<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
December 31, 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.)
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 February 5, 1996 the registrant had 4,387,818 shares of its
Common Stock, par value $.10, outstanding.
<PAGE> 2
FORM 10-Q
PAGE 1
BRANDON SYSTEMS CORPORATION
- INDEX -
<TABLE>
<CAPTION>
PAGE NO.
--------
<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 6-8
ITEM 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 9-11
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K 12
Signatures 12
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION FORM 10-Q
PAGE 2
BRANDON SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 1,
1995 1995
------------ ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents....................... $ 1,927,000 $ 4,197,000
Marketable securities (Note 2).................. 15,675,000 14,347,000
Accounts receivable, less allowance for
doubtful accounts............................. 13,348,000 12,580,000
Deferred income taxes (Note 3).................. 325,000 476,000
Prepaid expenses and other current assets....... 601,000 632,000
----------- -----------
Total current assets.................... 31,876,000 32,232,000
Furniture and equipment, at cost, less
accumulated depreciation and amortization....... 2,955,000 2,858,000
Other assets...................................... 180,000 227,000
----------- -----------
$35,011,000 $35,317,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accrued expenses and other current
liabilities................................... $ 3,881,000 $4,700,000
Dividend payable (Note 4)....................... 372,000 312,000
Income taxes payable............................ 838,000 127,000
----------- ----------
Total current liabilities.............. 5,091,000 5,139,000
Commitments (Note 5)
Shareholders' equity (Note 4):
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 4,482,249 and
4,460,080 shares, respectively................ 448,000 446,000
Paid-in capital................................. 6,567,000 6,329,000
Unrealized gain on marketable securities, net
of taxes (Note 2)............................. 26,000 22,000
Retained earnings............................... 24,684,000 23,381,000
----------- -----------
31,725,000 30,178,000
Less treasury stock, 100,000 shares at cost 1,805,000
----------- -----------
Total shareholders' equity............ 29,920,000 30,178,000
----------- -----------
$35,011,000 $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
FOR THE THREE MONTHS ENDED
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1995 1995
------------ ----------
<S> <C> <C>
Revenues........................................ $21,840,000 $19,124,000
Cost and expenses:
Cost of services............................... 13,226,000 11,502,000
Selling, general and administrative
expenses.................................... 6,049,000 5,221,000
----------- -----------
Total cost and expenses.................. 19,275,000 16,723,000
----------- -----------
Income from operations.......................... 2,565,000 2,401,000
Other, net (principally interest income)........ 226,000 150,000
----------- -----------
Income before provision for income taxes 2,791,000 2,551,000
Provision for income taxes (Note 3)............. 1,116,000 1,046,000
----------- -----------
Net income.................................. $ 1,675,000 $ 1,505,000
=========== ===========
Net income per common share (Note 1)............ $.37 $.33
==== ====
Weighted average common shares outstanding
(Note 1)...................................... 4,513,788 4,538,974
</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 THREE MONTHS ENDED DECEMBER 31, 1995
<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, $.085
per share
(Note 4) (372,000) (372,000)
Issuance of common
stock in connection
with:
Employee stock
purchase plan 3,026 49,000 49,000
Dividend
reinvestment
and stock
purchase plan 106 2,000 2,000
Stock options
exercised 19,037 2,000 187,000 189,000
Purchase of
treasury stock
(Note 4) (100,000) $(1,805,000) (1,805,000)
Unrealized gain
on marketable
securities
(Note 2) 4,000 4,000
Net income 1,675,000 1,675,000
--------- -------- ---------- ------- ----------- ----------- -----------
Balance,
December 31, 1995 4,382,249 $448,000 $6,567,000 $26,000 $24,684,000 $(1,805,000) $29,920,000
========= ======== ========== ======= =========== ============ ===========
</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 THREE MONTHS ENDED
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1995 1995
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $1,675,000 $1,505,000
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation of furniture and equipment......... 238,000 182,000
Amortization of other assets.................... 1,000 7,000
Deferred income taxes........................... 148,000 200,000
Other........................................... (73,000)
Changes in assets and liabilities:
Accounts receivable........................... (768,000) (121,000)
Prepaid expenses and other current assets 31,000 222,000
Accrued expenses and other current
liabilities................................. (819,000) (690,000)
Income taxes payable.......................... 711,000 317,000
---------- ----------
Net cash provided by operating
activities.............................. 1,217,000 1,549,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment............... (335,000) (401,000)
Purchase of marketable securities................. (1,781,000) (2,180,000)
Proceeds from sales of marketable securities...... 460,000 983,000
Decrease in deposits.............................. 46,000 5,000
---------- ----------
Net cash used for investing activities........ (1,610,000) (1,593,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid.................................... (312,000) (310,000)
Exercise of stock options......................... 189,000 136,000
Issuance of common stock under employee
stock purchase plan............................. 49,000 41,000
Issuance of common stock under dividend
reinvestment and stock purchase plan............ 2,000
Purchase of treasury stock........................ (1,805,000)
---------- ----------
Net cash used for financing activities........ (1,877,000) (133,000)
---------- ----------
Net decrease in cash and cash equivalents........... (2,270,000) (177,000)
Cash and cash equivalents at beginning of period.... 4,197,000 6,268,000
---------- ----------
Cash and cash equivalents at end of period.......... $1,927,000 $6,091,000
========== ==========
</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 1, 1995.
In the opinion of the Company, the accompanying unaudited 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 December 31, 1995 and October 1, 1995, and the consolidated results
of its operations and its cash flows for the three months ended
December 31, 1995 and January 1, 1995.
The results of operations for the three months ended December 31, 1995
and January 1, 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. MARKETABLE SECURITIES:
At December 31, 1995, the net unrealized gains on marketable
securities was $44,000 and are included in shareholders' equity net of
applicable taxes of $18,000. Gross unrealized gains and losses were
$87,000 and $43,000, respectively. There were $3,000 of gross
realized gains and no gross realized losses during the quarter ended
December 31, 1995. 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 December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
Amortized Fair
(In Thousands) Cost Value
--------------------------------------------------------------------
<S> <C> <C>
Due within one year $10,816,000 $10,862,000
Due after one through five years 4,054,000 4,093,000
Due five through ten years 117,000 116,000
Due after ten years 644,000 604,000
---------------------------
$15,631,000 $15,675,000
===========================
</TABLE>
<PAGE> 8
FORM 10-Q
PAGE 7
BRANDON SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. INCOME TAXES:
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, JANUARY 1,
1995 1995
------------ ----------
<S> <C> <C>
Current:
Federal............... $ 726,000 $ 630,000
State and local....... 242,000 216,000
---------- ----------
968,000 846,000
---------- ----------
Deferred:
Federal............... 111,000 149,000
State and local....... 37,000 51,000
---------- ----------
148,000 200,000
---------- ----------
$1,116,000 $1,046,000
========== ==========
</TABLE>
The deferred tax provision relates primarily to the reversal of
temporary differences resulting from payroll related costs that became
tax deductible in this quarter. The components of the net deferred
tax asset as of December 31, 1995 were allowance for doubtful accounts
receivable, accumulated depreciation of furniture and equipment,
accrued salaries and bonuses, compensated absences and deferred rent.
Cash paid by the Company for income taxes during the first quarter of
fiscal 1996 and 1995 was $192,000 and $396,000, respectively.
4. SHAREHOLDERS' EQUITY:
On October 26, 1995, the Company repurchased 100,000 shares of its
common stock for $1,805,000.
On December 13, 1995, the Board of Directors declared a cash dividend
of $.085 per share payable January 12, 1996, to shareholders of record
as of December 26, 1995.
5. 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 extended
on an at-will basis upon mutually agreeable terms. The Agreements
contain provisions for annual base salary, discretionary bonus awards,
severance and 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 approval of the Compensation Committee of the Company's Board
of Directors, provided the amount is not less than the initial amount
specified in the Agreement. In the event employment is not continued
<PAGE> 9
FORM 10-Q
PAGE 8
BRANDON SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 discontinued 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.
6. 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> 10
FORM 10-Q
PAGE 9
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 InsourcingTM 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 InsourcingTM arrangement can include
technical, professional and training services.
The Company's revenues, income from operations and net income, set new record
first quarter highs. Two new offices were opened during the first quarter of
fiscal 1996 and as of December 31, 1995, the Company had 32 offices compared to
26 at January 1, 1995.
Revenues for the three months ended December 31, 1995, were $21,840,000,
representing a 14.2% increase from $19,124,000 for the three months ended
January 1, 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.
Technical Services increased by 12.9% to $15,074,000 from $13,355,000 in 1995,
which is primarily attributable to a growth in client requirements for
Technical Services in established market territories.
Brandon Professional Services revenues decreased by 17.8% to $2,766,000 for the
first quarter of 1996 compared to $3,366,000 in 1995.
Brandon Insourcing(TM) revenues (long-term contractual support), increased by
62.6% to $3,568,000 from $2,194,000 primarily as a result of an increase in the
number of data processing sites serviced by the Company. Brandon InsourcingTM
revenues accounted for 16% of total revenues in the first quarter of 1996
compared to 11% in 1995.
<PAGE> 11
FORM 10-Q
PAGE 10
BRANDON SYSTEMS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 60.6% of revenues for the three months ended December
31, 1995, and 60.1% of revenues for the three months ended January 1, 1995.
The increase in cost of services as a percentage of revenues in the first
quarter of fiscal 1996 primarily relates to the increase in Brandon
InsourcingTM 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 InsourcingTM, 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 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. During the first quarter of
fiscal 1996, the Company opened two new offices in Kansas City and St. Louis,
Missouri. This strategy has required the Company to incur additional expenses
related to staffing, market development and recruitment. As a result, selling,
general and administrative expenses increased during the first quarter of 1996
compared to the first quarter 1995 by $828,000 from $5,221,000 to $6,049,000.
As a percentage of revenues, however, selling, general and administrative
expenses, remained relatively stable at 27.7% of revenues in the first quarter
of fiscal 1996, compared with 27.3% in the first 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.
INCOME FROM OPERATIONS. Income from operations increased by 6.8% for
the first quarter of fiscal 1996 over the comparable period last year. Income
from operations increased to $2,565,000 from $2,401,000 during first quarter of
fiscal 1996, and as a percentage of total revenues was 11.7% compared to 12.6%
in the first quarter of 1995.
OTHER, NET. Other, net which consists primarily of interest income
increased from $150,000 to $226,000 primarily because of higher interest rates
as well as an increase in the Company's portfolio of marketable securities.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate
as a percentage of income before income taxes was 40% for the first quarter of
fiscal 1996 and 41% for the first quarter of fiscal 1995.
NET INCOME. The Company's net income increased to $1,675,000, or 7.7%
of revenues from $1,505,000, or 7.9% of revenues for the comparable first
quarter in fiscal 1995.
<PAGE> 12
FORM 10-Q
PAGE 11
BRANDON SYSTEMS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Working capital was approximately $26.8 million, at December 31, 1995, compared
to $27.1 million at October 1, 1995. 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
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 or
for acquisitions should appropriate opportunities arise. On October 26, 1995,
the Company repurchased 100,000 shares of its common stock for $1,805,000.
<PAGE> 13
FORM 10-Q
PAGE 12
BRANDON SYSTEMS CORPORATION
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibit No. 27 - Financial Data Schedule
(b) Reports on Form 8-K - During the quarter ended December 31,
1995, the registrant filed a Form 8-K dated December 28, 1995
regarding its restated by-laws, as amended.
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: February 13, 1996 /s/ Domenica Schulz-Scarpulla
----------------------------------------------
Domenica Schulz-Scarpulla
President,
Chief Operating Officer
and Director
(Principal Operating Officer)
DATE: February 13, 1996 /s/ Peter Lordi
----------------------------------------------
Peter Lordi
Senior Vice President-Finance &
Administration, Treasurer and
Director (Principal Financial
Officer)
DATE: February 13, 1996 /s/ Raymond J. Bolan
----------------------------------------------
Raymond J. Bolan
Controller (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> DEC-31-1995
<CASH> 1,927
<SECURITIES> 15,675
<RECEIVABLES> 13,348
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 31,876
<PP&E> 6,994
<DEPRECIATION> 4,039
<TOTAL-ASSETS> 35,011
<CURRENT-LIABILITIES> 5,091
<BONDS> 0
0
0
<COMMON> 448
<OTHER-SE> 29,472
<TOTAL-LIABILITY-AND-EQUITY> 35,011
<SALES> 0
<TOTAL-REVENUES> 21,840
<CGS> 13,226
<TOTAL-COSTS> 19,275
<OTHER-EXPENSES> (226)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,791
<INCOME-TAX> 1,116
<INCOME-CONTINUING> 1,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,675
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
<FN>
<F1>For purposes of presenting interim condensed financial information the
allowance amount has been netted against receivables.
</FN>
</TABLE>
