<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarter Ended Commission File Number
April 2, 1995 0-15312
BRANDON SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-2707203
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE HARMON PLAZA
SECAUCUS, NEW JERSEY 07094
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 392-0800
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
As of May 3, 1995, the registrant had 4,452,254 shares of its Common
Stock, par value $.10 per share outstanding.
<PAGE> 2
FORM 10-Q
PAGE 1
BRANDON SYSTEMS CORPORATION
- INDEX -
PART I - FINANCIAL INFORMATION PAGE NO.
ITEM 1 - Financial Statements
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Income 3
Condensed Consolidated Statement of
Shareholders' Equity 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-7
ITEM 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-10
PART II - OTHER INFORMATION
ITEM 4 - Submission of Matters to a Vote of Security-Holders 11
ITEM 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE> 3
PART 1 - FINANCIAL INFORMATION FORM 10-Q
PAGE 2
BRANDON SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 2, OCTOBER 2,
1995 1994
---------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................ $ 3,456,000 $ 6,268,000
Marketable securities, principally tax exempt
bonds (Note 4)................................. 11,853,000 9,187,000
Accounts receivable, less allowance for
doubtful accounts.............................. 12,289,000 10,728,000
Deferred income taxes (Note 2)................... 438,000 556,000
Prepaid expenses and other current assets........ 1,020,000 759,000
---------- ----------
Total current assets..................... 29,056,000 27,498,000
Furniture and equipment, at cost, less
accumulated depreciation......................... 2,783,000 2,252,000
Other assets....................................... 221,000 238,000
---------- ----------
$32,060,000 $29,988,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Accrued expenses and other current
liabilities.................................... $ 4,209,000 $ 4,535,000
Dividends payable (Note 3)....................... 312,000 310,000
Income taxes payable............................. 169,000
--------- ---------
Total current liabilities............... 4,521,000 5,014,000
Shareholders' equity (Note 3):
Preferred stock, $1.00 par value; authorized
1,000,000 shares, issued and outstanding - None
Common stock, $.10 par value; authorized
10,000,000 shares; issued 4,450,424
and 4,426,691 shares, respectively............ 445,000 443,000
Paid-in capital.................................. 6,189,000 5,939,000
Unrealized loss on marketable securities of
$34,000, less $14,000 tax effect (Note 4).... (20,000)
Retained earnings................................ 20,925,000 18,592,000
---------- ----------
Total shareholders' equity.............. 27,539,000 24,974,000
---------- ----------
$32,060,000 $29,988,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
FORM 10-Q
PAGE 3
BRANDON SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- --------------------
APRIL 2, APRIL 3, APRIL 2, APRIL 3,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues..................... $20,135,000 $16,725,000 $39,259,000 $32,531,000
Cost and expenses:
Cost of services........... 12,456,000 10,078,000 23,958,000 19,502,000
Selling, general and
administrative expenses.. 5,381,000 4,708,000 10,602,000 9,260,000
--------- --------- ---------- ---------
Total cost and expenses 17,837,000 14,786,000 34,560,000 28,762,000
---------- ---------- ---------- ----------
Income from operations....... 2,298,000 1,939,000 4,699,000 3,769,000
Other, net (principally
interest income)......... 161,000 56,000 311,000 142,000
-------- -------- -------- --------
Income before provision for
income taxes............ 2,459,000 1,995,000 5,010,000 3,911,000
Provision for income taxes
(Note 2)................ 1,008,000 827,000 2,054,000 1,603,000
--------- -------- --------- ---------
Net income................. $1,451,000 $1,168,000 $2,956,000 $2,308,000
========== ========== ========== ==========
Net income per common share
(Note 1)................ $.32 $.26 $.65 $.52
==== ==== ==== ====
Weighted average common
shares outstanding
(Note 1)................... 4,563,579 4,468,683 4,551,276 4,447,410
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
FORM 10-Q
PAGE 4
BRANDON SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED APRIL 2, 1995
<TABLE>
<CAPTION>
COMMON STOCK
OUTSTANDING UNREALIZED TOTAL
----------------- PAID-IN INVESTMENT RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL LOSSES EARNINGS EQUITY
------ ------ ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
October 2, 1994 4,426,691 $443,000 $5,939,000 - $18,592,000 $24,974,000
Cash dividends
declared, $.14
per share
(Note 3) (623,000) (623,000)
Issuance of common
stock in connection
with the 1993
Employee Stock
Purchase Plan 5,796 90,000 90,000
Stock options
exercised 17,937 2,000 160,000 162,000
Change in unrealized
investment losses,
net of income taxes
of $14,000
(Note 4) (20,000) (20,000)
Net income 2,956,000 2,956,000
--------- -------- ---------- --------- --------- ---------
Balance,
April 2, 1995 4,450,424 $445,000 $6,189,000 $(20,000) $20,925,000 $27,539,000
========= ======== ========== ========= =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
FORM 10-Q
PAGE 5
BRANDON SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
<TABLE>
<CAPTION>
APRIL 2, APRIL 3,
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................... $ 2,956,000 $ 2,308,000
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation of furniture and equipment.... 384,000 330,000
Amortization of other assets............... 13,000 24,000
Deferred income taxes...................... 132,000 (105,000)
Other...................................... (73,000) 55,000
Changes in assets and liabilities:
Accounts receivable...................... (1,561,000) (841,000)
Prepaid expenses and other current assets (261,000) (132,000)
Accrued expenses and other current
liabilities........................... (326,000) 199,000
Income taxes payable..................... (169,000) (239,000)
--------- ----------
Net cash provided by operating
activities....................... 1,095,000 1,599,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment.......... (915,000) (440,000)
Purchase of marketable securities............ (7,585,000) (3,420,000)
Proceeds from sales of marketable securities. 4,958,000 3,351,000
Decrease in deposits......................... 4,000 27,000
----------- -----------
Net cash used for investing activities.... (3,538,000) (482,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid............................... (621,000) (480,000)
Exercise of stock options.................... 162,000 57,000
Issuance of common stock under Employee
Stock Purchase Plan....................... 90,000 36,000
Purchase of treasury stock................... (3,000)
--------- -----------
Net cash used for financing activities.... (369,000) (390,000)
Net (decrease) increase in cash, and
cash equivalents............................ (2,812,000) 727,000
Cash and cash equivalents at beginning
of period................................... 6,268,000 3,900,000
--------- ---------
Cash and cash equivalents at end of period..... $3,456,000 $4,627,000
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 7
FORM 10-Q
PAGE 6
BRANDON SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
The accompanying condensed consolidated financial statements include
the accounts of Brandon Systems Corporation (the "Company") and its
wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation. The unaudited
condensed consolidated financial statements and notes included herein
have been condensed as permitted under the rules and regulations of
the Securities and Exchange Commission, and therefore do not contain
all disclosures required by generally accepted accounting principles.
These unaudited condensed consolidated financial statements should be
read in conjunction with the Company's audited consolidated financial
statements for the fiscal year ended October 2, 1994.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all the adjustments
(consisting only of normal recurring accruals) necessary to present
fairly the consolidated financial position of the Company as at April
2, 1995 and October 2, 1994, the consolidated results of its
operations for the three months and six months ended April 2, 1995 and
April 3, 1994, and its consolidated cash flows for the six month
periods then ended.
The results of operations for the three months and six months ended
April 2, 1995 and April 3, 1994 are not necessarily indicative of the
results to be expected for the full year.
Net income per share has been computed using the weighted average
number of common and common equivalent shares outstanding during the
periods.
The Company's fiscal year ends on the Sunday nearest to the end of the
month of September. The Company's fiscal year is generally 52 weeks,
but periodically will consist of 53 weeks.
2. INCOME TAXES:
The provision (credit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- --------------------
APRIL 2, APRIL 3, APRIL 2, APRIL 2,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Current:
Federal.......... $800,000 $684,000 $1,430,000 $1,264,000
State and local.. 276,000 241,000 492,000 444,000
-------- -------- ---------- ---------
1,076,000 925,000 1,922,000 1,708,000
--------- -------- ---------- ---------
Deferred:
Federal.......... (51,000) (74,000) 98,000 (79,000)
State and local.. (17,000) (24,000) 34,000 (26,000)
-------- -------- -------- --------
(68,000) (98,000) 132,000 (105,000)
-------- -------- -------- --------
$1,008,000 $827,000 $2,054,000 $1,603,000
========== ======== ========== ==========
</TABLE>
<PAGE> 8
FORM 10-Q
PAGE 7
BRANDON SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The deferred tax provision relates primarily to the reversal of
temporary differences resulting from payroll related costs that became
tax deductible during the six months ended April 2, 1995. The
components of the net deferred tax asset as of April 2, 1995 and
October 2, 1994 were allowance for doubtful receivables, accumulated
depreciation of furniture and equipment, compensated absences,
deferred rent and other liabilities.
Cash paid by the Company for income taxes during the first half of
fiscal 1995 and 1994 was $2,579,000 and $2,138,000, respectively.
3. SHAREHOLDERS' EQUITY:
On December 15, 1994 and March 7, 1995, the Board of Directors
declared cash dividends of $.07 per share. The December 15, 1994
dividend was paid on January 12, 1995, to shareholders of record as of
December 29, 1994, and the March 7, 1995 dividend was paid on April
12, 1995 to shareholders of record as of March 29, 1995.
4. 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. In accordance with
the Statement, prior period financial statements have not been
restated to reflect the change in accounting principle. The effect of
implementing this new pronouncement did not have a significant impact
on the Company's financial statements.
At April 2, 1995, marketable debt securities, which consist of
tax-exempt securities issued by various state agencies and their
political subdivisions, have been categorized as available for sale
and as a result are stated at fair value. Unrealized holding 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.
Gross unrealized holding gains and losses were $7,000 and $41,000,
respectively. There were $16,000 of gross realized gains and $19,000
of gross realized losses during the six months ended April 2, 1995.
For the purpose of determining gross realized gains and losses, the
cost of securities sold is based upon specific identification.
The contractual maturities of debt securities, including accrued
interest, available for sale at April 2, 1995, follows:
<TABLE>
<CAPTION>
(In Thousands) Cost Fair Value
-----------------------------------------------------------------
<S> <C> <C>
Due within one year $ 5,627 $ 5,634
Due after one year through three years 2,742 2,739
Due after three years 3,518 3,480
----------------------
$11,887 $11,853
======================
</TABLE>
<PAGE> 9
FORM 10-Q
PAGE 8
BRANDON SYSTEMS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Revenues, income from operations and net income, set new second
quarter and six month highs.
For the three months ended April 2, 1995 revenues were $20,135,000,
increasing 20.4% from $16,725,000 for the three months ended April 3,
1994. For the six months ended April 2, 1995, revenues reached
$39,259,000, increasing 20.7% from $32,531,000 for the first half of
fiscal 1994. The revenue growth in fiscal 1995 is primarily due to
increases in the volume of services provided by the Company, as
opposed to increases in prices. Systemp(R) Technical Services
revenue, which accounted for approximately 89% of the second quarter
revenue increase, increased by 27.2% to $14,181,000 from $11,146,000
in 1994 and for the comparable six months increased by 27.9% to
$27,536,000 from $21,536,000. These increases are primarily
attributable to a growth in client requirements for technical services
in both established and newer market territories. Brandon
Professional Services revenue was $3,314,000 for the second quarter of
1995 compared to $3,462,000 in 1994 and for the comparable six month
periods was $6,680,000 in 1995 and $6,899,000 in 1994. Brandon
Managed Services(TM) revenues (multi-year outsourcing contracts)
increased by 44.5% to $2,518,000 from $1,743,000 for the comparable
second quarters and for the comparable six months increased by 35.8%
to $4,713,000 from $3,470,000 for the comparable 1994 quarter,
primarily as a result of an increase in client engagements.
Cost of services consists primarily of compensation and related
payroll costs for the Company's technical, professional and managed
services' personnel working on customer engagements. As a percentage
of revenues, costs of services usually increase in the second quarter
of the Company's fiscal year, because that quarter begins a new
calendar year for payroll taxes for its employees working on customer
engagements. Such costs were 61.9% of revenues for the three months
ended April 2, 1995, and 60.3% of revenues for the three months ended
April 3, 1994. The increase in cost of services as a percentage of
revenues in the second quarter of fiscal 1995 primarily relates to the
increase in Brandon Managed Services(TM) revenues (multi-year
outsourcing contracts) which has a higher cost of service percentage
than technical and professional services.
For the six months ended April 2, 1995, cost of services were 61% of
revenues, compared with 59.9% of revenues during the six months ended
April 3, 1994. The increase in cost of services as a percentage of
revenue in the first half of fiscal 1995 also primarily relates to the
aforementioned increase in Brandon Managed Services(TM) business in
fiscal 1995 and also increased cost of providing technical services.
The Company believes that, if it were to realize increased revenue
from Brandon Managed Services(TM), which has a higher cost of services
percentage than technical and professional services revenue, cost of
services as a percentage of revenues may also increase. However, the
Company also believes that income from operations will not be
adversely impacted because of the resulting overall increase in the
volume of business.
<PAGE> 10
FORM 10-Q
PAGE 9
BRANDON SYSTEMS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Selling, general and administrative expenses, as a percentage of
revenues, were 26.7% in the second quarter of fiscal 1995, compared
with 28.1% in the second quarter of fiscal 1994. Such expenses for
the six months ended April 2, 1995 were 27% of revenues compared to
28.5% during the six months ended April 3, 1994. The decrease in
selling, general and administrative expenses as a percentage of
revenues during fiscal 1995 was primarily due to economies of scale
realized from a larger base of revenues.
Selling, general and administrative expenses increased during the
first half of 1995 compared to the similar period of 1994 by
$1,342,000 from $9,260,000 to $10,602,000. Such increase is primarily
attributed to increased commissions, general and administrative
payroll costs and other related expenses associated with the Company's
growth. The Company has embarked on a strategic growth plan and is
expanding its business in existing markets and entering new market
territories. Accordingly, the Company believes that selling, general
and administrative costs will continue to increase as it expects to
incur staffing expenses, market development and recruitment related
costs in connection with its expansion. The Company also believes
that as a result of its expansion selling, general and administrative
expenses as a percentage of revenues may also increase in subsequent
quarters unless and until such time as revenues are sufficient to
absorb the additional expenses incurred. The Company has opened new
offices in Orlando and Tampa, Florida, and plans to open four
additional offices by the end of the fiscal year.
Income from operations increased by 18.5% and 24.7%, respectively, for
the second quarter and first half of fiscal 1995 over the comparable
periods last year. Income from operations increased to $2,298,000
from $1,939,000 during second quarter of fiscal 1995, and as a
percentage of total revenues was 11.4% compared to 11.6% for the
second quarter of fiscal 1994. For the comparable six month periods
income from operations increased to $4,699,000 from $3,769,000, and as
a percentage of total revenues increased to 12% from 11.6%.
The Company's effective income tax rate as a percentage of income
before income taxes was 41% for both the first half of fiscal 1995 and
1994.
Net income for the three months ended April 2, 1995 increased to
$1,451,000 compared to $1,168,000 for the comparable period in fiscal
1994. For the six months ended April 2, 1995, net income increased to
$2,956,000 compared to $2,308,000 for the six months ended April 3,
1994.
<PAGE> 11
FORM 10-Q
PAGE 10
BRANDON SYSTEMS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Working capital at April 2, 1995 was approximately $24.5 million, as
compared with $22.5 million at October 2, 1994. 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 for the foreseeable
future require, 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
long-term debt and believes it has sufficient resources to support its
long-term growth strategies through currently available cash, cash to
be generated from future operations and its ability to obtain
additional financing. The Company invests cash in excess of
immediately foreseeable requirements in interest-bearing marketable
securities, pending its use for operating needs or for acquisitions
should appropriate opportunities arise.
<PAGE> 12
FORM 10-Q
PAGE 11
BRANDON SYSTEMS CORPORATION
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The annual meeting of stockholders of Brandon Systems
Corporation was held on March 7, 1995. All of the matters
voted upon at the meeting were approved and the voting results
were as follows:
1. Three Class of 1998 directors were elected,
Mrs. Domenica Schulz-Scarpulla and Messrs. Ira B.
Brown, and William E. Hess. The number of votes cast
for the nomination of Mrs. Schulz-Scarpulla and Mr.
Brown were 3,951,384 and 17,060 withheld authority.
The number of votes cast for Mr. Hess were 3,963,285
and 5,159 withheld authority. The other directors
whose terms continued after the meeting were Myra
Brown, Kenneth A. DeGhetto, Steven S. Elbaum, Peter
Lordi, Martin M. Pollak, and Charles Y.C. Tse.
2. The appointment of Coopers & Lybrand LLP was ratified
as the independent auditors of the Company for the
fiscal year ending October 1, 1995. The number of
votes cast were: 3,837,553 for, 125,879 against and
5,012 abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits - none
(b) Reports on Form 8-K - none have been filed during the
quarter ended April 2, 1995.
<PAGE> 13
FORM 10-Q
PAGE 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BRANDON SYSTEMS CORPORATION
(Registrant)
DATE: May 3, 1995 /s/ Domenica Schulz-Scarpulla
-----------------------------
Domenica Schulz-Scarpulla
President,
Chief Operating Officer
and Director
(Principal Operating Officer)
DATE: May 3, 1995 /s/ Peter Lordi
--------------------------
Peter Lordi
Senior Vice President-Finance
and Administration, Treasurer
and Director (Principal
Financial Officer)
DATE: May 3, 1995 /s/ Raymond J. Bolan
---------------------------
Raymond J. Bolan
Controller (Principal Accounting
Officer)
