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 30, 1999
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
------------------------- ---------------
Commission File Number 0-17840
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NEW HORIZONS WORLDWIDE, INC.
(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
-----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(732) 536-8501
--------------
(Registrant's telephone number, including area code)
_____________________________________________________________
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 June 30, 1999: 9,538,259
1
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
New Horizons Worldwide, Inc. and Subsidiaries
June 30, 1999 and December 31, 1998
(Dollars in thousands)
June December
30, 1999 31, 1998
-------- --------
Assets (unaudited)
Current assets:
Cash and cash equivalents ..................... $ 7,118 $ 6,873
Investments ................................... 302 15,821
Accounts receivable, net ...................... 20,004 16,538
Inventories ................................... 1,039 784
Prepaid expenses .............................. 1,283 1,039
Deferred income tax assets .................... 2,202 2,202
Other current assets .......................... 893 773
------- -------
Total current assets ...................... 32,841 44,030
Property, plant and equipment, net ................. 16,126 13,818
Excess of cost over net assets of acquired
companies, net of accumulated amortization ........ 40,587 25,225
Cash surrender value of life insurance ............. 1,292 863
Other assets ....................................... 2,495 2,810
------- -------
Total Assets ....................................... $93,341 $86,746
======= =======
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
Condensed Consolidated Balance Sheets
New Horizons Worldwide, Inc. and Subsidiaries
June 30, 1999 and December 31, 1998
(Dollars in thousands)
June December
30, 1999 31, 1998
-------- --------
Liabilities and Stockholders' Equity (unaudited)
Current liabilities:
Notes payable and current portion of long-term
obligations ................................... $ 462 $ 3,910
Accounts payable .................................. 2,368 2,391
Income taxes payable .............................. 43 354
Deferred revenue .................................. 7,276 5,084
Accounts payable to franchises .................... 3,751 3,497
Other current liabilities ......................... 8,965 7,843
-------- ---------
Total current liabilities ..................... 22,865 23,079
Long-term obligations, excluding current portion ....... 96 267
Deferred income tax liabilities ........................ 981 981
Deferred rent .......................................... 711 658
Other long-term liabilities ............................ 216 192
-------- --------
Total liabilities ............................. 24,869 25,177
-------- --------
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 and outstanding 9,723,259
shares in 1999 and 9,558,531 shares in 1998 ... 78 77
Additional paid-in capital ........................ 36,002 33,220
Retained earnings ................................. 33,607 29,517
Treasury stock at cost - 185,000 shares in 1999
and 1998 ...................................... (1,298) (1,298)
Accumulated other comprehensive income ............ 83 53
-------- --------
Total stockholders' equity ........................ 68,472 61,569
-------- --------
Total Liabilities and Stockholders' Equity ............. $ 93,341 $ 86,746
======== ========
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
Condensed Consolidated Statements of Earnings
New Horizons Worldwide, Inc. and Subsidiaries
Six and Three Months ended June 30, 1999 and June 30, 1998
(Unaudited)
(Dollars in thousands except Earnings Per Share)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
------------------------------ ------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Revenues
Franchising
Franchise fees ..................................... $ 1,069 $ 708 $ 681 $ 535
Royalties .......................................... 9,636 7,597 4,904 4,004
Other .............................................. 1,317 944 737 540
------------- -------------- ------------- -------------
Total franchising revenues ......................... 12,022 9,249 6,322 5,079
Company-owned training centers .......................... 37,980 23,246 21,578 12,731
------------- -------------- ------------- -------------
Total revenues ..................................... 50,002 32,495 27,900 17,810
Cost of revenues ........................................... 22,261 14,895 12,510 7,944
Selling, general and
administrative expenses ................................. 21,409 14,260 11,468 7,599
------------- -------------- ------------- -------------
Operating income ........................................... 6,332 3,340 3,922 2,267
Investment income, net ..................................... 333 571 136 337
------------- -------------- ------------- -------------
Income before income taxes ................................. 6,665 3,911 4,058 2,604
Provision for income taxes ................................. 2,572 1,463 1,584 967
------------- -------------- ------------- -------------
Net income ................................................. $ 4,093 $ 2,448 $ 2,474 $ 1,637
============= ============== ============= =============
Basic Earnings Per Share ................................... $ 0.43 $ 0.27 $ 0.26 $ 0.18
============= ============== ============= =============
Diluted Earnings Per Share ................................. $ 0.41 $ 0.26 $ 0.25 $ 0.17
============= ============== ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
Condensed Consolidated Statements of Cash Flows
New Horizons Worldwide, Inc. and Subsidiaries
Six Months ended June 30, 1999 and June 30, 1998
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities
- ------------------------------------
Net income ............................................................................. $ 4,093 $ 2,448
Adjustments to reconcile net income to net cash provided by operating activities
(net of acquisitions):
Depreciation and amortization ..................................................... 2,644 1,899
Deferred income taxes ............................................................. -- (23)
Deferred compensation ............................................................. 148 --
Cash provided (used) from the change in:
Accounts receivable ............................................................. (1,732) (1,119)
Inventories ..................................................................... (42) 130
Prepaid expenses and other current assets ....................................... (246) 76
Other assets .................................................................... 384 (252)
Accounts payable ................................................................ (378) (626)
Other current liabilities ....................................................... 450 4,099
Income taxes payable/refundable ................................................. (303) (1,049)
Deferred rent ................................................................... (15) 78
---------------- ----------------
Net cash provided by operating activities .................................... 5,003 5,661
---------------- ----------------
Cash flows from investing activities
- ------------------------------------
Purchase of marketable securities ................................................... (279) (22,115)
Redemption of marketable securities ................................................. 15,828 23,082
Cash surrender value of life insurance .............................................. (429) --
Additions to property, plant and equipment .......................................... (3,884) (1,257)
Cash paid for acquired companies, net of cash received .............................. (12,327) (3,791)
---------------- ----------------
Net cash used by investing activities ............................................. (1,091) (4,081)
---------------- ----------------
Cash flows from financing activities
- ------------------------------------
Proceeds from issuance of common stock .............................................. 22 365
Proceeds from debt obligations ...................................................... (2,984) 61
Principal payments on debt obligations .............................................. (705) (1,646)
---------------- ----------------
Net cash used by financing activities ............................................. (3,667) (1,220)
---------------- ----------------
Net increase in cash and cash equivalents .............................................. 245 360
Cash and cash equivalents at beginning of period ....................................... 6,873 3,129
---------------- ----------------
Cash and cash equivalents at end of period ............................................. $ 7,118 $ 3,489
=============== ===============
Supplemental disclosure of cash flow information
- ------------------------------------------------
Cash was paid for:
Interest .......................................................................... $ 39 $ 78
=============== ===============
Income taxes ...................................................................... $ 2,656 $ 1,194
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
Condensed Consolidated Statements of Cash Flows
New Horizons Worldwide, Inc. and Subsidiaries
Six Months ended June 30, 1999
(Unaudited)
(Dollars in thousands)
Supplemental Disclosure of Noncash Transactions -
During the six months ended June 30, 1999, the Company completed the
acquisitions of the Albuquerque, New Mexico, Charlotte, North Carolina,
Sacramento and Stockton, California, and San Antonio, Texas franchises
summarized as follows (Note 4):
Fair value of assets acquired ................ $ 18,565
Short term debt and other obligations incurred (705)
Value of stock issued ........................ (2,603)
Cash paid, net of cash acquired ............. (12,327)
--------
Liabilities assumed .......................... $ 2,930
========
6
<PAGE>
Notes to Condensed Consolidated Financial Statements
New Horizons Worldwide, Inc. and Subsidiaries
For the Six Months Ended June 30, 1999 and June 30, 1998
(Unaudited)
(Dollars in thousands except Earnings Per Share)
Note 1 In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (all of
which are normal and recurring) necessary to present fairly the
financial position of the Company at June 30, 1999 and the results of
operations for the six and three month periods ended June 30, 1999 and
June 30, 1998. The statements and notes should be read in conjunction
with the financial statements and notes thereto included in the
Company's annual report for the year ended December 31, 1998.
Note 2 The investments consist of municipal funds as of June 30, 1999 and
tax-exempt bonds and municipal funds as of December 31, 1998. The
Company's investments are presented at their aggregate fair value.
Unrealized gains and losses are included as a component of
stockholders' equity, net of tax, until realized.
Note 3 Certain items on the 1998 financial statements have been reclassified
to conform to the 1999 presentation.
Note 4 (a) Albuquerque, New Mexico franchise
On March 1, 1999, the Company purchased the assets of its franchise in
Albuquerque, New Mexico. The consideration paid included $2,762 in
cash, net of cash acquired, and 48,691 shares (38,953 shares prior to
the Company's stock split) of the Company's common stock. The selling
shareholders will receive additional consideration, in cash and stock,
if certain performance targets are achieved. The acquisition has been
recorded using the purchase method of accounting and the operating
results have been included in the Company's financial statements from
the date of acquisition. The acquisition resulted in goodwill of
$3,779 which is being amortized over 25 years.
(b) Charlotte, North Carolina franchise
On April 1, 1999, the Company purchased the assets of its franchise in
Charlotte, North Carolina. The consideration paid included $3,000 in
cash, net of cash acquired, and 50,110 shares (40,088 shares prior to
the Company's stock split) of the Company's common stock. The selling
shareholder will receive additional consideration, in cash and stock,
if certain performance targets are achieved. The acquisition has been
recorded using the purchase method of accounting and the operating
results have been included in the Company's financial statements from
the date of acquisition. The acquisition resulted in goodwill of
$4,119 which is being amortized over 25 years.
(c) Sacramento and Stockton, California franchises
On April 1, 1999, the Company purchased the assets of its franchises
in Sacramento and Stockton, California. The consideration paid
included $2,915 in cash, net of cash acquired. The selling shareholder
will receive additional cash consideration if certain performance
targets are achieved. The acquisition has been recorded using the
purchase method of accounting and the operating results have been
included in the Company's financial statements from the date of
acquisition. The acquisition resulted in goodwill of $3,515 which is
being amortized over 25 years.
(d) San Antonio, Texas franchise
On May 6, 1999, the Company purchased the assets of its franchise in
San Antonio, Texas. The consideration paid included $3,651 in cash,
net of cash acquired, and 63,244 (50,595 shares prior to the Company's
stock split) shares of the Company's common stock. The selling
shareholder will receive additional consideration, in cash and stock,
if certain performance targets are achieved. The acquisition has been
recorded using the purchase method of accounting and the operating
results have been included in the Company's financial statements from
the date of acquisition. The acquisition resulted in goodwill of
$4,500 which is being amortized over 25 years.
7
<PAGE>
If the results from the acquired locations had been included in the
results of operations for the first six months of 1999 and 1998, the
Company's revenue, net income, and earnings per share would have
approximated the following:
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
---------------- ----------------
Revenue ........................... $ 54,605 $ 43,797
Net Income ........................ $ 3,738 $ 2,999
Basic Earnings Per Share .......... $ 0.39 $ 0.33
Diluted Earnings Per Share ........ $ 0.37 $ 0.32
Note 5 On May 4, 1999, a five-for-four split of the Company's common stock
was approved. The stock split was effected in the form of a stock
dividend and was paid to stockholders of record on May 18, 1999.
Shares resulting from the split were issued on or about June 8, 1999.
Note 6 The Company is currently negotiating a $25 million credit facility
with a commercial bank, $20 million of which is for future business
acquisitions and $5 million of which is for short-term financing
requirements. This credit facility will replace the one that expired
in June 1999 and is expected to be finalized by September 1999.
Note 7 Effective January 1, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income." The Company's comprehensive income for the six
months ended June 30, 1999 and 1998 is presented below:
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
---------------- ----------------
Net income ........................... $ 4,093 $ 2,448
Other comprehensive income,
net of tax:
Unrealized holding gains/(losses)
on available for sale securities
arising during the year ....... 30 (25)
---------------- ----------------
Comprehensive income ............ $ 4,123 $ 2,423
================ ================
Note 8 In June 1997 the Financial Accounting Standards Board issued SFAS No.
131 "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 131 was adopted by the Company for the fiscal
year ended December 31, 1998.
The Company operates in two business segments--company-owned training
centers and franchising operations. The company-owned training centers
segment operates wholly-owned computer training centers in the United
States and derives its revenues from the operating revenues of those
centers. The franchising segment franchises computer training centers
domestically and internationally and supplies systems of instruction
and sales and management concepts concerning computer training to
independent franchisees. The franchising segment revenues are from the
initial franchise fees and royalties from the franchise operations and
other revenue such as from the Major Accounts Program. The two
segments are managed separately because of the differences in the
source of revenues and the services offered. Information on the
Company's segments is as follows:
8
<PAGE>
<TABLE>
<CAPTION>
Company-owned Executive
Centers Franchising Office Consolidated
------------- ----------- --------- ------------
<S> <C> <C> <C> <C>
For the six months ended June 30, 1999
- --------------------------------------
Revenues from external customers.................... $ 37,980 $ 12,022 $ -- $ 50,002
Depreciation and amortization expenses.............. 2,242 402 -- 2,644
Income tax expense ................................. 1,362 1,210 -- 2,572
Net income ......................................... 2,122 1,971 -- 4,093
Total assets ....................................... 68,901 18,006 6,434 93,341
Capital expenditures ............................... 2,337 1,454 93 3,884
For the six months ended June 30, 1998
- --------------------------------------
Revenues from external customers.................... $ 23,246 $ 9,249 $ -- $ 32,495
Depreciation and amortization expenses.............. 1,659 240 -- 1,899
Income tax expense ................................. 435 1,028 -- 1,463
Net income ......................................... 983 1,465 -- 2,448
Total assets ....................................... 38,404 12,664 24,808 75,876
Capital expenditures ............................... 795 460 2 1,257
</TABLE>
Note 9 As of December 31, 1997 the Company adopted SFAS No. 128, "Earnings
Per Share" (EPS). SFAS No. 128 requires the Company to report Basic
EPS, as defined therein, which assumes no dilution from outstanding
stock options, and Diluted EPS, as defined therein, which assumes
dilution from the outstanding stock options. Earnings per share
amounts for all periods presented have been calculated to conform to
the requirements of SFAS No. 128.
The computation of Basic EPS is based on the weighted average number
of shares actually outstanding during each year. The computation of
Diluted EPS is based upon the weighted average number of shares
actually outstanding, plus the shares that would be outstanding
assuming the exercise of all outstanding options and warrants,
computed using the treasury stock method.
The weighted average number of shares outstanding in determining Basic
EPS for the six months ended June 30, 1999 and 1998 was 9,469,742 and
9,011,878 and for the three months ended June 30, 1999 and 1998 was
9,518,799 and 9,179,678. The weighted average number of shares
outstanding used in determining Diluted EPS for the six months ended
June 30, 1999 and 1998 was 10,001,548 and 9,355,280 and for the three
months ended June 30, 1999 and 1998 was 10,053,743 and 9,597,471.
The difference between the shares used for calculating Basic and
Diluted EPS relates to common stock equivalents consisting of stock
options and warrants outstanding during the respective periods.
9
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)
General
- -------
The Company operates computer training centers in the United States and
franchises computer training centers in the United States and abroad.
Corporate revenues are defined as revenues from company-owned training centers,
initial franchise fees and royalties from franchised operations. System-wide
revenues are comprised of total revenues from all centers, both company-owned
and franchised. System-wide revenues are used to gauge the growth rate of the
entire New Horizons training network.
Revenues from company-owned training centers operated by New Horizons consist
primarily of training fees and fees derived from the sale of courseware. Cost of
revenues consists primarily of instructor costs, courseware costs, rent,
utilities, classroom equipment, and computer hardware, software and peripheral
expenses. Included in selling, general and administrative expenses are costs
associated with technical support personnel, facilities support personnel,
scheduling personnel, training personnel, accounting and finance personnel, and
sales executives.
Revenues from franchising consist primarily of initial franchise fees paid by
franchisees for the purchase of specific franchise territories and franchise
rights, training royalty and advertising fees based on a percentage of gross
training revenues realized by the franchisees, percentage royalty fees received
on the sale of courseware, and revenue earned from the Major Accounts Program.
Cost of revenues 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.
Included in selling, general and administrative expenses are technical support,
courseware development, accounting and finance support, Major Accounts Program
support, advertising expenses, and franchise sales expenses.
Revenues
- --------
Revenues increased $10,090 or 56.7% to $27,900 for the second quarter of 1999
and increased $17,507 or 53.9% for the first half of 1999 compared to the same
periods in 1998. This was primarily due to improved revenues at company-owned
locations, additional revenues resulting from the acquisition of the Hartford,
Albuquerque, Sacramento, Stockton, Charlotte, and San Antonio franchises since
the second quarter of 1998, revenue increases at franchises open more than
twelve months, and additional franchises added to the system. System-wide
revenues for the second quarter were $109,894, up 23.8% from $88,791 for the
same period in 1998. For the first half of 1999, system-wide revenues grew 26.7%
to $212,346 from $167,555 for the first half of 1998. System-wide revenues
include revenues from both franchised locations and company-owned training
centers. Revenues from locations open more than 12 months, both franchised and
company-owned, grew 16.3% in the second quarter of 1999 and 18.7% in the first
half of 1999 compared to the same periods in 1998.
Cost of Revenues
- ----------------
Cost of revenues increased $4,566 or 57.5% for the second quarter of 1999 and
increased $7,366 or 49.5% for the first half of 1999 compared to the same
periods in 1998. As a percentage of revenues, cost of revenues increased to
44.8% in the second quarter of 1999 from 44.6% and decreased to 44.5% for the
first half of 1999 from 45.8% compared to the same periods in 1998. The increase
in the cost of revenues in absolute dollars was a result of the increase in the
revenues for the quarter and the first half of 1999 as discussed above, higher
training, facilities and depreciation expenses in and associated with the
acquisition of the Sacramento, Stockton, Charlotte, and San Antonio franchises
in the second quarter of 1999 and the inclusion of Memphis and Nashville
franchises, acquired in April 1998, for the full period in 1999. The increase in
cost of revenues as a percentage of revenues in the second quarter was a result
of the increase in company-owned revenue as a percentage of total revenue. The
franchising segment operates at a higher gross margin than the company-owned
segment. The decrease for the first half of 1999 was primarily due to improved
absorption of fixed costs over an increased revenue base.
10
<PAGE>
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses increased $3,869 or 50.9% for the
second quarter of 1999 and increased $7,149 or 50.1% for the first half of 1999
compared to the same periods in 1998. As a percentage of revenues, selling,
general and administrative expenses decreased to 41.1% for the second quarter of
1999 and to 42.8% for the first half of 1999 from 42.7% and 43.9%, respectively,
for the same periods in 1998. The increase in selling, general and
administrative expenses in absolute dollars was due principally to increased
spending in the areas of sales and marketing, national advertising, the
expansion of the Major Accounts Program and the acquisition of the Sacramento,
Stockton, Charlotte, and San Antonio franchises in the second quarter of 1999,
and the inclusion of Memphis and Nashville franchises, acquired in April 1998,
for the full period in 1999. The decrease in selling, general and administrative
expenses as a percent of revenues was primarily due to the increase in revenue
and control of the addition of non-revenue producing employees.
Operating Income
- ----------------
Operating income increased to $1,655 or 73% for the second quarter of 1999 and
increased $2,992 or 89.6% for the first half of 1999 compared to the same
periods in 1998. The increase in operating income for the six months ended June
30, 1999 resulted mainly from the increase in revenues and the reduction in
expenses as a percentage of revenues.
Investment Income, Net
- ----------------------
Investment income decreased $246 or 60.7% for the second quarter of 1999 and
decreased $338 or 46.1% for the first half of 1999 compared to the same periods
in 1998. As a percentage of revenues, investment income decreased to 0.6% for
the second quarter of 1999 and to 0.8% for the first half of 1999 compared to
2.3% in both periods of 1998. The decrease in investment income in absolute
dollars was due mainly to the use of funds to purchase the six franchises
acquired since the first quarter of 1998 and the 8.3 acres of undeveloped land
in Santa Ana, California.
Interest expense decreased $45 or 66.2% for the second quarter of 1999 and
decreased $100 or 61.7% for the first half of 1999 compared to the same periods
in 1998. The lower interest expense was due mainly to lower outstanding
borrowings in the first six months of 1999 compared to the corresponding period
in 1998.
Income Taxes
- ------------
The Company's effective tax rate was 39% for the second quarter of 1999 and
38.6% for the first half of 1999.
Liquidity and Capital Resources
- -------------------------------
As of June 30, 1999, the Company's working capital was $9,976 and its cash, cash
equivalents and short-term investments totaled $7,420. Working capital as of
June 30, 1999 reflected a decrease of $10,975 or 52.4% from $20,951 as of
December 31, 1998.
11
<PAGE>
The Company is currently negotiating a $25 million credit facility with a
commercial bank, $20 million of which is for future business acquisitions and $5
million of which is for short-term financing requirements. This credit facility
will replace the one that expired in June 1999 and is expected to be finalized
by September 1999.
The nature of the computer education and training industry requires substantial
cash commitments for the purchase of computer equipment, software, and training
facilities. During the first six months of 1999 the Company spent approximately
$3,884 on capital items and anticipates spending up to a total of $7,500 during
1999.
Management believes that its current working capital position, cash flows from
operations, along with its credit facility, will be adequate to support its
current and anticipated capital and operating expenditures and its strategies to
grow its computer education and training business.
Information About Forward Looking Statements
- --------------------------------------------
The statements made in this Quarterly Report on Form 10-Q that are not
historical facts are forward looking statements. Such statements are based on
current expectations but involve risks, uncertainties, and other factors which
may cause actual results to differ materially from those contemplated by such
forward looking statements. Important factors which may result in variations
from results contemplated by such forward looking statements include, but are by
no means limited to: (1) the Company's ability to respond effectively to
potential changes in the manner in which computer training is delivered,
including the increasing acceptance of technology-based training which could
have more favorable economics with respect to timing and delivery costs and the
emergence of just-in-time interactive training; (2) the Company's ability to
attract and retain qualified instructors; (3) the rate at which new software
applications are introduced by manufacturers and the Company's ability to keep
up with new applications and enhancements to existing applications; (4) the
level of expenditures devoted to upgrading information systems and computer
software by customers; (5) the Company's ability to compete effectively with low
cost training providers who may not be authorized by software manufacturers; and
(6) the Company's ability to manage the growth of its business.
The Company's strategy focuses on enhancing revenues and profits at current
locations, and also includes the possible opening of new company-owned
locations, the sale of additional franchises, the selective acquisition of
existing franchises in the United States which have demonstrated the ability to
achieve exceptional profitability while increasing market share, and the
acquisition of companies in similar or complementary businesses. The Company's
growth strategy is premised on a number of assumptions concerning trends in the
information technology training industry. These include the continuation of
growth in the market for information technology training and the trend toward
outsourcing. To the extent that the Company's assumptions with respect to any of
these matters are inaccurate, its results of operations and financial condition
could be adversely effected.
Year 2000
- ---------
The issues raised by the inability of computers, software, and other equipment
utilizing microprocessors to recognize and properly process data fields
containing a 2-digit year are commonly referred to as Year 2000 ("Y2K") issues.
A company-wide Y2K compliance program has been implemented to determine Y2K
issues and develop strategies to assure compliance. The compliance program has
four major areas of concentration: internal information technology systems,
non-information technology systems, systems and processes utilized by
franchisees, and compliance issues related to major suppliers. A Y2K project
team has been established and is directing the activity regarding the issues
confronted in each area, monitoring progress of the effort, and reporting
findings to management. As the Y2K compliance program proceeds, contingency
plans are being prepared, updated, and implemented as necessary to address the
risks identified.
12
<PAGE>
With respect to internal information technology systems, among the most critical
systems to the ongoing operations of both the company-owned and franchised
training centers are those systems which provide customer contact and student
registration information. The systems currently used by the company-owned
centers are not Y2K compliant, but the Company has prepared the necessary
upgrades. The cost of developing these upgrades has not been, and is not
expected to be, material. Certain franchised locations use the same systems as
the company-owned centers and have received these upgrades from the Company.
Other franchised locations use contact management and/or student registration
software from various vendors which, in many cases, may require updating to
become Y2K compliant. Franchisees have been and will continue to be advised to
bring their systems into compliance. However, simultaneous with these efforts,
the Company has also engaged a third party to develop a comprehensive
replacement information management system (NHMS) for use in all company-owned
and franchised locations. The Company expects to commence deployment of this
system, which is designed to be Y2K compliant, in the fourth quarter of 1999. In
addition to the foregoing, the Company is reviewing its other computer hardware
and software systems and upgrading or replacing them as necessary. With respect
to the Company's accounting system currently used to consolidate results from
the company-owned centers, the Company has selected a new system. The cost of
the new system is expected to be less than $500. Installation was completed for
the locations that did not have Y2K compliant accounting systems in the second
quarter of 1999. The new system will be installed in the remaining centers by
November 1999.
Regarding non-information technology systems, the project team has inventoried
the items potentially affected by Y2K issues, and is currently assessing
compliance of those systems considered to have the potential for a material
impact. Those items which appear to have the potential for such an effect that
are determined not to be in compliance will be upgraded or replaced before the
end of 1999. Those costs are not expected to be material.
13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
(Dollars in thousands)
The Company is exposed to market risk related to changes in interest rates. It
monitors the risks associated with interest rates and financial instrument
positions.
The Company accounts for investments pursuant to Statement of Financial
Accounting Standards (SFAS) No.115, "Accounting for Certain Investments in Debt
and Equity Securities." At June 30, 1999 and December 31, 1998, the Company's
investments have been categorized as "available for sale" and, as a result, are
stated at fair value. Accordingly, any unrealized holding gains and losses are
included as a component of accumulated other comprehensive income, net of tax,
until realized. Investments at June 30, 1999, consist of $302 in municipal bond
funds. The bond funds were liquidated July 1, 1999.
There were net unrealized gains of $30 and $53 recorded as of June 30, 1999 and
December 31, 1998, respectively.
The Company's revenue derived from international operations is not material and,
therefore, the risk related to foreign currency exchange rates is not material.
14
<PAGE>
FORM 10Q - PART II: OTHER INFORMATION
Item 5. Other Information
Effective August 27, 1999, the Company's principal executive offices
will be located at 1231 E. Dyer Road, Santa Ana, California 92705,
[and the company's phone number will be (714) 432-7600].
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
(b) Reports on Form 8-K. During the quarter ended June 30, 1999, the
Company filed a Current Report on Form 8-K dated April 1, 1999 to
report the Company's acquisition, through its indirect wholly-owned
subsidiary, New Horizons Computer Learning Center of Charlotte, Inc.,
a Delaware corporation, of substantially all of the assets used in the
computer training business conducted by INNOVAK International
Incorporation, a South Carolina corporation.
During the quarter ended June 30, 1999, the Company filed a Current
Report on Form 8-K dated April 1, 1999 to report the Company's
acquisition, through its indirect wholly-owned subsidiary, New
Horizons Computer Learning Center of Sacramento, Inc., a Delaware
corporation, of substantially all of the assets used in the computer
training business conducted by X-Tech Incorporated, a California
corporation.
During the quarter ended June 30, 1999, the Company filed a Current
Report on Form 8-K dated May 1, 1999 to report the Company's
acquisition, through its indirect wholly-owned subsidiary, NHCLC of
San Antonio, Inc., a Delaware corporation, of substantially all of the
assets used in the computer training business conducted by SA Horizons
Education, Inc., a Texas corporation.
Exhibit
Number Description of Documents
- ------- ------------------------
27 Financial Data Schedule*
* Filed herewith
15
<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.
NEW HORIZONS WORLDWIDE, INC.
(Registrant)
Date: August 13, 1999 By: /s/
Robert S. McMillan
NEW HORIZONS WORLDWIDE, INC.
Chief Financial Officer
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's 1998 Consolidated Balance Sheets and Consolidated Statements of
Operations, and is qualified in its entirety by reference to such 1998 10-K.
</LEGEND>
<CIK> 0000850414
<NAME> NEW HORIZONS WORLDWIDE
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1.00
<CASH> 7,118
<SECURITIES> 302
<RECEIVABLES> 20,930
<ALLOWANCES> 926
<INVENTORY> 1,039
<CURRENT-ASSETS> 32,841
<PP&E> 29,116
<DEPRECIATION> 12,990
<TOTAL-ASSETS> 93,341
<CURRENT-LIABILITIES> 22,865
<BONDS> 96
0
0
<COMMON> 78
<OTHER-SE> 68,394
<TOTAL-LIABILITY-AND-EQUITY> 93,341
<SALES> 50,002
<TOTAL-REVENUES> 50,002
<CGS> 22,261
<TOTAL-COSTS> 43,670
<OTHER-EXPENSES> 395
<LOSS-PROVISION> 176
<INTEREST-EXPENSE> (62)
<INCOME-PRETAX> 6,665
<INCOME-TAX> 2,572
<INCOME-CONTINUING> 4,093
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,093
<EPS-BASIC> .43
<EPS-DILUTED> .41
</TABLE>
