SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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F O R M 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
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For Quarter Ended March 31, 1998 Commission File Number 0-7282
COMPUTER HORIZONS CORP.
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(Exact name of registrant as specified in its charter)
New York 13-2638902
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
49 Old Bloomfield Avenue, Mountain Lakes, New Jersey 07046-1495
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (973) 299-4000
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Not Applicable
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
X
--- --
Yes No
As of May 11, 1998, the issuer had 28,942,078 shares of common stock
outstanding.
<PAGE>
COMPUTER HORIZONS CORP.
Index
Part I Financial Information
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
Consolidated Statements of Income
Three Months Ended
March 31, 1998 and 1997
Condensed Consolidated Statements of
Cash Flows - Three Months Ended
March 31, 1998 and 1997
Notes to Consolidated Financial Statements
Management's Discussion and Analysis
of Financial Condition and Results of
Operations
Part II Other Information
Signatures
<PAGE>
<TABLE>
<CAPTION>
COMPUTER HORIZONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31,
1998 1997
-------- --------
(dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 78,992 $ 88,633
Short term investments 22,199 13,165
Accounts receivable, net of allowance for doubtful
accounts of $1,859,000 and $1,742,000 at March 31, 1998
and December 31, 1997, respectively 94,046 79,526
Deferred income tax benefit 1,937 1,818
Other 1,201 1,087
-------- --------
TOTAL CURRENT ASSETS 198,375 184,229
-------- --------
PROPERTY AND EQUIPMENT 16,294 12,479
Less accumulated depreciation 8,031 7,101
-------- --------
8,263 5,378
-------- --------
OTHER ASSETS - NET:
Goodwill 16,939 17,090
Deferred income tax benefit 947 816
Other 7,548 4,088
-------- --------
TOTAL OTHER ASSETS 25,434 21,994
-------- --------
TOTAL ASSETS $232,072 $211,601
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,010 $ 1,432
Accrued payroll, payroll taxes and benefits 17,502 17,526
Accounts payable 2,187 1,830
Income taxes payable 7,090 3,394
Other accrued expenses 4,493 2,634
-------- --------
TOTAL CURRENT LIABILITIES 32,282 26,816
-------- --------
LONG-TERM DEBT 1,000 --
-------- --------
OTHER LIABILITIES 3,395 2,253
-------- --------
<PAGE>
<CAPTION>
COMPUTER HORIZONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31,
1998 1997
-------- --------
(dollars in thousands)
<S> <C> <C>
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
30,314,282 shares and 29,360,069 shares at March 31, 1998
and December 31, 1997, respectively 3,031 2,936
Additional paid-in capital 117,533 117,718
Retained earnings 86,531 75,750
-------- --------
207,095 196,404
Less shares held in treasury, at cost; 1,427,198 shares and
1,692,253 shares at March 31, 1998 and December 31, 1997,
respectively 11,700 13,872
-------- --------
TOTAL SHAREHOLDERS' EQUITY 195,395 182,532
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $232,072 $211,601
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMPUTER HORIZONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED
-----------------------------------------------------------
MARCH 31, 1998 MARCH 31, 1997
-------------------- -------------------
(dollars in thousands, except per share data)
<S> <C> <C>
REVENUES:
Services $103,563 96.7% $73,940 100.0%
Products 3,538 3.3% -
-------------------- -------------------
107,101 100.0% 73,940 100.0%
-------------------- -------------------
COSTS AND EXPENSES:
Direct costs - Services 67,584 63.1% 50,418 68.2%
Direct costs - Products 593 0.6% -
Selling, general and 0.0%
administrative 23,329 21.8% 16,291 22.0%
Merger-related expenses 1,328 1.2% -
-------------------- -------------------
92,834 86.7% 66,709 90.2%
-------------------- -------------------
INCOME FROM OPERATIONS 14,267 13.3% 7,231 9.8%
-------------------- -------------------
OTHER INCOME (expense):
Interest income 1,310 1.2% 112 0.2%
Interest expense (41) 0.0% (80) -0.1%
Equity in Joint Venture net earnings (loss) (90) -0.1% 150 0.2%
-------------------- -------------------
1,179 1.1% 182 0.2%
-------------------- -------------------
INCOME BEFORE INCOME TAXES 15,446 14.4% 7,413 10.0%
-------------------- -------------------
INCOME TAXES:
Current 7,596 7.1% 3,097 4.2%
Deferred (324) -0.3% 51 0.1%
-------------------- -------------------
7,272 6.8% 3,148 4.3%
-------------------- -------------------
NET INCOME $8,174 7.6% $4,265 5.8%
==================== ===================
EARNINGS PER SHARE:
Basic $0.28 $0.17
============= ==============
Diluted $0.27 $0.16
============= ==============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic 28,827,000 24,848,000
Diluted 30,367,000 26,174,000
============= ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMPUTER HORIZONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
---------------------------
March 31, March 31,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 1,794 ($ 5,734)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (8,384) 0
Purchases of property and equipment (2,786) (383)
(Increase) decrease in other assets (465) 424
-------- --------
(11,635) 41
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt (1,432) 0
Stock options exercised 1,632 886
-------- --------
200 886
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,641) (4,807)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 88,633 11,993
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 78,992 $ 7,186
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
COMPUTER HORIZONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 1998 and 1997
The information furnished reflects all adjustments which, in the
opinion of the Company, are necessary to present fairly its consolidated
financial position and the results of its operations and changes in financial
position for the periods indicated.
Reference is made to the Company's annual financial statements for the
year ended December 31, 1997, for a description of the accounting policies,
which have been continued without change. Also refer to the footnotes with those
annual statements for additional details of the Company's financial condition,
results of operations and changes in cash flows. The details in those notes have
not changed except as a result of normal transactions in the interim.
The results of operations for 1997 have been retroactively adjusted to
reflect the three-for-two common stock split in the form of a 50% stock
distribution declared by the Company on May 7, 1997, as well as the acquisition
of CG Computer Services Corp., which has been accounted for as a pooling of
interests. The results of Princeton Softech, Inc., which is being accounted for
as an immaterial pooling of interests, are included from January 1, 1998.
Earnings per Share: Basic earnings per share ("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 exercised, based on the average price during the year.
In accordance with SFAS No.128, the table below presents both basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
Numerator:
Net income $ 8,174 $ 4,265
Denominator:
Denominator for basic earnings per share
Weighted average shares outstanding 28,827,000 24,848,000
Effect of stock options 1,540,000 1,326,000
Dilutive potential earnings per share:
Denominator for diluted earnings per share
Adjusted weighted average shares
outstanding and assumed conversions 30,367,000 26,174,000
Basic earnings per share $ 0.28 $ 0.17
Diluted earnings per share $ 0.27 $ 0.16
</TABLE>
<PAGE>
The computation of diluted earnings per share excludes options with
exercise prices greater than the average market price. All options to purchase
shares of common stock were included in the computation of diluted earnings per
share in 1998. During 1997, there were 33,750 excluded options outstanding at
March 31, 1997, with an exercise price of $38.50 per share.
Subsequent Events
At the Company's annual meeting of shareholders on May 6, 1998, the
shareholders approved an amendment to the Company's Certificate of
Incorporation, increasing the number of shares of common stock authorized for
issuance to 100,000,000 from 60,000,000. At that same meeting, shareholders
approved an amendment to the Company's 1991 Director's Stock Option Plan, as
amended, to decrease the number of options granted to a director upon his or her
initial election to the Board, to 10,000 options from 75,938 options. The
amendment also eliminated the maximum number of Annual Grants that could be made
to a director, which had been five prior to the amendment.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Quarters Ended March 31, 1998 and 1997
Revenues. Revenues increased to $107.1 million in the first quarter of 1998
from $73.9 million in the first quarter of 1997, an increase of $33.2 million or
44.9%. Staffing revenues increased to $58.6 million in the first quarter of 1998
from $53.0 million in the first quarter of 1997 , an increase of $5.6 million or
10.6%. Total solutions revenues, including Year 2000 revenues, increased to
$45.0 million in the first quarter of 1998 from $20.9 million in the first
quarter of 1997 , an increase of $24.1 million or 115.3%. Year 2000 services
revenues increased to $33.2 million in the first quarter of 1998 from $11.4
million in the first quarter of 1997, an increase of $21.8 million. The
Company's Year 2000 business accounted for 31.0% of total revenues in the first
quarter of 1998 versus 15.4% of total revenues in the first quarter of 1997.
Solutions revenues, excluding Year 2000 services, increased to $11.8 million in
the first quarter of 1998 from $9.5 million in the first quarter of 1997, an
increase of $2.3 million or 24.2%. The Company's product revenues totaled $3.5
million for the first quarter of 1998.
Direct Costs. Direct costs increased to $68.2 million in the first quarter
of 1998 from $50.4 million in the first quarter of 1997. Gross margin increased
to 36.3% in the first quarter of 1998 from 31.8% in the first quarter of 1997.
The increase in gross margin was primarily due to stable margins in the
Company's staffing business and an increase in the Company's higher margin Year
2000 business. The Company's margins are subject to fluctuations due to a number
of factors, including the level of salary and other compensation necessary to
attract and retain qualified technical personnel, and the mix of staffing versus
solutions business during a particular quarter.
Selling, General and Administrative. Selling, general and administrative
expenses (excluding merger-related expenses) increased to $23.3 million in the
first quarter of 1998 from $16.3 million in the first quarter of 1997, an
increase of $7.0 million or 42.9%. As a percentage of revenues, selling, general
and administrative expenses decreased slightly to 21.8% of revenues in the first
quarter of 1998 from 22.0% of revenues in the first quarter of 1997 . The
increase in dollars in selling, general and administrative expenses was
primarily a result of salaries and commissions for additional sales and
recruiting personnel and, to a lesser extent, growth in the Company's general
and administrative infrastructure. In the first quarter of 1998, the Company
incurred merger-related expenses of approximately $1.3 million, or 1.2% of
revenues.
<PAGE>
Income from Operations. Operating margins increased to 13.3% in the first
quarter of 1998 from 9.8% in the first quarter of 1997. These increases were
primarily due to increases in the Company's higher margin Year 2000 business,
partially offset by merger-related expenses in the first quarter of 1998. 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 $1.2 in the first quarter of 1998
from $0.2 million in the first quarter of 1997, an increase of $1.0 million.
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 1998 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 47.1% and 42.5% for the first quarter of 1998 and 1997,
respectively. The increase in the 1998 rate was primarily due to certain
non-deductible merger-related expenses incurred during the quarter.
Net Income. Net income increased to $8.2 million for the first quarter of
1998 from $4.3 million for the first quarter of 1997, an increase of $3.9
million or 90.7%. Net income per share (diluted) was $0.27 versus $0.16 for the
first quarter of 1998 and 1997, respectively.
Liquidity and Capital Resources. At March 31, 1998, the Company had $166.1
million in working capital, of which $101.2 million was cash, cash equivalents
and short-term investments. There were no borrowings under its bank lines of
credit.
Net cash provided by operating activities in the first three months of
1998 was $1.8 million, consisting primarily of net income, offset in part by an
increase in accounts receivable. During the first three months of 1997, net cash
used in operating activities was $5.8 million, primarily as a result of an
increase in accounts receivable, largely due to growth in the Company's
solutions business.
Net cash used in investing activities in the first three months of 1998
was $11.6 million, consisting primarily of the purchase of short-term
investments, as well as purchases of equipment. During the first three months of
1997, cash used in investing activities consisted of equipment purchases, offset
by a decrease in other assets.
<PAGE>
Net cash provided by financing activities was $0.2 million for the
first three months of 1998, with proceeds received from stock option exercises
exceeding the amount of repayment of long-term debt. For the first three months
of 1997, net cash provided by financing activities was $0.9 million, consisting
of proceeds received from stock option exercises.
At March 31, 1998, the Company had a current ratio position of 6.1 to
1, approximately $1.0 million of long-term debt and no outstanding borrowings
under its two unsecured lines of credit. 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.
Certain Disclosures. This report contains certain forward-looking
statements for purposes of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 that involve 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 assesment of
the Company's industry and competition.
<PAGE>
PART II Other Information
Item 6.
b) Two reports on Form 8-K have been filed during the quarter for which
this report is filed. One form was filed on March 17, 1998, consistent with the
Company's acquisition of Princeton Softech, Inc. The other form was filed on
February 24, 1998, reporting the Company's earnings for the period January 1
through January 31, 1998, in connection with meeting the requirements for ending
the pooling restrictions on resales of stock.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUTER HORIZONS CORP.
(Registrant)
DATE: May 11, 1998 /s/John J. Cassese
----------------- --------------------------------------
John J. Cassese, Chairman of the Board
and President
DATE: May 11, 1998 /s/William J. Murphy
----------------- --------------------------------------
William J. Murphy, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
DATE: May 11, 1998 /s/Michael J. Shea
----------------- --------------------------------------
Michael J. Shea
Vice President and Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 78,992
<SECURITIES> 22,199
<RECEIVABLES> 94,046
<ALLOWANCES> 1,859
<INVENTORY> 0
<CURRENT-ASSETS> 198,375
<PP&E> 16,294
<DEPRECIATION> 8,031
<TOTAL-ASSETS> 232,072
<CURRENT-LIABILITIES> 32,282
<BONDS> 1,000
0
0
<COMMON> 3,031
<OTHER-SE> 192,364
<TOTAL-LIABILITY-AND-EQUITY> 232,072
<SALES> 0
<TOTAL-REVENUES> 107,101
<CGS> 0
<TOTAL-COSTS> 68,177
<OTHER-EXPENSES> 24,657
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,269
<INCOME-PRETAX> 15,446
<INCOME-TAX> 7,272
<INCOME-CONTINUING> 8,174
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,174
<EPS-PRIMARY> .28
<EPS-DILUTED> .27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,189
<SECURITIES> 0
<RECEIVABLES> 68,474
<ALLOWANCES> 1,465
<INVENTORY> 0
<CURRENT-ASSETS> 75,534
<PP&E> 10,068
<DEPRECIATION> 5,807
<TOTAL-ASSETS> 96,389
<CURRENT-LIABILITIES> 17,115
<BONDS> 1,432
0
0
<COMMON> 2,491
<OTHER-SE> 73,653
<TOTAL-LIABILITY-AND-EQUITY> 96,389
<SALES> 0
<TOTAL-REVENUES> 73,940
<CGS> 0
<TOTAL-COSTS> 50,418
<OTHER-EXPENSES> 16,291
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (32)
<INCOME-PRETAX> 7,413
<INCOME-TAX> 3,148
<INCOME-CONTINUING> 4,265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,265
<EPS-PRIMARY> .17
<EPS-DILUTED> .16
</TABLE>
