<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended May 31, 1995 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______.
COMMISSION FILE NUMBER 1-8996
SANDY CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
MICHIGAN 38-1953934
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 West Big Beaver Road, Troy, Michigan 48084
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (810) 649-0800
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 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 [ ]
The registrant had 2,273,392 shares of Common Stock (par value $0.01)
outstanding as of June 26, 1995.
<PAGE> 2
INDEX
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PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Earnings 3-4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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SANDY CORPORATION
CONSOLIDATED BALANCE SHEETS
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MAY 31 AUGUST 31
--------------------------------------- ---------------
ASSETS 1995 1994 1994
---------------- ---------------- ---------------
(UNAUDITED) (UNAUDITED) (1)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 7,336,046 $ 7,138,566 $ 5,144,490
Accounts receivable:
Billed 7,156,900 5,542,793 7,225,683
Unbilled 4,828,377 4,898,784 5,011,922
Inventories 560,723 830,758 787,204
Other current assets 182,878 342,635 610,116
Deferred taxes on income 387,000 236,000 492,000
--------------- --------------- --------------
TOTAL CURRENT ASSETS 20,451,924 18,989,536 19,271,415
OTHER ASSETS 279,232 246,713 228,553
LEASEHOLD IMPROVEMENTS, EQUIPMENT,
FURNITURE & FIXTURES 5,155,875 5,322,067 5,139,625
Less accumulated depreciation and amortization (4,480,578) (4,319,154) (4,298,060)
--------------- --------------- --------------
675,297 1,002,913 841,565
--------------- --------------- --------------
TOTAL ASSETS $ 21,406,453 $ 20,239,162 $ 20,341,533
=============== =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,905,007 $ 3,576,574 $ 3,195,628
Accrued compensation 1,174,314 885,414 1,655,378
Advanced billings to customers 3,192,163 3,871,252 3,370,826
Other current liabilities 840,146 636,623 809,140
Income taxes payable 211,939 72,650 122,210
--------------- --------------- --------------
TOTAL CURRENT LIABILITIES 9,323,569 9,042,513 9,153,182
OTHER LIABILITIES 81,589 654,718 29,510
DEFERRED TAXES ON INCOME 139,000 0 194,000
--------------- --------------- --------------
TOTAL LIABILITIES 9,544,158 9,697,231 9,376,692
STOCKHOLDERS' EQUITY
Common stock par value $.01, authorized 8,000,000
shares; issued and outstanding 2,273,392 shares at
May 31, 1995 and August 31, 1994 and 2,277,192
shares at May 31, 1994 22,734 22,772 22,734
Additional paid-in capital 8,924,852 8,948,082 8,924,852
Retained earnings 2,914,709 1,571,077 2,017,255
--------------- --------------- --------------
TOTAL STOCKHOLDERS' EQUITY 11,862,295 10,541,931 10,964,841
--------------- --------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,406,453 $ 20,239,162 $ 20,341,533
=============== =============== ==============
</TABLE>
(1) The balance sheet at August 31, 1994 has been excerpted from the audited
financial statements at that date and condensed.
2
<PAGE> 4
SANDY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED
---------------------------------------
MAY 31, 1995 MAY 31, 1994
-------------- --------------
<S> <C> <C>
Revenue:
Services $ 11,194,171 $ 9,113,667
Products 2,443,260 2,447,100
------------ ------------
13,637,431 11,560,767
------------ ------------
Costs and Expenses:
Cost of Services 8,576,021 6,948,764
Cost of Products 2,087,359 2,225,852
Account Service Expense 1,217,916 808,356
General and Administrative 892,970 885,445
------------ ------------
12,774,266 10,868,417
------------ ------------
OPERATING INCOME 863,165 692,350
Other Income (Expense):
Interest Income 74,057 34,506
Other Expense (365,713) 0
------------ ------------
(291,656) 34,506
------------ ------------
Income before income taxes 571,509 726,856
Income Taxes 299,000 238,000
------------ ------------
NET INCOME $ 272,509 $ 488,856
============ ============
Per share data:
Net Income per share $ 0.12 $ 0.21
============ ============
Dividends declared per share $ 0.04 $ 0.03
============ ============
Weighted average common and
common equivalent shares outstanding 2,368,798 2,351,317
============ ============
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3
<PAGE> 5
SANDY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
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<CAPTION>
NINE MONTHS ENDED
--------------------------------------
MAY 31, 1995 MAY 31, 1994
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<S> <C> <C>
Revenue:
Services $ 31,114,090 $ 23,924,077
Products 6,896,777 7,184,676
------------ ------------
38,010,867 31,108,753
------------ ------------
Costs and Expenses:
Cost of Services 23,570,947 18,023,389
Cost of Products 6,028,800 6,488,483
Account Service Expense 3,506,432 2,430,076
General and Administrative 2,769,690 2,548,361
------------ ------------
35,875,869 29,490,309
------------ ------------
OPERATING INCOME 2,134,998 1,618,444
Other Income (Expense):
Interest Income 167,976 98,009
Other Expense (365,713) 0
------------ ------------
(197,737) 98,009
------------ ------------
Income before income taxes 1,937,261 1,716,453
Income Taxes 767,000 579,000
------------ ------------
NET INCOME $ 1,170,261 $ 1,137,453
============ ============
Per share data:
Net Income per share $ 0.50 $ 0.49
============ ============
Dividends declared per share $ 0.12 $ 0.09
============ ============
Weighted average common and
common equivalent shares outstanding 2,357,903 2,344,175
============ ============
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4
<PAGE> 6
SANDY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
NINE MONTHS ENDED
---------------------------------
MAY 31, 1995 MAY 31, 1994
------------ ------------
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OPERATING ACTIVITIES:
Net income $ 1,170,261 $ 1,137,453
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 182,518 233,613
Deferred income taxes 50,000 (61,000)
Reserve for pension (583,782) 89,518
Changes in operating assets
and liabilities:
(Increase) decrease in accounts receivable 252,328 (1,644,233)
Decrease in inventories 226,481 663,029
Decrease in other assets 427,238 104,421
Increase in long-term assets (50,679) (22,713)
Increase in accounts
payable and accrued expenses 843,103 287,637
Increase (decrease) in income taxes payable 89,729 (39,569)
Increase (decrease) in advanced
billings to customers (178,663) 642,435
Increase in long-term liabilities 52,079 0
------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,480,613 1,390,591
------------- -------------
INVESTING ACTIVITIES:
Term loan agreement 0 (200,000)
Capital expenditures (16,250) (35,178)
------------- -------------
NET CASH USED IN
INVESTING ACTIVITIES (16,250) (235,178)
------------- -------------
FINANCING ACTIVITIES:
Dividends paid (272,807) (204,973)
Repurchase of common stock 0 (5,391)
------------- -------------
NET CASH USED IN
FINANCING ACTIVITIES (272,807) (210,364)
------------- -------------
NET INCREASE IN CASH 2,191,556 945,049
CASH AT BEGINNING OF PERIOD 5,144,490 6,193,517
------------- -------------
CASH AT END OF PERIOD $ 7,336,046 $ 7,138,566
============= =============
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5
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SANDY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Consolidated Balance Sheets as of May 31, 1995 and May 31, 1994, and the
Consolidated Statements of Earnings for the three and nine month periods ended
May 31, 1995 and 1994, and the Consolidated Statements of Cash Flows for the
nine month periods ended May 31, 1995 and May 31, 1994, have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments necessary to present fairly the financial position at May 31, 1995,
and the results of operations and cash flows for the periods presented have
been made. All such adjustments are of a normal recurring nature. The results
of operations for the three and nine month periods ended May 31, 1995 are not
necessarily indicative of the operating results for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's 1994 annual report on Form 10-K.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FISCAL 1995 THIRD QUARTER COMPARED TO FISCAL 1994
Services revenue for the third quarter of fiscal 1995 was $11,194,000, a 22.8%
increase from the $9,114,000 in the same quarter of fiscal 1994. The services
revenue increase was primarily due to increases in seminar-based retail
training, customer care systems training, and management process improvement
principles training for an expanded automotive client base. The Company
believes this increase is due in part to the intensified recognition by new and
existing automotive clients of the strategic importance of customer
satisfaction, process improvement, and the need for competitive advantage.
Products revenue of $2,443,000 for the third quarter of fiscal 1995 was
approximately the same as the $2,447,000 in the third quarter of fiscal 1994.
Products revenue in the third quarter of fiscal 1995 was affected by an
increase in units shipped caused by increased vehicle production at one of the
Company's automotive clients; offset by a reduction in the average price per
unit as a result of the Company entering into a long-term agreement.
The Company's backlog of orders as of May 31, 1995 was $45,175,000 compared to
$40,416,000 at May 31, 1994. Of the $45,175,000 in backlog at May 31, 1995,
approximately $31,486,000 represents the amount that is expected to be
recognized in revenue over the next twelve months. At May 31, 1994,
approximately $25,637,000 of the $40,416,000 in backlog was expected to be
recognized in revenue within twelve months.
The Cost of Services as a percent of services revenue for the third quarter of
fiscal 1995 was 76.6%, which is comparable to the third quarter of fiscal 1994
percent of 76.2%.
The Cost of Products as a percent of products revenue decreased for the third
quarter of fiscal 1995 to 85.4% from 91.0% for the same period in fiscal 1994.
The principal reason for this decrease was production efficiencies realized in
the current period and first year program development costs incurred in the
prior year; partially offset by a reduction in the average price per unit sold.
Account Service Expense increased in the third quarter of fiscal 1995 by
approximately $410,000 or 50.7% to $1,218,000 compared to $808,000 for the same
quarter in fiscal 1994. This increase is primarily due to increased payroll
and related expenses for new staff required to support higher revenue volume.
General and Administrative expenses remained approximately the same in the
third quarter of fiscal 1995, $893,000, as compared to $885,000 for the
comparable quarter of fiscal 1994.
Total Account Service Expense and General and Administrative expense as a
percent of total revenue increased slightly in the third quarter of fiscal 1995
to 15.5% as compared to 14.7% for the same period in fiscal 1994.
7
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FISCAL 1995 THIRD QUARTER COMPARED TO FISCAL 1994 - CONTINUED
Interest Income, predominately from tax-exempt investments, increased in the
third quarter of fiscal 1995 to approximately $74,000 from $35,000 for the same
quarter in fiscal 1994. The increase was due to a higher average investment
balance and higher short-term interest rates in the current period.
Other Expense of approximately $366,000 in the third quarter of fiscal 1995
represents expenses incurred for the evaluation of merger proposals from
Automatic Data Processing, Inc. (NYSE:AUD) and Westcott Communications, Inc.
(NASDAQ:WCTV). Evaluation of the merger proposals is ongoing by the Company.
The Company expects to incur a comparable amount of merger related expenses in
the fourth quarter of fiscal 1995.
Income taxes increased $61,000 in the third quarter of fiscal 1995 to $299,000
from $238,000 in the third quarter of fiscal 1994. The increase is due to
higher income before merger related expenses and taxes in the current period.
In addition, no tax benefit was recorded on merger related expenses.
FIRST NINE MONTHS OF FISCAL 1995 COMPARED TO FIRST NINE MONTHS OF FISCAL 1994
Services revenue for the first nine months of fiscal 1995 was $31,114,000
compared to $23,924,000 for the same period in fiscal 1994, a $7,190,000 or
30.1% increase. The services revenue increase was primarily due to increases
in customer care systems training, retail consulting services, and
seminar-based retail training for an expanded automotive client base. The
Company believes the increase in these services is due in part to the
competitive nature of the automotive industry and the continued emphasis
clients have placed on customer satisfaction and process improvement to achieve
competitive advantage.
Products revenue for the first nine months of fiscal 1995 was $6,897,000
compared to $7,185,000 for the same period in fiscal 1994, a $288,000 or 4.0%
decrease. The products revenue decrease was primarily due to a reduction in
the average price per unit as part of a long-term agreement.
The Cost of Services as a percent of services revenue was approximately the
same for the first nine months of fiscal 1995, 75.8%, compared to 75.3% for the
first nine months of fiscal 1994.
The Cost of Products as a percent of products revenue decreased for the first
nine months of fiscal 1995 to 87.4% from 90.3% for the same period in fiscal
1994. The principal reason for this decrease was production efficiencies
realized in the current period and first year program development costs
incurred in the prior year.
Account Service Expense increased for the first nine months of fiscal 1995 by
approximately $1,076,000 or 44.3% to $3,506,000 compared to $2,430,000 for the
same period in fiscal 1994. This increase was primarily due to increased
payroll and related expenses for new staff required to support higher revenue
volume and increased proposal activity.
8
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FIRST NINE MONTHS OF FISCAL 1995 COMPARED TO FIRST NINE MONTHS OF FISCAL 1994 -
CONTINUED
General and Administrative expenses for the first nine months of fiscal 1995
increased approximately $222,000 or 8.7% to $2,770,000 from $2,548,000 in the
comparable period in fiscal 1994. The increase is primarily attributable to
additional expenses to develop client-based information systems, enhance
internal processes and capabilities, and for outside consulting services.
Total Account Service Expense and General and Administrative expense as a
percent of total revenue was approximately the same for the first nine months
of fiscal 1995, 16.5%, as the first nine months of fiscal 1994, 16.0%.
Interest Income, predominately from tax-exempt investments, was $168,000 for
the first nine months of fiscal 1995 compared to $98,000 for the same period in
fiscal 1994. This increase is due to the Company's improved cash position and
higher short-term interest rates.
Other Expense of approximately $366,000 in the first nine months of fiscal 1995
represents expenses incurred for the evaluation of merger proposals from
Automatic Data Processing, Inc. (NYSE:AUD) and Westcott Communications, Inc.
(NASDAQ:WCTV). Evaluation of the merger proposals is ongoing by the Company.
The Company expects to incur a comparable amount of merger related expenses in
the fourth quarter of fiscal 1995.
Income taxes increased $188,000 in the first nine months of fiscal 1995 to
$767,000 from $579,000 in fiscal 1994. The increase is due to higher income
before merger related expenses and taxes in the first nine months of fiscal
1995 and no tax benefit recorded for merger related expenses.
9
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LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1995, the Company had working capital of approximately $11,128,000,
which included a cash balance of $7,336,000. The Company's primary need for
cash is to support its ongoing operating activities. The Company's primary
sources of liquidity are cash provided from operations and a $7,500,000
unsecured line of credit arrangement at Comerica Bank. Under the line of
credit arrangement which expires on September 1, 1995, and is expected to be
renewed, Company borrowings bear interest at .25% over the prime rate. At May
31, 1995, the Company had no balance outstanding under its line of credit. The
Company believes that such sources are adequate to meet its cash and working
capital needs.
During the first nine months of fiscal 1995, the Company had a net increase in
cash of approximately $2,192,000. Cash provided by operating activities
amounted to $2,481,000, due primarily to improved cash collections on the
Company s higher revenue base and an increase in accounts payable and accrued
expenses; partially offset by the funding of a retirement benefit. Cash used
for capital expenditures totaled $16,000, and cash used for dividend payments
amounted to $273,000.
10
<PAGE> 12
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
10(a) Second Amendment to Amended and Restated Revolving
Credit Loan Agreement, dated May 4, 1995, by and
between Sandy Corporation and Comerica Bank.
27 Financial Data Schedule for the Quarter Ended May
31, 1995.
(b) REPORTS ON FORM 8-K:
No report on Form 8-K was filed during the quarter for which
this Quarterly Report on Form 10-Q is filed.
11
<PAGE> 13
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.
Sandy Corporation
(Registrant)
DATE: July 12, 1995 By:/s/WILLIAM H. SANDY
------------- ------------------------
William H. Sandy
Chairman of the Board and
Chief Executive Officer
By:/s/RAYMOND A. KETCHLEDGE
------------------------
Raymond A. Ketchledge
President and
Chief Operating Officer
By:/s/JOHN G. ZIMMERMAN
------------------------
John G. Zimmerman
Group Vice President and
Chief Financial Officer
12
<PAGE> 14
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10(a) Second Amendment to Amended and Restated Revolving Credit Loan
Agreement, dated May 4, 1995, by and between Sandy Corporation and
Comerica Bank.
27 Financial Data Schedule for the Quarter Ended May 31, 1995.
<PAGE> 1
EXHIBIT 10(a)
SECOND AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT
This SECOND AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT LOAN
AGREEMENT ("Amendment") is made this 4th day of May, 1995 by and between Sandy
Corporation, A Michigan Corporation, ("Borrower") and Comerica ("Bank").
WITNESSETH
WHEREAS, on June 23, 1993, the Borrower and the Bank entered into a
certain Amended and Restated Revolving Credit Loan Agreement (the "Agreement");
and
WHEREAS, on August 30, 1994, the Borrower and the Bank entered into a
certain FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (the
"First Amendment"); and
WHEREAS, the Borrower and the Bank desire to further amend the Agreement
as set forth below;
NOW, THEREFORE, in consideration of and reliance upon the foregoing
recitals of fact and the agreements between the parties hereinafter set forth,
Borrower and Bank hereby agree to amend the Agreement as follows:
SECTION 1. Section 7.11 of the Agreement is amended to read in its
entirety as follows:
7.11 Acquire Fixed Assets. Acquire or expend for, or commit itself to
acquire or expend for fixed assets by lease, purchase or otherwise in an
aggregate amount that exceeds One Million ($1,000,000) in any fiscal year.
SECTION 2. Each and every one of the premises, representations,
warranties, terms, covenants and undertakings in the Agreement, except as
expressly set forth above, shall remain in full force and effect to the same
extent as if restated word for word herein.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amendment
to be executed in their respective names and on their behalf by their duly
authorized officers as of the date and year first above written.
SANDY CORPORATION COMERICA BANK
A Michigan Corporation A Michigan Corporation
By: /s/ John G. Zimmerman By: /s/ Michael P. Stapleton
------------------------- ---------------------------
John G. Zimmerman Michael P. Stapleton
Its: Chief Financial Officer Its: Vice President
Dated: 5/4/95 Dated: 5/4/95
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SANDY
CORPORATION'S UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED MAY 31,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000778107
<NAME> SANDY CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> MAY-31-1995
<EXCHANGE-RATE> 1
<CASH> 7,336
<SECURITIES> 0
<RECEIVABLES> 7,157
<ALLOWANCES> 0
<INVENTORY> 561
<CURRENT-ASSETS> 20,452
<PP&E> 5,156
<DEPRECIATION> 4,481
<TOTAL-ASSETS> 21,406
<CURRENT-LIABILITIES> 9,324
<BONDS> 0
<COMMON> 23
0
0
<OTHER-SE> 11,840
<TOTAL-LIABILITY-AND-EQUITY> 21,406
<SALES> 6,897
<TOTAL-REVENUES> 38,011
<CGS> 6,029
<TOTAL-COSTS> 29,600
<OTHER-EXPENSES> 6,642
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,937
<INCOME-TAX> 767
<INCOME-CONTINUING> 1,170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,170
<EPS-PRIMARY> .50
<EPS-DILUTED> 0
</TABLE>
