% of revenues in fiscal 1994.
The increase in cost of services as a percentage of revenues in fiscal 1995
primarily relates to the increase in BRANDON INSOURCING(TM) revenues for
long-term contractual support, which has a higher cost of service percentage
than Technical and Professional Services (short-term supplemental support).
Accordingly, as the Company continues to realize increased revenue from BRANDON
INSOURCING(TM), cost of services as a percentage of revenues is also expected
to continue to increase. However, the Company believes income from operations
will not be adversely impacted because of the resulting overall increase in the
volume of business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company has embarked on a
strategic growth plan and is expanding its business in existing markets and
entering new market territories. In fiscal 1995, the Company opened four new
offices in Orlando and Tampa, Florida; Raleigh, North Carolina and San Antonio,
Texas.
This growth strategy has required the Company to incur additional expenses
related to
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ITEM 7: (continued)
staffing, market development and recruitment. As a result, selling, general and
administrative expenses increased during fiscal 1995 compared to fiscal 1994 by
$3.3 million to $22.1 million from $18.8 million. The Company believes that
selling, general and administrative costs will continue to increase as it
expects to incur additional staffing, market development and recruitment costs
related to its expansion. The Company also believes such expenses as a
percentage of revenues may also increase in future periods unless and until
such time as revenues are sufficient to absorb the additional expenses
incurred.
However, as a percentage of revenues, selling, general and administrative
expenses decreased to 27.4% in fiscal 1995 from 28% in fiscal 1994. This
decrease was primarily due to economies of scale realized from a larger base of
revenues and cost efficiencies implemented by the Company.
OTHER, NET. Other, net (primarily consisting of interest income) increased to
$.7 million from $.4 million primarily because of higher interest rates as well
as an increase in the Company's portfolio of marketable securities.
FISCAL 1994 COMPARED TO FISCAL 1993
REVENUES. The Company's revenues in fiscal 1994 were $67.0 million,
representing an increase of $10.3 million over fiscal 1993 revenues of $56.7
million. Net income increased to $4.9 million in fiscal 1994, compared to $3.0
million in fiscal 1993. The increase in revenues resulted primarily from an
increase in the volume of services provided by the Company, as opposed to an
increase in prices. This increased volume is primarily a result of the
Company's success in expanding its business with existing clients.
SYSTEMP(R) Technical Services revenues accounted for approximately 93% of
the revenue increase. Technical Services increased by 27% to $45.8 million in
fiscal 1994 from $36.2 million in fiscal 1993, which is primarily attributable
to an increased penetration of existing clients and market territories.
Brandon Professional Services revenues were $13.2 million in fiscal 1994
compared to $13.5 million in fiscal 1993.
BRANDON INSOURCING(TM) Revenues (long-term contractual support), increased
by 10.6% to $6.8 million in fiscal 1995 from $6.1 million in fiscal 1994,
primarily as a result of an increase in the number of data processing sites
serviced by the Company.
COST OF SERVICES. Cost of services, as a percentage of revenue, decreased as a
result of the decrease in the cost of providing BRANDON INSOURCING(TM) and to a
lesser extent a decrease in the cost of providing Technical and Professional
services. BRANDON INSOURCING(TM) cost decreased primarily as a result of
efficiencies being achieved from the implementation of improved cost controls
and also from the maturation of certain existing contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The decrease in selling, general
and administrative expenses as a percentage of revenues was due to economies of
scale realized from a larger base of revenues and cost efficiencies implemented
by the Company.
In fiscal 1994, the Company opened five new offices in Detroit, Michigan;
Madison, Wisconsin; Minneapolis, Minnesota; Schaumburg, Illinois; and Seattle,
Washington. Historically, when the Company has expanded its business into new
market areas, selling, general and administrative expenses usually increased as
a percentage of revenues in the period following the expansion until such time
as revenues were sufficient to cover the additional expenses incurred. During
fiscal 1994, the impact on selling, general and administrative expenses as a
percentage of revenues of opening new offices was not significant and was
offset by the overall increase in the Company's revenue base.
OTHER, NET. Other, net (primarily consisting of interest income) increased to
$0.4 million from $0.3 million, primarily because of higher interest rates
applicable to marketable securities.
INCOME TAXES
The Company's annual effective tax rate as a percentage of income before
income taxes was 41% in fiscal 1995 and 1994, and 40% in fiscal 1993.
See Note 4 of the Notes to the Company's Consolidated Financial Statements
for an explanation of the differences between the federal statutory rate and
the Company's effective tax rate in fiscal 1995, 1994 and 1993.
-11-
<PAGE> 12
ITEM 7: (continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company's needs for capital are dependent upon factors which are common
to most businesses, such as the rate of business growth and whether sufficient
capital can be generated internally from profits, or must be raised externally
to meet its objectives. Certain indicators of the Company's financial condition
are set forth below:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Working capital (millions) $27.1 $22.5 $18.5
Current Ratio.................. 6.3X 5.5x 5.9x
Long-term debt................. $0.0 $0.0 $0.0
Shareholders' equity
(millions).................. $30.2 $25.0 $20.6
</TABLE>
The Company's working capital was $27.1 million and $22.5 million at October
1, 1995 and October 2, 1994, respectively. This 20.5% increase was due
primarily to fiscal 1995 operating results.
The Company currently believes it has sufficient working capital to meet its
immediately foreseeable capital requirements for expansion and funding of
existing operations. The Company's geographic expansion and other growth have
not required, and in the Company's view, will not require, for the foreseeable
future, substantial cash commitments beyond amounts generated in the normal
course of business. The Company is continually evaluating acquisition
opportunities. The Company has no bank or other indebtedness from borrowings
and believes it has sufficient resources to support its long-term growth
strategies through currently available cash, cash expected from future
operations and its ability to obtain financing. The Company invests cash in
excess of immediately foreseeable requirements principally in interest-bearing
marketable securities, pending its use for operating needs or for acquisitions
should appropriate opportunities arise.
The Company paid a regular quarterly cash dividend during fiscal 1995 of
$.07 per share ($.28 annually). The Company has paid cash dividends out of
retained earnings since fiscal 1989. In 1990, the Company's Board of Directors
authorized the repurchase of up to $2 million of its common stock as market
conditions warranted.
During fiscal years 1994 and 1993, the Company repurchased 350 and 5,000
shares of its common stock for $3,000 and $36,000, respectively. On October 26,
1995, the Company repurchased 100,000 shares of its common stock for
$1,805,000.
Inflation and changing prices do not currently have a material impact on the
Company's business. The Company's Technical and Professional Services are
supplied on an as-needed, assignment-by-assignment basis, which allows the
Company to make timely adjustments to its prices to take into account, among
other factors, the impact of inflation. The Company's BRANDON INSOURCING(TM)
contracts generally provide the Company with the right to adjust its prices at
periodic intervals, typically annually, and upon the conclusion of each
engagement term, subject to the customer's option to agree to the adjustment or
not extend the contract.
-12-
<PAGE> 13
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements appear on pages F-2
through F-9, as set forth in Item 14. The Company's supplementary financial
information appears below.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
For the Fiscal Year ended October 1, 1995 First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . $19,124 $20,135 $20,607 $20,779
Cost and expenses:
Cost of services . . . . . . . . . . . . . . . . . . 11,502 12,456 12,600 12,564
Selling, general and administrative expenses . . . . . 5,221 5,381 5,816 5,690
--------- -------- -------- --------
16,723 17,837 18,416 18,254
Income from operations . . . . . . . . . . . . . . . . 2,401 2,298 2,191 2,525
Net income . . . . . . . . . . . . . . . . . . . . . . 1,505 1,451 1,428 1,652
Net income per common share . . . . . . . . . . . . . . $.33 $.32 $.31 $.36
<CAPTION>
- -----------------------------------------------------------------------------------------------------
For the Fiscal Year ended October 2, 1994 First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . $15,806 $16,725 $16,818 $17,612
Cost and expenses:
Cost of services . . . . . . . . . . . . . . . . . . 9,424 10,078 10,045 10,604
Selling, general and administrative expenses . . . . . 4,552 4,708 4,705 4,835
--------- -------- -------- --------
13,976 14,786 14,750 15,439
Income from operations . . . . . . . . . . . . . . . . 1,830 1,939 2,068 2,173
Net income . . . . . . . . . . . . . . . . . . . . . . 1,140 1,168 1,270 1,356
Net income per common share . . . . . . . . . . . . . . $.26 $.26 $.28 $.30
</TABLE>
-13-
<PAGE> 14
ITEM 9: DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
PART III
Information called for by Part III, Items 10 - 13, has been omitted
from this Annual Report as the Company intends to file with the Securities and
Exchange Commission, not later than 120 days after the close of its fiscal
year, a definitive Proxy Statement pursuant to Regulation 14A. Information set
forth in such Proxy Statement under the captions "Security Ownership of Certain
Beneficial Owners and Management," "Information Concerning Current Directors,
Nominees and other Executive Officers," "Remuneration of Directors and
Executive Officers" and "Compliance with Section 16(a) of The Securities
Exchange Act of 1934" is incorporated by reference herein.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The consolidated financial statements listed in the accompanying
index to financial statements are filed as part of this Annual Report.
2. Financial Statement Schedule
The consolidated financial statement schedule listed in the
accompanying index to financial statements is filed as part of this Annual
Report.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed
as part of this Annual Report.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on December 28, 1995.
-14-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: December 28, 1995
BRANDON SYSTEMS CORPORATION
BY:/s/ Ira B. Brown
-----------------------------
Name: Ira B. Brown
Title: Chairman and Chief
Executive Officer
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
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Ira B. Brown Chairman, Chief December 28, 1995
- -------------------------- Executive Officer
Ira B. Brown and Director
(Principal Executive
Officer)
/s/ Peter Lordi Senior Vice December 28, 1995
- -------------------------- President-Finance and
Peter Lordi Administration and
Director (Principal
Financial Officer)
/s/ Raymond J. Bolan Controller December 28, 1995
- -------------------------- (Principal
Raymond J. Bolan Accounting Officer)
</TABLE>
-15-
<PAGE> 16
<TABLE>
<S> <C> <C>
/s/ Domenica Schulz-Scarpulla President, December 28, 1995
- ------------------------------ Chief Operating
Domenica Schulz-Scarpulla Officer and Director
/s/ Myra Brown Secretary and December 28, 1995
- ----------------------- Director
Myra Brown
/s/ Kenneth DeGhetto Director December 28, 1995
- -----------------------
Kenneth DeGhetto
/s/ Steven S. Elbaum Director December 28, 1995
- -----------------------
Steven S. Elbaum
/s/ William E. Hess Director December 28, 1995
- -----------------------
William E. Hess
/s/ Martin M. Pollak Director December 28, 1995
- -----------------------
Martin M. Pollak
/s/ Charles Y.C. Tse Director December 28, 1995
- -----------------------
Charles Y.C. Tse
</TABLE>
-16-
<PAGE> 17
<TABLE>
<CAPTION>
Exhibit
Exhibits Number
- -------- ------
<S> <C>
Description
Articles of Incorporation
and By-Laws
Restated Certificate of Incorporation of
the Company, as amended (incorporated
by reference to Exhibit 3.1
to Company's Registration
Statement on Form S-1,
Registration No. 33-10738
and Exhibit 19(a) to the Company's
Form 10-Q for the quarter ended
March 28, 1993) . . . . . . . . . . . . . . 3.1
Restated By-Laws of the Company, as
amended (incorporated by reference
to Exhibit 3.1 to the Company's Form
8-K dated December 27, 1995) . . . . . . . 3.2
Material Contracts
Brandon Systems Corporation
Savings Investment Plan and
Trust* (incorporated by reference
to Exhibit 10.2 to the Company's
Registration Statement on Form
S-1, Registration No. 33-10738) . . . . . 10.1
Brandon Systems Corporation 1987
Long-Term Equity Incentive Plan*
(incorporated by reference
to the Company's Registration
Statement on Form S-8,
Registration No. 33-28831)
1993 Incentive Stock Option Plan*
1993 Employee Stock Purchase Plan*
(incorporated by reference to the
Company's Registration Statement
on Form S-8 Registration No 33-67200
and Exhibits 19(b) and 19(c) to the
Company's Form 10-Q for the quarter
ended March 28, 1993) . . . . . . . . . . 10.2
Employment Agreement, by and
between the Company and
Ira B. Brown, dated July 8, 1994*
(incorporated by reference to the
Company's Form 10-Q for the
quarter ended July 3, 1994) . . . . . . . 10.3
Brandon Systems Corporation Dividend
Reinvestment and Stock Purchase
Plan (incorporated by reference
to the Company's Registration
Statement on Form S-3, Registration
No. 33-88384) . . . . . . . . . . . . . . 10.4
Subsidiaries (incorporated by reference
to the Company's Annual Report on
Form 10-K for the fiscal year ended
September 30, 1990). . . . . . . . . . . . 21
Consent of Independent Accountants . . . . . . 23
Financial Data Schedule . . . . . . . . . . . . 27
</TABLE>
*Management contract or compensation plan.
-17-
<PAGE> 18
BRANDON SYSTEMS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Financial Statements:
Report of Independent Accountants F-1
Consolidated Balance Sheets at
October 1, 1995 and
October 2, 1994 F-2
Consolidated Statements of Income
for the fiscal years ended
October 1, 1995,
October 2, 1994, and
October 3, 1993 F-3
Consolidated Statements of Shareholders' Equity
for the fiscal years ended
October 1, 1995,
October 2, 1994, and
October 3, 1993 F-4
Consolidated Statements of Cash Flows
for the fiscal years ended
October 1, 1995,
October 2, 1994, and
October 3, 1993 F-5
Notes to Consolidated Financial Statements F-6 to F-9
Financial Statement Schedules:
Report of Independent Accountants S-1
Schedule II - Valuation and Qualifying Accounts S-2
</TABLE>
Schedules other than those listed above have been omitted because they are
inapplicable or relevant items are included elsewhere in this report.
-18-
<PAGE> 19
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Brandon Systems Corporation:
We have audited the accompanying consolidated balance sheets of Brandon Systems
Corporation as of October 1, 1995 and October 2, 1994 and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three fiscal years in the period ended October 1, 1995. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Brandon Systems
Corporation as of October 1, 1995 and October 2, 1994, and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended October 1, 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for marketable securities by adopting
Statement of Financial Accounting Standards No. 115, "Accounting For Certain
Investments in Debt and Equity Securities."
COOPERS & LYBRAND L.L.P.
New York, New York
November 14, 1995
F-1
<PAGE> 20
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
October 1, October 2,
1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 4,197,000 $ 6, 268,000
Marketable securities (Note 2) . . . . . . . . . . . . . . . . . . . 14,347,000 9,187,000
Accounts receivable, less allowance for doubtful accounts of
$200,000 in 1995 and $230,000 in 1994 . . . . . . . . . . . . . . 12,580,000 10,728,000
Deferred income taxes (Note 4) . . . . . . . . . . . . . . . . . . . 476,000 556,000
Prepaid expenses and other current assets . . . . . . . . . . . . . 632,000 759,000
----------- ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 32,232,000 27,498,000
Furniture and equipment, at cost, less accumulated depreciation
and amortization of $3,800,000 in 1995 and $2,962,000 in 1994 . . . 2,858,000 2,252,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227,000 238,000
----------- ------------
$35,317,000 $29,988,000
=========== ============
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accrued expenses and other current liabilities (Note 3). . . . . . . $ 4,700,000 $ 4,535,000
Dividend payable . . . . . . . . . . . . . . . . . . . . . . . . . 312,000 310,000
Income taxes payable (Note 4) . . . . . . . . . . . . . . . . . . . 127,000 169,000
----------- ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 5,139,000 5,014,000
Commitments (Note 5)
Shareholders' equity (Note 7)
Preferred stock, $1.00 par value; authorized 1,000,000 shares;
issued and outstanding-none
Common stock, $.10 par value; authorized 10,000,000 shares;
issued and outstanding 4,460,080 shares in 1995 and 4,426,691
shares in 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 446,000 443,000
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 6,329,000 5,939,000
Unrealized gain on marketable securities, net of taxes
(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 23,381,000 18,592,000
----------- ------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . 30,178,000 24,974,000
----------- ------------
$35,317,000 $29,988,000
=========== ============
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 21
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
October 1, October 2, October 3,
For the Fiscal Year Ended 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
(52 weeks) (52 weeks) (53 weeks)
<C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . $80,645,000 $66,961,000 $56,654,000
Cost and expenses:
Cost of services . . . . . . . . . . . . . . . . 49,122,000 40,151,000 34,724,000
Selling, general and administrative expenses . . . 22,108,000 18,800,000 17,187,000
---------- ----------- -----------
Total cost and expenses . . . . . . . . . . . . 71,230,000 58,951,000 51,911,000
---------- ----------- -----------
Income from operations . . . . . . . . . . . . . 9,415,000 8,010,000 4,743,000
Other, net (principally interest income). . . . . . 730,000 352,000 318,000
---------- ----------- -----------
Income before provision for income taxes . . . . 10,145,000 8,362,000 5,061,000
Provision for income taxes (Note 4) . . . . . . . . 4,109,000 3,428,000 2,024,000
---------- ----------- -----------
Net income . . . . . . . . . . . . . . . . . . . $6,036,000 $ 4,934,000 $ 3,037,000
========== =========== ===========
Net income per common share . . . . . . . . . . . . $1.32 $1.10 $.69
===== ===== ====
Weighted average common shares outstanding. . . . . 4,563,702 4,476,416 4,389,817
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 22
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
For the Fiscal Years Ended October 1, 1995, October 2, 1994, and October 3, 1993
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized
Common Stock Gain On Total
------------------- Paid-in Marketable Retained Treasury Shareholders'
Shares Amount Capital Securities Earnings Stock Equity
---------- -------- ---------- --------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 27, 1992........... 4,344,621 $435,000 $5,444,000 $12,576,000 $(71,000) $18,384,000
Issuance of common stock
from treasury in connection
with employee stock bonus
arrangement.......................... 3,125 (2,000) 23,000 21,000
Cash dividends, $.205 per
common share......................... (893,000) (893,000)
Purchase of treasury stock............ (5,000) (36,000) (36,000)
Stock options exercised............... 21,876 2,000 71,000 (26,000) 81,000 128,000
Net income............................ 3,037,000 3,037,000
--------- ------- --------- ---------- ------ ----------
Balance, October 3, 1993.............. 4,364,622 437,000 5,515,000 14,692,000 (3,000) 20,641,000
Issuance of common stock
in connection with employee
stock purchase plan.................. 8,682 1,000 102,000 103,000
Cash dividends, $.235 per
common share......................... (1,032,000) (1,032,000)
Purchase of treasury stock............ (350) (3,000) (3,000)
Stock options exercised............... 53,737 5,000 322,000 (2,000) 6,000 331,000
Net income............................ 4,934,000 4,934,000
--------- ------- --------- ---------- ------ ----------
Balance, October 2, 1994.............. 4,426,691 443,000 5,939,000 18,592,000 -- 24,974,000
Issuance of common stock
in connection with:
Employee stock purchase plan......... 10,625 1,000 180,000 181,000
Dividend reinvestment and
stock purchase plan................ 76 2,000 2,000
Cash dividends, $.28 per
common share......................... (1,247,000) (1,247,000)
Stock options exercised............... 22,688 2,000 208,000 210,000
Unrealized gain on
marketable securities (Note 2) $22,000 22,000
Net income............................
Balance, October 1, 1995.............. 6,036,000 6,036,000
--------- ------- --------- -------- ---------- ------ ----------
4,460,080 $446,000 $6,329,000 $22,000 $23,381,000 -- $30,178,000
========= ======== ========= ======= =========== ======= ===========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 23
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
October 1, October 2, October 3,
For the Fiscal Years Ended 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
(52 weeks) (52 weeks) (53 weeks)
<C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $6,036,000 $4,934,000 $3,037,000
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation of furniture and equipment.......... 838,000 664,000 710,000
Amortization of other assets..................... 17,000 39,000 69,000
Deferred income taxes............................ 65,000 (183,000) (139,000)
Other............................................ (103,000) 55,000 66,000
Changes in assets and liabilities:
Accounts receivable............................. (1,822,000) (1,665,000) (1,502,000)
Prepaid expenses and other current assets....... 127,000 (381,000) (15,000)
Accrued expenses and other current
liabilities..................................... 165,000 1,218,000 703,000
Income taxes payable........................... (42,000) (70,000) 85,000
---------- ---------- ----------
Net cash provided by operating activities.. 5,281,000 4,611,000 3,014,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment................ (1,444,000) (1,057,000) (1,101,000)
Purchases of marketable securities.................. (17,309,000) (9,764,000) (7,223,000)
Proceeds from sales of marketable securities........ 12,259,000 9,101,000 6,031,000
(Increase) decrease in deposits..................... (6,000) 8,000 (65,000)
---------- ---------- ----------
Net cash used in investing activities.......... (6,500,000) (1,712,000) (2,358,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid...................................... (1,245,000) (962,000) (653,000)
Exercise of stock options........................... 210,000 331,000 128,000
Issuance of common stock under employee
stock purchase plan............................... 181,000 103,000
Issuance of common stock under dividend reinvestment
and stock purchase plan........................... 2,000
Purchase of treasury stock.......................... (3,000) (36,000)
---------- ---------- ----------
Net cash used in financing activities........... (852,000) (531,000) (561,000)
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents. (2,071,000) 2,368,000 95,000
Cash and cash equivalents at beginning of year....... 6,268,000 3,900,000 3,805,000
---------- ---------- ----------
Cash and cash equivalents at end of year............. $4,197,000 $6,268,000 $3,900,000
========== ========== ==========
- ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. GENERAL:
Brandon Systems Corporation (the "Company") is an Information Technology
staffing company, providing outsourcing, strategic staffing partnerships, and
technical staffing solutions in computer operations, help desks, and
programming. The Company's services are provided to its customers in
diversified industries from branch offices strategically located throughout the
United States.
B. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
C. REVENUE RECOGNITION:
Revenues for the Company's Technical, Professional and Training services are
recognized as services are performed. Revenues under BRANDON INSOURCING(TM)
contracts are recognized monthly on a pro rata basis over the term of the
engagement, which approximates cost incurred under the contracts.
D. CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. In addition, the
Company maintains cash with major money center banks, which exceed federally
insured limits.
E. MARKETABLE SECURITIES:
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", as of October 3, 1994. The effect of implementing this new
pronouncement did not have a significant impact on the Company's financial
statements. Marketable securities, which consist of tax-exempt securities
issued by various state agencies and their political subdivisions and U.S.
Treasury Notes, have been categorized as available for sale and, as a result,
are stated at fair value at October 1, 1995. Unrealized gains and losses are
included as a component of shareholders' equity until realized. At October 2,
1994 these marketable securities were carried at the lower of cost or market.
F. INCOME TAXES:
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined on the basis of differences between the financial
statement and tax bases of assets and liabilities at enacted tax rates
applicable to the years in which the differences are expected to reverse.
G. FURNITURE AND EQUIPMENT:
Depreciation and amortization of furniture and equipment is computed by the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are included in this category and are being amortized over the
shorter of their estimated useful lives or the lives of the leases. When
furniture and equipment are retired or sold, the cost and accumulated
depreciation and amortization are eliminated from the related accounts, and
gains or losses are reflected in current operations.
H. NET INCOME PER SHARE:
Net income per share has been computed using the weighted average number of
common and common equivalent shares outstanding.
I. FISCAL YEAR:
The Company's fiscal year ends on the Sunday nearest to the end of the month of
September. The Company's fiscal year usually contains 52 weeks, but
periodically will consist of 53 weeks. Fiscal years 1995 and 1994 contain 52
weeks while fiscal year 1993 contains 53 weeks.
2. MARKETABLE SECURITIES:
At October 1, 1995, the net unrealized gains on marketable securities was
$37,000 and are included in shareholders' equity net of applicable taxes of
$15,000. Gross unrealized gains and losses were $74,000 and $37,000,
respectively. There were $54,000 of gross realized gains and $37,000 of gross
realized losses during the fiscal year ended October 1, 1995. For the purpose
of determining gross realized gains and losses, the amortized cost of
securities sold is based upon specific identification.
F-6
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The contractual maturities of available for sale marketable debt securities,
including accrued interest, at October 1, 1995, are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
- ----------------------------------------------------------
<S> <C> <C>
Due within one year............... $8,910,000 $8,933,000
Due one through five years........ 4,668,000 4,706,000
Due five through ten years........ 116,000 115,000
Due after ten years............... 616,000 593,000
----------- -----------
$14,310,000 $14,347,000
=========== ===========
</TABLE>
3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Payroll and related expenses..... $3,078,000 $2,988,000
Compensated absences............. 416,000 324,000
Profit-sharing plan.............. 60,000 200,000
Deferred rent.................... 180,000 138,000
Other............................ 966,000 885,000
---------- ----------
$4,700,000 $4,535,000
========== ==========
</TABLE>
4. INCOME TAXES:
The provision (credit) for income taxes is comprised of the
following:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal.............. $2,984,000 $2,687,000 $1,596,000
State and local...... 1,045,000 924,000 567,000
----------- ----------- -----------
4,029,000 3,611,000 2,163,000
=========== =========== ===========
Deferred:
Federal.............. 60,000 (137,000) (103,000)
State and local...... 20,000 (46,000) (36,000)
----------- ----------- -----------
80,000 (183,000) (139,000)
----------- ----------- -----------
$4,109,000 $3,428,000 $2,024,000
=========== =========== ===========
</TABLE>
The components of the net deferred tax asset as of October 1, 1995 and October
2, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------
<S> <C> <C>
Accumulated depreciation
accounts receivable............... $81,000 $ 94,000
Accrued salaries and bonuses......... 235,000 259,000
of furniture and equipment........ (58,000) (13,000)
Compensated absences................. 168,000 133,000
Deferred rent........................ 73,000 56,000
Other................................ (23,000) 27,000
--------- ---------
$476,000 $556,000
========= =========
</TABLE>
Differences between the federal statutory and effective tax rates
are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income
tax rate.............................. 35% 34% 34%
Effect of graduated income tax rate.... (1)
State and local taxes, net of
federal income tax benefit............ 7 7 7
Tax exempt interest income............. (1) (1) (2)
Other.................................. 1 1 1
--- --- ---
Effective income tax rate.............. 41% 41% 40%
=== === ===
</TABLE>
Income taxes paid during fiscal years 1995, 1994 and 1993 were $3,986,000,
$3,801,000 and $1,935,000, respectively.
5. COMMITMENTS:
A. The Company has noncancellable operating leases for office facilities which
expire between 1996 and 2005 and include escalation clauses for real estate
taxes and specified operating expenses. Future minimum rental commitments under
noncancellable operating leases are as follows:
<TABLE>
<S> <C>
1996 . . . . . . . . $1,413,000
1997 . . . . . . . . 1,321,000
1998 . . . . . . . . 1,031,000
1999 . . . . . . . . 823,000
2000 . . . . . . . . 616,000
Thereafter . . . . . 2,499,000
----------
$7,703,000
==========
</TABLE>
Rent expense for the fiscal years ended 1995, 1994 and 1993 was $1,572,000,
$1,426,000 and $1,297,000, respectively, including real estate taxes and
specified operating expenses of approximately $219,000, $199,000 and $198,000
for fiscal years ended 1995, 1994 and 1993 respectively.
F-7
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B. In July 1994, the Company entered into an Employment Agreement (the
"Agreement") with its Chairman and Chief Executive Officer ("CEO"), which
provides that he will continue as the CEO of the Company through December
31,1996, after which he will provide services to the Company as its Chairman
and/or Consultant for a period of ten years. The Agreement contains a
non-compete provision which extends for two years beyond the term of the
Agreement.
The CEO's minimum annual compensation for calendar year 1994 was $350,000 and
for calendar years 1995 and 1996 is $400,000, respectively. An annual bonus may
be paid to the CEO at the discretion of the Compensation Committee of the
Company's Board of Directors.
During the term of the Agreement, following December 31, 1996, the CEO will be
paid $200,000 annually for rendering various consulting and advisory services
to the Company. In the event of disability, he is entitled to receive, over the
term of the Agreement, any remaining CEO and consulting compensation. In the
event of his death, his surviving spouse is entitled to receive, over the term
of the Agreement, any remaining unpaid consulting compensation.
The Agreement also provides for registration rights exercisable through July 7,
2004. The Company may be obligated to file up to three registration statements
at a cost not to exceed $100,000 each with respect to shares registered on
behalf of the CEO.
6. EMPLOYEE BENEFIT PLAN:
The Company has a defined contribution plan (the "Plan") covering all of its
eligible employees which includes a deferred compensation 401(k) provision.
Under the Plan, employees may contribute up to 15 percent of their gross
compensation each year. The Company may match up to 25% of the first 6% of
compensation contributed by eligible full-time salaried employees', at the
discretion of its Board of Directors. The Company does not match voluntary
contributions made by its full- time hourly employees. In addition, each year
the Company may elect to make a profit sharing contribution to eligible
full-time salaried employees. Contribution expense under the Plan, net of
forfeitures, for fiscal years 1995, 1994 and 1993, was $60,000, $211,000 and
$139,000, respectively.
7. SHAREHOLDERS' EQUITY AND STOCK OPTIONS:
A. STOCK OPTIONS:
Under the terms of the Company's 1993 Incentive Stock Option Plan ("Option
Plan"), up to 500,000 shares of common stock have been reserved by the Company
for issuance to eligible employees and directors. The Option Plan provides for
the granting of options to purchase common stock in the form of incentive stock
options and non-qualified stock options. The exercise price for incentive
stock options may not be less than the fair market value of the shares on the
date of grant. The exercise price for non-qualified stock options may be less
than, equal to or greater than the fair market value of the shares on the date
of grant, but in no event less than the par value of the common stock. Under
the terms of the Company's 1987 Long-Term Equity Incentive Plan ("Incentive
Plan"), up to 187,500 shares of common stock have been reserved by the Company
for the issuance of stock options to selected key employees and directors of
the Company. At October 1, 1995, 16,132 shares of common stock were reserved
for future grants under the Incentive Plan. However, the Company does not
intend to issue additional options to purchase common stock under this plan.
Stock option transactions under these plans are summarized as
follows:
<TABLE>
<CAPTION>
Shares Option Prices
------- ---------------
<S> <C> <C>
Outstanding at
September 27, 1992....... 142,959 $3.73 to $8.00
Granted.................. 152,000 $8.56 to $9.63
Exercised................ (21,877) $3.73 to $7.40
Cancelled................ (13,046) $5.36 to $8.00
--------
Outstanding at
October 3, 1993.......... 260,036 $5.36 to $9.63
Granted.................. 75,500 $1.00 to $15.88
Exercised................ (53,739) $5.36 to $13.13
Cancelled................ (8,859) $5.36 to $15.88
--------
Outstanding at
October 2, 1994.......... 272,938 $1.00 to $15.88
Granted.................. 33,000 $19.50 to $22.75
Exercised................ (22,688) $1.00 to $15.88
Cancelled................ (14,500) $15.88 to $22.75
Outstanding at
October 1, 1995.......... 268,750 $6.00 to $22.75
========
</TABLE>
F-8
<PAGE> 27
During fiscal year 1995, the Company granted 33,000 stock options of which,
3,000 were non-qualified ($19.50) and 30,000 were incentive stock options
($22.75). During fiscal year 1994, the Company granted 75,500 stock options of
which 8,000 were non- qualified stock options ($1.00 to $13.13) and 67,500 were
incentive stock options ($11.13 to $15.88). During fiscal year 1993, the Company
granted 152,000 stock options of which 6,000 were non-qualified stock options
($9.13) and 146,000 were incentive stock options ($8.56 to $9.63).
At October 1, 1995, options to purchase 117,439 shares of common stock under
these plans were exercisable (77,250 under the Option Plan and 40,189 under
the Incentive Plan). Options granted under these plans expire at various dates
through May 2004. At October 1, 1995, 261,500 shares of common stock were
reserved for future option grants under the Option Plan.
B. EMPLOYEE STOCK PURCHASE PLAN:
Under the terms of the Company's 1993 Employee Stock Purchase Plan (the "Stock
Purchase Plan"), 200,000 shares of common stock have been reserved by the
Company for purchases by employees. The Stock Purchase Plan enables eligible
employees to purchase the Company's common stock, at not less than 90% of the
fair market value, on the twentieth day of the first month in each calendar
quarter. Employees may authorize payroll deductions of up to 10% of their
eligible compensation for common stock purchases. At October 1, 1995, 180,693
shares of common stock were reserved for future employee purchases under the
Stock Purchase Plan.
C. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN:
During fiscal 1995, the Company established a Dividend Reinvestment and Stock
Purchase Plan for which 150,000 shares of common stock have been reserved by
the Company for purchases by shareholders. At October 1, 1995, 149,924 shares
of common stock were reserved for future shareholder purchases under the
Dividend Reinvestment and Stock Purchase Plan.
D. TREASURY STOCK:
On October 26, 1995, the Company repurchased 100,000 shares of its common stock
for $1,805,000. In 1990, the Company's Board of Directors had authorized the
repurchase of up to $2 million of common stock as market conditions may
warrant. The aggregate number of shares repurchased through October 26, 1995
were 116,700 for a total consideration of $1,923,000.
8. SIGNIFICANT CUSTOMER:
In 1995 and 1994, no one customer represented 10% or more of revenues. Sales
to three major operating units of one customer in 1993 accounted for
approximately 10% of revenues.
F-9
<PAGE> 28
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Brandon Systems Corporation:
Our report on the consolidated financial statements of Brandon Systems
Corporation is included on page F-1 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the financial
statement schedule listed in the index on page 18 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
November 14, 1995
S-1
<PAGE> 29
BRANDON SYSTEMS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED OCTOBER 1, 1995, OCTOBER 2, 1994, AND
OCTOBER 3, 1993
<TABLE>
<CAPTION>
Balance Additions Balance
Beginning Charged to Cost at End
of Period and Expenses Deductions of Period
--------- --------------- ---------- ---------
<S> <C> <C> <C> <C>
1995:
Allowance for doubtful
accounts $230,000 $ 57,000 $87,000(1) $200,000
======== ======== ======= ========
1994:
Allowance for doubtful
accounts $175,000 $62,000 $ 7,000(1) $230,000
======== ======= ======= ========
1993:
Allowance for doubtful
accounts $130,000 $87,000 $42,000(1) $175,000
======== ======= ======= ========
</TABLE>
(1) Write-off of accounts.
S-2
<PAGE> 1
[COOPERS & LYBRAND LETTERHEAD]
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Brandon Systems Corporation on Form S-8 (File Nos. 33-67200 and 33-28831) and
on Form S-3 (File No. 33-88384) of (a) our report dated November 14, 1995 on
our audits of the consolidated financial statements of Brandon Systems
Corporation as of October 1, 1995 and October 2, 1994, and for each of the
three fiscal years in the period ended October 1, 1995, which report is
included on page F-1 of this Annual Report on Form 10-K, and (b) our report
dated November 14, 1995 on our audits of the financial statement schedule of
Brandon Systems Corporation for the three fiscal years ended October 1, 1995,
which report appears on page S-1 in this Annual Report on Form 10-K. We also
consent to the reference to our firm in the above mentioned Registration
Statement (File No. 33-28831) under the caption "Experts."
COOPERS & LYBRAND L.L.P.
New York, New York
December 22, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-START> OCT-03-1994
<PERIOD-END> OCT-01-1995
<CASH> 4,197
<SECURITIES> 14,347
<RECEIVABLES> 12,780
<ALLOWANCES> 200
<INVENTORY> 0
<CURRENT-ASSETS> 32,232
<PP&E> 6,658
<DEPRECIATION> 3,800
<TOTAL-ASSETS> 35,317
<CURRENT-LIABILITIES> 5,139
<BONDS> 0
0
0
<COMMON> 446
<OTHER-SE> 29,732
<TOTAL-LIABILITY-AND-EQUITY> 35,317
<SALES> 0
<TOTAL-REVENUES> 80,645
<CGS> 49,122
<TOTAL-COSTS> 71,230
<OTHER-EXPENSES> (730)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,145
<INCOME-TAX> 4,109
<INCOME-CONTINUING> 6,036
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,036
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
</TABLE>
