SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------------
F O R M 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
-------------------------------------------
For Quarter Ended September 27, 1997 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 Number)
49 Old Bloomfield Avenue, Mountain Lakes, New Jersey 07046-1495
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (973) 299-4000
--------------
Not Applicable
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(Former name, former address and former fiscal year, if
changed since last report)
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 twelve 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.
X
--- --
Yes No
As of October 22, 1997, the issuer had 27,100,399 shares of common stock
outstanding.
<PAGE>
COMPUTER HORIZONS CORP.
Index
Part I Financial Information
Consolidated Balance Sheets
September 27, 1997 and December 31, 1996
Consolidated Statements of Income
Three Months and Nine Months Ended
September 27, 1997 and 1996
Condensed Consolidated Statements of
Cash Flows - Nine Months Ended
September 27, 1997 and 1996
Notes to Consolidated Financial Statements
Management's Discussion and Analysis
of Financial Condition and Results of
Operations
Part II Other Information
Signatures
<PAGE>
<TABLE>
<CAPTION>
COMPUTER HORIZONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
Sept. 27, December 31,
1997 1996
--------- ------------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 90,987 $ 10,937
Accounts receivable, net of allowance for doubtful
accounts of $2,158,000 and $1,203,000 at Sept. 27, 1997
and December 31, 1996, respectively ...................... 76,700 54,280
Deferred income tax benefit ................................ 1,467 1,024
Other ...................................................... 1,528 962
-------- --------
TOTAL CURRENT ASSETS ............................... 170,682 67,203
-------- --------
PROPERTY AND EQUIPMENT ....................................... 10,935 9,449
Less accumulated depreciation .............................. 6,542 5,228
-------- --------
4,393 4,221
-------- --------
OTHER ASSETS - NET:
Goodwill ................................................... 12,987 13,322
Deferred income tax benefit ................................ 797 583
Other ...................................................... 3,883 3,083
-------- --------
TOTAL OTHER ASSETS ................................. 17,667 16,988
-------- --------
TOTAL ASSETS ................................................. $192,742 $ 88,412
======== ========
<PAGE>
<CAPTION>
COMPUTER HORIZONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
Sept. 27, December 31,
1997 1996
--------- ------------
(in thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt .......................... $ 1,432 $ 1,867
Accrued payroll, payroll taxes and benefits ................ 12,977 11,963
Accounts payable ........................................... 969 1,122
Income taxes payable ....................................... 2,461 940
Other accrued expenses ..................................... 1,492 749
-------- --------
TOTAL CURRENT LIABILITIES .......................... 19,331 16,641
-------- --------
LONG-TERM DEBT ............................................... 0 1,432
-------- --------
OTHER LIABILITIES ............................................ 1,811 1,525
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par; authorized and unissued
200,000 shares, including 50,000 Series A
Common stock, $.10 par, authorized 60,000,000 shares; issued
28,886,157 shares and 25,918,363 shares at Sept. 27, 1997
and December 31, 1996, respectively ...................... 2,889 2,592
Additional paid-in capital ................................. 117,466 29,880
Retained earnings .......................................... 65,893 50,990
-------- --------
186,248 83,462
Less 1,786,883 shares held in treasury, at cost ............ 14,648 14,648
-------- --------
TOTAL SHAREHOLDERS' EQUITY ......................... 171,600 68,814
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................... $192,742 $ 88,412
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMPUTER HORIZONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------ -----------------------------------------
SEPT. 27, 1997 SEPT. 27, 1996 SEPT. 27, 1997 SEPT. 27, 1996
-------------------- -------------------- ------------------- --------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $81,383 100.0% $57,275 100.0% $226,846 100.0% $170,338 100.0%
-------------------- -------------------- ------------------- --------------------
COSTS AND EXPENSES:
Direct costs 54,421 66.9% 39,756 69.4% 153,542 67.7% 119,084 69.9%
Selling, general and
administrative 16,477 20.2% 13,177 23.0% 47,542 21.0% 37,802 22.2%
-------------------- -------------------- ------------------- --------------------
70,898 87.1% 52,933 92.4% 201,084 88.6% 156,886 92.1%
-------------------- -------------------- ------------------- --------------------
INCOME FROM OPERATIONS 10,485 12.9% 4,342 7.6% 25,762 11.4% 13,452 7.9%
-------------------- -------------------- ------------------- --------------------
OTHER INCOME (expense):
Interest income 121 0.1% 83 0.1% 314 0.1% 248 0.1%
Interest expense (44) -0.1% (99) -0.2% (202) -0.1% (388) -0.2%
Equity in Joint Venture
net earnings (75) -0.1% 200 0.3% 138 0.1% 643 0.4%
-------------------- -------------------- ------------------- --------------------
2 0.0% 184 0.3% 250 0.1% 503 0.3%
-------------------- -------------------- ------------------- --------------------
INCOME BEFORE INCOME TAXES 10,487 12.9% 4,526 7.9% 26,012 11.5% 13,955 8.2%
-------------------- -------------------- ------------------- --------------------
INCOME TAXES:
Current 4,422 5.4% 1,358 2.4% 11,766 5.2% 5,929 3.5%
Deferred 87 0.1% 535 0.9% (657) -0.3% (47) 0.0%
-------------------- -------------------- ------------------- --------------------
4,509 5.5% 1,893 3.3% 11,109 4.9% 5,882 3.5%
-------------------- -------------------- ------------------- --------------------
NET INCOME $5,978 7.3% $2,633 4.6% $14,903 6.6% $8,073 4.7%
==================== ==================== =================== ====================
EARNINGS PER SHARE:
Net income $0.23 $0.10 $0.58 $0.32
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 26,093,000 25,376,000 25,878,000 25,427,000
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMPUTER HORIZONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
---------------------
Sept. 27, Sept. 27,
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES ................... ($ 1,941) $ 424
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ................. (1,486) (1,871)
Acquisitions ........................................ (115) (362)
(Increase) / decrease in other assets ............... (800) (251)
-------- --------
(2,401) (2,484)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt, net ................................. (1,867) (2,428)
Stock options exercised ............................. 2,546 1,664
Proceeds from issuance of stock ..................... 83,713
-------- --------
84,392 (764)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ... 80,050 (2,824)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ......... 10,937 9,166
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............. $ 90,987 $ 6,342
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
COMPUTER HORIZONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended September 27, 1997 and 1996
The information furnished reflects all adjustments which, in the
opinion of the Company, are necessary to present fairly its consolidated
financial position and the results of its operations and changes in financial
position for the periods indicated.
Reference is made to the Company's annual financial statements for
the year ended December 31, 1996, for a description of the accounting policies,
which have been continued without change. Also refer to the footnotes with those
annual statements for additional details of the Company's financial condition,
results of operations and changes in cash flows. The details in those notes have
not changed except as a result of normal transactions in the interim and the
stock split and public offering described below.
On May 7, 1997, the Board of Directors declared a three-for-two
common stock split in the form of a 50% stock distribution, payable on June 9,
1997, to shareholders of record on May 22, 1997. An amount equal to the $0.10
par value of the common shares distributed has been retroactively transferred
from additional paid-in capital to common stock. All references in the financial
statements with regard to the number of shares of common stock and per share
amounts have been retroactively adjusted.
On September 23, 1997, the Company sold 2,500,000 shares of its
common stock in a public offering, realizing net proceeds of approximately
$83,700,000. The Company intends to use the net proceeds primarily for working
capital and general corporate purposes. A portion of such net proceeds may also
be used to fund future acquisitions, if any.
Impact of Accounting Pronouncements, Not Yet Adopted
Earnings per Share: In February 1997, the Financial Accounting Standards Board
(FASB) issued SFAS No. 128, "Earnings per Share", which requires public
companies to present basic earnings per share (EPS) and, if applicable, diluted
earnings per share, instead of primary and fully diluted EPS. Basic EPS is
calculated by dividing the net income by the weighted average number of shares
outstanding for the period, without consideration for common stock equivalents.
Diluted EPS is computed similarly to fully diluted EPS under the provisions of
APB Opinion No. 15. Revision of the EPS standard had two objectives -- to
simplify the earnings per share calculation and to make the EPS standard
applicable to US entities comparable to the standards of most other countries
and to the international standard, which was also recently revised.
<PAGE>
Although presentation of this new format is required for periods
ending after December 15, 1997, early application is not permitted. Staff
Accounting Bulletin No. 74, however, requires public companies to discuss the
expected impact of adopting the new accounting pronouncement.
Had EPS been calculated under SFAS No. 128, the Company's
Pro-Forma Basic EPS and Diluted EPS would have been as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept. 27, Ended Sept. 27,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Pro-forma earnings per share:
Basic $0.24 $0.11 $0.61 $0.34
Diluted 0.23 0.10 0.58 0.32
Pro-forma weighted average
number of shares outstanding:
Basic 24,602,000 24,091,000 24,451,000 23,861,000
Diluted 26,093,000 25,376,000 25,878,000 25,427,000
</TABLE>
Comprehensive Income: In June 1997, FASB issued SFAS No. 130, "Reporting
Comprehensive Income", which requires that all items that are required to be
recognized under accounting standards as components of comprehensive income, be
reported in a financial statement that displays total comprehensive income for
the period. This standard is effective for fiscal years beginning after December
15, 1997 and is not expected to have a significant impact on the Company's
financial statement presentation.
Segments of an Enterprise and Related Information: In June 1997, FASB issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which requires disclosure of information about operating segments,
products and services, geographic areas and major customers. This standard is
effective for financial statements for periods beginning after December 15,
1997. The impact of this standard on the Company's financial statement
presentation has not as yet been determined.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Quarters Ended September 27, 1997 and 1996
Revenues. Revenues increased from $57.3 million in the third quarter of
1996 to $81.4 million in the third quarter of 1997, an increase of $24.1 million
or 42.1%. Staffing revenues increased from $44.3 million in the third quarter of
1996 to $52.4 million in the third quarter of 1997, an increase of $8.0 million
or 18.0%. Total solutions revenues, including Year 2000 revenues, increased from
$12.9 million in the third quarter of 1996 to $29.0 million in the third quarter
of 1997, an increase of $16.1 million or 124.6%. Year 2000 services revenues
increased from $2.8 million in the third quarter of 1996 to $19.6 million in the
third quarter of 1997, an increase of $16.8 million. The Company's Year 2000
business accounted for 4.9% of total revenues in the third quarter of 1996
versus 24.1% of total revenues in the third quarter of 1997. Solutions revenues,
excluding Year 2000 services, decreased slightly from $10.1 million in the third
quarter of 1996 to $9.4 million in the third quarter of 1997, primarily as a
result of a shift in client demand and the Company's increased focus on its Year
2000 business.
Revenues increased from $170.3 million in the first nine months of 1996 to
$226.8 million in the first nine months of 1997, an increase of $56.5 million or
33.2%. Staffing revenues increased from $121.3 million in the first nine months
of 1996 to $151.2 million in the first nine months of 1997, an increase of $29.9
million or 24.7%. Total solutions revenues, including Year 2000 revenues,
increased from $49.0 million in the first nine months of 1996 to $75.6 million
in the first nine months of 1997, an increase of $26.6 million or 54.2%. Year
2000 services revenues increased from $5.3 million in the first nine months of
1996 to $47.5 million in the first nine months of 1997, an increase of $42.1
million. The Company's Year 2000 business accounted for 3.1% of total revenues
in the first nine months of 1996 versus 20.9% of total revenues in the first
nine months of 1997. Solutions revenues, excluding Year 2000 services, decreased
from $43.7 million in the first nine months of 1996 to $28.2 million in the
first nine months of 1997, a decrease of $15.5 million or 35.6%. The Company's
solutions revenues were impacted by the unexpected termination of certain
contracts in the second quarter of 1996, as well as a shift in client demand and
the Company's increased focus on its Year 2000 business.
Direct Costs. Direct costs increased from $39.8 million and $119.1 million
in the third quarter and first nine months of 1996, respectively, to $54.4
million and $153.5 million in the comparable 1997 periods. Gross margin
increased from 30.6% and 30.1% in the third quarter and first nine months of
1996, respectively, to 33.1% and 32.3% in the comparable 1997 periods. The
increase in gross margin was primarily due to stable margins in the Company's
staffing business and an increase in the Company's higher margin Year 2000
business. The Company's margins are subject to fluctuations due to a number of
factors, including the level of salary and other compensation necessary to
attract and retain qualified technical personnel, and the mix of staffing versus
solutions business during a particular quarter.
<PAGE>
Selling, General and Administrative. Selling, general and administrative
expenses increased in absolute dollars from $13.2 million in the third quarter
of 1996 to $16.5 million in the third quarter of 1997, an increase of $3.3
million or 25.0%. As a percentage of revenues, selling, general and
administrative expenses decreased from 23.0% of revenues in the third quarter of
1996 to 20.2% of revenues in the third quarter of 1997. For the first nine
months of 1996, selling, general and administrative expenses increased in
absolute dollars from $37.8 million to $47.5 million in the first nine months of
1997, an increase of $9.7 million or 25.8%. As a percentage of revenues,
selling, general and administrative expenses decreased from 22.2% of revenues in
the first nine months of 1996 to 21.0% of revenues in the first nine months of
1997. The increases in selling, general and administrative expenses in absolute
dollars was primarily a result of salaries and commissions for additional sales
and recruiting personnel and, to a lesser extent, growth in the Company's
general and administrative infrastructure.
Income from Operations. Operating margins increased from 7.6% and 7.9% in
the third quarter and first nine months of 1996, respectively, to 12.9% and
11.4% in the comparable 1997 periods. These increases were primarily due to
increases in the Company's higher margin Year 2000 business.
Other Income. Other income decreased from $184,000 and $503,000 in the
third quarter and first nine months of 1996, respectively, to $2,000 and
$250,000 in the comparable 1997 periods, a decrease of $182,000 and $253,000,
respectively. These decreases were primarily the result of decreases in earnings
from the Joint Venture, which were offset in part by a decrease in net interest
expense. The Joint Venture's decreased earnings in 1997 were primarily due to
costs associated with increased headcount, particularly in marketing and project
management personnel as it expanded its solutions business. The Company expects
that the Joint Venture will continue to make significant investments in
personnel which will result in continued lower earning levels for the Joint
Venture in the fourth quarter of 1997.
Provision for Income Taxes. The effective tax rates for federal, state and
local income taxes for the third quarter and first nine months of 1996 were
41.8% and 42.1%, respectively. For the comparable 1997 periods, the rates were
43.0% and 42.7%, respectively.
Net Income. Net income increased from $2.6 million for the third quarter of
1996 to $6.0 million for the third quarter of 1997, an increase of $3.3 million
or 127.0%. Net income per share was $0.10 versus $0.23 for the third quarter of
1996 and 1997, respectively. Net income increased from $8.1 million for the
first nine months of 1996 to $14.9 million in the comparable 1997 period, an
increase of $6.8 million or 84.6%. Net income per share increased from $0.32 in
the first nine months of 1996 to $0.58 in the first nine months of 1997, on
higher weighted average shares outstanding (25.4 million versus 25.9 million).
All net income per share and share amounts have been adjusted to reflect a
three-for-two split in the form of a 50% common stock dividend distributed on
June 9, 1997.
Liquidity and Capital Resources. At September 27, 1997, the Company had
$91.0 million in cash and cash equivalents (including $83.7 million of net
proceeds of its public offering of common stock completed on September 23, 1997
- -- see NOTES TO CONSOLIDATED FINANCIAL STATEMENTS), $151.4 million in working
capital and no outstanding borrowings under its bank lines of credit.
<PAGE>
Net cash provided by operating activities was $424,000 for the first nine
months of 1996, consisting primarily of net income, offset in part by an
increase in accounts receivable. During the first nine months of 1997, net cash
used in operating activities was $1.9 million, primarily as a result of an
increase in accounts receivable, largely due to growth in the Company's
solutions business.
Net cash used in investing activities in the first nine months of 1996 and
1997 were $2.5 million and $2.4 million, respectively, consisting primarily of
purchases of equipment and furniture.
Net cash used in financing activities was $764,000 for the first nine
months of 1996, with repayment of long-term debt exceeding the amount of
proceeds received from stock option exercises. For the first nine months of
1997, net cash provided by financing activities (excluding the proceeds from the
public offering), was $679,000, due to the fact that proceeds received from
stock option exercises exceeded the amount of long-term debt repayment. When
including the proceeds from the public offering, net cash provided by financing
activities amounted to $84.4 million.
At September 27, 1997, the Company had a current ratio of 8.8 to 1, no
long-term debt and no outstanding borrowings under its two unsecured lines of
credit.
Certain Disclosures. This report contains forward-looking statements that
involve risks and uncertainties. The statements contained in this report that
are not purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including without limitation
statements regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. All forward-looking statements included in this
document are based on information available to the Company on the date hereof,
and the Company assumes no obligation to update any such forward-looking
statements. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, among others, a decrease in Year 2000 conversion projects, to the
extent those projects are not offset by an increase in the Company's other
businesses, the loss of any large client or contract, and general economic
conditions.
<PAGE>
PART II Other Information
Item 6.
b) No reports on Form 8-K have been filed during the quarter for which this
report is filed.
Signatures
Pursuant to the requirements of the Securities and 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.
(Registrant)
DATE: October 23, 1997 /s/ John J. Cassese
-----------------------
John J. Cassese, Chairman of the Board
and President
DATE: October 23, 1997 /s/ William J. Murphy
-------------------------
William J. Murphy, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
DATE: October 23, 1997 /s/ Michael J. Shea
----------------------
Michael J. Shea
Vice President and Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-27-1997
<CASH> 90,987
<SECURITIES> 0
<RECEIVABLES> 78,858
<ALLOWANCES> 2,158
<INVENTORY> 0
<CURRENT-ASSETS> 170,682
<PP&E> 10,935
<DEPRECIATION> 6,542
<TOTAL-ASSETS> 192,742
<CURRENT-LIABILITIES> 19,331
<BONDS> 0
0
0
<COMMON> 2,889
<OTHER-SE> 117,466
<TOTAL-LIABILITY-AND-EQUITY> 192,742
<SALES> 0
<TOTAL-REVENUES> 226,846
<CGS> 0
<TOTAL-COSTS> 153,542
<OTHER-EXPENSES> 47,404
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (112)
<INCOME-PRETAX> 26,012
<INCOME-TAX> 11,109
<INCOME-CONTINUING> 14,903
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,903
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.58
</TABLE>
