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
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 executive offices) (Zip Code)
- --------------------------------------------------------------------------------
Registrant's telephone number,
including area code: (973) 299-4000
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)
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 [ ]
<PAGE>
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 23, l998, was
approximately $1,344,848,000.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of March 23, l998: 28,886,106 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, l997, in Part II of this
Report and (ii) Proxy Statement for the 1998 Annual Meeting of Shareholders,
expected to be filed with the Securities and Exchange Commission on or before
April 6, 1998, 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 six 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,
document imaging practices, outsourcing and offshore software development and
maintenance ("solutions"). The Company markets solutions to both existing and
potential clients with the objective of becoming a preferred provider of
comprehensive information technology services and solutions for such clients.
Solutions engagements, which represented less than five percent of the Company's
consolidated revenues in 1992, accounted for approximately 33% of its
consolidated revenues in 1997. The Company believes that the range of services
and solutions that it offers, combined with its worldwide network of 47 offices
and subsidiary organizations, provides it with significant competitive
advantages in the information technology marketplace.
In 1997, the Company expanded recently opened offices in Toronto,
Canada and London, England. Together with the offices operated by the Company's
joint venture, Birla Horizons International, the Company has established itself
as an international enterprise, with global capabilities.
The Company's clients primarily are Fortune 500 companies with
significant information technology budgets and recurring staffing or software
development needs. In 1997, the Company provided information technology services
to 499 clients. During 1997, the Company's largest client, AT&T, accounted for
11.7% of the Company's consolidated revenues, with no other client accounting
for more than 8% of such 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) the solution
for the millennium change, (3) client/ server systems development and migration,
(4) enterprise network management, (5) document imaging practices, (6)
outsourcing, (7) offshore software development and maintenance, and (8)
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 3,100 software professionals. The Company is committed to
expanding its professional services staffing operations in conjunction with its
solutions business.
<PAGE>
(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, and century date windowing, while
simultaneously performing other systems upgrades such as language conversions
and platform migrations. In addition, CHC's Signature 2000(TM) provides the
Company a fully integrated testing solution across all phases of the testing
life cycle, including Testing Processes, Software Products and experienced
management and technical resources. CHC also provides a workstation solution for
the Year 2000, including Asset Management, assessment and correction of
spreadsheets and databases, correction to the workstation clocks, and
third-party vendor compliancy assessment.
(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) Document Imaging Practices: The Company offers an
open-architectured document management solution that enables its clients to
seamlessly image-enable existing applications that can reside on mainframes,
mid-range or PC environments. The client is able to obtain a total solution that
utilizes the Company's proprietary toolset, UNIDOC(TM), to provide customized
design, development and deployment for their document management needs.
(6) Outsourcing: Spurred by global competition and rapid technological
change, large 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.
<PAGE>
(7) 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 remains localized through one of the Company's
domestic offices.
(8) Knowledge Transfer: The Company's Education Division offers
custom-designed and/or existing courseware to enhance the competencies of client
staff in specific technologies, languages, methodologies and applications. The
prevailing focus of the Company is to assist clients, through instructor-led
offerings, on-site counseling and various self-paced courses geared toward IT
departments of Fortune 500 companies. The Company's offerings include mainframe,
client/server and open systems, relational databases, object orientation,
application downsizing, information engineering, SAP, Internet/Intranet as well
as training college graduates or "second career" candidates to become proficient
in technologies necessary to perform within IT departments.
Personnel
As of December 3l, 1997, the Company had a staff of 3,630, of whom more
than 3,100 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.
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., Cap Gemini America, Business System Group, the
consulting division of Computer Sciences Corporation, Analysts International
Corp., CIBER, Inc., Computer Task Group Inc., 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
<PAGE>
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 Solutions
Division, its Enterprise Management Division, its Document Management Division,
its Education Division, as well as its Eastern Regional Office, comprising
approximately 63,000 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 $1,028,000. As of
December 3l, l997, 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, Washington D.C. and
Wisconsin, as well as international operations located in London and Toronto,
with an aggregate of approximately 138,300 square feet. The leases for these
facilities are at a current annual aggregate rental of approximately $2,805,000.
These leases expire at various times with no lease commitment longer than
September 30, 2006. In addition, through Birla Horizons International, the
Company has offices in New Delhi, India; London, England; Toronto, Canada;
California; and New Jersey.
Item 3. Legal Proceedings
There are no material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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 53 Chairman of the Board 1982-Present
and President
Director 1969-Present
William J. Murphy 53 Executive Vice President 1997 - Present
and CFO
Michael J. Shea 37 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" in the Company's Annual Report to Shareholders
for the year ended December 3l, 1997, 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" in the Company's Annual Report to Shareholders for the
year ended December 3l, 1997, 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" in the Company's Annual Report to
Shareholders for the year ended December 3l, 1997, 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 in the
Company's Annual Report to Shareholders for the year ended December 31, 1997,
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 1998 Annual Meeting of Shareholders which is expected to be
filed with the Securities and Exchange Commission on or before April 6, 1998
(the "1998 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 1998 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 1998 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, appearing in
the Company's 1997 Annual Report to Shareholders, are incorporated herein by
reference.
- Consolidated balance sheets as of December 3l, 1997 and 1996
- Consolidated statements of income for each of the three years in the
period ended December 31, 1997
- Consolidated statement of shareholders' equity for each of the three
years in the period ended December 31, 1997
- Consolidated statements of cash flows for each of the three years in
the period ended December 31, 1997
- 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, 1997, 1996 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
4. Consent of Grant Thornton LLP
(b) One report on Form 8K was filed during the quarter ended December
31, 1997, to report the Company's acquisition of CG Computer Services
Corporation on December 19, 1997.
<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 26, 1998 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 26, 1998 By: /s/ John J. Cassese
-------------------
John J. Cassese, Chairman
of the Board and President
(Principal Executive Officer)
and Director
Date: March 26, 1998 By: /s/ William J. Murphy
----------------------
William J. Murphy,
Executive Vice President and CFO
(Principal Financial Officer)
Date: March 26, 1998 By: /s/ Michael J. Shea
----------------------
Michael J. Shea
Vice President and Controller
(Principal Accounting Officer)
Date: March 26, 1998 By: /s/ Thomas J. Berry
--------------------
Thomas J. Berry, Director
Date: March 26, 1998 By: /s/ Rocco J. Marano
-------------------
Rocco J. Marano, Director
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
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 Exhibit 3(a-2) to Form 10K
May 16, 1983 to Certificate of for the fiscal year ended
Incorporation. February 28, 1983.
3(a-3) Certificate of Amendment dated Exhibit 3(a-3) to Form 10K
June 15, 1988 to Certificate of for the fiscal year ended
Incorporation. December 31, 1988.
3(a-4) Certificate of Amendment dated Exhibit 3(a-4) to Form 10K
July 6, 1989 to Certificate of for the fiscal year ended
Incorporation. December 31, 1994.
3(a-5) Certificate of Amendment dated Exhibit 3(a-5) to Form 10K
February 14, 1990 to Certificate of for the fiscal year
ended Incorporation. December 31, 1989.
3(a-6) Certificate of Amendment dated Exhibit 3(a-6) to Form 10K
May 1, 1991 to Certificate of for the fiscal year ended
Incorporation. December 31, 1994.
3(a-7) Certificate of Amendment dated Exhibit 3(a-7) to Form 10K
July 12, 1994 to Certificate of for the fiscal year ended
Incorporation. December 31, 1994.
3(b) Bylaws, as amended and Exhibit 3(b) to Form 10K for
presently in effect. the year ended December 31,
1988.
4(a) Rights Agreement dated as of Exhibit 1 to Registration
July 6, 1989 between the Statement on Form 8-A dated
Company and Chemical Bank, as July 7, 1989.
Rights Agent ("Rights Agreement")
which includes the form of
Rights Certificate as Exhibit B.
4(b) Amendment No. 1 dated as of Exhibit 1 to Amendment No.
February 13, 1990 to Rights 1 on Form 8 dated February
Agreement. 13, 1990 to Registration
Statement on Form 8-A.
4(c) Amendment No. 2 dated as of Exhibit 4(c) to Form 10K
August 10, 1994 to Rights for the fiscal year ended
Agreement. December 31, 1994.
<PAGE>
<CAPTION>
<S> <C> <C>
4(d) Employee's Savings Plan and Exhibit 4.4 to Registration
Amendment 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 Statement on Form S-3 dated
Restated Effective January 1, December 5, 1995.
1996.
10(a) Employment Agreement dated as Exhibit 10(a) to Form 10K for
of February 16, 1990 between the the year ended December 31,
Company and John J. Cassese. 1989.
10(b) Employment Agreement dated as Exhibit 10(g) to Form S-3 dated
of January 1, 1997 between the August 14, 1997.
Company and William J. Murphy.
10(c) Employment Agreement dated as Exhibit 10(c) to Form 10K for
of March 6, 1997 between the the year ended December 31,
Company and Michael J. Shea. 1996.
10(d) Note Agreement dated as of Exhibit 10(i) to Form 10K for
March 15, 1988 between the the year ended December 31,
Company and Massachusetts 1988.
Mutual Life Insurance Company.
10(e) 1990 Directors' Stock Option Exhibit 10(g) to Form 10K
Plan, as amended. for the fiscal year ended
December 31, 1994.
10(f) 1994 Incentive Stock Option and Exhibit 10(h) to Form 10K
Appreciation Plan. for the fiscal year ended
December 31, 1994.
10(g) $15,000,000 Discretionary Line of Exhibit 10(h) to Form S-3a
Credit payable to Chase Manhattan dated September 23, 1997.
Bank dated as of June 30, 1997.
10(h) $10,000,000 Discretionary Line Exhibit 10(h) to Form 10K
of Credit from PNC Bank. for the fiscal year ended
December 31, 1996.
13 Annual Report to Security Holders.
21 List of Subsidiaries.
23.1 Consent of Independent Certified
Public Accountants
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Computer Horizons Corp. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1997, 1996 and 1995
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(l) period
----------- --------- -------- ----------- ------
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful accounts $1,203,000 $575,000 $ 36,000 $1,742,000
---------- -------- -------- ----------
Year ended December 31, 1996
Allowance for doubtful accounts $ 840,000 $487,000 $124,000 $1,203,000
---------- -------- -------- ----------
Year ended December 31, 1995
Allowance for doubtful accounts $ 566,000 $465,000 $191,000 $ 840,000
---------- -------- -------- ----------
</TABLE>
Notes
(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS ON 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
29, 1998 (except for Note 2, as to which the date is February 27, 1998), which
is included in the 1997 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, 1997, 1996 and ]995. In our opinion, this schedule
presents fairly, in all material respects, the information required to be set
forth therein.
GRANT THORNTON LLP
Parsippany, New Jersey
January 29, 1998 (except for Note 2, as to which
the date is February 27, 1998)
Investment Highlights
Superior Core Competency in IT Staffing
Market Leader in Year 2000 Solution
World-Class Outsourcing and Solutions Capabilities
Best-of-Breed Software Products
Long-Term Client Relationships--Repeat Business
Growing International Presence
An Impressive Record of Growth, Profitability,
and Market Development
Experienced and Stable Management Team
Background
Founded in 1969
26th Year as a Public Company
1997 Revenues--$335 million
3,600 Employees--3,100 Billable Consultants
Over 450 Consulting Service Clients
47 Offices Worldwide
International and Offshore Capabilities
Provider of Enterprise-Wide Software Products
1
<PAGE>
SHAREHOLDERS' SUMMARY INFORMATION
Market Capitalization: The market capitalization of our Company exceeded $1
billion at the end of 1997 for the first time in our history. The individual
value of a share of CHC stock at December 31, 1997 was almost 80% higher than
the value at the end of 1996. This increase in value to our shareholders was
more than three times that experienced by the Dow Jones index. The chart below
depicts the growth in our market capitalization over the past five years.
[GRAPHIC-PIE CHART OF INDUSTRY PROFILE OF CLIENTS]
Industry Profile of Clients: The above chart shows the diversity of our revenue
across broad industry lines, with the Telecommunications industry providing the
largest percentage of our revenue, followed by the Insurance, Manufacturing and
Banking and Finance groups. These industry segments tend to have very large
needs for IT professionals, services and products because of their high volume
of transactions, complicated business systems and regulatory environments. CHC
has served these industries and their respective leaders for more than 25 years.
[GRAPHIC-CHART OF MARKET CAPITALIZATION]
<PAGE>
Revenues: Revenues during the past five years have grown at a compounded annual
rate of 26%. More importantly, the percentage of our revenue derived from our
Solutions services has expanded. In 1993, Solutions revenue was $15 million or
11% of total revenue, whereas in 1997 our Solutions revenue was $110 million,
accounting for 33% of our total business.
[GRAPHIC-GRAPH OF EARNINGS PER SHARE]
[GRAPHIC-GRAPH OF REVENUES]
[GRAPHIC-GRAPH OF OPERATING INCOME (MARGINS)]
Operating Income (Margins): The growth in our operating income (margins) during
the past five years has been at a compounded annual rate of 51%, nearly twice
the compounded rate of our revenue growth. In 1997, our operating income doubled
and our margins expanded to 11.9%, excluding merger-related expenses.
EPS: Earnings per share-diluted has increased at a compounded annual rate of 50%
during the past five years; more than 80% in 1997. Our number of weighted
average shares increased in 1997 as a result of the additional 2.5 million
shares sold at the end of our third quarter.
<PAGE>
[GRAPHIC- PHOTO OF JOHN J. CASESE CHAIRMLAN OF THE BOARD AND PRESIDENT]
To Our Shareholders, Employees and Clients:
1997 was truly a landmark year for Computer Horizons. Financially, we had our
best year ever with revenues increasing 34% to $335 million, while net earnings
increased 91% to $22.6 million. For the first time, our market capitalization
exceeded $1 billion at year-end, primarily resulting from a nearly 80% increase
in stock price. At the close of 1997, we had approximately 3,600 employees, of
which 3,100 were billable consultants.
Even more important than our financial success is our position with the
investment community and IT industry, where Computer Horizons is now a leading
provider of services and products. The New Jersey Technology Council formally
recognized us in 1997 as "Large Company of the Year." Additionally, our Midwest
Regional headquarters was awarded ISO 9002 certification and we became ITAA Year
2000 certified. These accomplishments would not have been possible without the
hard work and dedication of our employees.
Clearly, our strong growth and expanding operating margins are being enhanced by
our Year 2000 practice. We are a major force in assisting large organizations in
their challenge to become Year 2000 compliant. The experience of our people in
managing and fixing this problem, together with our proprietary tools, puts us
in a category that is second to none. In our Millennium Refurbishment Centers,
we continue to process massive amounts of code efficiently and accurately.
We look at 1997 not as the peak, but as the foundation from which we can move
this company to new heights. In September, we completed the sale of an
additional 2.5 million shares of stock, raising $84 million of new capital and
doubling the equity of our company. This was done to financially position our
company to achieve our goal of becoming a billion-dollar enterprise. As we move
into 1998, our financial condition is looking more like a billion-dollar service
company than would be expected of a $500 million entity. We are well positioned
to take advantage of investment opportunities.
2
<PAGE>
In 1992, senior management set certain long-range goals, one of which was to
become more of a solutions company. As we close 1997, it is satisfying to
realize that we have in essence achieved this target. More than one-third of our
business is derived from solutions services. Our challenge today is to embrace
the strategic initiatives we have established for the next three to five years.
The management team in place today is eagerly pursuing this challenge.
Computer Horizons was founded on one premise: to provide value-added services
and products to all our customers in all of our service and product offerings.
Twenty-eight years later, this is still our credo. Our great clients are our
franchise to our future success and prosperity. The high percentage of repeat
business with our clients is a statistic of which we are particularly proud.
[GRAPHIC-PHOTO OF WILLIAM J. MURPHY EXECUTIVE VICE PRESIDENT AND CEO]
As we look to 1998 and beyond, we are confident that our strategic initiatives
will be achieved. We continually meet with our clients to discuss the challenges
they face and earnestly work to provide the necessary solution, whether it be
staff augmentation of technical professionals, project management, Year 2000
services and products, training, application development, client server, or
network management.
No professional services company prospers without a dedicated and talented
workforce. We are proud of our people and their accomplishments. We welcome the
more than 350 employees who joined Computer Horizons as a result of the recent
acquisitions of CG Computer Services, Millennium Computer Technology and
Princeton Softech. We thank our employees and clients for a terrific year and
look forward to 1998.
Sincerely,
/s/John J. Cassese
- ------------------
John J. Cassese
Chairman of the Board and President
/s/William J. Murphy
- --------------------
William J. Murphy
Executive Vice President and CFO
3
<PAGE>
[GRAPHIC-FOUR PHOTOS OF INDIVIDUALS]
During 1997, Computer Horizons continued to advance its status as a world-class
Information Technology (IT) solutions and services firm. To carry Computer
Horizons well into the next millennium, our service offerings were expanded; our
marketplace was enlarged; our infrastructure was fortified; praise and awards
for performance were bestowed; quality in everything we do was instilled; and
strategic growth plans were put in place.
The IT marketplace continued to expand in 1997, driven largely by the need for
corporate America and the world to deal with the costly problems associated with
maintaining accurate computing during and after the century change. The Year
2000 problem, now commonly known as the "millennium bug," continues to plague
our customers and virtually all computer users. New estimates of the price tag
could well exceed the previous plateau of $600 billion worldwide. But with huge
problems come great opportunities, and Computer Horizons' Signature 2000(TM)
continues to be the solution chosen by many of the most significant companies
around the world.
This Year 2000-related expansion of opportunity is also furthering a shortage of
experienced data processing professionals, as greater numbers of staff are
needed to participate in the millennium solution. Computer Horizons' highly
experienced staffing services are now being sought after by a growing list of
Fortune 500 companies that must fill the resource gap. Further, the Giga
Information Group estimates that as many as 40% of Fortune 500 companies have
not yet even begun to address the problem.
As a client-driven firm, we continue to seek advice from our customers as we
ready new services and products to meet emerging needs. As has been our
practice, each client is viewed as a franchise. Therefore, as clients select a
CHC offering, we strive to introduce each client to all our services, expanding
our partnership and our value. We invite you, our shareholders, to survey our
vision for progress using the accomplishments of 1997 as the starting point.
Financially, 1997 was an historic, record-breaking year for our company.
Shareholders for the full year saw the value of their holdings increase by
nearly 80%. Our stock outperformed the Dow Jones and the Nasdaq by a factor of
three. The confidence shown
4
<PAGE>
International Expansion
<PAGE>
Partnerships for Growth
<PAGE>
by our investors was rewarded with record revenues, record earnings and record
returns. By the end of 1997, our market capitalization broke through the billion
dollar level, where it has remained.
[GRAPHIC-FOUR PHOTOS OF INDIVIDUALS]
The investment community is taking increasing interest in our company. The
number of firms whose analysts are covering Computer Horizons has risen to nine.
Our company was included in reports appearing in most major investment
magazines, cable outlets and on-line services. As a result of our strong
performance, high investor recognition and confidence, our follow-on common
stock offering was a success. An investment banking group led by BT Alex Brown
raised $84,000,000 in our September 26th offering.
Late in 1997, we completed our first two acquisitions as part of a strategic
expansion plan. On December 19, 1997, Computer Horizons acquired CG Computer
Services, a Los Angeles-headquartered IT provisioning and staffing solutions
company, in a transaction accounted for as a pooling of interests. Although
primarily serving West Coast-based Fortune 500 customers, CG had expanded in
recent years by adding offices and clients in Chicago, IL and Parsippany, NJ. On
December 31st, we completed our second acquisition, Millennium Computer
Technology, a Chattanooga, TN-based IT staffing and solutions company.
In the fourth quarter of 1997, our Solutions Division received ITAA*2000
Certification from the Information Technology Association of America.
Certification is the IT industry's evaluation program which examines the process
and methods used by member companies to perform Year 2000 software conversions.
This stamp of approval from a neutral and objective third party is a significant
indicator of the quality incorporated into the services we proudly perform.
In 1995, we reported to you that quality was a primary objective in everything
your company does. To further that goal, we created a Quality Management
initiative to develop a Total Quality program. In 1996, we received the highly
coveted "Q1" Quality Award from the Ford Motor Company after exceeding their
rigorous quality standard. In 1997, we once again advanced in our quest for
excellence when our Midwest Regional headquarters was awarded the important ISO
9002 status, passing the quality examination on the first try. These initial
rewards are reflective of our company's ongoing commitment to the highest
quality standards. We will now go
7
<PAGE>
[GRAPHIC-PHOTOS OF FOUR INDIVIDUALS]
forward with a program to have other areas of our company certified as well.
During the past few years, Computer Horizons has taken its first steps toward
international expansion. This year we truly became an international IT company.
In North America, we established a Canadian subsidiary, Computer Horizons
(Canada) Corp., based in Toronto. By the end of 1997 we added a Millennium
Refurbishment Center (MRC) in Toronto to facilitate Year 2000 outsourcing.
Although this full-service facility will handle Canadian and Year 2000 computing
demands, it is part of the broader international expansion plan to position
Computer Horizons to win outsourcing contracts worldwide.
In Europe, CHC International Limited was created and based in London. During the
year, CHC staff were working on several projects in European countries. The
expansion into Europe was rewarded quickly when our company received a Year 2000
solutions contract from Norwich Union, Ireland, one of the United Kingdom's
largest insurance and financial services companies. Internationally, we are
today providing a growing clientele with a myriad of solutions that include full
lifecycle Year 2000 services and various other IT solutions and staffing
services. These strong initial steps in expanding outside the United States
place Computer Horizons firmly on the path to the globalization of our company.
This past year also brought strategic changes and additions to the company's
infrastructure, organization and management team, as well as enhancements to
several of our service offerings. We added strategically to our off-site
outsourcing capabilities by building two new facilities in Toronto and in New
Jersey. Our network of 47 offices worldwide enables us to offer our products and
services in new and broader geographies.
In our continuing effort to enable clients to avail themselves of all we offer,
two of our solutions business units, Enterprise Management and Document Imaging
groups, were consolidated into the existing Solutions Division as separate
practices or "Centers of Excellence." This unified image in the marketplace
enables us to leverage all our contacts and expand each other's existing client
base. It will also enable new clients to better understand the breadth of our
offerings as we move beyond the century change.
8
<PAGE>
Solutions Capabilities
<PAGE>
Market Leadership
<PAGE>
[GRAPHIC-PHOTOS OF FIVE INDIVIDUALS]
During 1997, we introduced several new or enhanced solution and staffing
products and services to fill out our offerings. In the Year 2000 area, two new
components were successfully introduced into our industry leading solution,
Signature 2000. Computer Horizons was the first major solutions provider to
introduce a comprehensive service to bring Distributed (or "Desktop") computing
environments into Year 2000 compliance. With an estimated 100 million PCs in
existence and the proliferation of open systems, companies must bring hardware,
software, operating systems, communications software, spreadsheets and databases
into compliance, representing a significant opportunity for Computer Horizons.
At the core of every Year 2000 project which Computer Horizons manages is our
internally developed proprietary Signature 2000 toolset. During the year, we
announced that our toolset is available on a licensed basis, independent of our
services. The toolset has clearly proven its functionality and robustness by the
successful assessment of hundreds of millions of lines of code to date. A client
purchasing this proven toolset is able to support a full lifecycle, end-to-end
solution using almost any remediation strategy. As the time to repair
"mission-critical" systems shortens, it becomes essential to test growing
inventories of remediated code. Computer Horizons recently introduced a full
testing solution that reduces the total work effort required to test the
corrected applications. Our comprehensive, risk-driven testing process focuses
on business and technical risks while reducing the total work effort required.
These enhancements, coupled with the doubling of our off-site capacity, insure
that the Computer Horizons' Signature 2000 solution will continue to be the
choice of many of the largest companies on the Fortune 500 list.
In the Enterprise Management area, our newly introduced Momentum series is
allowing clients to quickly implement Help Desk, Network Management/ Monitoring
and Systems Management solutions. The Momentum series combines best-in-class
vendor products with Computer Horizons project management, methodologies and
resources. CHC's Momentum series allows clients to rapidly improve control of
their environment, while also setting the foundation for ongoing improvements.
Most companies realize almost immediate savings and a positive return on their
investments.
11
<PAGE>
During 1997, Computer Horizons and its management received praise, media
attention and awards for quality, financial performance, growth, offerings and
its contribution to expanding opportunity and employment. We are proud to share
this sampling with our shareholders. After several preliminary rounds and
eliminations, John Cassese, CEO, received the coveted New Jersey "Entrepreneur
of the Year" award, in the Masters category, from a prestigious group headed by
Ernst and Young LLP. Computer Horizons' long commitment to New Jersey, where we
now employ almost 1000 of our professionals, and to technical excellence by
instilling quality in everything we do, was recognized by the New Jersey
Technology Council as the "Large Company of the Year."
Management of Computer Horizons has a strong vision for the future of your
company that is being propelled by past accomplishments and lessons learned over
our 28-year history. We will evolve Computer Horizons into becoming the leading
provider of comprehensive IT solutions and staffing services to major
corporations around the globe. To achieve this status, we will offer the
matchless combination of methodology, leading-edge technology-based products,
comprehensive and flexible solutions, and a world-class cadre of proven
resources.
The following are the key strategies we will employ to achieve our goals:
o Leverage Customer Relationships and Expand the Client Base
o Maintain Our Leadership Position in Staffing
o Expand Year 2000 Offerings and Business
o Grow and Enhance Our Solutions Business
o Expand Our Geographic Presence
o Enhance Our Product and Service Offerings
- --------------------------------------------------------------------------------
At Computer Horizons, our most important asset continues to be our people.
Page 4; Clockwise: Thomas Culmone, Lisa Matkowski, John Paul Cassese, Craig
Barbret.
Page 7; Clockwise: Arlene Brady, Thimmaiah Biddanda, Donna Smiley, Sean
O'Donnell.
Page 8; Clockwise: Mary Clementi, Brian Soderholm, Janet-Lee Hatt, William
Barlow, Robert Farrell.
Page 11; Clockwise: Robi Scheidt, Edward Stengel, Kim Heinz, Thomas Geist,
Michael Gange.
12
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Year Ended December 31,
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues $334,729 $249,152 $213,165 $163,987 $131,936
Costs and expenses:
Direct costs 224,123 172,734 148,530 115,835 94,719
Selling, general and
administrative 70,741 56,903 46,156 36,724 29,635
Merger-related expenses 976
Income from operations 38,889 19,515 18,479 11,428 7,582
Other income (expense):
Interest income 1,543 307 266 53 235
Interest expense (263) (480) (642) (710) (840)
Equity in net earnings of
joint venture 13 885 361
Income before income taxes 40,182 20,227 18,464 10,771 6,977
Income taxes 17,538 8,363 8,039 4,852 3,228
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $ 22,644 $ 11,864 $ 10,425 $ 5,919 $ 3,749
===========================================================================================================================
Earnings per share:
Basic $.88 $.48 $.46 $.29 $.17
===========================================================================================================================
Diluted $.84 $.46 $.44 $.27 $.17
===========================================================================================================================
Weighted average number
of shares outstanding:
Basic 25,680,000 24,493,000 22,425,000 20,559,000 22,160,000
===========================================================================================================================
Diluted 27,102,000 26,028,000 23,931,000 21,962,000 23,074,000
===========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Analysis (%)
Revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin 33.0 30.7 30.3 29.4 28.2
Selling, general and
administrative 21.1 22.9 21.6 22.4 22.4
Merger-related expenses .3
Income from operations 11.6 7.8 8.7 7.0 5.8
Interest income/(expense), net .4 (.1) (.2) (.4) (.5)
Equity in net earnings of
joint venture -- .4 .2
Income before income taxes 12.0 8.1 8.7 6.6 5.3
Income taxes 5.2 3.3 3.8 3.0 2.4
Net Income 6.8 4.8 4.9 3.6 2.9
Revenue growth YOY 34.3 16.9 30.0 24.3 18.1
Net income growth YOY 90.9 13.8 76.1 57.9 71.9
Return on equity, average 17.9 18.7 24.0 20.6 11.5
Effective tax rate 43.6 41.3 43.5 45.0 46.3
At year-end
Total assets $211,601 $91,760 $78,794 $51,103 $42,347
Working capital 157,413 52,761 40,779 21,558 18,522
Long-term debt -- 1,432 3,299 4,288 6,093
Shareholders' equity 182,532 70,993 55,814 30,947 26,504
Stock price $45.50 $25.67 $16.89 $4.00 $2.32
P/E multiple 52 53 37 14 14
Employees* 3,630 3,102 2,668 2,289 1,749
Clients (during year)* 499 508 492 501 493
Offices (worldwide) 47 47 43 37 34
===========================================================================================================================
</TABLE>
*Does not include Birla Horizons International and Millennium Computer
Technology, Inc.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
The following table sets forth certain operating data as a percentage of
consolidated revenues for the periods indicated. All percentages include the
operations of CG Computer Services Corp., acquired by Computer Horizons Corp.
("the Company") on December 19, 1997. This acquisition has been accounted for as
a pooling of interests. Comparisons with prior years are based on restated
combined results:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Costs and expenses:
Direct costs 67.0 69.3 69.7
Selling, general and administrative 21.1 22.9 21.6
Merger-related expenses 0.3
Income from operations 11.6 7.8 8.7
Other income (expense):
Interest income/(expense), net 0.4 (0.1) (0.2)
Equity in net earnings of joint venture -- 0.4 0.2
Income before income taxes 12.0 8.1 8.7
Income taxes:
Current 5.5 3.5 4.0
Deferred (0.3) (0.2) (0.2)
Net income 6.8 4.8 4.9
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Year Ended December 31,
1997 Compared to
Year Ended
December 31, 1996
Revenues
Revenues increased to $334.7 million in the year ended December 31, 1997 from
$249.2 million in the year ended December 31, 1996, an increase of $85.5
million, or 34%. Staffing revenues increased to $224.5 million in the year ended
December 31, 1997 from $186.0 million in the year ended December 31, 1996, an
increase of $38.5 million or 21%. Revenues from the acquisition of CG Computer
Services Corp. amounted to approximately $17.4 million in 1997 and $15.3 million
in 1996. Solutions revenues, including Year 2000 services, increased to $110.3
million in the year ended December 31, 1997 from $63.2 million in the year ended
December 31, 1996, an increase of $47.1 million or 75%. Year 2000 services
revenues increased to $72.1 million in the year ended December 31, 1997, an
increase of $61.7 million from $10.4 million in the year ended December 31,
1996. The Company's Year 2000 business accounted for approximately 22% of total
revenues in the year ended December 31, 1997 versus approximately 4% of total
revenues in 1996. Solutions revenues, excluding Year 2000 services, decreased to
$38.1 million for the year ended December 31, 1997 from $52.7 million for the
year ended December 31, 1996, a decrease of $14.6 million or 28%. The Company's
solutions revenues were impacted by a shift in client demand, the Company's
increased focus on its Year 2000 business, as well as the unexpected termination
of a large contract in the second quarter of 1996.
<PAGE>
Direct Costs
Direct costs increased to $224.1 million in the year ended December 31, 1997
from $172.7 million in the year ended December 31, 1996. Gross margin increased
to 33.0% in the year ended December 31, 1997 from 30.7% in the year ended
December 31, 1996. 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.
Selling, General and Administrative
Selling, general and administrative expenses (excluding merger-related expenses)
increased to $70.7 million in the year ended December 31, 1997 from $56.9
million in the year ended December 31, 1996, an increase of $13.8 million or
24.2%. As a percentage of revenues, selling, general and administrative expenses
decreased to 21.1% of revenues in the year ended December 31, 1997 from 22.9% of
revenues in the year ended December 31, 1996. The increase in selling, general
and administrative expenses in absolute dollars was primarily a result of
salaries and
14
<PAGE>
commissions for additional sales and recruiting personnel and, to a lesser
extent, growth in Computer Horizons' administrative infrastructure. In the
fourth quarter of 1997, the Company incurred merger-related expenses of
approximately $1.0 million or 0.3% of revenues.
Income from Operations
Operating margins increased to 11.6% in the year ended December 31, 1997 from
7.8% in the year ended December 31, 1996. This increase was primarily due to an
increase in the Company's higher margin Year 2000 business and lower selling,
general and administrative expenses as a percentage of revenue. 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 to payroll costs.
Other Income
Other income increased to $1.3 million in the year ended December 31, 1997 from
$0.7 million in the year ended December 31, 1996, an increase of $0.6 million or
82%. This increase was primarily the result of increased interest income
resulting from the follow-on offering of approximately $84 million completed in
the third quarter of 1997. This increase was partially offset by a decrease in
earnings from the Company's Birla Horizons Joint Venture. The Joint Venture's
decreased earnings in the year ended December 31, 1997 were primarily due to
costs associated with increased headcount, particularly in marketing and project
management personnel as it expanded its solutions business.
Provision for Income Taxes
The effective tax rate for Federal, state and local income taxes was 43.6% and
41.3% in the years ended December 31, 1997 and 1996, respectively. The increase
in the 1997 effective tax rate was partially due to certain non-deductible
merger-related expenses incurred in the fourth quarter of 1997. The 1997 rate
also reflects a decrease in undistributed earnings of the Joint Venture, for
which taxes were not provided.
Net Income
Net income increased to $22.6 million in the year ended December 31, 1997 from
$11.9 million in the year ended December 31, 1996, an increase of $10.7 million,
or 90%. Net income per share (diluted) increased to $0.84 in the year ended
December 31, 1997 from $0.46 in the year ended December 31, 1996 on higher
weighted average shares outstanding (27.1 million in 1997 versus 26.0 million in
1996). The effect of merger-related expenses amounted to $.03 per share in 1997.
All net income per share and share amounts have been adjusted to reflect a
three-for-two common stock split, effected as a 50% stock distribution,
distributed on June 9, 1997.
- --------------------------------------------------------------------------------
<PAGE>
Year Ended December 31,
1996 Compared to
Year Ended
December 31, 1995
Revenues
Revenues increased to $249.2 million in the year ended December 31, 1996 from
$213.2 million in the year ended December 31, 1995, an increase of $36.0
million, or 17%. Staffing revenues increased to $186.0 million in the year ended
December 31, 1996 from $154.0 million in the year ended December 31, 1995, an
increase of $32.0 million or 21%. Revenues from the acquisition of CG Computer
Services Corp. amounted to approximately $15.3 million in 1996 and $13.1 million
in 1995. Solutions revenues, including Year 2000 services, increased to $63.2
million in the year ended December 31, 1996 from $59.1 million in the year ended
December 31, 1995, an increase of $4.1 million or 7%. Year 2000 revenues
increased to $10.4 million in the year ended December 31, 1996 from nil in the
year ended December 31, 1995. Solutions revenues, excluding Year 2000 services,
decreased to $52.7 million in the year ended December 31, 1996 from $59.1
million in the year ended December 31, 1995, a decrease of $6.4 million or 11%.
The decrease in solutions revenues, excluding Year 2000 services, was primarily
related to the unexpected termination of a large contract in the second quarter
of 1996.
15
<PAGE>
Direct Costs
Direct costs increased to $172.7 million in the year ended December 31, 1996
from $148.5 million in the year ended December 31, 1995. Gross margin increased
to 30.7% in the year ended December 31, 1996 from 30.3% in the year ended
December 31, 1995. The increase in gross margin was primarily due to stable
margins in the Company's staffing business and an increase in Computer Horizons'
higher margin Year 2000 business. The Company's margins are subject to
fluctuation due to a number of factors, including the level of salary and other
compensation-related expenses necessary to attract and retain qualified
technical personnel and the mix of staffing versus solutions business during the
year.
Selling, General and Administrative
Selling, general and administrative expenses increased to $56.9 million in the
year ended December 31, 1996 from $46.2 million in the year ended December 31,
1995, an increase of $10.7 million or 23.2%. As a percentage of revenues,
selling, general and administrative expenses increased to 22.9% in the year
ended December 31, 1996, from 21.6% in the year ended December 31, 1995. The
increase in selling, general and administrative expenses in 1996 was primarily a
result of salaries and commissions for additional personnel, infrastructure
necessary to pursue large, high-profile opportunities, and marketing expenses
incurred to raise the Company's visibility through public relations, trade shows
and conferences.
Income from Operations
Income from operations increased to $19.5 million in the year ended December 31,
1996 from $18.5 million in the year ended December 31, 1995, an increase of $1.0
million or 5.4%. Operating margins decreased to 7.8% in the year ended December
31, 1996 from 8.7% in the year ended December 31, 1995. The increase in absolute
dollars was attributable to increased revenues and improved gross margins,
offset by the impact of the unexpected termination of a large contract in the
second quarter of 1996 and the increase in selling, general and administrative
expenses in 1996. 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 to payroll costs.
Other Income
Other income increased to $0.7 million in the year ended December 31, 1996 from
nil in the year ended December 31, 1995. This increase was primarily a result of
reduced interest expense as Computer Horizons reduced its outstanding debt with
a portion of the net proceeds from its June 1995 follow-on offering and by the
increased earnings of the Joint Venture.
Provision for Income Taxes
The effective tax rate for Federal, state and local income taxes was 41.3% and
43.5% in the years ended December 31, 1996 and 1995, respectively. The 1996 rate
reflects an increase in undistributed earnings of the Joint Venture for which
taxes have not been provided.
<PAGE>
Net Income
Net income increased to $11.9 million in the year ended December 31, 1996 from
$10.4 million in the year ended December 31, 1995, an increase of $1.5 million
or 14.4%. Net income increased to $0.46 per share (diluted) in the year ended
December 31, 1996 from $0.44 per share (diluted) in the year ended December 31,
1995. All net income per share and share amounts have been adjusted to reflect a
three-for-two common stock split, effected as a 50% stock distribution,
distributed on June 9, 1997.
- --------------------------------------------------------------------------------
Liquidity and
Capital Resources
Since 1995, Computer Horizons has financed its operations primarily through cash
generated from operations and the public sale of its common stock. At December
31, 1997, the Company had $157.4 million in working capital, of which $101.8
million was cash, cash equivalents and short-term investments (including $83.7
million of net proceeds of its public offering of common stock completed on
September 23, 1997). There were no borrowings under its bank lines of credit.
16
<PAGE>
Net cash provided by operating activities was $14.2 million, $5.3 million and
$2.2 million, for the years ended December 31, 1997, 1996 and 1995,
respectively, consisting primarily of net income, offset in part by an increase
in accounts receivable.
Net cash used in investing activities was $22.0 million, $2.5 million and $6.2
million in the years ended December 31, 1997, 1996 and 1995, respectively. Net
cash used in investing activities in 1997 consisted primarily of the purchase of
short-term investments. In addition, on December 31, 1997, the Company acquired
the assets of Millennium Computer Technology ("Millennium"), a Chattanooga-based
IT services provider, for approximately $5 million. Net cash used in investing
activities in the year ended December 31, 1996 consisted primarily of purchases
of furniture and equipment. Net cash used in investing activities in 1995
consisted primarily of approximately $3.0 million of additional goodwill
resulting from earn-out provisions in connection with Computer Horizons'
acquisition of Unified Systems Solutions, Inc. and Strategic Outsourcing
Services, Inc., the purchase of furniture and equipment and the establishment of
client-specific outsourcing centers.
Net cash provided by financing activities was $84.4 million and $11.1 million in
the years ended December 31, 1997 and December 31, 1995, respectively,
consisting primarily of $83.7 million and $13.3 million in net proceeds from the
Company's public offerings of common stock, offset in part by the repayment
following the offering of outstanding bank debt of $6.0 million in 1995. For the
year ended December 31, 1996, net cash used in financing activities was $0.7
million, resulting primarily from the scheduled repayment of long-term debt.
At December 31, 1997, the Company had a current ratio position of 6.9 to 1, no
long-term debt and no outstanding borrowings under its two unsecured
discretionary lines of credit of $15.0 million and $10.0 million. Computer
Horizons also has outstanding two notes, each bearing interest at a rate of
9.55%. As of December 31, 1997, approximately $1.4 million remained outstanding
under the notes and will become due on April 15, 1998.
The Company's accounts receivable were $79.5 million and $56.4 million at
December 31, 1997 and December 31, 1996, respectively. Days sales outstanding
were 75 days at December 31, 1997 and 77 days at December 31, 1996, based on
fourth quarter sales.
The Company is currently implementing a new firmwide accounting/information
system. In addition to being Year 2000 compliant, the system will support the
Company's future growth. The implementation is expected to be completed in late
1998, and the related cost is not expected to have a material impact on the
Company's financial condition or results of operations.
The Company believes that its cash and cash equivalents and short-term
investments, lines of credit and internally generated funds will be sufficient
to meet its working capital needs through 1998.
17
<PAGE>
AUDITORS' REPORT
Report of
Independent [Grant Thornton - logo]
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, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996 and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/GRANT THORNTON LLP
- ---------------------
GRANT THORNTON LLP
Parsippany, New Jersey
January 29, 1998
(except for Note 2, as to which
the date is February 27, 1998)
18
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Revenues $334,729 $249,152 $213,165
- ---------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Direct costs 224,123 172,734 148,530
Selling, general and administrative 70,741 56,903 46,156
Merger-related expenses 976
- ---------------------------------------------------------------------------------------------------------------------------
295,840 229,637 194,686
- ---------------------------------------------------------------------------------------------------------------------------
Income from operations 38,889 19,515 18,479
- ---------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 1,543 307 266
Interest expense (263) (480) (642)
Equity in net earnings of joint venture (Note 4) 13 885 361
- ---------------------------------------------------------------------------------------------------------------------------
1,293 712 (15)
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 40,182 20,227 18,464
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes (Notes 1 and 7):
Current 18,485 8,737 8,533
Deferred (947) (374) (494)
- ---------------------------------------------------------------------------------------------------------------------------
17,538 8,363 8,039
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $ 22,644 $ 11,864 $ 10,425
===========================================================================================================================
Earnings per share (Notes 1 and 8):
Basic $.88 $.48 $.46
===========================================================================================================================
Diluted $.84 $.46 $.44
===========================================================================================================================
Weighted average number of shares outstanding:
Basic 25,680,000 24,493,000 22,425,000
===========================================================================================================================
Diluted 27,102,000 26,028,000 23,931,000
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Assets Current assets:
Cash and cash equivalents $ 88,633 $11,993
Short-term investments (Note 1) 13,165 --
Accounts receivable (Note 3) 79,526 56,378
Deferred income tax benefit (Note 7) 1,818 1,119
Other 1,087 979
- -------------------------------------------------------------------------------------------------------------------------------
Total current assets 184,229 70,469
- -------------------------------------------------------------------------------------------------------------------------------
Property and equipment:
Furniture, equipment and other 12,479 9,685
Less accumulated depreciation 7,101 5,389
- -------------------------------------------------------------------------------------------------------------------------------
5,378 4,296
- -------------------------------------------------------------------------------------------------------------------------------
Other assets - net:
Goodwill (Note 1) 17,090 13,322
Deferred income tax benefit (Note 7) 816 568
Other (Note 4) 4,088 3,105
- ------------------------------------------------------------------------------------------------------------------------------
21,994 16,995
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets $211,601 $91,760
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
<TABLE>
<CAPTION>
December 31,
1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Liabilities and Current liabilities:
Shareholders' Current portion of long-term debt (Note 5) $ 1,432 $ 1,867
Equity Accrued payroll, payroll taxes and benefits 17,526 12,775
Accounts payable 1,830 1,217
Income taxes payable 3,394 1,100
Other accrued expenses 2,634 749
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 26,816 17,708
- -----------------------------------------------------------------------------------------------------------------------------
Long-term debt (Note 5) -- 1,432
- -----------------------------------------------------------------------------------------------------------------------------
Other liabilities (Note 9) 2,253 1,627
- -----------------------------------------------------------------------------------------------------------------------------
Commitments (Note 10)
- -----------------------------------------------------------------------------------------------------------------------------
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 29,360,069 shares and 26,485,029
shares at December 31, 1997 and 1996, respectively 2,936 2,648
Additional paid-in capital 117,718 29,887
Retained earnings 75,750 53,106
- -----------------------------------------------------------------------------------------------------------------------------
196,404 85,641
Less shares held in treasury, at cost; 1,692,253 shares and
1,786,883 shares at December 31, 1997 and 1996, respectively (13,872) (14,648)
- -----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 182,532 70,993
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $211,601 $ 91,760
=============================================================================================================================
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Common stock Additional Treasury stock
------------------- paid-in Retained ------------------
Shares Amount capital earnings Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997, 1996 and 1995 (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994,
as previously reported 7,739,576 $ 774 $ 13,940 $29,851 1,786,883 $14,648
Pooling of interests with
CG Computer Services
Corporation 167,901 17 46 966
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994, as restated 7,907,477 791 13,986 30,817 1,786,883 14,648
Three-for-two stock split declared:
April 1995 3,086,949 309 (309)
December 1995 5,332,803 533 (533)
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 10,425
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 17,785,292 1,779 27,441 41,242 1,786,883 14,648
Stock options exercised 467,022 46 1,680
Tax benefits related to stock option plans 1,589
Net income for the year 11,864
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 18,252,314 1,825 30,710 53,106 1,786,883 14,648
Three-for-two stock split declared May 1997 8,232,715 823 (823)
Stock options exercised 375,040 38 1,759 (94,630) (776)
Tax benefits related to stock option plans 2,610
Sale of common stock, net of expenses 2,500,000 250 83,462
Net income for the year 22,644
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 29,360,069 $2,936 $117,718 $75,750 1,692,253 $13,872
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this statement.
22
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 22,644 $11,864 $10,425
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred taxes (947) (374) (494)
Depreciation 1,711 1,216 704
Amortization of intangibles 602 587 505
Provision for bad debts 575 54 170
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (22,829) (9,869) (14,768)
Other current assets (108) 13 (519)
Accrued payroll, payroll taxes and benefits 4,751 1,555 3,266
Accounts payable 371 (582) 1,198
Income taxes payable 4,904 959 725
Other accrued expenses 1,885 (637) 578
Other liabilities 626 465 424
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 14,185 5,251 2,214
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchases of furniture and equipment (2,363) (1,373) (1,521)
Acquisitions, net of cash (5,467) (363) (2,966)
Change in other assets (968) (761) (1,673)
Purchases of short-term investments (13,165)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (21,963) (2,497) (6,160)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Notes payable--banks, net (3,200)
Long-term debt (1,867) (2,385) (168)
Stock options exercised 2,573 1,727 1,170
Proceeds from issuance of stock 83,712 13,273
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 84,418 (658) 11,075
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 76,640 2,096 7,129
Cash and cash equivalents at beginning of year 11,993 9,897 2,768
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 88,633 $11,993 $ 9,897
===========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 236 $ 443 $ 608
Income taxes 12,950 7,592 6,840
===========================================================================================================================
Details of Acquisition:
Fair value of assets $ 5,590
Liabilities 242
- ---------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition $ 5,348
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Summary of
Significant
Accounting
Policies
December 31, 1997, 1996 and 1995
Description of Business
Computer Horizons Corp. is a diversified information technology services company
that provides clients with resource augmentation and advanced technology
solutions to business problems through applications development, client/server
migration, network management, emerging technologies, and legacy systems
maintenance, including its solution to the millennium date-change problem,
Computer Horizons' Signature 2000(TM).
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 4) 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>
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Cash $ 3,448 $ 2,053
Money market funds 45,460 5,926
Commercial paper 21,924 1,247
Demand obligations 17,801 2,767
- ------------------------------------------------------------------------------------------------------------------------------
$88,633 $11,993
==============================================================================================================================
</TABLE>
<PAGE>
Short-term Investments
The Company classifies investments with an original maturity of more than three
months at the time of purchase as short-term investments. Short-term investments
are classified as held-for-sale and carried at cost, which approximates fair
value. At December 31, 1997, short-term investments maturing within one year
consist of:
<TABLE>
<CAPTION>
Fair
Cost value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(in thousands)
Commercial paper $ 8,711 $ 8,711
Corporate bonds 2,452 2,450
Government bonds 2,002 2,000
- ------------------------------------------------------------------------------------------------------------------------------
$13,165 $13,161
==============================================================================================================================
</TABLE>
24
<PAGE>
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations
of credit risk, regardless of the degree of such risk, consist principally of
cash and cash equivalents, short-term investments and trade accounts receivable.
The Company invests the majority of its excess cash in money market funds,
commercial paper and demand obligations 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 balances principally in three financial
institutions located in New York, New Jersey and California. These balances are
insured by the Federal Deposit Insurance Corporation up to $100,000 for each
entity at each institution. At December 31, 1997, uninsured amounts held at
these financial institutions total approximately $7,312,000.
The Company's customers are generally very large, Fortune 500 companies in many
industries and with wide geographic dispersion. The Company's largest customer
accounts for approximately 4% of billed accounts receivable at December 31,
1997. The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends,
and other information.
The Company's largest client accounted for 11.7%, 9.2% and 7.3%, respectively,
of the Company's consolidated revenues in 1997, 1996 and 1995. No other client
accounted for more than 8% in those years.
Fair Value of Financial Instruments
The carrying value of financial instruments (principally consisting of cash and
cash equivalents, short-term investments, accounts receivable and payable and
long-term debt) approximates fair value because of the short maturities or, as
to long-term debt, the rates currently offered to the Company.
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, primarily over thirty years. Accumulated
amortization is $4,523,000 and $3,921,000 at December 31, 1997 and 1996,
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 income generated, to determine that no impairment
has occurred.
Income Taxes
The Company and its domestic subsidiaries file a consolidated Federal income tax
return. The foreign subsidiaries file in each of their local jurisdictions.
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.
<PAGE>
Tax benefits from early disposition of the stock by optionees under incentive
stock options and from exercise of non-qualified options are credited to
additional paid-in capital.
The Company intends to permanently reinvest the unremitted earnings at December
31, 1997 from its foreign corporate joint venture and, accordingly, has not
provided deferred taxes on these amounts. The Company's Canadian and United
Kingdom subsidiaries have no unremitted earnings at December 31, 1997.
25
<PAGE>
Earnings Per Share
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which requires
public companies to present basic earnings per share and, if applicable, diluted
earnings per share. In accordance with SFAS No. 128, all comparative periods
have been restated as of December 31, 1997. Basic EPS is based on the weighted
average number of common shares outstanding without consideration of common
stock equivalents. Diluted earnings per share is based on the weighted average
number of common and common equivalent shares outstanding. The calculation takes
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.
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.
New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income,"
governing the reporting and display of comprehensive income and its components,
and Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures About Segments of an Enterprise and Related Information," requiring
that all public businesses report financial and descriptive information about
their reportable operating segments. Both statements are applicable to fiscal
years beginning after December 15, 1997. The impact of adopting SFAS No. 130 is
not expected to be material to the consolidated financial statements or notes to
consolidated financial statements. Management is currently evaluating the effect
of SFAS No. 131 on consolidated financial statement disclosures.
- --------------------------------------------------------------------------------
Note 2
Acquisitions
On December 31, 1997, the Company acquired, for approximately $5 million cash,
certain assets from Millennium Computer Technology, Inc. ("Millennium"), a
Chattanooga-based IT services provider. The acquisition was recorded under the
purchase method of accounting. Had the acquisition of Millennium occurred on
January 1, 1997, the effect on revenues and net income would have been
immaterial.
On December 19, 1997, the Company acquired all the common stock of CG Computer
Services Corporation ("CG") in exchange for 566,666 shares of Computer Horizons
common stock. CG provides IT provisioning and staffing solutions with offices in
San Francisco, Los Angeles, Chicago, and Parsippany, New Jersey. This
transaction was accounted for as a pooling of interests and, accordingly, the
consolidated financial statements for the periods presented have been restated
to include the accounts of CG.
26
<PAGE>
The reconciliation below details the effects of the pooling noted above on the
previously reported revenues, net income and earnings per share of the separate
companies for the periods preceding the acquisition:
<TABLE>
<CAPTION>
Nine months
ended
September 27, Year ended Year ended
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Revenues
Computer Horizons Corp. $226,846 $233,858 $200,050
CG 12,820 15,294 13,115
- -------------------------------------------------------------------------------------------------------------------------------
Combined $239,666 $249,152 $213,165
===============================================================================================================================
Net income
Computer Horizons Corp. $ 14,903 $ 11,232 $ 9,907
CG 468 632 518
- ------------------------------------------------------------------------------------------------------------------------------
Combined $ 15,371 $ 11,864 $ 10,425
==============================================================================================================================
Earnings per share
Basic
Computer Horizons Corp. $.61 $.47 $.45
CG .00 .01 .01
- ------------------------------------------------------------------------------------------------------------------------------
Combined $.61 $.48 $.46
==============================================================================================================================
Diluted
Computer Horizons Corp. $.58 $.44 $.42
CG .00 .02 .02
- ------------------------------------------------------------------------------------------------------------------------------
Combined $.58 $.46 $.44
==============================================================================================================================
</TABLE>
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. 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 1997, 1996 and 1995, the
Company recorded contingent consideration, totalling approximately $119,000,
$137,000 and $202,000, respectively, as additional goodwill.
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 provided 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, totalling approximately $509,000, was recorded as
<PAGE>
goodwill in 1994. In 1995 and 1994, the Company recorded contingent
consideration, totalling approximately $390,000 and $245,000, 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.
Subsequent Event
On February 27, 1998, the Company acquired all of the common stock of Princeton
Softech, Inc. ("Princeton") in exchange for 954,213 shares of Computer Horizons
common stock. Princeton specializes in relational databases, data
synchronization, intelligent data migration and data management tools, and is
based in Princeton, New Jersey. This transaction will be accounted for as a
pooling of interests.
27
<PAGE>
Note 3
Accounts Receivable
Accounts receivable consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Billed $58,253 $39,096
Unbilled 23,015 18,485
- ------------------------------------------------------------------------------------------------------------------------------
81,268 57,581
Less allowance for doubtful accounts 1,742 1,203
- ------------------------------------------------------------------------------------------------------------------------------
$79,526 $56,378
==============================================================================================================================
</TABLE>
Note 4
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 Joint Venture as Birla Horizons
International ("BHI"), is headquartered in New Delhi, India and currently has
operations in India, the United States, the United Kingdom and Canada.
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 is providing technological and management
support.
The Company's total investment in BHI is $1,672,000 and $1,746,000 at December
31, 1997 and 1996, respectively, representing the initial cost plus equity in
the undistributed net earnings since formation, and is included in other
noncurrent assets. BHI provided consultants to the Company at a total cost of
$5,017,000, $4,216,000 and $2,686,000 in 1997, 1996 and 1995, respectively.
Approximately $374,000 was included in accounts payable at December 31, 1997.
Note 5
Long-Term Debt
and Lines of Credit
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
9.55% senior notes $1,432 $2,860
Notes payable at prime 439
- ------------------------------------------------------------------------------------------------------------------------------
1,432 3,299
Less current maturities 1,432 1,867
- ------------------------------------------------------------------------------------------------------------------------------
$ -- $1,432
==============================================================================================================================
</TABLE>
<PAGE>
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. In
1995, an 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.
At December 31, 1997, the Company has two unused bank lines of credit totalling
$25,000,000 at rates below the banks' prime lending rates. During 1997, the
Company had no borrowings against either line.
28
<PAGE>
Note 6
Shareholders' Equity
Authorized Shares
On May 7, 1997, 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 30,000,000 to 60,000,000.
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>
May 7, 1997 May 22, 1997 June 9, 1997
December 12, 1995 December 22, 1995 January 9, 1996
April 24, 1995 May 9, 1995 May 30, 1995
</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.
Stock Options and SFAS No. 123 Pro Forma Disclosure
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 7,594,000 shares of common stock and stock appreciation rights
(SARs). 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, 1997. This plan, which
replaces the Company's 1985 Plan, will terminate on June 15, 2004. There were
5,555,000 shares available for option at December 31, 1997.
In 1994, the Company amended the non-qualified Directors' Stock Option Plan
increasing the maximum number of shares of common stock that may be acquired
pursuant to the exercise of options granted under the plan from 379,000 to
844,000, and providing that each new director of the Company who is not an
employee of the Company (i) shall immediately receive options to purchase 75,938
shares of its common stock and (ii) shall receive up to five annual grants to
purchase 10,125 shares of its common stock. The plan expires on March 4, 2001.
There were 504,000 shares available for option at December 31, 1997.
<PAGE>
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. Accordingly, no
compensation cost has been recognized for the plans. Had compensation cost for
the plans been determined based on the fair value of the options at the grant
dates consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income As reported $22,644,000 $11,864,000 $10,425,000
Pro forma 19,749,000 9,533,000 9,619,000
Earnings per share:
Basic As reported $.88 $.48 $.46
Pro forma .77 .39 .43
Diluted As reported $.84 $.46 $.44
Pro forma .73 .37 .40
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively: expected
volatility of 61%, 97% and 70%; risk-free interest rates of 5.47%, 6.28% and
6.27%; and expected lives of 5.0, 4.9 and 4.5 years.
29
<PAGE>
A summary of the status of the Company's stock option plans as of December 31,
1997, 1996 and 1995, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(000) (000) (000)
Outstanding--January 1 2,169 $ 6.87 2,214 $ 3.69 2,182 $2.03
Granted 328 23.55 885 14.65 783 6.01
Exercised (462) 5.37 (678) 2.50 (749) 1.29
Canceled/forfeited (36) 13.36 (252) 17.95 (2) 6.78
- ------------------------------------------------------------------------------------------------------------------------------
Outstanding--December 31 1,999 $ 9.84 2,169 $ 6.87 2,214 $3.69
==============================================================================================================================
Options exercisable--December 31 833 $ 7.10 764 $ 4.94 999 $2.42
==============================================================================================================================
Weighted average fair value of
options granted during the year $23.54 $11.65 $3.64
</TABLE>
The following information applies to options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
- -----------------------------------------------------------------------------------------------------------------------------
Weighted
Outstanding average Weighted Exercisable Weighted
as of remaining average as of average
December 31, contractual exercise December 31, exercise
Range of exercise prices 1997 life (years) price 1997 price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(000) (000)
$ 0.00-$14.99 1,518 5.0 $ 6.13 708 $ 4.55
15.00- 29.99 480 6.3 21.53 125 21.47
30.00 and over 1 4.7 35.38 -- --
- -----------------------------------------------------------------------------------------------------------------------------
1,999 5.3 $ 9.84 833 $ 7.10
=============================================================================================================================
</TABLE>
Certain officers have the right to borrow from the Company against the exercise
price of options exercised.
The Company has issued warrants to purchase shares of its common stock to two
outside business/ legal consulting firms. Warrants for 8,625, 30,000 and 10,125
shares were granted, respectively, in 1997, 1996 and 1995. The exercise price is
the fair value at the date of grant.
<PAGE>
Shareholder Rights Plan
In July 1989, the Board of Directors declared a dividend distribution of .131
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.
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
30
<PAGE>
than 50% of the Company's assets or earning power is sold or transferred, a
right would entitle a Computer Horizons 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 7
Income Taxes
The provision for income taxes consists of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $13,927 $6,629 $6,180
State 4,558 2,108 2,353
Deferred:
Federal (703) (341) (358)
State (244) (33) (136)
- ------------------------------------------------------------------------------------------------------------------------------
$17,538 $8,363 $8,039
==============================================================================================================================
</TABLE>
Deferred tax assets and liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Accrued insurance $ 588 $ 291
Accrued payroll and benefits 1,413 1,011
Deferred lease obligations 48 72
Allowance for doubtful accounts 469 249
Other 239 95
- ------------------------------------------------------------------------------------------------------------------------------
2,757 1,718
Deferred tax liabilities:
Depreciation 123 31
- ------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets, net $2,634 $1,687
==============================================================================================================================
</TABLE>
<PAGE>
A reconciliation of income taxes, as reflected in the accompanying statements,
with the statutory Federal income tax rate of 35% for the years ended December
31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Statutory Federal income taxes $14,064 $7,079 $6,462
State and local income taxes, net of Federal tax benefit 2,804 1,349 1,441
Amortization of goodwill 203 201 180
Equity in net earnings of joint venture (310) (126)
Other, net 467 44 82
- ------------------------------------------------------------------------------------------------------------------------------
$17,538 $8,363 $8,039
==============================================================================================================================
</TABLE>
Deferred income taxes of approximately $413,000 have not been provided on
undistributed earnings of a foreign joint venture in the amount of $1,181,000,
as the earnings at December 31, 1997 are considered to be permanently
reinvested.
31
<PAGE>
Note 8
Earnings per Share
Disclosures
<TABLE>
<CAPTION>
Per
Income Shares share
For the year ended (numerator) (denominator) amount
- ------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
December 31, 1997
Net income $22,644
==============================================================================================================================
Basic earnings per share
Income available to common shareholders $22,644 25,680,000 $.88
Effect of diluted securities
Options 1,422,000
- ------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions $22,644 27,102,000 $.84
=============================================================================================================================
December 31, 1996
Net income $11,864
=============================================================================================================================
Basic earnings per share
Income available to common shareholders $11,864 24,493,000 $.48
Effect of diluted securities
Options 1,535,000
- -----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions $11,864 26,028,000 $.46
=============================================================================================================================
December 31, 1995
Net income $10,425
=============================================================================================================================
Basic earnings per share
Income available to common shareholders $10,425 22,425,000 $.46
Effect of diluted securities
Options 1,506,000
- -----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions $10,425 23,931,000 $.44
=============================================================================================================================
</TABLE>
<PAGE>
Options to purchase 8,713 and 27,375 shares of common stock in 1997 and 1996,
respectively, ranging from $25.67 to $35.58, and $18.00 to $33.33 per share were
outstanding during 1997 and 1996, respectively, but were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market price of common shares. The options which
expire between December 31, 2001 and January 1, 2007 were still outstanding at
December 31, 1997. All options to purchase shares of common stock were included
in the computation of diluted earnings per share in 1995.
32
<PAGE>
Note 9
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 $469,000,
$345,000, and $246,000 in 1997, 1996 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 $9.7 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 non-qualified 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 $183,000, $97,000 and
$82,000 in 1997, 1996 and 1995, respectively.
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. Amounts deferred as of December 31, 1997 have been included in other
non-current liabilities.
- --------------------------------------------------------------------------------
Note 10
Commitments
Leases
The Company leases office space under long-term operating leases expiring
through 2006. As of December 31, 1997, approximate minimum rental commitments
were as follows:
<TABLE>
<CAPTION>
Year ending (in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
1998 $ 3,833
1999 3,141
2000 1,286
2001 976
2002 700
Thereafter 729
- ---------------------------------------------------------------------------------------------------------------------------
$10,665
===========================================================================================================================
</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 $3,610,000, $2,799,000, and $2,176,000 in the years ended December
31, 1997, 1996 and 1995, respectively.
Other
In 1994, the Vice Chairman and Executive Vice President of the Company announced
his resignation effective February 15, 1995. The Company recorded approximately
$400,000 of deferred compensation in 1994 which is to be paid beginning March
1998 through 2005. 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.
33
<PAGE>
Note 11
Selected Quarterly
Financial Data
(Unaudited)
For the years ended December 31, 1997 and 1996, selected quarterly financial
data is as follows:
<TABLE>
<CAPTION>
Quarters
- ------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
1997
Revenues $73,940 $79,934 $85,792 $95,063
Direct costs 50,418 53,850 57,190 62,665
Selling, general and administrative 16,291 17,449 17,847 19,154
Merger-related costs 976
Income from operations 7,231 8,635 10,755 12,268
Interest income/(expense), net 32 (2) 74 1,176
Equity in net earnings of joint venture 150 63 (75) (125)
Income before income taxes 7,413 8,696 10,754 13,319
Income taxes 3,148 3,715 4,630 6,045
Net income $ 4,265 $ 4,981 $ 6,124 $ 7,274
- -----------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $0.17 $0.20 $0.24 $0.26
Diluted 0.16 0.19 0.23 0.25
=============================================================================================================================
1996
Revenues $60,648 $59,910 $61,092 $67,502
Direct costs 41,654 42,341 42,147 46,592
Selling, general and administrative 13,314 13,802 14,289 15,498
Income from operations 5,680 3,767 4,656 5,412
Interest income/(expense), net (44) (85) (18) (26)
Equity in net earnings of joint venture 213 230 200 242
Income before income taxes 5,849 3,912 4,838 5,628
Income taxes 2,473 1,666 2,032 2,192
Net income $ 3,376 $ 2,246 $ 2,806 $ 3,436
- -----------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $0.14 $0.09 $0.11 $0.14
Diluted 0.13 0.09 0.11 0.13
=============================================================================================================================
</TABLE>
<PAGE>
MARKET AND DIVIDEND INFORMATION
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, 1997 and 1996, retroactively adjusted to reflect the three-for-two common
stock split declared by the Board of Directors in May 1997, is as follows:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
Quarter High Low High Low
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $25.42 $16.83 $25.67 $12.67
Second 38.88 19.67 36.00 22.00
Third 44.13 32.13 28.17 10.00
Fourth 45.50 27.00 25.83 16.17
- ------------------------------------------------------------------------------------------------------------------------------
</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, 1997, there were approximately 1,100
holders of record of common stock.
34
<PAGE>
CORPORATE INFORMATION
Board of Directors
John J. Cassese
Chairman and President
Thomas J. Berry
Retired--AT&T
Rocco J. Marano
Retired--Bellcore
Corporate
John J. Cassese
Chairman and President
William J. Murphy
Executive Vice President & CFO
David M. Reingold
Senior Vice President
Joseph DaLuz
Vice President--CIO
Michael J. Shea
Vice President & Controller
Mark W. Walztoni
Vice President--Human Resources
Field Organization
Charles J. McCourt
Senior Vice President
Barry D. Olson
Senior Vice President
Robert J. Palmieri
Senior Vice President
Terry C. Quinn
Senior Vice President
Solutions Divisions
Pamela A. Fredette
President--Solutions Division
Robert J. Farrell
Executive V.P.--Solutions Division
William D. Gargano
Executive V.P.--Solutions Division
Arthur V. Quinlan
Executive V.P.--Solutions Division
Steven J. Morgenthal
President--Enterprise
Management Division
Barry D. Olson
President--Education Division
<PAGE>
Wholly Owned Subsidiary
Princeton Softech, Inc.
Princeton, NJ
Joseph Allegra--President
Joint Venture
Birla Horizons International
New Delhi, India
London, England
Sunnyvale, CA
Iselin, NJ
Corporate and Financial Headquarters
49 Old Bloomfield Avenue
Mountain Lakes, NJ
07046-1495
973-299-4000
International Headquarters
Computer Horizons
(Canada) Corp.
Toronto, Canada
CHC International Limited
London, England
Millennium Refurbishment
Factories/Outsourcing Centers
Parsippany, NJ
Jersey City, NJ
Toronto, Canada
Corporate Counsel
Dennis M. DiVenuta, Esq.
General Counsel
Proskauer Rose LLP
Auditors
Grant Thornton LLP
Transfer Agent
Registrar & Transfer Company
Cranford, NJ
Shares Traded
Nasdaq National Market
Symbol--CHRZ
Options Traded
Chicago Board
Options Exchange
Symbol--ZQH
<PAGE>
Availability of Form 10-K
A copy of the Company's Annual Report to the SEC on Form 10-K may be obtained
without charge by writing to:
Shareholder Relations
Computer Horizons Corp.
49 Old Bloomfield Avenue
Mountain Lakes, NJ 07046-1495
Annual Meeting
The Annual Meeting of Shareholders will be held at
The Hamilton Park Conference Center
Florham Park, NJ
May 6, 1998 at 10:00 A.M.
Website
http://www.computerhorizons.com
E-mail for Investor & General Information:
[email protected]
Statement Regarding Forward-Looking Information:
This Annual Report includes certain forward-looking statements for purposes of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 that involves risks and uncertainties that could cause actual results to
differ materially. Such statements are based upon, among other things,
assumptions made by, and information currently available to management,
including management's own knowledge and assessment of the Company's industry
and competition.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 29, 1998 (except for Note 2, as to which
the date is February 27, 1998), accompanying the consolidated financial
statements incorporated by reference in the Annual Report of Computer Horizons
Corp. on Form 10-k for the year ended December 31, 1997. We hereby consent to
the incorporation by reference of said report in the Registration Statements of
Computer Horizons Corp. on Forms S-3 (File No. 333-33665 and File No. 333-44417)
and on Forms S-8 (File No. 033-64763, File No. 033-59439 and File No.
033-41726).
/s/Grant Thornton LLP
GRANT THORNTON LLP
Parsippany, New Jersey
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 88,633
<SECURITIES> 13,165
<RECEIVABLES> 81,268
<ALLOWANCES> 1,742
<INVENTORY> 0
<CURRENT-ASSETS> 184,229
<PP&E> 12,479
<DEPRECIATION> 7,101
<TOTAL-ASSETS> 211,601
<CURRENT-LIABILITIES> 26,816
<BONDS> 0
0
0
<COMMON> 2,936
<OTHER-SE> 179,596
<TOTAL-LIABILITY-AND-EQUITY> 211,601
<SALES> 0
<TOTAL-REVENUES> 334,729
<CGS> 0
<TOTAL-COSTS> 224,123
<OTHER-EXPENSES> 71,704
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,280
<INCOME-PRETAX> 40,182
<INCOME-TAX> 17,538
<INCOME-CONTINUING> 22,644
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,644
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.84
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 11,993 9,897
<SECURITIES> 0 0
<RECEIVABLES> 57,581 46,563
<ALLOWANCES> 1,203 840
<INVENTORY> 0 0
<CURRENT-ASSETS> 70,469 59,298
<PP&E> 9,685 7,681
<DEPRECIATION> 5,389 4,168
<TOTAL-ASSETS> 91,760 78,794
<CURRENT-LIABILITIES> 17,708 18,519
<BONDS> 1,432 3,299
0 0
0 0
<COMMON> 2,648 2,578
<OTHER-SE> 68,345 53,236
<TOTAL-LIABILITY-AND-EQUITY> 91,760 78,794
<SALES> 0 0
<TOTAL-REVENUES> 249,152 213,165
<CGS> 0 0
<TOTAL-COSTS> 172,734 148,530
<OTHER-EXPENSES> 56,018 45,795
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 173 376
<INCOME-PRETAX> 20,227 18,464
<INCOME-TAX> 8,363 8,039
<INCOME-CONTINUING> 11,864 10,425
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,864 10,425
<EPS-PRIMARY> 48 46
<EPS-DILUTED> 46 43
</TABLE>
