<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
March 31, 1996 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.)
NINE POLITO AVENUE
LYNDHURST, NEW JERSEY 07071
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 842-0700
--------------
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 April 23, 1996 the registrant had 4,399,146 shares of its Common
Stock, par value $.10, outstanding.
<PAGE> 2
FORM 10-Q
PAGE 1
BRANDON SYSTEMS CORPORATION
- INDEX -
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I - FINANCIAL INFORMATION
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 6-9
ITEM 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 10-13
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION FORM 10-Q
PAGE 2
BRANDON SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, OCTOBER 1,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents....................... $ 1,655,000 $ 4,197,000
Marketable securities (Note 3).................. 15,381,000 14,347,000
Accounts receivable, less allowance for
doubtful accounts............................. 15,007,000 12,580,000
Deferred income taxes (Note 4).................. 292,000 476,000
Prepaid expenses and other current assets....... 634,000 632,000
----------- -----------
Total current assets.................... 32,969,000 32,232,000
Furniture and equipment, at cost, less
accumulated depreciation and amortization....... 2,984,000 2,858,000
Other assets...................................... 219,000 227,000
----------- -----------
$36,172,000 $35,317,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accrued expenses and other current
liabilities................................... $ 4,362,000 $4,700,000
Dividend payable (Note 5)....................... 374,000 312,000
Income taxes payable............................ 452,000 127,000
----------- ----------
Total current liabilities.............. 5,188,000 5,139,000
Commitments (Note 6)
Shareholders' equity (Notes 2 and 5):
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 4,497,131 and
4,460,080 shares, respectively................ 450,000 446,000
Paid-in capital................................. 6,755,000 6,329,000
Unrealized gain on marketable securities, net
of taxes (Note 3)............................. 30,000 22,000
Retained earnings............................... 25,554,000 23,381,000
----------- -----------
32,789,000 30,178,000
Less treasury stock, 100,000 shares at cost 1,805,000
----------- -----------
Total shareholders' equity............ 30,984,000 30,178,000
----------- -----------
$36,172,000 $35,317,000
=========== ===========
</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
--------------------- ---------------------
MARCH 31, APRIL 2, MARCH 31, APRIL 2,
1996 1995 1996 1995
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues..................... $22,311,000 $20,135,000 $44,151,000 $39,259,000
----------- ----------- ----------- -----------
Cost of services............. 13,857,000 12,456,000 27,083,000 23,958,000
Selling, general and
administrative expenses.... 6,160,000 5,381,000 12,209,000 10,602,000
Merger expenses (Note 2) 417,000 417,000
Other, net (principally
interest income)......... (157,000) (161,000) (383,000) (311,000)
----------- ----------- ----------- -----------
20,277,000 17,676,000 39,326,000 34,249,000
----------- ----------- ----------- -----------
Income before provision for
income taxes............ 2,034,000 2,459,000 4,825,000 5,010,000
Provision for income taxes
(Note 3)................ 790,000 1,008,000 1,906,000 2,054,000
----------- ----------- ----------- -----------
Net income................. $ 1,244,000 $ 1,451,000 $ 2,919,000 $ 2,956,000
=========== =========== =========== ===========
Net income per primary
and fully diluted common
share (Note 1).............. $.27 $.32 $.65 $.65
==== ==== ==== ====
Weighted average common shares
outstanding (Note 1)....... 4,530,694 4,563,579 4,522,241 4,551,276
</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 MARCH 31, 1996
<TABLE>
<CAPTION>
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,
October 1, 1995 4,460,080 $446,000 $6,329,000 $22,000 $23,381,000 $30,178,000
Cash dividend
declared, $.17
per share
(Note 5) (746,000) (746,000)
Issuance of common
stock in connection
with:
Employee stock
purchase plan 5,442 1,000 107,000 108,000
Dividend
reinvestment
and stock
purchase plan 259 6,000 6,000
Stock options
exercised 31,350 3,000 313,000 316,000
Purchase of
treasury stock
(Note 5) (100,000) $(1,805,000) (1,805,000)
Unrealized gain
on marketable
securities
(Note 3) 8,000 8,000
Net income 2,919,000 2,919,000
--------- -------- ---------- ------- ----------- ----------- ----------
Balance,
March 31, 1996 4,397,131 $450,000 $6,755,000 $30,000 $25,554,000 $(1,805,000) $30,984,000
========= ======== ========== ======= =========== =========== ===========
</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
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
MARCH 31, APRIL 2,
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 2,919,000 $ 2,956,000
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation of furniture and equipment...... 495,000 384,000
Amortization of other assets................. 3,000 13,000
Deferred income taxes........................ 178,000 132,000
Other........................................ (73,000)
Changes in assets and liabilities:
Accounts receivable........................ (2,427,000) (1,561,000)
Prepaid expenses and other current assets.. (2,000) (261,000)
Accrued expenses and other current
liabilities............................. (338,000) (326,000)
Income taxes payable....................... 325,000 (169,000)
----------- -----------
Net cash provided by operating
activities......................... 1,153,000 1,095,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment............ (621,000) (915,000)
Purchase of marketable securities.............. (2,884,000) (7,585,000)
Proceeds from sales of marketable securities... 1,864,000 4,958,000
Decrease in deposits........................... 5,000 4,000
----------- ----------
Net cash used for investing activities...... (1,636,000) (3,538,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid................................. (684,000) (621,000)
Exercise of stock options...................... 316,000 162,000
Issuance of common stock under employee
stock purchase plan......................... 108,000 90,000
Issuance of common stock under dividend
reinvestment and stock purchase plan 6,000
Purchase of treasury stock..................... (1,805,000)
----------- -----------
Net cash used for financing activities..... (2,059,000) (369,000)
Net decrease in cash and cash equivalents........ (2,542,000) (2,812,000)
Cash and cash equivalents at beginning
of period..................................... 4,197,000 6,268,000
----------- -----------
Cash and cash equivalents at end of period....... $ 1,655,000 $ 3,456,000
=========== ===========
</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 are
unaudited and 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 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 condensed consolidated
financial statements should be read in conjunction with the Company's
audited consolidated financial statements for the fiscal year ended
October 1, 1995.
In the opinion of the Company, the accompanying condensed consolidated
financial statements contain all the adjustments (consisting only of
normal and recurring accruals) necessary to present fairly the
consolidated financial position of the Company as at March 31, 1996
and October 1, 1995, and the consolidated results of its operations
for the three months and six months ended March 31, 1996 and April 2,
1995 and its cash flows for the six month periods then ended.
The results of operations for the three months and six months ended
March 31, 1996 and April 2, 1995 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. PENDING MERGER:
On February 27, 1996, the Company and Interim Services Inc. ("Interim
Services") entered into a definitive merger agreement. Under the
terms of the merger agreement, the stockholders of the Company will
receive 0.88 shares of Interim Services common stock in exchange for
each share of the Company's common stock. The merger is expected to
be accounted for as a pooling of interests and qualify as a tax-free
reorganization.
The transaction, which is subject to approval by the stockholders of
both companies, is expected to close in May 1996. Ira B. Brown, the
Company's chairman and CEO, and his wife, Myra Brown, who hold
approximately 26% of the outstanding stock of the Company, have
granted a proxy to the designees of Interim Services to vote in favor
of the merger.
Interim Services is a leading provider of customized staffing
solutions including flexible staffing, home health care, full-time
placement, consulting and other value-added services on a national
basis to businesses, professional and service organizations,
governmental agencies, health care facilities and individuals.
Interim Services reported revenues of $781 million and net income of
$17.5 million (net income per share of $1.50) for its fiscal year
ended
<PAGE> 8
FORM 10-Q
PAGE 7
BRANDON SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 29, 1995. Interim Services common stock is traded on the
Nasdaq stock market under the symbol "INTM".
The results of operations of the Company for the three months and six
months ended March 31, 1996 include pre-tax merger expenses of
$417,000 (approximately $255,000 or $.06 per share after tax) related
to this transaction.
3. MARKETABLE SECURITIES:
At March 31, 1996, the net unrealized gains on marketable securities
was $51,000 and are included in shareholders' equity net of applicable
taxes of $21,000. Gross unrealized gains and losses were $59,000 and
$8,000, respectively. There were $11,000 of gross realized gains and
$40,000 of gross realized losses during the six months ended March 31,
1996. For the purpose of determining gross realized gains and losses,
the amortized cost of securities sold is based upon specific
identification.
The contractual maturities of available for sale marketable debt
securities, including accrued interest, at March 31, 1996, are as
follows:
<TABLE>
<CAPTION>
Amortized Fair
(In Thousands) Cost Value
--------------------------------------------------------------------
<S> <C> <C>
Due within one year $12,322,000 $12,359,000
Due after one through five years 2,843,000 2,861,000
Due five through ten years 10,000 10,000
Due after ten years 155,000 151,000
---------------------------
$15,330,000 $15,381,000
===========================
</TABLE>
4. INCOME TAXES:
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
MARCH 31, APRIL 2, MARCH 31, APRIL 2,
1996 1995 1996 1995
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current:
Federal............... $565,000 $ 800,000 $1,291,000 $1,430,000
State and local....... 195,000 276,000 437,000 492,000
-------- ---------- ---------- ----------
760,000 1,076,000 1,728,000 1,922,000
-------- ---------- ---------- ----------
Deferred:
Federal............... 21,000 (51,000) 132,000 98,000
State and local....... 9,000 (17,000) 46,000 34,000
-------- ---------- ---------- ----------
30,000 (68,000) 178,000 132,000
-------- ---------- ---------- ----------
$790,000 $1,008,000 $1,906,000 $2,054,000
======== ========== ========== ==========
</TABLE>
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 March 31, 1996. The
components of the net deferred tax asset as of March 31, 1996 were
allowance for doubtful accounts receivable, accumulated depreciation
of furniture and equipment, compensated absences and deferred rent.
Cash paid by the Company for income taxes during the first half of
fiscal 1996 and 1995 was $1,337,000 and $2,579,000, respectively.
<PAGE> 9
FORM 10-Q
PAGE 8
BRANDON SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. SHAREHOLDERS' EQUITY:
On October 26, 1995, the Company repurchased 100,000 shares of its
common stock for $1,805,000.
On December 13, 1995 and March 12, 1996, the Board of Directors
declared cash dividends of $.085 per share. The December 13, 1995
dividend was paid on January 12, 1996, to shareholders of record as of
December 26, 1995, and the March 12, 1996 dividend was paid on April
12, 1996 to shareholders of record as of March 29, 1996.
In view of the merger described in Note 2, no further dividends will
be paid by the Company.
6. COMMITMENTS:
In January, 1996 the Company entered into employment agreements (the
"Agreements") with its President and five of its other executive
officers which provide for continued employment through December 1998.
The Agreements can be extended by either mutual agreement or on an
at-will basis upon mutually agreeable terms. The Agreements contain
provisions for annual base salary, discretionary bonus awards,
severance and, under specified conditions, change in control payments.
In addition, the Agreements contain non-compete provisions extending
for three years beyond the term of the Agreements.
The base salary for each individual is subject to increase or decrease
at the discretion of the Compensation Committee of the Company's Board
of Directors, provided the amount is not less than the initial base
salary specified in the Agreements. In the event employment is not
continued following the expiration of the term of the Agreements,
severance will commence, payable in quarterly installments over two to
three years, ranging in amounts from one to two times the individual's
annual base salary plus the average cash bonus received during the
preceding two years. The President's contract also provides for
reduced payments for two years in the event of disability.
In the event employment is terminated or the executive resigns under
specified conditions within a period of 24 months following a change
in control, the individuals are entitled to receive compensation equal
to three times their most recent annual base salary plus the average
cash bonus received during the preceding two years, subject to
reduction if excise taxes are imposed.
The aggregate minimum commitment for future salaries, excluding
bonuses, under the Agreements through December 1998 is $2,565,000.
The Agreements will not be terminated by virtue of the pending merger
described in Note 2. The merger, however, will constitute a change in
control event under the terms of the Agreements. If payments were
required to be made as of July 1, 1996 under the change in control
provisions of the Agreements the estimated aggregate amount of such
payments, taking into account certain reductions for excise taxes,
would be approximately $2,873,000.
<PAGE> 10
FORM 10-Q
PAGE 9
BRANDON SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Upon consummation of the pending merger with Interim Services, an
amendment to Mr. Brown's employment agreement provides that he will
retire as Chairman and that he will thereafter receive no compensation
per the employment agreement but will retain certain medical benefits
and registration rights.
7. STOCK-BASED COMPENSATION:
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation". The Statement
allows companies to measure compensation cost in connection with
employee stock compensation plans using a fair value based method or
to continue to use an intrinsic value based method, which generally
does not result in compensation cost. The Company currently plans to
continue using the intrinsic value based method.
<PAGE> 11
FORM 10-Q
PAGE 10
BRANDON SYSTEMS CORPORATION
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, 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 and training services.
PENDING MERGER
On February 27, 1996 the Company entered into a definitive merger agreement
with Interim Services Inc. ("Interim Services"). See Note 2 of Notes to
Condensed Consolidated Financial Statements. The operating results for the
three months and six months ended March 31, 1996 include pre-tax merger
expenses of $417,000, which after taxes were approximately $255,000, or $.06
per share. During the second quarter of 1996, the Company's executive officers
and management team were involved in matters related to the merger which
included reviewing and planning for cross-selling and other opportunities which
will exist for the combined companies. Accordingly, as a result of the merger
the Company's strategic growth plan may be modified to maximize the combined
revenues and operating results of both companies.
SECOND QUARTER FISCAL 1996 COMPARED TO SECOND QUARTER FISCAL 1995
REVENUES. The Company's revenues for the second quarter of 1996 were
a new record high. Revenues for the three months ended March 31, 1996, were
$22,311,000, representing a 10.8% increase from $20,135,000 for the three
months ended April 2, 1995. The revenue increase in fiscal 1996 is primarily
due to increases in the volume of services provided by the Company, as opposed
to increases in prices. The Company believes that the adverse winter weather
conditions which impacted its entire industry, significantly affected the
Company's revenues for the second quarter of 1996 due to its concentration of
business in the Northeast and Midwest. The Company also believes its revenues
were adversely impacted by the necessary diversion of management resources to
the proposed merger with Interim Services.
Technical Services revenues increased by 10.4% to $15,654,000 from $14,181,000
in 1995, which is primarily attributable to a growth in client requirements for
Technical Services in established market territories. Technical Services
<PAGE> 12
FORM 10-Q
PAGE 11
BRANDON SYSTEMS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
revenues accounted for 70% of total revenues in both the second quarter of 1996
and 1995.
Brandon Professional Services revenues decreased by 24.7% to $2,494,000 for the
second quarter of 1996 compared to $3,314,000 in 1995. Brandon Professional
Services accounted for 11% of total revenues in the second quarter of 1996
compared to 16% in 1995. The decline in Professional Services is attributed to
a decrease in billable hours in fiscal 1996.
Brandon Insourcing(TM) revenues (long-term contractual support), increased by
47.5% to $3,713,000 from $2,518,000 primarily as a result of an increase in the
number of data processing sites serviced by the Company. Brandon
Insourcing(TM) revenues accounted for 17% of total revenues in the second
quarter of 1996 compared to 13% in 1995.
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, 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 62.1% of revenues for the three months ended March 31, 1996, and 61.9% of
revenues for the three months ended April 2, 1995. The increase in cost of
services as a percentage of revenues in the second quarter of fiscal 1996
primarily relates to the increase in Brandon Insourcing(TM) revenues (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 will also continue
to increase. However, the Company believes income from operations will not be
adversely impacted because of the resulting overall increase in revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company has
continued with its strategic growth plan to expand its business in existing
markets and entering new market territories. It is likely that its plan may be
modified as a result of the pending merger so as to maximize the combined
resources of both companies. During the first half of fiscal 1996, the Company
opened two new offices in Kansas City and St. Louis, Missouri and has also been
expanding its business in existing market territories which resulted in the
Company incurring additional expenses related to staffing, market development
and recruitment. Selling, general and administrative expenses increased
$779,000 in the second quarter of 1996 compared to the second quarter 1995,
primarily as a result of the continued expansion of its business, however, such
expenses were partially offset by cost reductions implemented by the Company
during the quarter. As a percentage of revenues, selling, general and
administrative expenses were 27.6% of revenues in the second quarter of fiscal
1996, compared with 26.7% in the second quarter of fiscal 1995. 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 subsequent quarters
unless and until such time as revenues are sufficient to absorb the additional
expenses incurred.
<PAGE> 13
FORM 10-Q
PAGE 12
BRANDON SYSTEMS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OTHER, NET. Other, net which consists primarily of interest income
was $157,000 in the second quarter of 1996 compared to $161,000 for the second
quarter of 1995. The decrease in the second quarter of 1996 is primarily
attributed to approximately $32,000 of net realized losses from the sale of
marketable securities.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate
as a percentage of income before income taxes was 38.8% for the second quarter
of fiscal 1996 and 41.0% for the second quarter of fiscal 1995.
NET INCOME. The Company's net income, excluding merger expenses of
$417,000 (approximately $255,000, or $.06 per share after taxes) was
$1,500,000, or $.33 per share, compared to $1,451,000 or $.32 per share for the
second quarter in fiscal 1995. Including the merger expenses net income for
the second quarter of 1996 was $1,244,000, or $.27 per share.
FIRST SIX MONTHS FISCAL 1996 COMPARED TO FIRST SIX MONTHS FISCAL 1995
REVENUES. Revenues for the six months ended March 31, 1996 were
$44,151,000 compared to $39,259,000 for the comparable first six months of
fiscal 1995. The revenue growth in fiscal 1996 is primarily due to increases
in volume of services provided by the Company, as opposed to increases in
prices.
Technical Services revenues for the comparable six months increased
11.6% to $30,728,000 from $27,536,000. Such increase is primarily attributable
to a growth in client requirements for Technical Services in established market
territories. Technical Services revenues accounted for 70% of total revenues
in the first half of both fiscal 1996 and 1995.
Brandon Professional Services revenues for the comparable six month
periods was $5,260,000 in 1996 and $6,680,000 in 1995 and represented 12% and
17% of total revenues, respectively. The decline in Professional Services is
attributed to a decrease in billable hours in fiscal 1996.
Brandon Insourcing(TM) revenues (long-term contractual support), for
the comparable six months increased by 54.5% to $7,281,000 from $4,713,000 in
1995, primarily as a result of an increase in the number of data processing
sites serviced by the Company. Brandon Insourcing(TM) business represented 16%
of total revenues in fiscal 1996 compared to 12% in fiscal 1995.
COST OF SERVICES. Cost of services were 61.3% of revenues for the six
months ended March 31, 1996, compared with 61.0% of revenues during the six
months ended April 2, 1995. The slight increase in cost of services as a
percentage of revenue in the first six months of fiscal 1996 primarily relates
to the change in the mix of the Company's business. Brandon Insourcing(TM)
(long-term contractual support) business typically has a higher cost of service
percent compared to the Company's other service offerings.
<PAGE> 14
FORM 10-Q
PAGE 13
BRANDON SYSTEMS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased during the first six months of 1996 compared
to the similar period of 1995 by $1,607,000, from $10,602,000 to $12,209,000.
Such increase is primarily attributed to increased commissions, general and
administrative payroll costs and other related expenses associated with the
Company's growth which was partially offset by cost reductions implemented in
the second quarter. Selling, general and administrative expenses for the six
months ended March 31, 1996 were 27.7% of revenues compared to 27.0% during the
six months ended April 2, 1995.
OTHER, NET. Other, net which consists primarily of interest income
increased to $383,000 from $311,000 primarily because of higher interest rates
as well as an increase in the Company's portfolio of marketable securities.
PROVISIONS FOR INCOME TAXES. The Company's effective tax rate was
39.5% in fiscal 1996, compared to an effective tax rate of 41% in fiscal 1995.
NET INCOME. Net income for the six months ended March 31, 1996,
excluding merger expenses of $417,000 (approximately $255,000, or $.06 per
share after taxes) was $3,171,000, or $.70 per share as compared to $2,956,000,
or $.65 per share for the six months ended April 2, 1995. Including the merger
expenses net income for the six month period was $2,919,000, or $.65 per share.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was approximately $27.8 million at March 31, 1996, compared to
$27.1 million at October 1, 1995. The Company 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 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 in
interest-bearing marketable securities, pending its use for operating needs.
<PAGE> 15
FORM 10-Q
PAGE 14
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 12, 1996. All of the matters voted upon at the
meeting were approved and the voting results were as follows:
1. Three Class of 1999 directors were elected, Messrs. Kenneth A.
DeGhetto, Steven S. Elbaum and Peter Lordi. The number of
votes cast for Mr. DeGhetto were 3,788,626 and 128,748
withheld authority. The number of votes cast for Mr. Elbaum
were 3,788,856 and 128,518 withheld authority. The number of
votes cast for Mr. Lordi were 3,789,326 and 128,048 withheld
authority. The other directors whose terms continued after
the meeting were Ira B. Brown, Myra Brown, William E. Hess,
Martin M. Pollak, Domenica Schulz-Scarpulla, 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
September 29, 1996. The number of votes cast were: 3,784,199
for, 126,098 against and 7,077 abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits - Exhibit No. 27 - Financial Data Schedule
(b) Reports on Form 8-K - none have been filed during the quarter
ended March 31, 1996.
<PAGE> 16
FORM 10-Q
PAGE 15
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 7, 1996 /s/ Domenica Schulz-Scarpulla
------------------------------
Domenica Schulz-Scarpulla
President,
Chief Operating Officer
and Director
(Principal Operating Officer)
DATE: May 7, 1996 /s/ Peter Lordi
------------------------------
Peter Lordi
Senior Vice President-Finance
and Administration, Treasurer
and Director (Principal
Financial Officer)
DATE: May 7, 1996 /s/ Raymond J. Bolan
------------------------------
Raymond J. Bolan
Controller and Assistant
Treasurer (Principal Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> MAR-31-1996
<CASH> 1,655
<SECURITIES> 15,381
<RECEIVABLES> 15,007
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 32,969
<PP&E> 7,121
<DEPRECIATION> 4,137
<TOTAL-ASSETS> 36,172
<CURRENT-LIABILITIES> 5,188
<BONDS> 0
0
0
<COMMON> 450
<OTHER-SE> 30,534
<TOTAL-LIABILITY-AND-EQUITY> 36,172
<SALES> 0
<TOTAL-REVENUES> 22,311
<CGS> 13,857
<TOTAL-COSTS> 20,017
<OTHER-EXPENSES> 260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,034
<INCOME-TAX> 790
<INCOME-CONTINUING> 1,244
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,244
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
<FN>
<F1>FOR PURPOSES OF PRESENTING INTERIM CONDENSED FINANCIAL INFORMATION THE ALLOWANCE
AMOUNT HAS BEEN NETTED AGAINST RECEIVABLES.
</FN>
</TABLE>
