FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 29, 1996
-----------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from Not Applicable to
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Commission File Number 0-17840
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HANDEX CORPORATION
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2941704
- - ------------------------------ ---------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
500 Campus Drive, Morganville, New Jersey 07751
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(Address of principal executive offices)
(Zip Code)
(908) 536-8500
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(Registrant's telephone number, including area code)
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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
---- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Number of shares of common stock outstanding at July 31, 1996: 6,871,212
-----------
<PAGE>
1
PART I: FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements
------------------------------
HANDEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 29, 1996 and December 30, 1995
June 29, December 30,
1996 1995
------ -----
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 4,295,202 3,821,474
Marketable securities 300,000 2,775,000
Accounts receivable, net 31,525,655 30,001,497
Inventories 588,532 539,491
Refundable income tax 178,919 666,060
Deferred income tax assets 733,784 705,453
Prepaid expenses and other
current assets 862,279 927,851
------------- -------------
Total current assets 38,484,371 39,436,826
Property, plant and equipment, net 11,402,475 9,643,124
Other non-current assets 2,119,241 1,888,174
Intangible assets 15,943,462 16,121,258
------------- -------------
$ 67,949,549 67,089,382
============= =============
[FN]
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HANDEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 29, 1996 and December 30, 1995
2
June 29, December 30,
1996 1995
------- -------
(unaudited)
Liabilities and Stockholders'
Equity
- - -----------------------------------
-
Current liabilities:
Current installments of long-term
obligations $ 982,131 447,227
Accounts payable 5,593,275 7,896,838
Accrued expenses 9,155,340 7,894,616
------------- -------------
Total current liabilities 15,730,746 16,238,681
Long-term obligations, excluding
current installments 1,865,394 649,941
Deferred income tax liability 829,621 772,466
Stockholders' equity:
Preferred stock, without par
value, 2,000,000 shares
authorized, no shares issued -- --
Common stock, $.01 par value,
15,000,000 shares authorized;
issued 7,056,212 shares in
1996
and 7,050,212 shares in 1995 70,562 70,502
Additional paid-in capital 24,399,562 24,349,542
Retained earnings 26,351,789 26,306,375
Treasury stock at cost - 185,000
shares in 1996 and 1995 (1,298,125) (1,298,125)
------------- -------------
Total stockholders' equity 49,523,788 49,428,294
------------- -------------
$ 67,949,549 67,089,382
============= =============
[FN]
See accompanying notes to condensed consolidated financial statements.
<PAGE>
3
<TABLE>
HANDEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
Six and Three Months ended June 29, 1996 and July 1, 1995
(Unaudited)
<CAPTION>
Six Months Ended Three Months Ended
------------------- -------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total operating revenues $49,428,162 41,015,978 25,924,756 20,631,265
Subcontractor costs 7,955,375 6,941,146 4,277,692 3,557,272
------------ ------------ ------------ ------------
Net operating revenues 41,472,787 34,074,832 21,647,064 17,073,993
Cost of net operating 25,993,719 21,333,342 12,963,732 10,553,046
revenues
------------ ------------ ------------ ------------
Gross profit 15,479,068 12,741,490 8,683,332 6,520,947
Selling, general and
administrative expenses 15,292,020 11,974,088 7,858,845 6,067,435
------------ ------------ ------------ ------------
Operating income 187,048 767,402 824,487 453,512
Other income (expense):
Interest expense (128,454) (49,400) (74,334) (26,428
Interest income 189,673 347,068 91,002 184,761
------------ ------------ ------------ ------------
61,219 297,668 16,668 158,333
------------ ------------ ------------ ------------
Income before income taxes 248,267 1,065,070 841,155 611,845
Provision for income taxes 202,850 456,360 351,321 277,007
------------ ------------ ------------ ------------
Net income $ 45,417 608,710 489,834 334,838
Net income per share $ .01 .09 .07 .05
------------ ------------ ------------ ------------
Weighted average number
of shares outstanding 6,866,181 6,865,212 6,867,150 6,865,212
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
4
HANDEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six Months ended June 29, 1996 and July 1, 1995
(Unaudited)
1996 1995
------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 45,417 608,710
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,159,083 1,715,030
Gain on sale of equipment (20,803) (2,183)
Deferred income taxes 28,824 12,231
Cash provided (used) from the change
in:
Accounts receivable (1,341,664) 429,588
Inventories (31,647) (100,916)
Prepaid expenses and other current
assets 65,572 (673,498)
Refundable income tax 487,141 171,879
Other assets (155,468) (391,403)
Accounts payable (2,552,547) (87,068)
Accrued expenses 1,013,093 180,944
------------- -------------
Net cash (used) provided by
operating activities (302,999) 1,863,314
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities -- (4,000,000)
Redemption of marketable securities 2,475,000 3,540,000
Additions to property, plant and equipment (3,159,407) (2,642,984)
Cash from acquired joint venture 57,615 --
Excess of cost over net asets of
acquired company (60,183) (233,604)
------------- -------------
Net cash used by investing activities: (686,975) (3,336,588)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 53,620 --
Proceeds from debt obligations 1,802,910 304,190
Principal payments on debt obligations (389,228) (511,622)
Other (3,600) (12,600)
------------- -------------
Net cash provided (used) by financing
activities 1,463,702 (220,032)
------------- -------------
Net increase (decrease) in cash and cash
equivalents 473,728 (1,693,306)
Cash and cash equivalents at beginning
of period 3,821,474 2,895,478
------------- -------------
Cash and cash equivalents at end of period $ 4,295,202 1,202,172
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash was paid for:
Interest $ 128,454 49,400
============= =============
5
Income taxes $ 42,141 270,296
============= =============
[FN]
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HANDEX CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six and Three Months Ended June 29, 1996 and July 1, 1995
Note 1 In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (all of which are normal and
recurring in nature) necessary to present fairly the financial position
of the Company at June 29, 1996 and the results of operations for the
six and three month periods ended June 29, 1996 and July 1, 1995. The
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's annual report for the year
ended December 30, 1995.
Note 2 The consolidated financial statements include the assets and liabilities
as of June 29, 1996, and the results of operations for the six and three
month periods ended June 29, 1996, of New Horizons Computer Learning
Center of Cleveland, Ltd., L.L.C., a joint venture in which the Company
retained a minority interest through December 30, 1995. Following the
bankruptcy of the majority member's parent corporation the Company,
assumed control of and provided the financing and management of the day
to day operations of the venture. As a result, management believes that
the consolidation of the assets, liabilities and results of operations
of the venture beginning in 1996, is appropriate.
Note 3 Certain items on the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
<PAGE>
PART I. FINANCIAL INFORMATION
--------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-------------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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GENERAL
- - -------
The Company conducts two distinct lines of business: the environmental
segment, through its wholly-owned environmental holding company, Handex
Environmental, Inc., and subsidiaries ("Handex Environmental"), and the computer
educational segment, through its wholly-owned education holding company, New
Horizons Education Corporation and subsidiaries ("New Horizons").
The discussion that follows presents the business conditions and certain
financial information pertaining to each of the two business segments.
6
ENVIRONMENTAL BUSINESS SEGMENT
- - -------------------------------
Net operating revenues include fees for services provided directly by
Handex Environmental and fees for arranging for subcontractors' services, as
well as proceeds from the sale and rental of equipment. Handex Environmental,
in the course of providing its services, routinely subcontracts for outside
services such as soil cartage, laboratory testing and other specialized
services. These costs are generally passed through to clients and, in
accordance with industry practice, are included in total operating revenues.
Because subcontractor services can change significantly from project to project,
changes in total operating revenues may not be truly indicative of business
trends. Accordingly, Handex Environmental views net operating revenues, which
is total operating revenues less the cost of subcontractor services, as its
primary measure of revenue growth.
Cost of net operating revenues includes professional salaries, other direct
labor, material purchases and certain direct and indirect overhead costs.
Selling, general and administrative expenses include management salaries, sales
and marketing salaries and expenses, and clerical and administrative overhead.
Over the last several years, Handex Environmental has responded to trends
in its industry and has increased spending in the areas of administration,
computerization, engineering and marketing. These additional expenditures in
the administrative, engineering and computer areas are in direct response to
customer requirements for more detailed information concerning the technical and
financial status of ongoing projects. Since early 1992, a majority of Handex
Environmental's customers have required more detailed proposals and estimates,
more frequent reports on project technical progress, and more sophisticated cost
tracking and reporting. During the same time frame, Handex Environmental
increased spending on sales and marketing efforts partly in response to
increased competition in the marketplace and partly as an integral component of
a strategy to diversify its client base and pursue work from industrial clients.
Handex Environmental believes that spending on these functions will be required
to compete effectively in the future.
Handex Environmental's customers have become increasingly cost conscious.
This cost consciousness on the part of customers has manifested itself primarily
in three areas: (i) the manner in which Handex Environmental obtains its
business and charges for its services; (ii) the use of other contractors to
provide certain services traditionally provided by Handex Environmental; and
(iii) an increasing preference to purchase, rather than lease, remediation
equipment.
<PAGE>
Over the last four years, the environmental industry has experienced a
significant increase in customer demand for competitive bidding and fixed price
contracts. During 1995 and the first half of 1996, the majority of Handex
Environmental's work was performed under competitively bid unit price or fixed
price contracts. Although management believes a majority of Handex
Environmental's work will continue to be competitively bid, an alliance
negotiated with Amoco Oil Company, its largest client, eliminates the
requirement to competitively bid on Amoco projects. As one of only three
national suppliers of environmental services, Handex Environmental has
designated service regions and, although required to remain cost competitive,
will not have to expend resources to bid each job with Amoco.
Overall, management believes that the quality and cost effectiveness of its
services will continue to be an important competitive advantage. Accordingly, in
responding to price competition, Handex7Environmental will continue to maintain
a high level of technical quality in its services.
A majority of Handex Environmental's major customers now purchase directly,
from other contractors, equipment and certain services, such as laboratory
analyses, which were formerly provided by or through Handex Environmental as
part of its full service approach. Management believes that this trend will
continue.
Handex Environmental's quarterly results may fluctuate from period to
period. Among the principal factors influencing quarterly variations are
weather, which may limit the amount of time Handex Environmental's professional
and technical personnel may spend in the field; the addition of new
professionals who require training and initially bill a lower percentage of
their time; the timing of receipt of discharge and other permits necessary to
install dewatering and recovery systems, and the opening of new offices, which
initially have higher expenses relative to revenues than established offices.
Through the first quarter of 1995, Handex Environmental's business in the
state of Florida has been helped considerably by the cost reimbursement program
maintained through the Florida Inland Protection Trust Fund ("Fund"). The Fund
was revised in the first quarter of 1995 by the Florida legislature and now
requires site prioritization and prior approval of costs by the Florida
Department of Environmental Protection, for reimbursement of cleanup
expenditures. These revisions, which were intended to assure its economic
integrity, have significantly limited the number and types of environmental
cleanup expenditures which would be reimbursable from the Fund and have
therefore adversely affected Handex Environmental's operating results in Florida
and its overall operating results. Management believes that these revisions will
continue to have an adverse effect on Handex Environmental's operations in
Florida and its overall environmental segment's results. During 1995, Handex
Environmental made a strategic move to partially offset the revenue loss
resulting from the revisions to the Fund, by acquiring certain assets of an
environmental competitor in Florida. The purchase included the rights to service
certain customers of this environmental concern.
EDUCATIONAL BUSINESS SEGMENT
- - ----------------------------
New Horizons conducts two distinct businesses, one which operates wholly-
owned computer program training centers, and the other which supplies systems of
instruction, and sales and management concepts concerning computer training to
independent franchisees.
<PAGE>
Revenues for the training centers operated by New Horizons consist
primarily of training fees and fees derived from sales of courseware materials.
Cost of sales consists primarily of instructors' salaries and benefits,
facilities costs such as rent, utilities and classroom equipment, courseware,
and computer hardware, software and peripherals. Selling, general and
administrative expenses consist primarily of costs associated with sales and
marketing, advertising, accounting and finance support and sales executives.
Revenues for the franchising operation consist primarily of initial
franchise fees associated with the sale of a franchise, royalty and advertising
fees, based on a percentage of franchisee gross training revenues, and
percentage royalties received on the gross sales of courseware. Cost of sales
consists primarily of costs associated with franchise support personnel who
provide system guidelines and advice on daily operating issues including sales,
marketing, instructor training and general business problems. Selling, general
and administrative expenses consist primarily of technical support, courseware
8
development, accounting and finance support, national account sales support, and
advertising expenses.
RESULTS OF OPERATIONS
-----------------------
Results of operations are presented in three sections: consolidated , results of
environmental segment and results of educational segment.
CONSOLIDATED
- - ------------
NET OPERATING REVENUES
- - -----------------------
Consolidated net operating revenues for the second quarter of 1996
increased $4,573,000 or 26.8% and for the first half of 1996, increased
$7,398,000 or 21.7% compared with the same periods for 1995. Of consolidated net
operating revenues of $21,647,000 for the second quarter of 1996, Handex
Environmental contributed $11,646,000 (53.8% of consolidated net operating
revenues, down from 67.1% for 1995) and New Horizons contributed $10,001,000
(46.2% of consolidated net operating revenues, up from 32.9% for 1995). Of
consolidated net operating revenues of $41,473,000 for the first half of 1996
Handex Environmental contributed $22,379,000 (54.0% of consolidated net
operating revenues, down from 68.5% for 1995) and New Horizons contributed
$19,094,000 (46.0% of consolidated net operating revenues, up from 31.5% for
1995).
COST OF NET OPERATING REVENUES
- - -------------------------------
Consolidated cost of net operating revenues increased $2,411,000 or 22.8%
for the second quarter of 1996 and for the first half of 1996 increased
$4,660,000 or 21.8% compared with the same periods for 1995. Of consolidated
cost of net operating revenues of $12,964,000 for the second quarter of 1996,
Handex Environmental contributed $7,986,000 (61.6% of consolidated cost of net
operating revenues, down from 70.8% for 1995) and New Horizons contributed
$4,978,000 (38.4% of consolidated cost of net operating revenues, up from 29.2%
for 1995). Of consolidated cost of net operating revenues of $25,994,000 for the
first half of 1996, Handex Environmental contributed $16,610,000 (63.9% of
consolidated cost of net operating revenues, down from 72.5% for 1995) and New
Horizons contributed $9,384,000 (36.1% of consolidated cost of net operating
revenues, up from 27.5% for 1995).
<PAGE>
As a percentage of consolidated net operating revenues, consolidated cost
of net operating revenues declined to 59.9% for the second quarter of 1996 and
increased to 62.7% for the first half of 1996, from 62.6% and 61.8%
respectively, for the same periods in 1995.
GROSS PROFIT
- - -------------
Consolidated gross profit increased $2,162,000 or 33.2% for the second
quarter of 1996 and increased $2,738,000 or 21.5% for the first half of 1996
compared with the same periods for 1995. Of consolidated gross profit of
$8,683,000 for the second quarter of 1996, Handex Environmental contributed
$3,661,000 (42.2% of consolidated gross profit, down from 61.2% for 1995) and
New Horizons contributed $5,022,000 (57.8% of consolidated gross profit, up from
38.8% for 1995). Of consolidated gross 9profit of $15,479,000 for the first
half of 1996, Handex Environmental contributed $5,769,000 (37.3% of consolidated
gross profit, down from 61.7% for 1995) and New Horizons contributed $9,710,000
(62.7% of consolidated gross profit, up from 38.3% for 1995).
As a percentage of consolidated net operating revenues, consolidated gross
profit increased to 40.1% for the second quarter of 1996 and for the first half
of 1996 declined to 37.3%, from 38.2% and 37.4% respectively, for the same
periods in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- - ---------------------------------------------
Consolidated selling, general and administrative expenses increased
$1,791,000 or 29.5% for the second quarter of 1996 and for the first half of
1996, increased $3,318,000 or 27.7%, compared with the same periods for 1995. Of
consolidated selling, general and administrative expenses of $7,859,000 for the
second quarter of 1996, Handex Environmental contributed $3,259,000 (41.5% of
consolidated selling, general and administrative expenses, down from 62.3% for
1995) and New Horizons contributed $4,600,000 (58.5% of consolidated selling,
general and administrative expenses, up from 37.7% for 1995). Of consolidated
selling, general and administrative expenses of $15,292,000 for the first half
of 1996, Handex Environmental contributed $6,966,000 (45.6% of consolidated
selling, general and administrative expenses, down from 63.5% for 1995) and New
Horizons contributed $8,326,000 (54.4% of consolidated selling, general and
administrative expenses, up from 36.5% in 1995).
As a percentage of consolidated net operating revenues, consolidated
selling, general, and administrative expenses rose to 36.3% for the second
quarter of 1996 and for the first half of 1996, increased to 36.9%, from 35.5%
and 35.1% respectively, for the same periods for 1995.
INTEREST INCOME/EXPENSE
- - ------------------------
Consolidated interest expense for the second quarter of 1996 increased to
$74,000 and for the first half of 1996 increased to $128,000, from $26,000 and
$49,000 respectively, for the same periods in 1995. As a percentage of
consolidated net operating revenues, consolidated interest expense rose to .3%
for both 1996 periods from 0.2% and 0.1% respectively, for the same periods in
1995. The increase in interest expense, both in absolute dollars and as a
percentage of consolidated net operating revenues, was due primarily to New
Horizons' purchases of equipment under capital lease arrangements.
Consolidated interest income for the second quarter of 1996 declined to
$91,000 and for the first half of 1996 declined to $190,000, from $185,000 and
$347,000 respectively, for the same periods in 1995. As a percentage of
consolidated net operating revenues, consolidated interest income declined to
.4% for the second quarter of 1996 and to 0.5% for the first half of 1996, from
1.1% and 1.0% respectively, for the same periods in 1995. The decline in
interest income, both in
<PAGE>
absolute dollars and as a percentage of net operating revenues, was due mainly
to the decline in interest income derived from a receivable financing
arrangement with one of its major customers and lower tax-free interest income
earned as a result of the utilization of cash reserves to satisfy working
capital requirements.
INCOME TAXES
- - -------------
The provision for income taxes as a percentage of income before taxes
decreased to 41.8% for the second quarter of 1996 and for the first half of
1996, rose to 81.7%, from 45.3% and 1042.8% respectively for the same periods
in 1995. This was due primarily to certain non-deductible items for income tax
purposes and lower tax-free interest income.
NET INCOME
- - -----------
Consolidated net income for the second quarter of 1996 increased $155,000
or 46.2% and for the first half of 1996 decreased $563,000 or 92.5%, compared
with the same periods for 1995. Of the consolidated net income of $489,000 for
the second quarter of 1996, Handex Environmental contributed $289,000 (59.0% of
consolidated net income, down from 66.4% for 1995) and New Horizons contributed
$200,000 (41.0% of consolidated net income, up from 33.6% for 1995). Of
consolidated net income of $45,000 for the first half of 1996, Handex
Environmental reported a loss of $639,000 compared with income of $355,000 in
1995; New Horizons reported income of $684,000, up from $254,000 for 1995.
As a percentage of consolidated net operating revenues, consolidated net
income rose to 2.3% for the second quarter of 1996 and for the first half of
1996, decreased to 0.1% from 1.0% and 1.8% respectively, for the same periods in
1995.
GENERAL
- - --------
The Company anticipates that the contribution of New Horizons to the
Company's net operating revenues, gross profit and net income will continue to
increase, relative to Handex Environmental.
ENVIRONMENTAL
- - -------------
OPERATING RESULTS (IN THOUSANDS)
- - ---------------------------------
Six Months Ended Three Months Ended
------------------ -----------------
6/29/96 7/1/95 6/29/96 7/1/95
-------- -------- -------- --------
Net operating revenues $22,379 23,328 11,646 11,463
Cost of net operating
revenues 16,610 15,469 7,986 7,474
Gross profit 5,769 7,859 3,660 3,989
Selling, general and
administrative expenses
before corporate SG&A 6,324 6,970 2,961 3,504
Operating income
before corporate SG&A $ (555) 889 699 485
<PAGE>
NET OPERATING REVENUES
- - -----------------------
Handex Environmental's net operating revenues increased $183,000 or 1.6%
for the second quarter of 1996 and declined $949,000 or 4.1% for the first half
of 1996 compared with similar periods for 1995. For the first half of 1996,
revenues declined primarily due to severe weather conditions in the Northeast
during the first quarter that caused 11work cancellations and postponements
and delays in the transfer of sites from the Amoco Oil Alliance. Handex
Environmental's subsidiaries in Maryland, Florida, North Carolina, Illinois and
Colorado posted increases in net operating revenues ranging from 5.4% to 63.8%
for the second quarter of 1996 and from 3.1% to 60.8% for the first half of
1996. Handex Environmental's subsidiaries in New Jersey, Massachusetts and Ohio
reported decreases in revenues for both periods in 1996.
COST OF NET OPERATING REVENUES
- - ------------------------------
Handex Environmental's cost of net operating revenues increased $512,000 or
6.9% for the 1996 quarter and increased $1,141,000 or 7.4% for the first half of
1996, compared with the same periods for 1995. As a percentage of its net
operating revenues, cost of net operating revenues increased to 68.6% for the
1996 quarter and increased to 74.2% for the first half of 1996, from 65.2% and
66.3% respectively, for the same periods in 1995. The increase in the cost of
net operating revenues both in absolute dollars and as a percentage of net
operating revenues was due principally to materials and supplies purchased and
cost of equipment rentals in connection with large industrial projects, combined
with lower net operating revenues for the 1996 periods. In addition, costs of
net operating revenues for the first half of 1996 included unrecoverable cost
overruns on a major landfill project and the cost related to the staff
reductions implemented in the beginning of the second quarter.
GROSS PROFIT
- - -------------
Handex Environmental's gross profit declined $329,000 or 8.3% for the 1996
quarter and declined $2,090,000 or 26.6% compared to the same periods in 1995.
As a percentage of its net operating revenues, gross profit declined to 31.4%
for the 1996 quarter and to 25.8% for the first half of 1996, from 34.8% and
33.7% respectively for the same periods in 1995. The decline in gross profit,
both in absolute dollars and as a percentage of net operating revenues reflect
weather-related productivity decreases, increases in materials purchased and
equipment rentals in connection with large industrial projects, unrecoverable
cost overruns on a major landfill project and staff reduction costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES BEFORE CORPORATE EXPENSES
- - -----------------------------------------------------------------------
Handex Environmental's selling, general and administrative expenses
decreased $543,000 or 15.5% for the second quarter of 1996 and decreased
$646,000 or 9.3% for the first half of 1996 compared with the same periods in
1995. As a percentage of net operating revenues, selling, general and
administrative expenses declined to 25.4% for the 1996 quarter and to 28.3% for
the first half of 1996, from 30.6% and 29.9% respectively for the same periods
in 1995. The decline in selling, general and administrative expenses both in
absolute dollars and as a percentage of net operating revenues was due primarily
to staff reductions and cost containment actions implemented beginning in the
third quarter of 1995.
<PAGE>
EDUCATIONAL
- - -----------
OPERATING RESULTS (IN THOUSANDS)
- - ---------------------------------
Six Months Ended Three Months Ended
----------------- -----------------
6/29/96 7/1/95 6/29/96 7/1/95
12
---------- ---------- ---------- ----------
Revenues $ 19,094 10,747 10,001 5,611
Cost of sales 9,384 5,865 4,978 3,080
Gross profit 9,710 4,882 5,023 2,531
Selling, general and
administrative expenses
before corporate SG&A 8,326 4,367 4,600 2,287
Operating income
before corporate SG&A $ 1,384 515 423 244
NET OPERATING REVENUES
- - ----------------------
New Horizons' revenues increased $4,390,000 or 78.3% for the second quarter
of 1996 and $8,347,000 or 77.7% for the first half of 1996 compared with the
same periods for 1995. This was due primarily to improved revenues at company-
owned locations, same store revenue increases and additional franchises added to
the franchising arm of the business. System-wide revenues for the second quarter
rose to $47,000,000 in the second quarter of 1996 from $23,500,000 for the same
period in 1995, and to $88,000,000 for the first half of 1996, from $43,500,000
for the same period in 1995. System-wide revenues include all revenues from both
franchised locations and company-owned training centers.
Revenues for both periods in 1996 included the results of the Cleveland
training center which the Company began consolidating effective the beginning of
fiscal 1996. During 1995, the Cleveland operations were conducted by a joint
venture in which the company retained a minority interest until the beginning of
1996 when the company assumed full control of the operations. The Cleveland
operations accounted for over 7% of revenues and 1.0% and 9.5% respectively, of
operating income for both periods in 1996.
COST OF SALES
- - -------------
New Horizons' cost of sales increased $1,898,000 or 61.7% for the second
quarter of 1996 and increased $3,519,000 or 60.0% for the first half of 1996
compared to the same periods in 1995. As a percentage of revenues, cost of sales
declined to 49.8% for the 1996 quarter and to 49.1% for the first half of 1996,
from 54.9% and 54.6% respectively, for the same periods in 1995. The increase in
costs of sales was due primarily to higher training, courseware and depreciation
expenses and the inclusion of the Cleveland operations. The decline in cost of
sales as a percentage of revenues was due principally to the higher level of
revenues.
<PAGE>
GROSS PROFIT
- - -------------
New Horizons' gross profit increased $2,492,000 or 98.5% for the second
quarter of 1996 and increased $4,828,000 or 98.9% for the first half of 1996
compared with the same periods for 1995. As a percentage of revenues, gross
profit rose to 50.2% for the 1996 quarter and to 50.9% for the first half of
1996, from 45.1% and 45.4% respectively for the same periods in 1995. The
increase in gross profit as a percentage of revenues was due principally to the
higher level of training and franchising revenues.
SELLING, GENERAL AND ADMINISTRATIVE 13EXPENSES BEFORE CORPORATE EXPENSES
- - -----------------------------------------------------------------------
New Horizons' selling, general and administrative expenses increased
$2,313,000 or 101.1% for the second quarter of 1996 and increased $3,959,000 or
90.7% for the first half of 1996, compared with the same periods for 1995. As a
percentage of revenues, selling, general` and administrative expenses rose to
46.0% for the 1996 quarter and to 43.6% for the first half of 1996 compared with
the same periods for 1995. The increase in selling, general and administrative
expenses, both in absolute dollars and as a percentage of revenues, was due
principally to increased spending in the areas of sales and marketing, national
advertising, expenses associated with the implementation of a Major Accounts
Program, franchise support for domestic and international operations and the
inclusion of the Cleveland operations in its operating results.
As a percentage of revenues, New Horizons' selling, general and
administrative expenses rose to 43.6% for the first half of 1996 and to 46.0%
for the second quarter of 1996, from 38.9% and 39.1% respectively, for the same
periods in 1995. This was due primarily to increased expenses associated with
its sales and marketing function, national advertising, its Major Accounts
Program and franchise support for domestic and international operations.
LIQUIDITY AND CAPITAL RESOURCES
- - --------------------------------
As of June 29, 1996, the Company's working capital was $22,754,000, and its
cash, cash equivalents and short-term investments totaled $4,295,000. Working
capital as of June 29, 1996 reflected a decrease of $444,000 from $23,198,000 as
of December 30, 1995. The Company had a negative cash flow from operating
activities primarily due to the reduction in accounts payable and an increase in
current receivables which was partially offset by an increase in accrued
expenses. The Company has negotiated an extension to June 30, 1998 of its
unsecured $5,500,000 credit facility with a commercial bank under substantially
the same terms and conditions prior to the extension. This facility, which the
Company has not used since June 1991, bears interest at either the bank's prime
rate, or LIBOR, whichever the Company elects.
The full service approach to Handex Environmental's hydrocarbon recovery
business in certain markets and the recurring capital equipment replacement
program, require Handex Environmental to make capital expenditures for machinery
and equipment and computers. During the first half of 1996, Handex Environmental
spent approximately $579,000 on capital items and anticipates spending up to
$1,100,000 during 1996.
The nature of New Horizons' business requires substantial cash commitments
for the purchase of computer equipment, software and training facilities. During
the first half of 1996, New Horizons spent approximately $2,600,000 on capital
items and anticipates spending up to $4,200,000 during 1996.
Management believes that its current working capital position, together
with cash expected to be generated by operations, and its funds available under
its revolving credit facility will provide the liquidity necessary to support
its current and anticipated capital expenditures through the end of 1996.
<PAGE>
Form 10Q - Part II: Other Information
-----------------------------------------
Item 6. Exhibits and Reports on Form 8-K
- - -------- ---------------------------------
(a) Exhibit Index
14
Exhibit
Number Description of Documents
-------- -------------------------
4.1 Specimen Certificate for Share of Common Stock, $.01 par value, of the
Registrant(1)
4.2 Unsecured Revolving Loan Agreement(4)
4.3 First Amendment to Unsecured Revolving Loan Agreement (7)
4.4 Working Capital Line of Credit Note (7)
10.1 Key Employees Stock Option Plan of the Registrant(1)
10.2 Amendment No. 1 to Key Employees Stock Option Plan of the Registrant (7)
10.3 Form of Stock Option Agreement executed by recipients of options under
Key Employees Stock Option Plan(6)
10.4 Stock Option Agreement dated August 6, 1992, between the Registrant and
Thomas J. Bresnan (7)
10.5 Outside Directors Stock Option Plan of the Registrant(1)
10.6 Amendment No. 1 to the Outside Directors Stock Option Plan of the
Registrant (7)
10.7 Form of Stock Option Agreement executed by recipients of options under
the Outside Directors Stock Option Plan (7)
10.8 Amended and Restated 401(k) Profit Sharing Trust and Plan of the
Registrant(1)
10.9 Amendment No. 1 to the Registrant's Amended and Restated 401(k) Profit
Sharing Trust and Plan(2)
10.10 Amendment No. 2 to the Registrant's Amended and Restated 401(k) Profit
Sharing Trust and Plan(3)
10.11 Amendment No. 3 to the Registrant's Amended and Restated 401(k) Profit
Sharing Trust and Plan(6)
10.12 Form of Indemnity Agreement with Directors and Officers of the
Registrant(6)
10.13 Employment Agreement dated August 3, 1992, between the Registrant and
Thomas J. Bresnan (7)
<PAGE>
EXHIBIT INDEX (CONTINUED)
Exhibit
Number Description of Documents
-------- -------------------------
10.14 Lease Agreement dated April 26, 1988, between Jocama Construction Inc.
and the Registrant(1)
10.15 Addenda to the Lease Agreement dated April 6, 1988 between Jocama
Construction and the Registrant (8)
15
10.16 Indenture of Lease dated June 17, 1987, between Xednah Investments and
Handex of Florida, as amended (1)
10.17 Lease Agreement dated March 25, 1991, between Handex of New England,
Inc.
and Metro Park Marlboro Realty Trust, as amended (6)
10.18 Lease Agreement dated January 20, 1992, between Handex of Maryland, Inc.
and Winmeyer Commons II Limited Partnership (6)
10.19 Lease Agreement dated March 1, 1995, between New Horizons Learning
Center
of Metropolitan New York, Inc. and Mid City Associates, guaranteed by
the
Registrant (10)
10.20 Lease Agreement dated February 24, 1995, between New Horizons Computer
Learning Center of Cleveland LTD., LLC, and Realty One Property
Management, guaranteed by the Registrant (10)
10.21 Consulting Agreement between the Registrant and The Nassau Group, Inc.
Dated December 17, 1993 (9)
10.22 Warrants for the purchase of 25,000 shares of Common Stock $.01 par
value
per share of the Registrant issued to The Nassau Group, Inc. On
December 17, 1993 (9)
10.23 Warrants for the purchase of 40,000 shares of Common Stock $.01 par
value
per share of the Registrant issued to The Nassau Group, Inc. On
August 15, 1994. (10)
10.24 Asset Purchase Agreement, dated as of August 15, 1994, by and among
New Horizons Computer Learning Centers, Inc. a Delaware Corporation,
New Horizons Learning Center, Inc., a California Corporation and
Michael A. Brinda (11)
10.25 Stock Purchase Agreement dated as of August 15, 1994, by and among
New Horizons Education Corporation, a Delaware Corporation and
Michael A. Brinda (11)
10.26 Lease Agreement dated April 5, 1995, between New Horizons Computer
Learning Center of Chicago, Inc., and the Equitable Life Assurance
Society of the United States (12)
<PAGE>
EXHIBIT INDEX (CONTINUED)
Exhibit
Number Description of Documents
-------- -------------------------
10.27 Lease Agreement dated March 7, 1996, between New Horizons Computer
Learning Centers, Inc. and Mani Brothers, LLC (13)
10.28 Contract for the sale of real estate dated January 15, 1996, between
Handex of Florida, Inc. and Xednah Investments (13)
10.29 New Horizons Education Corporation 401(k) Profit Sharing Trust and
Plan (13)
16
10.30 Amendment No. 4 to the Registrant's Amended and Restated 401(k) Profit
Sharing Trust and Plan (13)
15.0 Letter from Independent Certified Public Accountants*
27.0 Financial Data Schedule*
99.1 Directors and Officers and Company Indemnity Policy(5)
- - ----------------------------------------------------------
(1) Incorporated herein by reference to the appropriate exhibits to the
Registrant's Registration Statement on Form S-1 (File No. 33-28798).
(2) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1989.
(3) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report on Form 10-Q for the period ended March 31,
1990.
(4) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report or Form 10-Q for the period ended June 30,
1990.
(5) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1990.
(6) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991.
(7) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December
31,1992.
(8) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report on Form 10-Q for the period ended July 3,
1993.
(9) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended January 1, 1994.
(10) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Form 8-K dated August 15, 1994.
(11) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
(12) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report on Form 10-Q for the period ended April 1,
1995.
(13) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 30,
1995.
* Filed herewith.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURE
-----------
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 thereto duly authorized. 17
HANDEX CORPORATION
(Registrant)
Date: August 9, 1996 By: /s/ John T. St. James
------------------------- --------------------------
John T. St. James
(Duly authorized officer and
Principal Financial Officer)
<PAGE>
18
FORM 10-Q, PART II
Item 6
Exhibit 15.0
Independent Auditors' Review Report
-------------------------------------
The Board of Directors
Handex Corporation
and Subsidiaries
We have reviewed the condensed consolidated balance sheet of Handex Corporation
and subsidiaries as of June 29, 1996, and the related condensed consolidated
statements of income for the three-month and six-month periods ended June 29,
1996 and July 1, 1995, and cash flows for the six-month periods ended June 29,
1996 and July 1, 1995. These condensed consolidated financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Handex Corporation and subsidiaries
as of December 30, 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 16, 1996, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 30, 1995, is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
KMPG Peat Marwick, LLP
Cleveland, Ohio
August 2, 1996
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 4,295,202
<SECURITIES> 300,000
<RECEIVABLES> 32,254,839
<ALLOWANCES> 729,184
<INVENTORY> 588,532
<CURRENT-ASSETS> 38,484,371
<PP&E> 30,232,268
<DEPRECIATION> 18,829,793
<TOTAL-ASSETS> 67,949,549
<CURRENT-LIABILITIES> 15,730,746
<BONDS> 1,865,394
0
0
<COMMON> 70,562
<OTHER-SE> 49,453,226
<TOTAL-LIABILITY-AND-EQUITY> 67,949,549
<SALES> 41,472,787
<TOTAL-REVENUES> 41,472,787
<CGS> 25,993,719
<TOTAL-COSTS> 41,285,739
<OTHER-EXPENSES> 189,673
<LOSS-PROVISION> 189,500
<INTEREST-EXPENSE> (128,454)
<INCOME-PRETAX> 248,267
<INCOME-TAX> 202,850
<INCOME-CONTINUING> 45,417
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 45,417
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