SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to _____________
Commission file number 0-7282
COMPUTER HORIZONS CORP.
(Exact name of registrant as specified in its charter)
New York 13-2638902
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
49 Old Bloomfield Avenue
Mountain Lakes, New Jersey 07046-1495
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number,
including area code: (201) 402-7400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (Par value $.10 per share)
(Title of class)
Series A Preferred Stock Purchase Rights
(Title of class)
<PAGE>
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 [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant as of March 22, l996, was approximately
$534,857,940.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of March 22, l996: 15,835,383 shares.
DOCUMENTS INCORPORATED BY REFERENCE
There is incorporated herein by reference the registrant's (i) Annual
Report to Shareholders for the year ended December 3l, l995, in Part II of this
Report and (ii) Proxy Statement for the 1996 Annual Meeting of Shareholders,
expected to be filed with the Securities and Exchange Commission on or before
April 1, 1996, in Part III hereof.
<PAGE>
PART I
Item 1. Business
General
The Company provides a wide range of information technology services
and solutions to major corporations. Historically, a professional services
staffing firm, the Company has, over the past five years, developed the
technological and managerial infrastructure to offer its clients value added
services including CHC's Signature 2000(TM) solution for the millennium change,
client/server systems development and migration, enterprise network management,
outsourcing and offshore software development and maintenance ("solutions"). The
Company markets solutions to both existing and potential clients with the
objective of becoming one of such clients' preferred providers of comprehensive
information technology services and solutions. Solutions engagements, which
represented less than five percent of the Company's consolidated revenues in
1992, accounted for approximately 30% of its consolidated revenues in 1995. The
Company believes that the range of services and solutions that it offers,
combined with its worldwide network of 39 offices and subsidiary organizations,
provides it with significant competitive advantages in the information
technology marketplace.
The Company's clients primarily are Fortune 1,000 companies with
significant information technology budgets and recurring staffing or software
development needs. In 1995, the Company provided information technology services
to 462 clients. During 1995, the Company's largest client, AT&T accounted for 8%
of the Company's consolidated revenues.
With the trend in the commercial market moving towards fully integrated
information systems solutions, the Company offers its clients a broad range of
business and technical services as a service outsourcer and systems integrator
capable of providing complex total solutions. This total solutions approach
comprises proprietary software and tools, proven processes and methodologies,
tested project management practices and resource management and procurement
programs.
The Company offers a range of information technology services and
solutions, which include (1) professional services staffing, (2) solution for
the millennium change, (3) client/server systems development and migration, (4)
enterprise network management, (5) outsourcing, (6) offshore software
development and maintenance, and (7) knowledge transfer.
(1) Professional Services Staffing: Providing highly skilled software
professionals to augment the internal information management staffs of major
corporations remains the Company's primary business. The Company offers its
clients centralized vendor management, supplying their staffing needs from among
the Company's over 2,200 software professionals. The Company is committed to
expanding its professional services staffing operations in conjunction with its
solutions business.
(2) Solution for the Millennium Change: CHC's Signature 2000(TM)
offering combines an internally developed proprietary software toolkit, skilled
resources, proven methodologies, experienced project management, as well as
significant millennium project experience. It analyzes, locates, reports on, and
then restructures all programs and database definitions affected by the absence
of a century date field to permit processing of dates after December 31, 1999.
The solution is customized for each particular enterprise and deals with all
collateral issues. In effect, CHC's Signature 2000(TM) provides the Company with
an opportunity to facilitate field expansion, while simultaneously performing
other systems upgrades such as language conversions and platform migrations.
<PAGE>
(3) Client/Server Systems Development and Migration: The Company has
the capability to develop and implement open computer systems using
client/server architecture and integrating servers, mini and mainframe systems,
workstations, terminals and communication gateways into complete, flexible
networks. Such services include project management, selection of viable systems
platforms, creation of migration plans, development of customized software
applications, and systems and database integration. The Company specializes in
integrating local area network ("LAN") environments into single heterogeneous
networks and unifying enterprise networks into wide area network ("WAN")
environments.
(4) Enterprise Network Management: As application development migrates
to distributed systems platforms, so too must the disciplines of systems
management. The Company's enterprise network management offering is comprised of
experienced technical professionals whose only business focus is the development
and integration of centralized management platforms for mission-critical
distributed systems environments. The Company's staff handles large-scale
integration projects, including those requiring vendor product integration and
custom software development associated with LAN/WAN monitoring and control,
network asset management, software distribution and help desk support.
(5) Outsourcing: Spurred by global competition and rapid technological
change, big companies, in particular, are downsizing and outsourcing for reasons
ranging from cost reduction to capital asset improvement and from improved
technology introduction to better strategic focus. In response to this trend,
the Company has created a group of regional outsourcing centers with 24 hour/7
day a week support, which are fully equipped with the latest technology and
communications, as well as a complete staff that includes experienced project
managers, technicians and operators. These professionals facilitate essential
data functions including: applications development, systems maintenance, data
network management, voice network administration and help desk operations.
(6) Offshore Software Development and Maintenance: For major U.S.
corporations under the constraints of downsizing and cost-cutting, offshore
software development and maintenance provides a high quality, low-cost
alternative to having these services performed domestically. Through Birla
Horizons International, a joint venture established in India, the Company is
able to provide offshore development, legacy systems maintenance and conversion
services, which can be ported to client computers at satellite speed. Quality
control and project management remain localized through one of the Company's
domestic offices.
(7) Knowledge Transfer: The Company offers both standard curricula and
custom-tailored courses for a client's particular environment and needs.
Comprehensive courses cover languages, hardware, software, tools, methodologies
and management and productivity skills. The Company's offerings include
application downsizing, graphical interfaces, open systems, computer-aided
software engineering ("CASE") and information engineering technologies,
relational technology and personal computer software and hardware. The Company
also has reseller and training rights in selected markets to certain development
tools used as an aid in building client/server applications.
Personnel
As of December 3l, 1995, the Company had a staff of 2,511, of whom
2,206 were computer professionals. The Company devotes significant resources to
recruitment of qualified professionals and provides continuing in-house training
and education, and a career path management development program within the
Company.
<PAGE>
Competition
The Company competes in the commercial information technology services
market which is highly competitive and served by numerous firms, many of which
serve only their respective local markets. The market includes participants in a
variety of market segments, including systems consulting and integration firms,
professional services companies, application software firms, temporary
employment agencies, the professional service groups of computer equipment
companies such as Hewlett-Packard Company, Unisys Corporation and Digital
Equipment Corporation, facilities management and management information systems
("MIS") outsourcing companies, certain "Big Six" accounting firms, and general
management consulting firms. The Company's competitors also include companies
such as Andersen Consulting, Technology Solutions Corporation, Cambridge
Technology Partners, Inc., SHL Systemhouse Inc., Cap Gemini America, Business
System Group, the consulting division of Computer Sciences Corporation, Computer
Task Group Inc., Analysts International Corp. and Keane, Inc.
Many participants in the information technology consulting and software
solutions market have significantly greater financial, technical and marketing
resources and generate greater revenues than the Company. The Company believes
that the principal competitive factors in the commercial information technology
services industry include responsiveness to client needs, speed of application
software development, quality of service, price, project management capability
and technical expertise. Pricing has its greatest importance as a competitive
factor in the area of professional service staffing. The Company believes that
its ability to compete also depends in part on a number of competitive factors
outside its control, including the ability of its competitors to hire, retain
and motivate skilled technical and management personnel, the ownership by
competitors of software used by potential clients, the price at which others
offer comparable services and the extent of its competitors' responsiveness to
customer needs.
Item 2. Properties
The Company's Corporate and Financial Headquarters, its Unified Systems
Solutions, Inc. subsidiary, its ComputerKnowledge division, as well as its
Eastern Regional Office, comprising approximately 34,300 square feet, are
located at 49 Old Bloomfield Avenue, Mountain Lakes, New Jersey. The Mountain
Lakes leases are for terms expiring December 31, 1999, at a current annual
rental of approximately $530,000. As of December 3l, l995, the Company also
maintained facilities in Arizona, California, Colorado, Connecticut, Florida,
Georgia, Illinois, Indiana, Iowa, Kentucky, Massachusetts, Michigan, Minnesota,
Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee,
Texas and Washington D.C. with an aggregate of approximately 125,000 square
feet. The leases for these facilities are at a current annual aggregate rental
of approximately $1,700,000. These leases expire at various times with no lease
commitment longer than June 30, 2000. In addition, through Birla Horizons
International, the Company has offices in London, England and New Delhi, India.
Item 3. Legal Proceedings
There are no material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
Executive Officers of the Company
The following table sets forth certain information with respect to the
executive officers of the Company, who are elected to serve until the next
annual meeting of the Board of Directors and until their successors are elected
and qualify. All the positions listed are or were held by such officers with the
Company.
<TABLE>
<CAPTION>
PERIOD
NAME AGE TITLE POSITION HELD
- ---- --- ----- -------------
<S> <C> <C> <C>
John J. Cassese 51 Chairman of the Board 1982-Present
and President
Director 1969-Present
Bernhard Hubert 51 Senior Vice President 1982-1995
& CFO
Executive Vice President 1995-Present
& CFO
Director 1995-Present
Michael J. Shea 35 Controller 1995-Present
Vice President 1996-Present
</TABLE>
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
The information required by this item is contained under the caption
"Market and Dividend Information" on page 31 of the Company's Annual Report to
Shareholders for the year ended December 3l, 1995, which material is
incorporated by reference in this Form 10-K Annual Report.
Item 6. Selected Financial Data
The information required by this item is contained under the caption
"Selected Financial Data" on page 15 of the Company's Annual Report to
Shareholders for the year ended December 3l, 1995, which material is
incorporated by reference in this Form 10-K Annual Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
The information required by this item is contained under the caption
"Management's Discussion and Analysis" on pages 16 and 17 of the Company's
Annual Report to Shareholders for the year ended December 3l, 1995, which
material is incorporated by reference in this Form 10-K Annual Report.
Item 8. Financial Statements and Supplementary Data
The financial statements together with the report thereon by Grant
Thornton LLP, Independent Certified Public Accountants, appearing on pages 18 to
31 of the Company's Annual Report to Shareholders for the year ended December
31, 1995, are incorporated herein by reference. Such information is listed in
Item 14(a)1 of this Form 10-K Annual Report.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
There have been no disagreements with the Company's independent
accountants involving accounting and financial disclosure matters.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) The information called for by Item 10 with respect to
identification of directors of the Company is incorporated herein by reference
to the material under the caption "Election of Directors" in the Company's Proxy
Statement for its 1996 Annual Meeting of Shareholders which is expected to be
filed with the Securities and Exchange Commission on or before April 1, 1996
(the "1996 Proxy Statement").
(b) The information called for by Item 10 with respect to executive
officers of the Company is included in Part I herein under the caption
"Executive Officers of the Company".
Item 11. Executive Compensation
The information called for by Item 11 with respect to management
remuneration and transactions is incorporated herein by reference to the
material under the caption "Executive Compensation" in the 1996 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by Item 12 with respect to security
ownership of certain beneficial owners and management is incorporated herein by
reference to the material under the caption "Certain Holders of Voting
Securities" in the 1996 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
None
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K
(a) 1. The following consolidated financial statements for 1994, and
1995, appearing on pages 18 to 31 of the Company's Annual Report to
Shareholders, are incorporated herein by reference.
- - Consolidated balance sheets as of December 3l, 1994 and 1995
- - Consolidated statements of income for each of the
three years in the period ended December 31, 1995
- - Consolidated statement of shareholders' equity for each of the
three years in the period ended December 31, 1995
- - Consolidated statements of cash flows for each of the
three years in the period ended December 31, 1995
- - Notes to consolidated financial statements
- - Report of independent certified public accountants on
the consolidated financial statements
2. Schedule II - Valuation and qualifying accounts
for the years ended December 31, 1993, 1994 and 1995.
-Report of independent certified public accountants on
the financial statements schedule.
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
3. The exhibit index is on page
4. Consent of Grant Thornton LLP is on page
(b) In November 1995, the Company filed a Form 8-K with the Securities
and Exchange Commission for the purpose of filing a desciption of the Company's
common stock and Series A Preferred Stock Purchase Rights.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
COMPUTER HORIZONS CORP.
Date: March 28, 1996 By: /s/ John J. Cassese
----------------- ------------------------
John J. Cassese, Chairman
of the Board and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
COMPUTER HORIZONS CORP.
Date: March 28, 1996 By: /s/ John J. Cassese
---------------------- ----------------------
John J. Cassese, Chairman
of the Board and President
(Principal Executive
Officer) and Director
Date: March 28, 1996 By: /s/ Bernhard Hubert
---------------------- --------------------
Bernhard Hubert,
Executive Vice President & CFO
(Principal Financial
Officer) and Director
Date: March 28, 1996 By: /s/ Thomas J. Berry
---------------------- --------------------
Thomas J. Berry, Director
Date: March 28, 1996 By: /s/ Rocco J. Marano
---------------------- -------------------
Rocco J. Marano
Date: March 28, 1996 By: /s/ Wilfred R. Plugge
---------------------- ----------------------
Wilfred R. Plugge, Director
Date: March 28, 1996 By: /s/ Michael J. Shea
---------------------- ----------------------
Michael J. Shea
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Incorporated by Reference to
------- ----------- -----------------------------
<S> <C> <C>
3(a-1) Certificate of Incorporation as Exhibit 3(a) to Registration
amended through 1971. Statement on Form S-1 (File No.
2-42259).
3(a-2) Certificate of Amendment dated May 16, Exhibit 3(a-2) to Form 10K for the
1983 to Certificate of Incorporation. fiscal year ended February 28, 1983.
3(a-3) Certificate of Amendment dated June Exhibit 3(a-3) to Form 10K for the
15, 1988 to Certificate of fiscal year ended December 31, 1988.
Incorporation.
3(a-4) Certificate of Amendment dated July 6, Exhibit 3(a-4) to Form 10K
1989 to Certificate of Incorporation. for the fiscal year ended
December 31, 1994.
3(a-5) Certificate of Amendment dated Exhibit 3(a-4) to Form 10K for the
February 14, 1990 to Certificate of year ended December 31, 1989.
Incorporation.
3(a-6) Certificate of Amendment dated May 1, Exhibit 3(a-6) to Form 10K
1991 to Certificate of Incorporation. for the fiscal year ended
December 31, 1994.
3(a-7) Certificate of Amendment dated July Exhibit 3(a-7) to Form 10K
12, 1994 to Certificate of for the fiscal year ended
Incorporation. December 31, 1994.
3(b) Bylaws, as amended and presently in Exhibit 3(b) to Form 10K for the
effect. year ended December 31, 1988.
4(a) Rights Agreement dated as of July 6, Exhibit 1 to Registration Statement
1989 between the Company and Chemical on Form 8-A dated July 7, 1989.
Bank, as Rights Agent ("Rights
Agreement") which includes the form of
Rights Certificate as Exhibit B.
4(b) Amendment No. 1 dated as of February Exhibit 1 to Amendment No. 1 on
13, 1990 to Rights Agreement. Form 8 dated February 13, 1990 to
Registration Statement on Form 8-A
4(c) Amendment No. 2 dated as of August 10, Exhibit 4(c) to Form 10K
1994 to Rights Agreement. for the fiscal year ended
December 31, 1994.
4(d) Employee's Savings Plan and Amendment Exhibit 4.4 to Registration
Number One. Statement on Form S-8 dated
December 5, 1995.
4(e) Employee's Savings Plan Trust Exhibit 4.5 to Registration
Agreement as Amended and Restated Statement on Form S-8 dated
Effective January 1, 1996. December 5, 1995.
<PAGE>
<CAPTION>
EXHIBIT INDEX (Continued)
Exhibit Description Incorporated by Reference to
------- ----------- -----------------------------
<S> <C> <C>
10(a) Employment Agreement dated as of Exhibit 10(a) to Form 10K for the
February 16, 1990 between the Company year ended December 31, 1989.
and John J. Cassese
10(b) Employment Agreement dated as of Exhibit 10(c) to Form 10K for the
February 16, 1990 between the Company year ended December 31, 1989.
and Bernhard Hubert.
10(c) Note Agreement dated as of March 15, Exhibit 10(i) to Form 10K for the
1988 between the Company and year ended December 31, 1988.
Massachusetts Mutual Life Insurance
Company.
10(d) Lease ("Lease") dated September 21, Exhibit 12(a) to Form 10K for
1989 between Glen Properties and the year ended December 31, 1989.
the Company.
10(e) Modification to Lease, dated September Exhibit 12(b) to Form 10K for the
28, 1989. year ended December 31, 1989.
10(f) 1991 Directors' Stock Option Plan, as Exhibit 10(g) to Form 10K
amended. for the fiscal year ended
December 31, 1994.
10(g) 1994 Incentive Stock Option and Exhibit 10(h) to Form 10K
Appreciation Plan. for the fiscal year ended
December 31, 1994
10(h) $15,000,000 Promissory Note payable to
Chemical Bank.
10(i) $10,000,000 Promissory Note payable to .
The Bank of New York, N.A
11 Statement regarding Computation of Per
Share Earnings.
13 Financial Portion of the Annual Report
to Security Holders.
21 List of Subsidiaries. Exhibit 21 to Form 10K
for the fiscal year ended
December 31, 1994.
</TABLE>
<PAGE>
Computer Horizions Corp. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1993, 1994 and 1995
<TABLE>
Column A Column B Column C Column D Column E
Balance at Charged to Balance at
beginning costs and Deductions end of
Description of Period expenses describe(1) period
<S> <C> <C> <C> <C>
Year ended December 31, 1993
Allowance for doubtful accounts $505,000 $136,000 $179,000 $462,000
Year ended December 31, 1994
Allowance for doubtful accounts $462,000 $244,000 $140,000 $566,000
Year ended December 31, 1995
Allowance for doubtful accounts $566,000 $534,000 $260,000 $840,000
</TABLE>
Notes
(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Board of Directors and Shareholders
Computer Horizons Corp.
In connection with our audit of the consolidated financial statements of
Computer Horizons Corp. and Subsidiaries referred to in our report dated January
26, 1996, which is included in the 1995 Annual Report to Shareholders and
incorporated by reference in this Form 10-K, we have also audited Schedule II
for each of the years ended December 31, 1993, 1994 and 1995. In our opinion,
this schedule presents fairly, in all material respects, the information
required to be set forth therein.
/S/GRANT THORNTON LLP
Parsippany, New Jersey
January 26, 1996
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Computer Horizons Corp.
We have issued our report dated January 26, 1996, accompanying the consolidated
financial statements incorporated by reference in the Annual Report to
Shareholders of Computer Horizons Corp. (the "Company") on Form 10-K for the
year ended December 31, 1995, We hereby consent to the incorporation by
reference of said report in the Registration Statements on Forms S-8, covering
shares of common stock, par value $.10 per share, to be offered pursuant to the
Computer Horizons Corp. Employee Savings Plan and the Company's 1994 Incentive
Stock Option and Appreciation Plan, 1985 Incentive Stock Option and Appreciation
Plan, as amended, 1976 Stock Option Plan, as amended, and 1991 Directors' Stock
Option Plan, as amended.
/S/GRANT THORNTON LLP
Parsippany, New Jersey
March 26, 1996
Exhibit 10 (h)
$15,000,000.00 New York, New York
June 30, 1995
1. For value received, the undersigned, by this promissory note (the
"Note") unconditionally promises to pay to the order of CHEMICAL BANK (the
"Bank") at any of its banking offices in New York, New York, in lawful money of
the United States and immediately available funds, the principal amount of
Fifteen Million and 00/100 Dollars ($15,000,000.00) or the aggregate unpaid
principal balance of all advances made by the Bank to the undersigned, whichever
is less, together with interest on each advance, in like money and funds, at a
rate determined by the Bank in its sole discretion at the time of such advance.
Each advance shall be payable on the maturity date thereof, as agreed between
the Borrower and the Bank on the date of such advance, provided that no advance
may mature after June 30, 1996 (the "Final Maturity Date"). Interest shall be
payable on the maturity date of each advance and upon any prepayment of any
advance.
2. If all or any portion of any advance shall not be paid when due
(whether as stated, by acceleration or otherwise) such advance shall bear
interest, for the period from the due date of such advance until the maturity
date thereof, at the rate per annum which is equal to 2% above the rate which
would otherwise be applicable hereunder and thereafter until the unpaid
principal amount thereof shall be paid in full, at the rate per annum which is
equal to 2% above the rate of interest publicly announced by the Bank from time
to time in New York, New York as its prime rate. Each change in the interest
rate hereon resulting from a change in the prime rate of the Bank shall become
effective as of the opening of business on the day on which such change in such
prime rate occurs. Interest shall be calculated on the basis of a 360 day year
for actual days elapsed. Anything in this Note to the contrary notwithstanding,
the Bank shall not be permitted to charge or receive, and the undersigned shall
not be obligated to pay, interest in excess of the maximum rate from time to
time permitted by applicable law: provided, however, if the maximum rate
permitted by law changes, the rate hereunder shall change, without notice to the
undersigned, on the same day the maximum rate permitted by law changes.
3. The undersigned may not prepay any advance unless it shall reimburse
the Bank on demand for any loss incurred or to be incurred by it in the
reemployment of the funds released by any such prepayment. Such loss shall be
the difference, as determined by the Bank, between the cost of obtaining the
funds for the advance or advances (or portion thereof) prepaid and any lesser
amount which may be realized by the Bank in reemploying the funds received in
prepayment during the period from the date of prepayment to the maturity date of
each advance prepaid.
4. If any amount becomes due and payable under this Note on a Saturday,
Sunday or other day on which commercial banks are authorized to close under the
laws of the State of New York, the maturity thereof shall be extended to the
next succeeding business day and interest thereon shall be payable during such
extension at the rate applicable to the Note prior to such extension.
5. The undersigned shall pay all reasonable out-of-pocket costs and
expenses incurred by the Bank in connection with the preparation, development
and execution of this note and any amendment, supplement or modification hereto,
including, without limitation, the fees and disbursements of counsel to the Bank
(which may include allocation of the cost of in-house counsel to the Bank).
<PAGE>
6. Upon occurrence, with respect to any maker, endorser or guarantor of
any of the following: default in payment of this Note or any other obligation of
any nature or description to the Bank (collectively, the "Obligations"); any
other violation of any covenant or condition of any of the Obligations; calling
a meeting of any creditors; filing of a voluntary or involuntary petition under
the Federal Bankruptcy Code which, in the case of an involuntary petition is not
dismissed, discharged or bonded with 60 days of the date of such petition;
insolvency; entry of a judgment; failure to pay or remit any tax when assessed
or due unless contested in good faith by appropriate proceedings, for which
adequate reserves are being provided; death (in the case of an individual),
termination (in the case of a partnership) or dissolution (in the case of a
corporation); granting a security interest in any property; suspension or
liquidation of usual business; failing to furnish financial information or to
permit inspection of books or records; making any misrepresentation to the Bank
in obtaining credit; or, in the Bank's opinion, impairment of financial
responsibility; then the Obligations shall be due and payable immediately
without notice or demand.
7. The undersigned agrees to indemnity the Bank for, and to hold the
Bank harmless from, any loss or expense which the Bank may sustain or incur,
including any interest payment by the Bank to lenders of funds borrowed by it in
order to make or maintain the loans evidenced hereby as a consequence of (a)
default by the undersigned in payment of the principal amount of, or interest
on, this Note and (b) payment by the undersigned on a day other than the
maturity date of any advance as a result of acceleration of the obligations
hereunder or otherwise. This covenant shall survive payment of this Note.
8. Each advance, and each payment made on account of the principal
thereof, shall be endorsed by the holder on an attachment hereto on the date
such advance is made or a payment in immediately available funds is received.
This Note shall be used to record all advances and payments of principal made
hereunder until it is surrendered to the undersigned by the Bank and it shall
continue to be used even though there may be periods prior to such surrender
when no amount of principal or interest is owing hereunder.
9. The Bank shall have a continuing lien and/or right of set-off on
deposits (general and special) and credits with the Bank of every maker,
endorser and guarantor, and may apply all or part of same to the Obligations
(whether contingent or unmatured), at any time or times, without notice. The
Bank shall have a continuing lien on all property of every maker, endorser and
guarantor and the proceeds thereof held or received by or for the Bank for any
purpose. Any notice of disposition of property shall be deemed reasonable if
mailed at least 5 days before such disposition to the last address of such
maker, endorser or guarantor on the Bank's records. Each maker, endorser and
guarantor agrees to pay the costs and expenses (including, without limitation,
reasonable attorneys' fees) of enforcing the Obligations. Each maker, endorser
and guarantor waives protest and, in any litigation (whether or not relating to
the Obligations) in which the Bank and any of them shall be adverse parties,
waives the right to interpose any set-off or counterclaim of any nature or
description and any defense based upon any statute of limitations or any claim
of laches. Time for payment extended by law shall be included in the computation
of interest.
<PAGE>
10. The undersigned hereby irrevocably (a) submits, in any legal
proceeding relating to this Note, to the non-exclusive in personam jurisdiction
of any state or United States court of competent jurisdiction sitting in the
State of New York and agrees to suit being brought in any such court, (b)
agrees to service of process in any such legal proceeding by mailing of copies
thereof (by registered or certified mail, if practicable) postage prepaid, or by
telex, to the undersigned at the last known address of the undersigned on the
books of the Bank, and (c) agrees that nothing contained herein shall effect the
Bank's right to effect service of process in any other manner permitted by law;
and the undersigned and the Bank hereby irrevocable waive, in any such legal
proceeding trial by jury.
11. This Note shall be governed by, and construed in accordance with,
the laws of the State of New York.
COMPUTER HORIZONS CORP.
By: /s/ David W. Bialick
Title: Treasurer
<PAGE>
SCHEDULE OF ADVANCES
<TABLE>
<CAPTION>
UNPAID
INTEREST AMOUNT OF PRINCIPAL NOTATION
AMOUNT OF MATURITY RATE PER PRINCIPAL BALANCE OF MADE
DATE ADVANCE DATE ANNUM PAID ADVANCE BY
- --- --------- -------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
</TABLE>
Exhibit 10(i)
PROMISSORY NOTE
$10,000,000.00 May 24, 1995
For Value Received, COMPUTER HORIZONS CORP., a corporation formed under
the laws of the State of New York (the "Borrower"), hereby promises to pay to
the order of THE BANK OF NEW YORK NATIONAL ASSOCIATION (the "Bank"), at its 385
Rifle Camp Road, West Paterson, New Jersey office, the principal sum of Ten
Million and 00/1OO Dollars ($10,000,000.00) or the aggregate unpaid principal
amount of all advances made by the Bank to the Borrower (which aggregate unpaid
principal amount shall be equal to the amount duly endorsed and set forth
opposite the date last appearing on the schedule attached hereto), whichever is
less.
Each advance hereunder (an "Advance") shall bear interest at a rate per
annum equal to (1) the Alternate Base Rate (as hereinafter defined), or (2) such
rate (a "Eurodollar Rate") as is equal to, during each Eurodollar Interest
Period (as hereinafter defined), the sum of one percent (1%) plus the quotient
of LIBOR (as hereinafter defined) for such Eurodollar Interest Period divided by
one (1) minus the Eurodollar Reserve (as hereinafter defined), which Eurodollar
Rate shall change on the effective date of any change in the Eurodollar Reserve,
(3) such rate (a "Note Rate") as shall be agreed to between the Bank and the
Borrower at the time of such Advance, which Note Rate shall remain fixed until
the maturity date of such Advance as shall be agreed to between the Bank and the
Borrower at the time of such Advance, or (4) such rate (a "Daily Rate") as shall
be agreed to between the Bank and the Borrower each day such Advance is
outstanding, but, in each case, in no event in excess of the maximum rate
permitted by law. Any Advance hereunder which shall not be paid when due shall
bear interest at a rate per annum equal to the Alternate Base Rate plus two
percent (2%), but in no event in excess of the maximum rate permitted by law.
Interest shall be computed on the basis of a 360 day year for the actual number
of days elapsed.
As used in this note:
(a) "Alternate Base Rate" shall mean, for any day, a rate per annum
equal to the higher of (i) the prime commercial lending rate of the Bank as
publicly announced to be in effect from time to time, such rate to be adjusted
automatically, without notice, on the effective date of any change in such rate,
and (ii) the Federal Funds Rate in effect on such day plus one-half of one
percent (1/2%);
(b) "Alternate Base Rate Advance" shall mean any Advance which
bears interest at the Alternate Base Rate;
(c) "Business Day" shall mean (i) any day other than a day on which
commercial banks in New York, New York are required or permitted by law to close
and (ii) with respect to Eurodollar Rate Advances, any day specified in clause
(i) of this definition which is also a day on which commercial banks are open
for domestic and international business, including dealings in Dollar deposits,
in London, England and New York, New York;
(d) "Daily Rate Advance" shall mean any Advance which bears
interest at a Daily Rate.
<PAGE>
(e) "Dollar" and "$" shall mean lawful money of the United States
of America;
(f) "Eurodollar Interest Period" shall mean, with respect to any
Eurodollar Rate Advance, a period selected by the Borrower on not less than two
Business Days' prior notice to the Bank commencing on the date such Eurodollar
Rate Advance is made and ending one (1) month, two (2) months or three (3)
months thereafter; provided, however, that (i) any Eurodollar Interest Period
which would otherwise end on a day which is not a Business Day shall be extended
to the immediately succeeding Business Day unless such Business Day falls in
another calendar month (in which case such Eurodollar Interest Period shall end
on the immediately preceding Business Day), (ii) no Eurodollar Interest Period
shall end after the date until which the line of credit under which Advances may
be made is held available to the Borrower, (iii) if any Eurodollar Interest
Period begins on a day for which there is no numerically corresponding day in
the calendar month during which such Eurodollar Interest Period is to end, such
Eurodollar Interest Period shall end on the last Business Day of such calendar
month, and (iv) no Eurodollar Interest Period shall be less than one (1) month;
(g) "Eurodollar Rate Advance" shall mean any Advance which bears
interest at a Eurodollar Rate;
(h) "Eurodollar Reserve" shall mean the aggregate of the rates
(expressed as a decimal) of reserve requirements (including, without limitation,
basic, supplemental, marginal and emergency reserves) under any regulation
promulgated by the Board of Governors of the Federal Reserve System (or any
other governmental authority having jurisdiction over the Bank) as in effect
from time to time, dealing with reserve requirements prescribed for eurocurrency
funding (including, without limitation, any reserve requirements with respect to
"Eurocurrency liabilities" under Regulation D of the Board of Governors of the
Federal Reserve System);
(i) "Federal Funds Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with the members of
the Federal Reserve System arranged by Federal funds brokers, as published for
such day (or if such day is not a Business Day, for the immediately preceding
Business Day) by the Federal Reserve Bank of New York, or if such rate is not so
published for any day which is a Business Day, the average of quotations for
such day on such transactions received by the Bank from three Federal funds
brokers of recognized standing selected by the Bank;
(j) "LIBOR" shall mean, with respect to any Eurodollar Rate Advance
for the then current Eurodollar Interest Period relating thereto, the rate per
annum quoted by the Bank two (2) Business Days prior to the first day of such
Eurodollar Interest Period for the offering by the Bank to prime commercial
banks in the London interbank Eurodollar market of Dollar deposits in
immediately available funds for a period equal to such Eurodollar Interest
Period and in an amount equal to the amount of such Eurodollar Rate Advance; and
(k) "Maturity Date" shall mean, (x) with respect to any Eurodollar
Rate Advance, the last Business Day of the Eurodollar Interest Period applicable
to such Eurodollar Rate Advance, and (y) with respect to any Note Rate Advance,
the date agreed to between the Bank and the Borrower at the time of such Note
Rate Advance.
(1) "Note Rate Advance" shall mean any Advance which bears interest
at a Note Rate.
<PAGE>
Each Alternate Base Rate Advance shall be payable ON DEMAND and may be
prepaid in whole at any time or in part from time to time. Each Eurodollar Rate
Advance shall be payable on the Maturity Date of such Eurodollar Rate Advance
and, except as otherwise provided herein, the Borrower shall not have the right
to prepay such Eurodollar Rate Advance. Each Note Rate Advance shall be payable
on the Maturity Date of such Advance, and the Borrower shall not have the right
to prepay such Note Rate Advance. Each Daily Rate Advance shall be payable ON
DEMAND and may be prepaid in whole at any time or in part from time to time and
shall be prepaid in the event that the Bank and the Borrower shall not be able
to agree on any day on the Daily Rate applicable thereto.
Interest on each Alternate Base Rate Advance shall be payable monthly on
the last day of each month, and at maturity. Interest on each Eurodollar Rate
Advance and each Note Rate Advance shall be payable on the Maturity Date
thereof. Interest on each Daily Rate Advance shall be payable daily. Upon any
prepayment of Alternate Base Rate Advances or Daily Rate Advances, the Borrower
shall pay interest on the amount so prepaid to the date of such prepayment.
If any payment hereof becomes due and payable on a day other than a
Business Day, such payment shall be extended to the next succeeding Business
Day; provided, however, that in the case of a payment in respect of the
principal amount of a Eurodollar Rate Advance, if such next succeeding Business
Day falls in another calendar month, such payment shall be due on the
immediately preceding Business Day. If the date for any payment of principal is
so extended, interest thereon shall be payable for the extended time.
The Borrower agrees to indemnify the Bank and to hold the Bank harmless
from and against all losses and expenses that the Bank may sustain or incur (x)
if the Borrower makes any payment of the principal of any Eurodollar Rate
Advance on a day other than the Maturity Date thereof or (y) if the Borrower,
for any reason whatsoever, fails to complete a borrowing of any Eurodollar Rate
Advance on the date specified therefor after notice thereof has been given and
the Bank has determined to make such Eurodollar Rate Advance (including, without
limitation, in each case, any interest payable by the Bank to lenders of funds
obtained by the Bank in order to make or maintain such Eurodollar Rate Advance).
In the event that any applicable law, treaty or governmental regulation
(whether now or hereafter in effect), or any change therein or in the
interpretation or application thereof, or compliance by the Bank with any
request or directive (whether or not having the force of law) from any central
bank or other financial, monetary or other authority, shall (I) subject the Bank
to any tax of any kind whatsoever with respect to this note or any Eurodollar
Rate Advance or change the basis of taxation of payments to the Bank of
principal, interest, fees or any other amount payable under this note (except
for changes in the rate of tax on the overall net income of the Bank by the
jurisdiction in which the Bank maintains its principal office), (II) impose,
modify or hold applicable any reserve, special deposit, assessment or similar
requirement against assets held by, or deposits in or for the account of,
advances or loans by, or other credit extended by, any office of the Bank,
including (without limitation) pursuant to Regulation D of the Board of
Governors of the Federal Reserve System, or (III) impose on the Bank or the
London interbank Eurodollar market any other condition with respect to this note
or any Eurodollar Rate Advance, and the result of any of the foregoing is to
increase the cost to the Bank of making or maintaining any Eurodollar Rate
Advance by an amount that the Bank deems to be material or to reduce the amount
of any payment (whether of principal, interest or otherwise) in respect of any
Eurodollar Rate Advance by an amount that the Bank deems to be material, then,
in any such case, the Borrower shall promptly pay to the Bank, upon its demand,
such additional amount as will compensate the Bank for such additional cost or
such reduction, as the case may be; provided, however, that the foregoing shall
not apply to increased costs which are reflected in a Eurodollar Rate.
<PAGE>
Notwithstanding any other provision hereof, if any applicable law, treaty,
regulation or directive of any government or any agency, instrumentality or
authority thereof, or any change therein or in the interpretation or application
thereof, shall make it unlawful for the Bank (or the office or branch where the
Bank makes or maintains any Eurodollar Rate Advance) to maintain any Eurodollar
Rate Advance, the Borrower shall, if any Eurodollar Rate Advance is then
outstanding, promptly upon request from the Bank, either prepay such Eurodollar
Rate Advance, together with accrued interest on the amount prepaid to the date
of prepayment, or, at the Borrower's option, convert such Eurodollar Rate
Advance into an Alternate Base Rate Advance. If any such prepayment or
conversion of any Eurodollar Rate Advance is made on a day that is not the
Maturity Date thereof, the Borrower shall also pay to the Bank, upon the Bank's
request, such amount or amounts as may be necessary to compensate the Bank for
any loss or expense sustained or incurred by the Bank in respect of such
Eurodollar Rate Advance as a result of such prepayment or conversion, including
(without limitation) any interest or other amounts payable by the Bank to
lenders of funds obtained by the Bank in order to make or maintain such
Eurodollar Rate Advance.
A certificate of the Bank setting forth such amount or amounts as shall be
necessary to compensate the Bank as specified in the immediately preceding three
paragraphs, submitted by the Bank to the Borrower, shall be conclusive absent
manifest error, and the obligations of the Borrower under the immediately
preceding three paragraphs shall survive payment of this note and all Advances.
If the Bank shall make a new Advance on a day on which the Borrower is to
repay an Advance, the Bank shall apply the proceeds of the new Advance to make
such repayment and only the amount by which the amount being advanced exceeds
the amount being repaid shall be made available to the Borrower in accordance
with the terms of this note.
<PAGE>
The Borrower hereby authorizes the Bank to accept telephonic instructions
from a duly authorized representative of the Borrower to make an Advance or
receive a payment hereof, and to endorse on the schedule attached hereto the
amount of all Advances and all principal payments hereof received by the Bank,
the interest rate applicable to each Advance and the Maturity Date of each
Eurodollar Rate Advance and each Note Rate Advance.
The Bank is hereby authorized to charge the Borrower's deposit account
maintained at the Bank for each principal prepayment hereof on the date made,
and for each principal payment and for each interest payment due hereunder on
the due date thereof. The Bank shall credit the Borrower's deposit account
maintained at the Bank in the amount of each Advance on the date of such
Advance, which credit shall be confirmed to the Borrower by standard advice of
credit. The Borrower agrees that the actual crediting of the amount of any
Advance to the Borrower's deposit account shall constitute conclusive evidence
that such Advance was made, and neither the failure of the Bank to endorse on
the schedule attached hereto the amount of any Advance, the interest rate
applicable to any Advance or the Maturity Date of any Eurodollar Rate Advance or
any Note Rate Advance, nor the failure of the Bank to forward an advice of
credit to the Borrower, shall affect the Borrower's obligations hereunder.
All payments hereof shall be made in lawful money of the United States of
America and in immediately available funds.
All Advances, together with all accrued interest thereon, shall become
immediately and automatically due and payable, without demand, presentment,
protest or notice of any kind, upon the insolvency, general assignment,
receivership, bankruptcy or dissolution of the Borrower. The Borrower does
hereby forever waive presentment, demand, protest, notice of protest and notice
of nonpayment or dishonor of this note.
The Borrower hereby agrees to pay all costs and expenses incurred by the
Bank incidental to or in any way relating to the Bank's enforcement of the
obligations of the Borrower hereunder or the protection of the Bank's rights
hereunder, including, but not limited to, reasonable attorneys' fees and
expenses incurred by the Bank.
No failure on the part of the Bank to exercise, and no delay in
exercising, any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by the Bank of any right,
remedy or power hereunder preclude any other or future exercise thereof or the
exercise of any other right, remedy or power.
Each and every right, remedy and power hereby granted to the Bank or
allowed it by law or other agreement shall be cumulative and not exclusive the
one of any other, and may be exercised by the Bank from time to time.
Every provision of this note is intended to be severable; if any term or
provision of this note shall be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired.
This note is an amendment and restatement of the Borrower's promissory
note dated June 14, 1994, payable to the order of the Bank in the original
principal amount of $5,000,000 (the "Existing Note") and is not being given by
the Borrower nor accepted by the Bank in payment of the Existing Note. All
advances outstanding under the Existing Note (the "Existing Advances") together
with interest accrued thereon, shall on the date hereof be deemed to be
outstanding under this note; provided that interest on Existing Advances shall
continue to accrue at the rate provided in the Existing Note until the maturity
date of each Existing Advance.
*Wherever in this Note reference is made to payable "on or upon demand", it
shall be changed to read "as long as Computer Horizons Corp. is not in default,
there must be a minimum of two weeks written notice".
THE BORROWER WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
ARISING OUT OF, BASED UPON, OR IN ANY WAY CONNECTED TO, THIS NOTE.
THE PROVISIONS OF THIS NOTE SHALL BE CONSTRUED AND INTERPRETED AND ALL
RIGHTS AND OBLIGATIONS HEREUNDER DETERMINED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW JERSEY.
COMPUTER HORIZONS CORP.
By: /s/ David W. Bialick
Title: Vice President
<PAGE>
<TABLE>
<CAPTION>
Schedule to
Promissory Note - COMPUTER HORIZONS CORP.
Date of Amount of Type of Maturity Date Interest Amount of Aggregate Unpaid
Advance Advance Advance* of Advance** Rate*** Payment Principal Amount
- ------- --------- -------- ------------- -------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
- --------------------------------------------------------------------------------
* Insert "Alternate Base Rate" (or "ABR") "Eurodollar Rate", "Note Rate" or
"Daily Rate" as applicable.
** Only applicable for Eurodollar Rate Advances and Note Rate Advances.
*** For Alternate Base Rate Advances, insert "ABR". For Eurodollar Rate
Advances, Note Rate Advances and Daily Rate Advances, insert the actual
interest rate.
Exhibit 11
Computer Horizons Corp. and Subsidiaries
EARNINGS PER COMMON AND COMMON SHARE EQUIVALENT
Year ended December 31,
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Primary
Average shares outstanding ........ 14,607,000 13,322,000 14,572,000
Stock options ..................... 387,000 936,000 1,004,000
----------- ----------- -----------
Primary weighted average
number of common and
common equivalent shares
outstanding ....................... 14,994,000 14,258,000 15,576,000
=========== =========== ===========
Fully diluted
Average shares outstanding ........ 14,607,000 13,322,000 14,572,000
Stock options ..................... 889,000 979,000 1,085,000
----------- ----------- -----------
Fully diluted weighted average
number of common and
common equivalent shares
outstanding ....................... 15,496,000 14,301,000 15,657,000
=========== =========== ===========
Net income ........................... $ 3,704,000 $ 5,686,000 $ 9,907,000
=========== =========== ===========
Earnings per share
Primary ........................... $ .25 $ .40 $ .64
=========== =========== ===========
Fully diluted ..................... $ .24 $ .40 $ .63
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Computer Horizons Corp. and Subsidiaries
SELECTED FINANCIAL DATA
Year Ended December 31,
1991 1992 1993 1994 1995
- --------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Summary Income Statement
Revenues $94,543 $102,206 $121,550 $152,192 $200,050
Direct costs 68,098 74,200 87,800 108,189 140,344
Selling, administrative
and general 21,668 23,536 26,256 32,992 42,131
Income from operations 4,777 4,470 7,494 11,011 17,575
Interest expense--net (693) (578) (584) (638) (365)
Equity in net earnings of
joint venture 361
Income before income taxes 4,084 3,892 6,910 10,373 17,571
Income taxes 1,818 1,866 3,206 4,687 7,664
- --------------------------------------------------------------------------------------------------------
Net Income $ 2,266 $ 2,026 $ 3,704 $ 5,686 $ 9,907
========================================================================================================
Earnings per share:
Primary $0.17 $0.15 $0.25 $0.40 $0.64
========================================================================================================
Fully diluted $0.17 $0.15 $0.24 $0.40 $0.63
========================================================================================================
Weighted average number of
shares outstanding:
Primary 13,203,000 13,624,000 14,994,000 14,258,000 15,576,000
========================================================================================================
Fully diluted 13,241,000 13,844,000 15,496,000 14,301,000 15,657,000
========================================================================================================
<PAGE>
<CAPTION>
SELECTED FINANCIAL DATA (Continued)
Year Ended December 31,
1991 1992 1993 1994 1995
- --------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Analysis (%)
Revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin 28.0% 27.4% 27.8% 28.9% 29.8%
Selling, administrative
and general 22.9% 23.0% 21.6% 21.7% 21.1%
Income from operations 5.1% 4.4% 6.2% 7.2% 8.8%
Interest expense--net -0.7% -0.6% -0.5% -0.4% -0.2%
Equity in net earnings of
joint venture 0.2%
Income before income taxes 4.3% 3.8% 5.7% 6.8% 8.8%
Income taxes 1.9% 1.8% 2.6% 3.1% 3.8%
Net Income 2.4% 2.0% 3.0% 3.7% 5.0%
Revenue growth YOY -4.9% 8.1% 18.9% 25.2% 31.4%
Net income growth YOY -32.0% -10.6% 82.8% 53.5% 74.2%
Return on equity, average 11.1% 8.3% 14.1% 20.5% 23.5%
Effective tax rate 44.5% 47.9% 46.4% 45.2% 43.6%
At year-end
Total assets $37,220 $ 41,249 $ 40,600 $ 49,150 $ 76,037
Working capital 18,972 20,317 17,531 20,484 38,894
Long-term debt 8,572 7,144 5,843 4,288 3,299
Shareholders' equity 21,711 26,856 25,689 29,917 54,267
Stock price $2.03 $1.96 $3.48 $6.00 $25.33
P/E multiple 12 13 14 15 39
Employees* 1,251 1,414 1,603 2,150 2,511
Clients (during year)* 395 402 458 455 462
Offices (worldwide) 25 29 30 33 39
===========================================================================================================================
*Does not include Birla Horizons International.
</TABLE>
<PAGE>
Computer Horizons Corp. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table sets forth (i) certain income and expense items expressed as
a percentage of the Company's consolidated revenues and (ii) the percentage
increase in the amount of such items in 1995 compared to 1994:
<TABLE>
<CAPTION>
Year Ended December 31, Percentage
---------------------------------- Increase
1993 1994 1995 1995/1994
-----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 31.4%
Direct costs 72.2% 71.1% 70.2% 29.7%
Selling, administrative and general 21.6% 21.7% 21.1% 27.7%
Income from operations 6.2% 7.2% 8.8% 59.6%
Interest expense, net -0.5% -0.4% -0.2% -42.8%
Equity in net earnings of joint venture 0.2% 100.0%
Income before income taxes 5.7% 6.8% 8.8% 69.4%
Income taxes 2.6% 3.1% 3.8% 63.5%
Net income 3.0% 3.7% 5.0% 74.2%
</TABLE>
Revenues
Consolidated revenues in 1995 increased by 31% compared to 1994, and in 1994
consolidated revenues increased by 25% compared to 1993. The increase in 1995
was attributable to increased solutions business and improved pricing applicable
thereto. In 1994, the increase was attributable equally to the expansion of the
Company's professional software personnel services business and the continued
development of its solutions business.
The Company provides its services primarily to businesses in five principal
Standard Industrial Classification Code sectors. In 1995, the largest portion of
the Company's consolidated revenues was derived from financial services clients,
29% in 1995 and 26% in both 1994 and 1993. In dollars, such revenues were $57.0,
$39.9 and $31.5 million in 1995, 1994 and 1993, respectively. Financial services
clients represent those in insurance, brokerage, banking and non-depository
credit institutions.
Telecommunications/utilities clients represented 25% of the Company consolidated
revenues in 1995, 23% in 1994 and 24% in 1993. In dollars, the 1995, 1994 and
1993 amounts were $51.3, $35.0 and $28.8 million, respectively.
Consolidated revenues derived from manufacturing sector clients were 24% of
Company revenues in 1995 and 28% in both 1994 and 1993. In dollars, these
amounts were $48.8, $42.9 and $34.1 million in 1995, 1994 and 1993,
respectively. Revenues were broad-based within this sector, with particular
emphasis in transportation, petroleum refining and chemical/allied products
manufacturing.
<PAGE>
For 1995, 1994 and 1993, the Company's services sector, which includes business
services and computer processing services, contributed revenues of $23.0, $22.5
and $16.3 million or 12%, 15% and 13%, respectively, of the Company's
consolidated revenues.
Wholesale/retail trade clients recognized significantly increased revenues in
1995 of $20.1 million as compared to $11.9 and $10.9 million in 1994 and 1993,
respectively, representing 10%, 8% and 9% of the Company's consolidated
revenues.
Direct Costs
Direct costs as a percentage of consolidated revenues were 70.2%, 71.1% and
72.2% for 1995, 1994 and 1993, respectively. The improvements are attributable
to the Company's continued implementation of tighter controls over pricing,
wages, costs and benefits, and in 1995, improved pricing from our solutions
business.
Selling, Administrative and General
Selling, administrative and general expenses have improved as a percentage of
consolidated revenues in 1995 as compared to 1994 and remained essentially
stable as a percentage of consolidated revenues in 1994 as compared to 1993:
21.1%, 21.7% and 21.6% for 1995, 1994 and 1993, respectively. In dollars they
were $42.1, $33.0 and $26.3 million, respectively, for these years.
Profitability
Consolidated income from operations was $17.6 million in 1995, compared to $11.0
million in 1994 and $7.5 million in 1993. As a percentage of consolidated
revenues, income from operations was 8.8%, 7.2% and 6.2% for 1995, 1994 and
1993, respectively. The gains are attributable to increased revenues, improved
gross margins and containment of selling, administrative and general expenses.
The Company's business is labor-intensive and, as such, is sensitive to
inflationary trends. This sensitivity applies to client billing rates, as well
as payroll costs.
Consolidated net income for 1995 was $9.9 million, or $.64 per share, compared
with $5.7 million, or $.40 per share in 1994 and $3.7 million, or $.25 per
share, in 1993. The Company's effective tax rate for Federal, state and local
income taxes was 43.6%, 45.2% and 46.4% for 1995, 1994 and 1993, respectively.
After accounting for non-tax benefited charges such as goodwill amortization and
certain travel and entertainment deduction limitations, the Company's standard
marginal income tax rate for these periods was approximately 42%.
<PAGE>
Liquidity and Capital Resources
At December 31, 1995, the Company had a current ratio of 3.2 to 1, cash and cash
equivalents of $9.2 million and available bank lines of credit of $25.0 million.
In 1995, the Company had a maximum amount of $7.2 million outstanding under its
lines of credit. On June 7, 1995, the Company sold 1,140,000 shares of its
common stock (1,710,000 shares after the three-for-two stock split declared on
December 12, 1995) in a public offering generating approximately $13.3 million
in cash. These proceeds were used to repay outstanding indebtedness and provide
the Company with additional working capital. There were no borrowings under the
Company's lines of credit during the second half of 1995 and there were no
outstanding borrowings at December 31, 1995. During 1995, the average
outstanding amount under the Company's lines of credit was $1.7 million and the
weighted average interest rate approximated 7%. Borrowings were used to finance
the growth in accounts receivable resulting from increased revenues and the
effect of normal year-end purchase order expirations and resultant payment
delays. During 1994, the average outstanding amount under the lines of credit
was $1.1 million and the weighted average interest rate was 6.7%. In 1994, the
borrowings were also used to finance the repurchase of shares of common stock
for approximately $2.8 million from the Company's former Vice Chairman and
Executive Vice President, who retired effective February 15, 1995.
The Company's long-term debt consists of notes issued to financial institutions
in the outstanding principal amount of $4.3 million as of December 31, 1995,
payable in installments of $1.4 million on April 15th of each year through 1998,
bearing interest at the rate of 9.55% per annum; and notes issued to the four
former shareholders of Unified Systems Solutions in the outstanding amount of
$1.4 million as of December 31, 1995, $1.0 million payable on April 1, 1996 and
$0.4 million payable on April 1, 1997, with 8.75% imputed interest.
The Company believes that its lines of credit and internally generated funds
will permit it to continue to meet its working capital obligations at least
through 1996.
<PAGE>
[GRAPHIC -- COMPANY LOGO]
Grant Thornton LLP
- --------------------------------------------------------------------------------
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Computer Horizons Corp.
We have audited the accompanying consolidated balance sheets of Computer
Horizons Corp. and Subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Computer Horizons
Corp. and Subsidiaries as of December 31, 1994 and 1995 and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/GRANT THORNTON LLP
GRANT THORNTON LLP
Parsippany, New Jersey
January 26, 1996
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1993 1994 1995
- --------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues (Note 9) $121,550 $ 152,192 $ 200,050
- --------------------------------------------------------------------------------------------------------
Costs and expenses:
Direct costs 87,800 108,189 140,344
Selling, administrative and general 26,256 32,992 42,131
- --------------------------------------------------------------------------------------------------------
114,056 141,181 182,475
- --------------------------------------------------------------------------------------------------------
Income from operations 7,494 11,011 17,575
- --------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 235 53 266
Interest expense (819) (691) (631)
Equity in net earnings of joint venture (Note 3) 361
- --------------------------------------------------------------------------------------------------------
(584) (638) (4)
- --------------------------------------------------------------------------------------------------------
Income before income taxes 6,910 10,373 17,571
- --------------------------------------------------------------------------------------------------------
Income taxes (Notes 1 and 6):
Current 3,116 5,044 8,138
Deferred 90 (357) (474)
- --------------------------------------------------------------------------------------------------------
3,206 4,687 7,664
- --------------------------------------------------------------------------------------------------------
Net Income $ 3,704 $ 5,686 $ 9,907
========================================================================================================
Earnings per share:
Primary $.25 $.40 $.64
========================================================================================================
Fully diluted $.24 $.40 $.63
========================================================================================================
Weighted average number of shares outstanding:
Primary 14,994,000 14,258,000 15,576,000
========================================================================================================
Fully diluted 15,496,000 14,301,000 15,657,000
========================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31,
1994 1995
- ----------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Assets Current assets:
Cash and cash equivalents $ 2,278 9,166
Accounts receivable, net of allowance for doubtful
accounts of $566,000 and $840,000 at December 31, 1994
and 1995, respectively 30,636 44,729
Deferred income tax benefit (Note 6) 771 1,245
Other 1,108 1,618
- ----------------------------------------------------------------------------------------------------------------
Total current assets 34,793 56,758
- ----------------------------------------------------------------------------------------------------------------
Property and equipment:
Furniture, equipment and other 5,983 7,454
Less accumulated depreciation 3,348 4,031
- ----------------------------------------------------------------------------------------------------------------
2,635 3,423
- ----------------------------------------------------------------------------------------------------------------
Other assets - net:
Goodwill (Note 1) 11,065 13,526
Other (Note 3) 657 2,330
- ----------------------------------------------------------------------------------------------------------------
11,722 15,856
- ----------------------------------------------------------------------------------------------------------------
Total Assets $49,150 $76,037
================================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
1994 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable - banks $ 3,200 $ --
Current portion of long-term debt (Note 4) 1,556 2,385
Accrued payroll, payroll taxes and benefits 7,305 10,812
Accounts payable 560 1,746
Income taxes payable 880 1,535
Other accrued expenses 808 1,386
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 14,309 17,864
- ----------------------------------------------------------------------------------------------------------------
Long-term debt (Note 4) 4,288 3,299
- ----------------------------------------------------------------------------------------------------------------
Other liabilities 636 607
- ----------------------------------------------------------------------------------------------------------------
Commitments (Note 8)
- ----------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, $.10 par; authorized and
unissued, 200,000 shares, including 50,000
Series A
Common stock, $.10 par; authorized, 30,000,000
shares; issued 15,180,443 shares and 17,407,514
shares at December 31, 1994 and 1995, respectively 1,518 1,741
Additional paid-in capital 13,196 27,416
Retained earnings 29,851 39,758
- ----------------------------------------------------------------------------------------------------------------
44,565 68,915
Less shares held in treasury, at cost; 1,786,883 shares
at December 31, 1994 and 1995 14,648 14,648
- ----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 29,917 54,267
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $49,150 $76,037
================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Common stock Additional Treasury stock Notes
--------------------- paid-in Retained ------------------- receivable,
Shares Amount capital earnings Shares Amount officers
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1993, 1994 and 1995 (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 3,720,374 $372 $11,273 $20,461 837,578 $ 4,621 $629
Three-for-two stock split
declared March 1993 1,441,398 144 (144)
Stock options exercised 204,500 21 1,026
Purchases of treasury stock 599,700 5,918
Net income for the year 3,704
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 5,366,272 537 12,155 24,165 1,437,278 10,539 629
Three-for-two stock split
declared February 1994 1,964,497 196 (196)
Stock options exercised 408,807 41 1,981
Purchases of treasury stock 349,605 4,109
Repayment of notes
receivable, officers (629)
Net income for the year 5,686
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 7,739,576 774 13,940 29,851 1,786,883 14,648 --
Three-for-two stock split
declared:
April 1995 3,002,998 300 (300)
December 1995 5,206,877 521 (521)
Stock options exercised 318,063 32 1,138
Sale of common stock,
net of expenses 1,140,000 114 13,159
Net income for the year 9,907
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 17,407,514 $1,741 $ 27,416 $39,758 1,786,883 $ 14,648 $--
====================================================================================================================================
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1993 1994 1995
- --------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 3,704 $ 5,686 $ 9,907
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Deferred taxes 90 (357) (474)
Depreciation 693 754 683
Amortization of intangibles 521 568 505
Changes in assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable (3,564) (9,770) (14,093)
(Increase) decrease in refundable income taxes 321
(Increase) decrease in other current assets 49 (433) (510)
Increase (decrease) in accrued payroll, payroll taxes
and benefits 2,088 1,287 3,507
Increase (decrease) in accounts payable (448) 273 1,186
Increase (decrease) in income taxes payable 161 705 655
Increase (decrease) in other accrued expenses (267) 11 578
Increase (decrease) in other liabilities 341 (29)
- --------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 3,348 (935) 1,915
- --------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchases of furniture and equipment (955) (1,353) (1,471)
Acquisitions, net (388) (245) (2,966)
(Increase) decrease in other assets (127) 254 (1,673)
Loans to officers, net 629
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,470) (715) (6,110)
- --------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Increase (decrease) in notes payable - banks, net 3,200 (3,200)
Increase (decrease) in long-term debt, net (1,427) (1,555) (160)
Stock options exercised 1,046 2,022 1,170
Proceeds from issuance of stock 13,273
Purchases of treasury stock (5,918) (4,109)
- --------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (6,299) (442) 11,083
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (4,421) (2,092) 6,888
Cash and cash equivalents at beginning of year 8,791 4,370 2,278
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 4,370 $ 2,278 $ 9,166
========================================================================================================
Cash paid during the year for:
Interest $ 828 $ 713 $ 597
Income taxes 2,621 4,269 6,514
========================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
- --------------------------------------------------------------------------------
Summary of Significant Accounting Policies
December 31, 1993, 1994 and 1995
Principles of Consolidation
The consolidated financial statements include the accounts of Computer Horizons
Corp. and its wholly-owned subsidiaries (the "Company"). The Company's
investment in a joint venture (Note 3) is accounted for under the equity method
of accounting. All material intercompany accounts and transactions have been
eliminated.
Revenue Recognition
The Company recognizes revenues as professional services are performed. On fixed
fee engagements, revenue and gross profit adjustments are made to reflect
revisions in estimated total costs and contract values. Estimated losses are
recorded when identified.
Recruitment Costs
Recruitment costs are charged to operations as incurred.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid instruments with a maturity
of three months or less at the time of purchase and consist of the following at
December 31:
<TABLE>
<CAPTION>
1994 1995
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Cash $2,121 $2,017
Money market funds 3,549
Repurchase agreements 119 2,100
Demand obligations 1,500
Certificates of deposit 38
- --------------------------------------------------------------------------------
$2,278 $9,166
================================================================================
</TABLE>
<PAGE>
Concentrations of Credit Risk
Statement of Financial Accounting Standards No. 105 ("SFAS No. 105") requires
the disclosure of significant concentrations of credit risk, regardless of the
degree of such risk. Financial instru- ments, as defined by SFAS No. 105, which
potentially subject the Company to concentrations of credit risk, consist
principally of cash and cash equivalents and trade accounts receivable. The
Company invests the majority of its excess cash in money market funds,
repurchase agreements, demand obligations and certificates of deposit of
high-credit, high-quality financial institutions or companies, with certain
limitations as to the amount that can be invested in any one entity.
The Company maintains its cash and certain cash equivalents balances principally
in three financial institutions located in New Jersey. These balances are
insured by the Federal Deposit Insurance Corporation up to $100,000 for each
entity at each institution. At December 31, 1995, uninsured amounts held at
these financial institutions total approximately $3,840,000.
The Company's customers are generally very large, Fortune 500 companies in many
industries and with wide geographic dispersion. The Company's two largest
customers account for approximately 8% and 15% of accounts receivable at
December 31, 1995. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers, historical
trends, and other information.
Property and Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
Goodwill
Goodwill, the cost in excess of the net assets of acquired businesses, is being
amortized by the straight-line method over thirty years. Accumulated
amortization is $2,828,000 and $3,333,000 at December 31, 1994 and 1995,
respectively. On an ongoing basis, management reviews the valuation and
amortization of goodwill. As part of this review, the Company estimates the
value and future benefits of net income generated to determine that no
impairment has occurred.
Income Taxes
Deferred income taxes result from temporary differences between income reported
for financial and income tax purposes. These temporary differences result
primarily from the allowance for doubtful accounts provision and certain accrued
expenses which are deductible for tax purposes, only when paid.
The Company intends to permanently reinvest the earnings from its foreign
corporate joint venture and, accordingly, is not providing deferred taxes on its
share of undistributed earnings.
<PAGE>
Earnings Per Share
Earnings per share are based on the weighted average number of common and common
equivalent shares outstanding. Primary earnings per share take into account the
shares that may be issued upon exercise of stock options, reduced by the shares
that may be repurchased with the funds received from the exercise, based on the
average price during the year. Fully diluted earnings per share use the higher
of the year-end price or the average price.
Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Accounting Pronouncements Not Yet Adopted
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," is required to be implemented in 1996.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by the entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the sum of the expected future cash flows
(undiscounted and without interest) is less than the carrying amount of the
asset, an impairment loss is recognized. Measurement of that loss would be based
on the fair value of the asset. The Company believes that implementation of this
statement will not have any material effect on its financial position.
SFAS No. 123, "Accounting for Stock-Based Compensation," is also required to be
implemented in 1996 and introduces a choice of the method of accounting used for
stock-based compensation. Entities may use the "intrinsic value" method
currently based on APB No. 25 or the new "fair value" method contained in SFAS
No. 123. The Company intends to implement SFAS No. 123 in 1996 by continuing to
account for stock-based compensation under APB No. 25. As required by SFAS No.
123, the pro forma effects on net income and earnings per share will be
determined as if the fair value based method had been applied and disclosed in
the notes to the financial statements.
Note 2
- --------------------------------------------------------------------------------
Acquisitions
In June 1994, the Company acquired the net assets of Strategic Outsourcing
Services, Inc. ("SOS"), a New Jersey-based provider of data processing services,
for approximately $250,000. In addition, the acquisition agreement also provides
for contingent consideration based on the future performance of SOS, through
1998. The acquisition was accounted for as a purchase. In 1995, the Company
recorded contingent consideration, totaling approximately $202,000, as goodwill,
with certain additional amounts payable subject to future performance. These
contingent consideration payments are not dependent upon the continued
employment of the former shareholder.
<PAGE>
The results of operations of SOS are included in the consolidated financial
statements from June 1, 1994. The consolidated results of operations in 1994
would not be materially different had the acquisition taken place at the
beginning of the year.
In January 1993, the Company acquired Unified Systems Solutions, Inc. ("USS"), a
New Jersey-based provider of systems and network integration services, for
approximately $750,000. The acquisition agreement also provides for contingent
consideration based on the future performance of USS, through 1996. The
acquisition was accounted for as a purchase. The excess of cash over the fair
value of assets acquired, totaling approximately $509,000, was recorded as
goodwill in 1994. In 1994 and 1995, the Company recorded contingent
consideration, totaling approximately $245,000 and $390,000, as additional
goodwill. These contingent consideration payments are not dependent upon the
continued employment of the former shareholders. Also in 1995, the Company
entered into an agreement with the former shareholders of USS to pay
approximately $2,396,000, plus interest, in lieu of any amounts that may have
been due for the remaining contingent period ending March 31, 1996. The
$2,396,000 was also recorded as goodwill in 1995.
The results of operations of USS are included in the consolidated financial
statements from January 15, 1993. The consolidated results of operations in 1993
would not be materially different had the acquisition taken place at the
beginning of the year.
Note 3
- --------------------------------------------------------------------------------
Investment in Joint Venture
In 1995, the Company entered into a software development and services joint
venture with the Birla Group, a large multinational conglomerate located in
India. The foreign joint venture, known as Birla Horizons International ("BHI"),
is headquartered in New Delhi, India and currently has operations in the United
States, India and the United Kingdom.
The Company and the Birla Group each made cash contributions of $500,000 and
each received a 50% interest in the joint venture. The Birla Group has also
contributed the net assets of its then existing information technology company
to the joint venture and the Company will provide it with technological and
management support.
The Company's total investment in BHI at December 31, 1995 is $861,000,
representing the initial cost plus equity in the undistributed net earnings
since formation, and is included in other noncurrent assets.
<PAGE>
Note 4
- --------------------------------------------------------------------------------
Long-Term Debt and Lines of Credit
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
9.55% senior notes $5,716 $4,288
Notes payable at prime 128 1,396
- --------------------------------------------------------------------------------
5,844 5,684
Less current maturities 1,556 2,385
- --------------------------------------------------------------------------------
$4,288 $3,299
================================================================================
</TABLE>
In 1988, the Company issued two senior notes aggregating $10,000,000 bearing
interest at 9.55%, payable semiannually. The notes are payable in annual
installments of $1,428,000 from April 15, 1992 through 1997 with a final payment
of $1,432,000 due April 15, 1998, and are subject to the provisions of the loan
agreement, including, among other things, restrictions on additional borrowings,
prepayments, dividends and stock purchases (which were waived in connection with
certain purchases of treasury stock), and maintenance of a minimum net worth of
$13,500,000.
The notes payable consist of notes to the four former shareholders of USS. Notes
for $128,000 were paid on January 15, 1995 together with interest at prime. In
1995, a new agreement was signed (Note 2) resulting in $957,000 being due in
April 1996 and $439,000 in April 1997, with 8.75% imputed interest.
Long-term debt matures as follows: $2,385,000 in 1996, $1,867,000 in 1997 and
$1,432,000 in 1998.
At December 31, 1995, the Company has two unused bank lines of credit totaling
$25,000,000 at rates below the banks' prime lending rates. The maximum amount
outstanding during the year was $7,200,000. The average debt outstanding and
weighted average interest rate under these lines were $1,700,000 and
approximately 7%, respectively.
<PAGE>
Note 5
- --------------------------------------------------------------------------------
Shareholders' Equity
Authorized Shares
On June 15, 1994, the Company approved an amendment to the Company's Certificate
of Incorporation increasing the authorized number of shares of the Company's
common stock from 10,000,000 to 30,000,000.
Stock Splits
The Board of Directors of the Company has declared three-for-two common stock
splits in the form of 50% stock distributions as follows:
<TABLE>
<CAPTION>
Shareholder of
Date declared record date Date payable
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
March 10, 1993 March 23, 1993 April 13, 1993
February 17, 1994 March 1, 1994 March 22, 1994
April 24, 1995 May 9, 1995 May 30, 1995
December 12, 1995 December 22, 1995 January 9, 1996
</TABLE>
Amounts equal to the $.10 par value of the common shares distributed have been
retroactively transferred from additional paid-in capital to common stock. All
references in the financial statements with regard to number of shares of common
stock, common stock prices and per share amounts have been restated to reflect
the above-mentioned stock splits.
Repurchases of Stock
In 1994, the Company repurchased 350,000 shares of its common stock from three
officers of the Company for approximately $4,109,000. The repurchase of 240,000
shares for $2,792,000 was related to the retirement of the Vice Chairman and
Executive Vice President (Note 8). The remaining 110,000 shares were repurchased
for $1,317,000 from two other active officers. Approximately $824,000 of the
repurchase amount was used by these officers to repay amounts they owed the
Company, $629,000 in note repayments and $195,000 in accrued interest.
Stock Options and Notes Receivable, Officers
In 1994, the Company adopted a stock option plan which provides for the
granting, to officers and key employees, of options for the purchase of a
maximum of 5,063,000 shares of common stock and stock appreciation rights
(SARs). The exercise price per share on all options and/or SARs granted may not
be less than the fair value at the date of the option grant. Options and SARs
generally expire five years from the date of grant and become exercisable in
specified amounts during the life of the respective options. No SARs have been
granted as of December 31, 1995. This plan, which replaces the Company's 1985
Plan, will terminate on June 15, 2004.
<PAGE>
Following is summary of option transactions during the three years ended
December 31:
<TABLE>
<CAPTION>
1993 1994 1995
- --------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Shares under option at beginning of year ($1.41-$6.11) 1,985 1,775 1,343
Granted ($1.88-$12.25) 796 488 461
Exercised ($1.41-$4.22) (689) (920) (467)
Canceled ($1.41-$6.06) (317) (3)
- --------------------------------------------------------------------------------------------------------
Shares under option at end of year ($1.46-$12.25) 1,775 1,343 1,334
========================================================================================================
Shares available for option 410 4,750 4,290
========================================================================================================
Shares exercisable 965 664 565
========================================================================================================
</TABLE>
Certain officers have the right to borrow from the Company against the exercise
price of options exercised. These borrowings, exclusive of accrued interest, are
shown as a reduction in shareholders' equity in 1993. Such borrowings were
repaid in 1994 in connection with the repurchase of common stock from these
officers.
In 1994, the Company amended the nonqualified Directors' Stock Option Plan (i)
increasing the maximum number of shares of common stock that may be acquired
pursuant to the exercise of options granted under the Plan from 253,000 to
563,000, (ii) providing that each new director of the Company who is not an
employee of the Company shall immediately receive options to purchase 50,625
shares of its common stock at its then current fair market value and (iii)
providing that each director of the Company who is not an employee of the
Company shall receive up to five annual grants to purchase 6,750 shares of its
common stock at its then current fair market value. The plan expires on March 4,
2001. During 1995, 64,125 options were granted and one of the directors
exercised 50,625 options at a total value of $136,000. There were 213,000
options outstanding at December 31, 1995.
In 1993, the Company issued warrants to purchase 15,188 shares of common stock
as part of an agreement with an outside business consulting firm. In 1995, the
Company issued additional warrants to the same outside business consulting firm
to purchase 6,750 shares of its common stock. The exercise price is the fair
value at the date of grant.
Shareholder Rights Plan
In July 1989, the Board of Directors declared a dividend distribution of .197
preferred stock purchase right on each outstanding share of common stock of the
Company. The rights were amended on February 13, 1990. Each right will, under
certain circumstances, entitle the holder to buy one one-hundredth (1/100) of a
share of Series A preferred stock at an exercise price of $30.00 per one
one-hundredth (1/100) share, subject to adjustment. Each one one-hundredth
(1/100) of a share of Series A preferred stock has voting, dividend and
liquidation rights and preferences substantively equivalent to one share of
common stock.
<PAGE>
The rights will be exercisable and transferable separately from the common stock
only if a person or group acquires 20% or more, subject to certain exceptions,
of the Company's outstanding common stock or announces a tender offer that would
result in the ownership of 20% or more of the common stock. If a person becomes
the owner of at least 20% of the Company's common shares (an "Acquiring
Person"), each holder of a right other than the Acquiring Person is entitled,
upon payment of the then current exercise price per right (the "Exercise
Price"), to receive shares of common stock (or common stock equivalents) having
a market value equal to twice the Exercise Price.
Additionally, if the Company subsequently engages in a merger or other business
combination with the Acquiring Person in which the Company is not the surviving
corporation, or in which the outstanding shares of the Company's common stock
are changed or exchanged, or if more than 50% of the Company's assets or earning
power is sold or transferred, a right would entitle a Computer Horizon Corp.
shareholder, other than the Acquiring Person and its affiliates, to purchase
upon payment of the Exercise Price, shares of the Acquiring Person having a
market value of twice the Exercise Price. Prior to a person becoming an
Acquiring Person, the rights may be redeemed at a redemption price of one cent
per right, subject to adjustment. The rights are subject to amendment by the
Board. No shareholder rights have become exercisable. The rights will expire on
July 16, 1999.
Note 6
- --------------------------------------------------------------------------------
Income Taxes
The provision for income taxes consists of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1993 1994 1995
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current
Federal $ 2,191 $ 3,645 $ 5,875
State 925 1,399 2,263
Deferred
Federal 63 (255) (339)
State 27 (102) (135)
- --------------------------------------------------------------------------------
$ 3,206 $ 4,687 $ 7,664
================================================================================
</TABLE>
<PAGE>
Deferred tax assets and liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Deferred tax assets
Accrued insurance $ 284 $ 477
Accrued payroll and benefits 379 516
Deferred lease obligations 124 99
Allowance for doubtful accounts 103 221
Other 70 140
- --------------------------------------------------------------------------------
960 1,453
- --------------------------------------------------------------------------------
Deferred tax liabilities
Depreciation 189 208
- --------------------------------------------------------------------------------
Deferred tax assets, net $ 771 $1,245
================================================================================
</TABLE>
A reconciliation of income taxes, as reflected in the accompanying statements,
with the statutory Federal income tax rate of 34% for the years ended December
31, 1993 and 1994 and 35% for the year ended December 31, 1995, is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
- -------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Statutory Federal income taxes $2,349 $3,527 $6,149
State and local income taxes, net of Federal tax benefit 632 858 1,382
Amortization of goodwill 155 158 180
Equity in net earnings of joint venture (126)
Other, net 70 144 79
- -------------------------------------------------------------------------------------------------------
$3,206 $4,687 $7,664
=======================================================================================================
</TABLE>
Deferred income taxes of approximately $126,000 have not been provided on
undistributed earnings of a foreign joint venture in the amount of $361,000 as
the earnings are considered to be permanently reinvested.
<PAGE>
Note 7
- --------------------------------------------------------------------------------
Savings Plan and Other Retirement Plans
The Company maintains a defined contribution savings plan covering eligible
employees. The Company makes contributions up to a specific percentage of
participants' contributions. The Company contributed approximately $192,000,
$204,000 and $229,000 in 1993, 1994 and 1995, respectively.
In 1995, the Company instituted a Supplemental Executive Retirement Plan whereby
key executives are entitled to receive lump-sum payments (or, if they elect, a
ten-year payout) upon reaching the age of 65 and being in the employ of the
Company. The maximum commitment if all plan members remain in the employ of the
Company until age 65 is approximately $6 million. Benefits accrue and vest based
on a formula which includes total years with the Company and total years
possible until age 65. The plan is nonqualified and not formally funded. Life
insurance policies on the members are purchased to assist in funding the cost.
The deferred compensation expense is charged to operations during the remaining
service lives of the members and amounted to approximately $82,000 in 1995.
In addition, the Company adopted a Deferred Compensation Plan for Key Executives
that permits the individuals to defer a portion of their annual salary or bonus
for a period of at least five years. There is no effect on the Company's
operating results since any amounts deferred would have previously been
expensed.
Note 8
- --------------------------------------------------------------------------------
Commitments
Leases
The Company leases office space under long-term operating leases expiring
through 2000. As of December 31, 1995, approximate minimum rental commitments
were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ending (in thousands)
- --------------------------------------------------------------------------------
<C> <C>
1996 $2,230
- --------------------------------------------------------------------------------
1997 1,968
- --------------------------------------------------------------------------------
1998 1,712
- --------------------------------------------------------------------------------
1999 1,134
- --------------------------------------------------------------------------------
2000 63
- --------------------------------------------------------------------------------
$7,107
================================================================================
</TABLE>
<PAGE>
Office rentals are subject to escalations based on increases in real estate
taxes and operating expenses. Aggregate rent expense for operating leases
approximated $1,595,000, $1,796,000 and $2,007,000 in the years ended December
31, 1993, 1994 and 1995, respectively.
Other
In October 1994, the former Vice Chairman and Executive Vice President of the
Company announced his resignation effective February 15, 1995 to pursue personal
interests. The Company recorded approximately $400,000 of deferred compensation
in 1994 to be paid over the next several years as a result of this resignation.
The Company also agreed to retain this former officer as a consultant for a
three-year period for approximately $75,000 each year and entered into a
noncompetition agreement for that period. In connection with this resignation,
the Company repurchased approximately 240,000 shares of common stock of the
Company from this former officer for approximately $2,792,000.
Note 9
- --------------------------------------------------------------------------------
Business and Major Clients
The Company provides a wide range of information technology services and
solutions to major corporations. In addition to professional services staffing,
the Company has developed the technological and managerial infrastructure to
offer its clients value-added services including client/server systems
development and migration, network and facility management and administration,
systems and business process re-engineering and outsourcing solutions.
The Company's largest client accounted for 13%, 9% and 8%, respectively, of the
Company's consolidated revenues in 1993, 1994 and 1995. No other client
accounted for more than 8% in those years.
<PAGE>
Note 10
- --------------------------------------------------------------------------------
Selected Quarterly Financial Data (Unaudited)
For the years ended December 31, 1994 and 1995, selected quarterly financial
data is as follows:
<TABLE>
<CAPTION>
Quarters
- --------------------------------------------------------------------------------------------------------
First Second Third Fourth
- --------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 33,171 $ 36,278 $ 39,136 $ 43,607
Direct costs 23,655 25,622 27,854 31,058
Selling, administrative and general 7,281 7,858 8,426 9,427
Income from operations 2,235 2,798 2,856 3,122
Interest expense--net (150) (159) (149) (180)
Income before income taxes 2,085 2,639 2,707 2,942
Income taxes 971 1,180 1,214 1,322
Net income $ 1,114 $ 1,459 $ 1,493 $ 1,620
- --------------------------------------------------------------------------------------------------------
Earnings per share $.08 $.10 $.10 $.11
========================================================================================================
<CAPTION>
1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 43,867 $ 48,397 $ 51,467 $ 56,319
Direct costs 31,366 34,230 35,696 39,052
Selling, administrative and general 9,294 10,222 10,922 11,693
Income from operations 3,207 3,945 4,849 5,574
Interest expense--net (175) (165) (36) 11
Equity in net earnings of joint venture 96 124 141
Income before income taxes 3,032 3,876 4,937 5,726
Income taxes 1,350 1,711 2,133 2,470
Net income $ 1,682 $ 2,165 $ 2,804 $ 3,256
- --------------------------------------------------------------------------------------------------------
Earnings per share $.12 $.15 $.17 $.20
========================================================================================================
</TABLE>
<PAGE>
The Company's common stock is quoted on the Nasdaq National Market, under the
symbol CHRZ. The range of high and low closing stock prices, as reported by the
Nasdaq National Market, for each of the quarters for the years ended December
31, 1994 and 1995, retroactively adjusted to reflect the three-for-two common
stock split declared by the Board of Directors in December 1995, is as follows:
<TABLE>
<CAPTION>
1994 1995
- --------------------------------------------------------------------------------
Quarter High Low High Low
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $5.56 $3.44 $ 8.44 $ 5.89
Second 5.44 3.67 10.83 7.33
Third 5.33 3.67 15.83 10.17
Fourth 7.00 5.11 26.67 11.50
- --------------------------------------------------------------------------------
</TABLE>
The Company plans to reinvest its earnings in future growth opportunities and,
therefore, does not anticipate paying cash dividends in the near future and has
not paid any to date. As of December 31, 1995, there were approximately 1,200
holders of record of common stock.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 9,166
<SECURITIES> 0
<RECEIVABLES> 45,569
<ALLOWANCES> 840
<INVENTORY> 0
<CURRENT-ASSETS> 56,758
<PP&E> 7,454
<DEPRECIATION> 4,031
<TOTAL-ASSETS> 76,037
<CURRENT-LIABILITIES> 17,864
<BONDS> 3,299
0
0
<COMMON> 1,741
<OTHER-SE> 52,526
<TOTAL-LIABILITY-AND-EQUITY> 76,037
<SALES> 0
<TOTAL-REVENUES> 200,050
<CGS> 0
<TOTAL-COSTS> 140,344
<OTHER-EXPENSES> 41,770
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 365
<INCOME-PRETAX> 17,571
<INCOME-TAX> 7,664
<INCOME-CONTINUING> 9,907
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,907
<EPS-PRIMARY> .64
<EPS-DILUTED> .63
</TABLE>
