SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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F O R M 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
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For Quarter Ended June 27, 1997 Commission File Number 0-7282
COMPUTER HORIZONS CORP.
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(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
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (973) 402-7400
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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 August 7, 1997, the issuer had 24,583,750 shares of common stock
outstanding.
<PAGE>
COMPUTER HORIZONS CORP.
Index
Part I Financial Information
Consolidated Balance Sheets
June 27, 1997 and December 31, 1996
Consolidated Statements of Income
Three Months and Six Months Ended
June 27, 1997 and 1996
Condensed Consolidated Statements of
Cash Flows - Three Months Ended
June 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)
June 27, December 31,
1997 1996
----------- -----------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $3,751 $10,937
Accounts receivable, net of allowance for doubtful
accounts of $1,576,000 and $1,203,000 at June 27, 1997
and December 31, 1996, respectively 68,676 54,280
Deferred income tax benefit 1,549 1,024
Other 604 962
----------- -----------
TOTAL CURRENT ASSETS 74,580 67,203
----------- -----------
PROPERTY AND EQUIPMENT 10,424 9,449
Less accumulated depreciation 6,050 5,228
----------- -----------
4,374 4,221
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OTHER ASSETS - NET:
Goodwill 13,024 13,322
Deferred income tax benefit 802 583
Other 3,606 3,083
----------- -----------
TOTAL OTHER ASSETS 17,432 16,988
----------- -----------
TOTAL ASSETS $96,386 $88,412
=========== ===========
(Continued)
<PAGE>
<CAPTION>
COMPUTER HORIZONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
June 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 10,299 11,963
Accounts payable 398 1,122
Income taxes payable 1,952 940
Other accrued expenses 689 749
----------- -----------
TOTAL CURRENT LIABILITIES 14,770 16,641
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LONG-TERM DEBT 0 1,432
----------- -----------
OTHER LIABILITIES 1,697 1,525
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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 26,336,757 shares and 25,918,363 shares at
June 27, 1997 and December 31, 1996, respectively 2,634 2,592
Additional paid-in capital 32,018 29,880
Retained earnings 59,915 50,990
----------- -----------
94,567 83,462
Less 1,786,883 shares held in treasury, at cost 14,648 14,648
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 79,919 68,814
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $96,386 $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 SIX MONTHS ENDED
--------------------------------------- ---------------------------------------
JUNE 27, 1997 JUNE 27, 1996 JUNE 27, 1997 JUNE 27, 1996
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $75,714 100.0% $56,032 100.0% $145,463 100.0% $113,063 100.0%
------------------- ------------------ ----------------- -------------------
COSTS AND EXPENSES:
Direct costs 51,222 67.6% 39,960 71.3% 99,121 68.1% 79,328 70.1%
Selling, general and
administrative 16,110 21.3% 12,505 22.3% 31,065 21.4% 24,625 21.8%
------------------- ------------------ ----------------- -------------------
67,332 88.9% 52,465 93.6% 130,186 89.5% 103,953 91.9%
------------------- ------------------ ----------------- -------------------
INCOME FROM OPERATIONS 8,382 11.1% 3,567 6.4% 15,277 10.5% 9,110 8.1%
------------------- ------------------ ----------------- -------------------
OTHER INCOME (expense):
Interest income 81 0.1% 62 0.1% 193 0.1% 165 0.1%
Interest expense (81) -0.1% (145) -0.3% (158) -0.1% (289) -0.3%
Equity in Joint Venture net earnings 63 0.1% 230 0.4% 213 0.1% 443 0.4%
------------------- ------------------ ----------------- -------------------
63 0.1% 147 0.2% 248 0.1% 319 0.2%
------------------- ------------------ ----------------- -------------------
INCOME BEFORE INCOME TAXES 8,445 11.2% 3,714 6.6% 15,525 10.6% 9,429 8.3%
------------------- ------------------ ----------------- -------------------
INCOME TAXES:
Current 4,397 5.8% 2,134 3.8% 7,344 5.0% 4,571 4.0%
Deferred (795) -1.0% (558) -1.0% (744) -0.5% (582) -0.5%
------------------- ------------------ ----------------- -------------------
3,602 4.8% 1,576 2.8% 6,600 4.5% 3,989 3.5%
------------------- ------------------ ----------------- -------------------
NET INCOME $4,843 6.4% $2,138 3.8% $8,925 6.1% $5,440 4.8%
=================== ================== ================== ===================
EARNINGS PER SHARE:
Net income $0.19 $0.08 $0.35 $0.21
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 25,933,000 25,585,000 25,770,000 25,453,000
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMPUTER HORIZONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended
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June 27, June 27,
1997 1996
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(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES ($6,001) $960
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (975) (770)
(Increase) / decrease in other assets (523) (301)
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(1,498) (1,071)
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CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt, net (1,867) (2,385)
Stock options exercised 2,180 1,525
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313 (860)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,186) (971)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 10,937 9,166
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,751 $8,195
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
COMPUTER HORIZONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended June 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 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.
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.
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.
<PAGE>
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 Six Months
Ended June 27, Ended June 27,
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1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Pro-forma earnings per share:
Basic $0.20 $0.09 $0.37 $0.23
Diluted 0.19 0.08 0.35 0.21
Pro-forma weighted average
number of shares outstanding:
Basic 24,470,000 23,918,000 24,376,000 23,746,000
Diluted 25,933,000 25,585,000 25,770,000 25,453,000
</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 June 27, 1997 and 1996
Revenues. Revenues increased from $56.0 million in the second quarter of
1996 to $75.7 million in the second quarter of 1997, an increase of $19.7
million or 35.1%. Staffing revenues increased from $39.6 million in the second
quarter of 1996 to $50.0 million in the second quarter of 1997, an increase of
$10.4 million or 26.4%. Total solutions revenues, including Year 2000 revenues,
increased from $16.4 million in the second quarter of 1996 to $25.7 million in
the second quarter of 1997, an increase of $9.3 million or 56.2%. Year 2000
services revenues increased from $1.6 million in the second quarter of 1996 to
$16.4 million in the second quarter of 1997, an increase of $14.8 million. The
Company's Year 2000 business accounted for 2.8% of total revenues in the second
quarter of 1996 versus 21.7% of total revenues in the second quarter of 1997.
Solutions revenues, excluding Year 2000 services, decreased from $14.8 million
in the second quarter of 1996 to $9.3 million in the second quarter of 1997, a
decrease of $5.5 million or 37.5%. Approximately $2.2 million of the decrease is
related to the loss of a contract with a major client in 1996. The remainder of
the decrease is attributable to a shift in client demand and the Company's
increased focus on its Year 2000 business.
Revenues increased from $113.1 million in the first six months of 1996 to
$145.5 million in the first six months of 1997, an increase of $32.4 million or
28.7%. Staffing revenues increased from $77.0 million in the first six months of
1996 to $98.9 million in the first six months of 1997, an increase of $21.9
million or 28.5%. Total solutions revenues, including Year 2000 revenues,
increased from $36.1 million in the first six months of 1996 to $46.6 million in
the first six months of 1997, an increase of $10.5 million or 29.0%. Year 2000
services revenues increased from $2.5 million in the first six months of 1996 to
$27.8 million in the first six months of 1997, an increase of $25.3 million. The
Company's Year 2000 business accounted for 2.2% of total revenues in the first
six months of 1996 versus 19.1% of total revenues in the first six months of
1997. Solutions revenues, excluding Year 2000 services, decreased from $33.6
million in the first six months of 1996 to $18.8 million in the first six months
of 1997, a decrease of $14.8 million or 44.2%. Approximately $8.0 million of the
decrease is related to the loss of a contract with a major client in the second
quarter of 1996. The remainder of the decrease is attributable to a shift in
client demand and the Company's increased focus on its Year 2000 business.
Direct Costs. Direct costs increased from $40.0 million and $79.3 million
in the second quarter and first six months of 1996, respectively, to $51.2
million and $99.1 million in the comparable 1997 periods. Gross margin increased
from 28.7% and 29.9% in the second quarter and first six months of 1996,
respectively, to 32.4% and 31.9% 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 $12.5 million in the second quarter
of 1996 to $16.1 million in the second quarter of 1997, an increase of $3.6
million or 28.8%. As a percentage of revenues, selling, general and
administrative expenses decreased from 22.3% of revenues in the second quarter
of 1996 to 21.3% of revenues in the second quarter of 1997. For the first six
months of 1996, selling, general and administrative expenses increased in
absolute dollars from $24.6 million to $31.1 million in the first six months of
1997, an increase of $6.5 million or 26.2%. As a percentage of revenues,
selling, general and administrative expenses decreased slightly from 21.8% of
revenues in the first six months of 1996 to 21.4% of revenues in the first six
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 6.4% and 8.1% in
the second quarter and first six months of 1996, respectively, to 11.1% and
10.5% 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 $147,000 and $319,000 in the
second quarter and first six months of 1996, respectively, to $63,000 and
$248,000 in the comparable 1997 periods, a decrease of $84,000 or 57.1% and
$71,000 or 22.3%, respectively. These decreases were primarily the result of
decreases in earnings from the Joint Venture, which was 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 second half 1997.
Provision for Income Taxes. The effective tax rates for federal, state and
local income taxes for the second quarter and first six months of 1996 were
42.4% and 42.3%, respectively. For the comparable 1997 periods, the rates were
42.7% and 42.5%, respectively.
Net Income. Net income increased from $2.1 million for the second quarter
of 1996 to $4.8 million for the second quarter of 1997, an increase of $2.7
million or 126.5%. Net income per share was $0.08 versus $0.19 for the second
quarter of 1996 and 1997, respectively. Net income increased from $5.4 million
for the first six months of 1996 to $8.9 million in the comparable 1997 period,
an increase of $3.5 million or 64.1%. Net income per share increased from $0.21
in the first six months of 1996 to $0.35 in the first six months of 1997, on
higher weighted average shares outstanding (25.5 million versus 25.8 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 June 27, 1997, the Company had $3.8
million in cash and cash equivalents, $59.8 million in working capital and no
outstanding borrowings under its bank lines of credit.
Net cash provided by operating activities was $1.0 million for the
first six months of 1996, consisting primarily of net income, offset in part by
an increase in accounts receivable. During the first six months of 1997, net
cash used in operating activities was $6.0 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 six months of
1996 and 1997 were $1.1 million and $1.5 million, respectively, consisting
primarily of purchases of equipment and furniture.
Net cash used in financing activities was $860,000 for the first
six months of 1996, with repayment of long-term debt exceeding the amount of
proceeds received from stock option exercises. For the first six months of 1997
the reverse was true, with net cash being provided by financing activities in
the amount of $313,000, with proceeds received from stock option exercises
exceeding the amount of long-term debt repayment.
At June 27, 1997, the Company had a current ratio of 5.0 to 1, no
long-term debt and no outstanding borrowings under its two unsecured lines of
credit. However, as an employee-based services company which pays its increasing
workforce bi-weekly, growth places increasing demands on cash balances. The
Company is, therefore contemplating a follow on equity offering during the
second half of 1997.
<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: August 8, 1997 /s/ John J. Cassese
-------------------------- -----------------------
John J. Cassese, Chairman of the Board
and President
DATE: August 8, 1997 /s/ William J. Murphy
-------------------------- -------------------------
William J. Murphy, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
DATE: August 8, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-27-1997
<CASH> 3,751
<SECURITIES> 0
<RECEIVABLES> 70,252
<ALLOWANCES> 1,576
<INVENTORY> 0
<CURRENT-ASSETS> 74,580
<PP&E> 10,424
<DEPRECIATION> 6,050
<TOTAL-ASSETS> 96,386
<CURRENT-LIABILITIES> 14,770
<BONDS> 0
0
0
<COMMON> 2,634
<OTHER-SE> 77,285
<TOTAL-LIABILITY-AND-EQUITY> 96,386
<SALES> 0
<TOTAL-REVENUES> 145,463
<CGS> 0
<TOTAL-COSTS> 99,121
<OTHER-EXPENSES> 30,852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (35)
<INCOME-PRETAX> 15,525
<INCOME-TAX> 6,600
<INCOME-CONTINUING> 8,925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,925
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
