-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DHSKz3yBKJsUTH9SWbJhV3XLLxDmC5p7Clo3ACHG0g19bc61yl9oxH5jehgsBt6r xBiXnf61n9UOXgGo/5i7jg== 0000914317-97-000107.txt : 19970328 0000914317-97-000107.hdr.sgml : 19970328 ACCESSION NUMBER: 0000914317-97-000107 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER HORIZONS CORP CENTRAL INDEX KEY: 0000023019 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 132638902 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-07282 FILM NUMBER: 97564759 BUSINESS ADDRESS: STREET 1: 49 OLD BLOOMFIELD AVENUE CITY: MOUNTAIN LAKES STATE: NJ ZIP: 07046-1495 BUSINESS PHONE: 2014027400 MAIL ADDRESS: STREET 1: 49 0LD BLOOMFIELD AVE CITY: MOUNTAIN LAKES STATE: NJ ZIP: 07046-1495 10-K 1 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, 1996 [ ] 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: (201) 402-7400 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock (Par value $.10 per share) (Title of class) Series A Preferred Stock Purchase Rights (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant as of March 20, l997, was approximately $408,313,000. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of March 20, l997: 16,233,702 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, l996, in Part II of this Report and (ii) Proxy Statement for the 1997 Annual Meeting of Shareholders, expected to be filed with the Securities and Exchange Commission on or before April 7, 1997, in Part III hereof. PART I Item 1. Business General The Company provides a wide range of information technology services and solutions to major corporations. Historically a professional services staffing firm, the Company has, over the past five years, developed the technological and managerial infrastructure to offer its clients value added services including CHC's Signature 2000(TM) solution for the millennium change, client/server systems development and migration, enterprise network management, 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 30% of its consolidated revenues in 1996. The Company believes that the range of services and solutions that it offers, combined with its worldwide network of 43 offices and subsidiary organizations, provides it with significant competitive advantages in the information technology marketplace. In 1996, the Company expanded operations by opening 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 1,000 companies with significant information technology budgets and recurring staffing or software development needs. In 1996, the Company provided information technology services to 453 clients. During 1996, the Company's largest client, AT&T accounted for 9.8% of the Company's consolidated revenues, with no other client accounting for more than 5% 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 2,500 software professionals. The Company is committed to expanding its professional services staffing operations in conjunction with its solutions business. (2) Solution for the Millennium Change: CHC's Signature 2000(TM) offering combines an internally developed proprietary software toolkit, skilled resources, proven methodologies, experienced project management, as well as significant millennium project experience. It analyzes, locates, reports on, and then restructures all programs and database definitions affected by the absence of a century date field to permit processing of dates after December 31, 1999. The solution is customized for each particular enterprise and deals with all collateral issues. In effect, CHC's Signature 2000(TM) provides the Company with an opportunity to facilitate field expansion, while simultaneously performing other systems upgrades such as language conversions and platform migrations. (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, big companies, in particular, are downsizing and outsourcing for reasons ranging from cost reduction to capital asset improvement and from improved technology introduction to better strategic focus. In response to this trend, the Company has created a group of regional outsourcing centers with 24 hour/7 day a week support, which are fully equipped with the latest technology and communications, as well as a complete staff that includes experienced project managers, technicians and operators. These professionals facilitate essential data functions including: applications development, systems maintenance, data network management, voice network administration and help desk operations. (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 remain localized through one of the Company's domestic offices. 8) Knowledge Transfer: The Company offers both standard curricula and custom-tailored courses for a client's particular environment and needs. Comprehensive courses cover languages, hardware, software, tools, methodologies and management and productivity skills. The Company's offerings include application downsizing, graphical interfaces, open systems, computer-aided software engineering ("CASE") and information engineering technologies, relational technology and personal computer software and hardware. The Company also has reseller and training rights in selected markets to certain development tools used as an aid in building client/server applications. Personnel As of December 3l, 1996, the Company had a staff of 2,916, of whom 2,510 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 its ability to compete also depends in part on a number of competitive factors outside its control, including the ability of its competitors to hire, retain and motivate skilled technical and management personnel, the ownership by competitors of software used by potential clients, the price at which others offer comparable services and the extent of its competitors' responsiveness to customer needs. Item 2. Properties The Company's Corporate and Financial Headquarters, its Unified Systems Solutions, Inc. subsidiary, its ComputerKnowledge division, as well as its Eastern Regional Office, comprising approximately 43,500 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 $734,000. As of December 3l, l996, 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, Toronto and Washington D.C. with an aggregate of approximately 136,400 square feet. The leases for these facilities are at a current annual aggregate rental of approximately $1,854,000. These leases expire at various times with no lease commitment longer than December 31, 2001. In addition, through Birla Horizons International, the Company has offices in New Delhi, India; London, England; California; New Jersey, and Toronto, Canada. 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.
PERIOD NAME AGE TITLE POSITION HELD - ---- --- ----- ------------- John J. Cassese 52 Chairman of the Board 1982-Present and President Director 1969-Present William J. Murphy 52 Executive Vice President 1997 - Present and CFO Bernhard Hubert 52 Senior Vice President 1982-1995 and CFO Executive Vice President 1995-1996 and CFO* Director* 1995-1996 Michael J. Shea 36 Controller 1995-Present Vice President 1996-Present *Resigned effective December 31, 1996.
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, 1996, 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, 1996, 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, 1996, 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, 1996, 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. 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 1997 Annual Meeting of Shareholders which is expected to be filed with the Securities and Exchange Commission on or before April 7, 1997 (the "1997 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 1997 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 1997 Proxy Statement. Item 13. Certain Relationships and Related Transactions None PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. The following consolidated financial statements for 1996 and 1995, appearing in the Company's Annual Report to Shareholders, are incorporated herein by reference. - Consolidated balance sheets as of December 3l, 1996 and 1995 - Consolidated statements of income for each of the three years in the period ended December 31, 1996 - Consolidated statement of shareholders' equity for each of the three years in the period ended December 31, 1996 - Consolidated statements of cash flows for each of the three years in the period ended December 31, 1996 - 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, 1996, 1995 and 1994. -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) No reports on Form 8K were filed during the quarter ended December 31, 1996. 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 21, 1997 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 21, 1997 By: /s/ John J. Cassese ------------------- John J. Cassese, Chairman of the Board and President (Principal Executive Officer) and Director Date: March 21, 1997 By: /s/ William J. Murphy ---------------------- William J. Murphy, Executive Vice President and CFO (Principal Financial Officer) Date: March 21, 1997 By: /s/ Michael J. Shea ---------------------- Michael J. Shea Vice President and Controller (Principal Accounting Officer) Date: March 21, 1997 By: /s/ Thomas J. Berry -------------------- Thomas J. Berry, Director Date: March 21, 1997 By: /s/ Rocco J. Marano ------------------- Rocco J. Marano Date: March 21, 1997 By: /s/ Wilfred R. Plugge --------------------- Wilfred R. Plugge, Director
EXHIBIT INDEX Exhibit Description Incorporated by Reference to - ------- ----------- ------------------------------------- 3(a-1) Certificate of Incorporation as amended Exhibit 3(a) to Registration through 1971. Statement on Form S-1 (File No. 2-42259). 3(a-2) Certificate of Amendment dated May 16, Exhibit 3(a-2) to Form 10K for the 1983 to Certificate of Incorporation. fiscal year ended February 28, 1983. 3(a-3) Certificate of Amendment dated June 15, Exhibit 3(a-3) to Form 10K for the 1988 to Certificate of Incorporation. fiscal year ended December 31, 1988. 3(a-4) Certificate of Amendment dated July 6, Exhibit 3(a-4) to Form 10K 1989 to Certificate of Incorporation. for the fiscal year ended December 31, 1994. 3(a-5) Certificate of Amendment dated February Exhibit 3(a-4) to Form 10K for the 14, 1990 to Certificate of year ended December 31, 1989. Incorporation. 3(a-6) Certificate of Amendment dated May 1, Exhibit 3(a-6) to Form 10K 1991 to Certificate of Incorporation. for the fiscal year ended December 31, 1994. 3(a-7) Certificate of Amendment dated July 12, Exhibit 3(a-7) to Form 10K 1994 to Certificate of Incorporation. for the fiscal year ended December 31, 1994. 3(b) Bylaws, as amended and presently in Exhibit 3(b) to Form 10K for the effect. year ended December 31, 1988. 4(a) Rights Agreement dated as of July 6, Exhibit 1 to Registration Statement 1989 between the Company and Chemical on Form 8-A dated July 7, 1989. Bank, as Rights Agent ("Rights Agreement") which includes the form of Rights Certificate as Exhibit B. 4(b) Amendment No. 1 dated as of February Exhibit 1 to Amendment No. 1 on 13, 1990 to Rights Agreement. Form 8 dated February 13, 1990 to Registration Statement on Form 8-A 4(c) Amendment No. 2 dated as of August 10, Exhibit 4(c) to Form 10K 1994 to Rights Agreement. for the fiscal year ended December 31, 1994. 4(d) Employee's Savings Plan and Amendment Exhibit 4.4 to Registration Number One. Statement on Form S-8 dated December 5, 1995. 4(e) Employee's Savings Plan Trust Agreement Exhibit 4.5 to Registration as Amended and Restated Effective Statement on Form S-8 dated January 1, 1996. December 5, 1995. 10(a) Employment Agreement dated as of Exhibit 10(a) to Form 10K for the February 16, 1990 between the Company year ended December 31, 1989. and John J. Cassese 10(b) Employment Agreement dated as of Exhibit 10(c) to Form 10K for the February 16, 1990 between the Company year ended December 31, 1989. and Bernhard Hubert. 10(c) Employment Agreement dated as of March 6, 1997 between the Company and Michael J. Shea. 10(d) Note Agreement dated as of March 15, Exhibit 10(i) to Form 10K for the 1988 between the Company and year ended December 31, 1988. Massachusetts Mutual Life Insurance Company. 10(e) 1991 Directors' Stock Option Plan, as Exhibit 10(g) to Form 10K 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 Promissory Note payable to Chemical Bank 10(h) $10,000,000 Discretionary Line of Credit from PNC Bank. 11 Statement regarding Computation of Per Share Earnings. 13 Annual Report to Security Holders. 21 List of Subsidiaries.
Computer Horizons Corp. and Subsidiaries SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 1996, 1995 and 1994 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 ----------- --------- -------- ----------- ------ 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 -------- -------- -------- ---------- Year ended December 31, 1994 Allowance for doubtful accounts $462,000 $244,000 $140,000 $ 566,000 -------- -------- -------- ---------- Notes (1) Uncollectible accounts written off, net of recoveries.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE Board of Directors and Shareholders Computer Horizons Corp. In connection with our audit of the consolidated financial statements of Computer Horizons Corp. and Subsidiaries referred to in our report dated January 27, 1997, which is included in the 1996 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, 1996, 1995 and ]994. 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 27, 1997 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Shareholders Computer Horizons Corp. We have issued our report dated January 27, 1997, accompanying the consolidated financial statements incorporated by reference in the Annual Report to Shareholders of Computer Horizons Corp. (the "Company") on Form 10-K for the year ended December 31, 1996. We hereby consent to the incorporation by reference of said report in the Registration Statements on Forms S-8, covering shares of common stock, par value $.10 per share, to be offered pursuant to the Computer Horizons Corp. Employee Savings Plan and the Company's 1994 Incentive Stock Option and Appreciation Plan, 1985 Incentive Stock Option and Appreciation Plan, as amended, 1976 Stock Option Plan, as amended, and 1991 Directors' Stock Option Plan, as amended. GRANT THORNTON LLP Parsippany, New Jersey March 18, 1997 EX-10 2 Exhibit 10 (c) AGREEMENT as of March 6, 1997 between Michael J. Shea (the "Executive") and Computer Horizons Corp., a New York Corporation (the "Company") which Agreement supercedes any prior Agreements between the parties. The Parties hereto agree as follows: 1. The Company hereby continues the employment of the Executive for the period (hereafter referred to as the "Employment Period") commencing as of March 6, 1997 and continuing until March 6, 1998 and thereafter except as may be modified by the parties, shall be automatically renewed for periods of one year unless and until either party exercises its right to terminate as provided elsewhere herein. The Executive shall continue to serve as a Vice President of the Company, hereby accepts such continued employment and agrees to devote his full time and effort to the business and affairs of the Company with such duties as may be reasonably assigned to the Executive from time to time by the President or by an Executive Vice President of the Company. 2. (a) The Company shall pay to the Executive, for all services rendered by the Executive in any capacity hereunder, an initial salary at a rate of $115,000.00 per year, payable in accordance with the Company's general practice. (b) In addition, the Company in its sole discretion agrees to pay the Executive a bonus, provided certain criteria, which forms the basis for Management Bonus Objectives are met. (c) The Company, in lieu of providing the Executive with a car, agrees to pay the Executive on a monthly basis, as a car allowance, an amount agreed to from time to time. (d) It is expressly understood and agreed that any changes in the Executive's salary, duties, location or title etc. will not invalidate this contract but rather said change(s) may at the option of the parties be incorporated into a "Rider" to be appendixed to this contract. In any event failure to so do will not effect the validity of, or the enforceability or the other terms herein. 3. The Executive, during the Employment Period, shall be entitled to participate in, and receive benefits in accordance with, the Company's employee benefit plans and programs at the time maintained by the Company for its executives, subject to the provisions of such plans and programs. 4. The Employment Period may be terminated by the Company or the Executive upon thirty (30) days prior written notice to the other. 5. (a) In the event that the Employment Period shall be terminated by the Company for any reason, the Company shall pay to the Executive, subject to the provisions hereof, severance pay in the amount equal to his then annual salary rate ("Severance Pay"); provided the Executive shall not be or have been at any time in default of the covenants contained in Section 6 hereof. Except as herein provided the Severance Pay shall be payable in bi-weekly installments, and, in addition, during this twelve (12) month period, the Company will continue to pay and provide Executive with the same Benefits and Health Coverage that the Executive was receiving prior to the conclusion of his employment. (b) In the event the Executive shall be in default in the covenants contained in Section 6 hereof, any amounts shall be promptly repaid by the Executive to the Company. 6. (a) The Executive agrees that he will not, in any manner, directly or indirectly, compete or attempt to compete with the Company or any subsidiary of the Company or have a substantial ownership in, manage, operate, or control any entity which directly or indirectly competes or attempts to compete with the Company or any subsidiary for a period of one ( 1) year from termination of the Executive's employment with the Company by (i) performing, or causing to be performed, or soliciting or aiding, in any manner, solicitation of, any work for any firm, corporation, or other entity ("Customer") with which, at the time during the 12 month period prior to termination of the Employment Period, the Company or any subsidiary conducted any business or (ii) inducing any personnel to leave the service of the Company or of any subsidiary. Within two (2) weeks of a written request of the Executive following termination of the Employment Period, the Company shall deliver to the Executive a list of Customers and the Executive shall within two (2) weeks after such delivery on reasonable prior notice have the right during normal business hours to examine such books and records of the Company as shall be reasonably necessary to confirm that only the names of Customers are set forth on the list. (b) The Executive agrees that the remedy at Law for any breach by him of the foregoing shall be inadequate and that the Company shall be entitled to injunctive relief. This selection constitutes an independent and separable Covenant that shall be enforceable notwithstanding any right or remedy that the Company may have under any other provisions of this Agreement or otherwise. 7. (a) This Agreement contains the entire agreement between the Parties hereto, and supercedes and nullifies all prior understandings, promises and undertakings, if any, made orally or in writing by or on behalf of the Parties hereto, with respect to the subject matter hereof, and may not be modified or terminated orally. This Agreement shall be construed and governed in accordance with the laws of the State of New Jersey. (b) This Agreement shall be biding upon and inure to the benefit of the Company and its successors and assigns and the Executive and his heirs, executors, administrators and legal representatives but except for the right of the Executive hereunder to receive any salary or Severance Pay, may be assigned, pledged or encumbered by the Executive without the consent of the Company. 8. Any offer, notice, or request or other communication hereunder shall be in writing and shall be deemed to have been duly delivered if hand or mailed by registered or certified mail, return receipt requested, addressed to the respective address of each Party herein set forth, or to such other address as each Party may designate by a notice pursuant hereto: If to the Company: Computer Horizons Corp. 49 Old Bloomfield Avenue Mountain Lakes, New Jersey 07046-1495 Attention: President If to the Executive: Computer Horizons Corp. 49 Old Bloomfield Avenue Mountain Lakes, New Jersey 07046-1495 Attention: Michael J. Shea 9. If any provisions of this Agreement shall be held for any reason to be unenforceable, the remainder of the Agreement shall nevertheless remain in full force and effect. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year first above written. COMPUTER HORIZONS CORP. BY:/s/John J.Cassese ------------------- John J. Cassese President /s/Michael J. Shea ------------------- Michael J. Shea Vice President Exhibit 10 (g) $15,000,000.00 New York, New York June 30, 1996 1. For value received, the undersigned, by this promissory note (the "Note") unconditionally promises to pay to the order of CHEMICAL BANK (the "Bank") at any of its banking offices in New York, New York, in lawful money of the United States and immediately available funds, the principal amount of Fifteen Million and 00/100 Dollars ($15,000,000.00) or the aggregate unpaid principal balance of all advances made by the Bank to the undersigned, whichever is less, together with interest on each advance, in like money and funds, at a rate determined by the Bank in its sole discretion at the time of such advance. Each advance shall be payable on the maturity date thereof, as agreed between the Borrower and the Bank on the date of such advance, provided that no advance may mature after June 30, 1997 (the "Final Maturity Date"). Interest shall be payable on the maturity date of each advance and upon any prepayment of any advance. 2. If all or any portion of any advance shall not be paid when due (whether as stated, by acceleration or otherwise) such advance shall bear interest, for the period from the due date of such advance until the maturity date thereof, at the rate per annum which is equal to 2% above the rate which would otherwise be applicable hereunder and thereafter until the unpaid principal amount thereof shall be paid in full, at the rate per annum which is equal to 2% above the rate of interest publicly announced by the Bank from time to time in New York, New York as its prime rate. Each change in the interest rate hereon resulting from a change in the prime rate of the Bank shall become effective as of the opening of business on the day on which such change in such prime rate occurs. Interest shall be calculated on the basis of a 360 day year for actual days elapsed. Anything in this Note to the contrary notwithstanding, the Bank shall not be permitted to charge or receive, and the undersigned shall not be obligated to pay, interest in excess of the maximum rate from time to time permitted by applicable law; provided, however, if the maximum rate permitted by law changes, the rate hereunder shall change, without notice to the undersigned, on the same day the maximum rate permitted by law changes. 3. The undersigned may not prepay any advance unless it shall reimburse the Bank on demand for any loss incurred or to be incurred by it in the reemployment of the funds released by any such prepayment. Such loss shall be the difference, as determined by the Bank, between the cost of obtaining the funds for the advance or advances (or portion thereof) prepaid and any lesser amount which may be realized by the Bank in reemploying the funds received in prepayment during the period from the date of prepayment to the maturity date of each advance prepaid. 4. If any amount becomes due and payable under this Note on a Saturday, Sunday or other day on which commercial banks are authorized to close under the laws of the State of New York, the maturity thereof shall be extended to the next succeeding business day and interest thereon shall be payable during such extension at the rate applicable to the Note prior to such extension. 5. The undersigned shall pay all reasonable out-of-pocket costs and expenses incurred by the Bank in connection with the preparation, development and execution of this note and any amendment, supplement or modification hereto, including, without limitation, the fees and disbursements of counsel to the Bank (which may include allocation of the cost of in-house counsel to the Bank). 6. Upon occurrence, with respect to any maker, endorser or guarantor of any of the following: default in payment of this Note or any other obligation of any nature or description to the Bank (collectively, the "Obligations"); any other violation of any covenant or condition of any of the Obligations; calling a meeting of any creditors; filing of a voluntary or involuntary petition under the Federal Bankruptcy Code which, in the case of an involuntary petition, is not dismissed, discharged or bonded with 60 days of the date of such petition; insolvency; entry of a judgment; failure to pay or remit any tax when assessed or due unless contested in good faith by appropriate proceedings, for which adequate reserves are being provided; death (in the case of an individual), termination (in the case of a partnership) or dissolution (in the case of a corporation); granting a security interest in any property; suspension or liquidation of usual business; failing to furnish financial information or to permit inspection of books or records; making any misrepresentation to the Bank in obtaining credit; or, in the Bank's opinion, impairment of financial responsibility; then the Obligations shall be due and payable immediately without notice or demand. 7. The undersigned agrees to indemnity the Bank for, and to hold the Bank harmless from, any loss or expense which the Bank may sustain or incur, including any interest payment by the Bank to lenders of funds borrowed by it in order to make or maintain the loans evidenced hereby as a consequence of (a) default by the undersigned in payment of the principal amount of, or interest on, this Note and (b) payment by the undersigned on a day other than the maturity date of any advance as a result of acceleration of the obligations hereunder or otherwise. This covenant shall survive payment of this Note. 8. Each advance, and each payment made on account of the principal thereof, shall be endorsed by the holder on an attachment hereto on the date such advance is made or a payment in immediately available funds is received. This Note shall be used to record all advances and payments of principal made hereunder until it is surrendered to the undersigned by the Bank and it shall continue to be used even though there may be periods prior to such surrender when no amount of principal or interest is owing hereunder. 9. The Bank shall have a continuing lien and/or right of set-off on deposits (general and special) and credits with the Bank of every maker, endorser and guarantor, and may apply all or part of same to the Obligations (whether contingent or unmatured), at any time or times, without notice. The Bank shall have a continuing lien on all property of every maker, endorser and guarantor and the proceeds thereof held or received by or for the Bank for any purpose. Any notice of disposition of property shall be deemed reasonable if mailed at least 5 days before such disposition to the last address of such maker, endorser or guarantor on the Bank's records. Each maker, endorser and guarantor agrees to pay the costs and expenses (including, without limitation, reasonable attorneys' fees) of enforcing the Obligations. Each maker, endorser and guarantor waives protest and, in any litigation (whether or not relating to the Obligations) in which the Bank and any of them shall be adverse parties, waives the right to interpose any set-off or counterclaim of any nature or description and any defense based upon any statute of limitations or any claim of laches. Time for payment extended by law shall be included in the computation of interest. 10. The undersigned hereby irrevocably (a) submits, in any legal proceeding relating to this Note, to the non-exclusive in personam jurisdiction of any state or United States court of competent jurisdiction sitting in the State of New York and agrees to suit being brought in any such court, (b) agrees to service of process in any such legal proceeding by mailing of copies thereof (by registered or certified mail, if practicable) postage prepaid, or by telex, to the undersigned at the last known address of the undersigned on the books of the Bank, and (c) agrees that nothing contained herein shall effect the Bank's right to effect service of process in any other manner permitted by law; and the undersigned and the Bank hereby irrevocable waive, in any such legal proceeding, trial by jury. 11. This Note shall be governed by, and construed in accordance with, the laws of the State of New York. COMPUTER HORIZONS CORP. By: /s/David W. Bialick --------------------- David W. Bialick Title: Treasurer SCHEDULE OF ADVANCES
UNPAID INTEREST AMOUNT OF PRINCIPAL NOTATION AMOUNT OF MATURITY RATE PER PRINCIPAL BALANCE OF MADE DATE ADVANCE DATE ANNUM PAID ADVANCE BY - --- --------- -------- -------- --------- ---------- -------- _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________ _____________________________________________________________________________________
Exhibit 10 (h) PNC Bank, N.A. 201 881 5187 Herbert C. Umland Corporate Banking 201 881 5288 Vice President 1 Garret Mountain Plaza West Paterson, NJ 07424 PNC BANK March 14, 1997 Mr. David Bialick Computer Horizons Corp. 49 Old Bloomfield Avenue Mountain Lakes, New Jersey 07046-1495 THIS LETTER SUPERSEDES CONFIRMATION LETTERS DATED DECEMBER 20, 1996 AND MARCH 7, 1997 AND IS NOT IN ADDITION THERETO. THESE LETTERS OF DECEMBER 20, 1996 AND MARCH 7, 1997 ARE WITHDRAWN. RE: $10,000,000 Discretionary Line of Credit with a $1,000,000 Sublimit for Letters of Credit Dear Mr. Bialik: We are pleased to confirm that PNC Bank, National Association (the "Bank"), has approved a $10,000,000 Discretionary Line of Credit to Computer Horizons Corp. ("Borrower") or (the "Company"). The Line of Credit may be used for Working Capital purposes. The Bank will also consider applcations for Standby or Commercial Import Letters of Credit for amounts up to $1,000,000 in the aggregate for periods up to one year. The issuance of Letters of Credit will reduce the amount available under the $10,000,000 Discretionary Line of Credit. Advances made under the line of credit, if any, shall be due and payable quarterly, or on the last day of the applicable interest period, and all obligations of the Company to the Bank shall be due and payable upon the occurrence of an event of default. All advances will be cross-defaulted to one another and will bear interest at a rate of Libor (reserve adjuted) plus 50 basis points, calculated on a 360 day basis and payable quarterly or on the last day of each interest period, for periods of 1, 2 or 3 months and will be subject to the terms and conditions set forth in this letter and the appropriate Note. The line of credit will be reviewed by the Bank from time to time and in any event prior to its expiration on May 31, 1998 (the "Expiration Date") to determine whether it should be continued or renewed. This is not a committed line of credit. The Company acknowledges and agrees that advances made or letters of credit issued, under this line of credit, if any shall be made at the sole discretion of the Bank. The Bank may decline to make advances or issue letters of credit under the line, terminate the line at any time and for any reason without prior notice to the Company. This letter sets forth certain terms and conditions solely to assure that the parties understand each other's expectations and to assist the Bank in evaluating the status, on an ongoing basis, of the line. The Bank's willingness to consider making advances or issue letters of credit under this facility is subject to the Company's ongoing agreement (a) to furnish the Bank with its audited consolidated annual financial statement and 10K within 90 days after the end of its fiscal year, its unaudited management prepared accountant reviewed 10Q, which includes the quarterly financial statements within 60 days after the end of each fiscal quarter and such other financial information as the Bank may reasonalby request from time to time promptly after receipt of each request, (b) upon the Banks' request, to provide certificates indicating compliance with any restrictions concerning other borrowings contained in Senior Note documents and to notify the Bank as soon as practical following the ocurrence of any default (or event which, with the passage of time or giving of notice or both, would become a default) under any direct or contingent obligation of the Company, and (c) upon the Bank's request, to furnish copies of any covenant compliance certificates prepared in connection with any such obligataions. (d) All credit facilities to be cross defaulted. Please indicate the Company's agreement to the terms and conditions of this letter by having the enclosed copy of this letter executed where indicated and returning it to me. Prior to the making of any advances hereunder, the Company must deliver to the Bank a duly executed original Note and a certified copy of resolutions and an incumbency certificate, each in form and substance satisfactory to the Bank. All letters of credit that might be issued will be subject to the terms and conditions set forth herein and in an Application and a Reimbursement Agreement for the issuance of a Letter of Credit (an Application) executed by the Company and delivered to the Bank. We are pleased to offer support for your banking needs and look forward to working with you, your staff and Computer Horizons Corp. Very truly yours, PNC Bank, National Association /s/Herbert C. Umland - -------------------- Herbert C. Umland Vice President Agreed and accepted this 17th day of March, 1997. The undersigned hereby agrees and consents to the terms as outlined herein. Borrower: Computer Horizons Corp. By: /s/David W. Bialick Date: 3/17/97 - ------------------------ David W. Bialick Title: Treasurer EX-11 3 Exhibit 11 Computer Horizons Corp. and Subsidiaries EARNINGS PER COMMON AND COMMON SHARE EQUIVALENT Year ended December 31,
1996 1995 1994 ----------- ----------- ----------- Primary Average shares outstanding ........ 15,951,000 14,572,000 13,322,000 Stock options ..................... 1,023,000 1,004,000 936,000 ----------- ----------- ----------- Primary weighted average of common. and common equivalent shares outstanding ....................... 16,974,000 15,576,000 14,258,000 =========== =========== =========== Fully diluted Average shares outstanding ........ 15,951,000 14,572,000 13,322,000 Stock options ..................... 1,074,000 1,085,000 979,000 ----------- ----------- ----------- Fully diluted weighted average number of common and common equivalent shares outstanading..... 17,025,000 15,657,000 14,301,000 =========== =========== =========== Net income ........................... $11,232,000 $ 9,907,000 $ 5,686,000 =========== =========== =========== Earnings per share Primary ........................... $ .66 $ .64 $ .40 =========== =========== =========== Fully diluted ..................... $ .66 $ .63 $ .40 =========== =========== ===========
EX-13 4 Computer Horizons Corp. Solutions For Growth 1996 ANNUAL REPORT "The process of transforming our company, a process that began four years ago, brought momentous changes during the 12 months of 1996, changes that have forever altered the face of Computer Horizons. We have become widely recognized as a major force in the information industry, attracting more media recognition and financial community coverage than at any time in our 25-year history as a public company." /s/John Cassese TO OUR SHAREHOLDERS A number of highly creative product and service innovations were introduced to the marketplace this year through our Signature 2000TM Millennium Solution. As a result, we have added important new clients at a faster rate than ever before. We have expanded the scope and importance of the assignments we can now undertake on their behalf. We have provided an abundance of exciting new opportunities for our rapidly growing base of highly skilled employees. Finally, we increased the market value of our firm by more than 50 percent, drawing widespread attention from industry participants and keen support from industry analysts. We view the Year 2000 marketplace as an exciting opportunity which, although still a year or two away from peaking, begins in earnest this year. However, we look at our own state of readiness to respond to the opportunity as one that is far more mature. Our suite of Signature products has been tested and retested under live conditions with acclaim from our clients. Our administrative and project management approaches have been challenged and have met the test. Our response to client needs, as our experience with them grows in scope, is quickly becoming the industry model. In another area, our dogged determination to comply with client requirements has resulted in winning the valued Ford Motor Company Q1 Quality Award. In preparation for this accomplishment, we have designed and incorporated numerous quality standards into our everyday operations, thereby adding to our value for our entire array of clients. While we are pleased to have achieved this level of quality practice, we will continue to strive for improvement in this regard and expect to achieve ISO 9000 certification in the months ahead. The past year has not been without difficulties. During a tumultuous period early in the year, a single large client totally and unexpectedly changed its practices with regard to employing outside services. This resulted in a sudden decline in CHC-provided resources and a serious disruption in our revenues. We are gratified to have quickly reversed this impact and to have finished the year at a record-setting revenue pace. As we enter the final years of the second millennium, we at Computer Horizons look forward to seeing our vision become reality. Although we have already witnessed our investments in products, services, people and organization bear fruit, we are developing new growth areas and are expanding others. New technology, products and services are being assembled and are becoming part of our network management and document imaging practices. Enhanced services for client/ server projects are being offered, and our legacy maintenance practice is being expanded. As the paradigm shift to outsourced solutions continues to accelerate, we will continue to expand our readiness to accept bigger and broader contracts. Our client base has grown, with some of the most prestigious companies in the country placing confidence in our solutions and in our people. We are prepared for the grueling demands of dealing with the anticipated worldwide resource shortage. We have begun to establish a foothold in Western Europe and recognize the implications of becoming a global vendor. Our industry is in the midst of perhaps its healthiest growth period ever, and we are confident that our past accomplishments have positioned us to take advantage of this growth. PHOTO --- John Cassese, Chairman and President, has directed the growth of Computer Horizons. His leadership has provided a winning direction and has guided the firm to a position of market leadership. During 1996, Computer Horizons achieved a key objective by becoming recognized by both industry observers and participants as a leading IT total solutions and services company. A retrospective of all that our company has been able to accomplish during this year is proof that we have kept the commitments promised to all our stakeholders: o Employees--the corporation o Customers--the marketplace o Shareholders--the investors A significant result of our efforts, which set the stage for a positive outlook throughout this decade, has been the emergence and industry-wide acceptance of Computer Horizons. Your company is recognized as the leading provider of solutions for the massive problem of correcting the Year 2000 millennium software problem prior to reaching the next century. Computer Horizons' Signature 2000TM solution is the choice of many of our nation's largest corporations and is widely recognized as a model approach. In 1996, Computer Horizons created or delivered a series of "firsts," representing important marketplace differentiators for your company. Although each achievement is significant by itself, these achievements collectively represent a substantial foundation for future growth and marketplace expansion. PROPRIETARY SOFTWARE TOOLS We made several important additions to our suite of self-designed, self-engineered and self-produced proprietary software tools. Leading the new additions is Computer Horizons' Signature Time EngineerTM. Its approach to the complex task of converting hundreds of millions of lines of programming code that cannot function in the next century is unique. Computer Horizons has applied for and received patent protection. Of major importance to our clients is the fact that Signature Time Engineer can significantly reduce the time and effort necessary to convert systems, enabling them to function correctly in the next century. This worldwide problem, estimated to cost $500 billion to fix, is extremely time-sensitive, especially as we move closer to the Year 2000. By adding Signature Time Engineer to our existing suite of proprietary tools, we have virtually completed our offerings. Signature Time Engineer was conceived and developed internally by outstanding Computer Horizons Solutions engineers and managers. Computer Horizons has become a member of a highly exclusive club of IT solution providers. Your company is able to deliver a total lifecycle solution that combines proprietary tools with trained and experienced resources, tested project managers, facilities and a leading project methodology. WORLD-CLASS METHODOLOGIES AND PROCESSES Computer Horizons has assembled a world-class team of solutions professionals, including delivery and engagement executives, project managers and experienced staff. Also critical are the practices, policies, project management and process methodologies which they have developed and which they follow. Major clients throughout the world now seek out Computer Horizons for our leadership in order to oversee major efforts built on a broad range of disciplines. Having teamed with Texas-based LBMS, Inc. (the leading provider of process management products to Fortune 200 organizations), major corporations can now take advantage of our best practices. By accessing our methodology, clients can generate and track detailed project plans for new technology development and Year 2000 conversion projects. This offering provides highly detailed and accurate information on activities, deliverables, roles and responsibilities, dependencies, resources, tools and techniques, in addition to estimating metrics for the selected type of project. Process management is absolutely critical to overcoming the daunting challenges of Year 2000 conversions. By combining Computer Horizons' proven methodologies and quality processes with LBMS Process Engineer(R) toolset, LBMS is now marketing the best possible Year 2000 process solution to the Fortune 500 community worldwide. Established clients and new prospects are learning about Computer Horizons' solutions capabilities and practices through this partnership arrangement. OPERATIONAL FACILITIES In 1996, the Fortune 500 community continued to pare budgets and to concentrate their personnel on their company's core competencies, a trend that will continue in the future. This select group of IT users is seeking creative vendors to satisfy their growing needs without increasing their budgets. To meet this challenge, by partnering with our clients, Computer Horizons has developed innovative programs and offerings. Many of our new offerings permit us "to do more for less." This year we commenced operations in several Millennium Refurbishment Centers (MRCs). Plans are in place to add several new international MRCs during the next eighteen months. Each one is a self-contained outsourcing facility that permits us to manage complete projects off-site for our customers. This capability enables our clients to focus their staff and facility on asset-building projects or to formulate a balance between old tasks and new while Computer Horizons delivers the necessary quality solution. Although initially designed to provide Year 2000 renovation services, each facility is equipped to handle virtually any IT challenge presented by our clients. Projects include applications development, maintenance of legacy applications, production systems support, plus a variety of open systems or client/server engagements. As an adjunct, each facility is outfitted with a state-of-the-art technical environment, fully staffed with experienced delivery, engagement and project management professionals. These teams are supported by our full array of proprietary software and process methodology. Additionally, clients have the option to house some of their management and staff at our facilities during the project lifecycle. INTERNATIONAL EXPANSION Computer Horizons' international expansion, which began two years ago with the formation of our India-based joint venture (Birla Horizons International), has now become the springboard for globalization. During 1996, CHC established an international presence with operations in Canada and the United Kingdom. For the first time, our company has personnel based in international locations serving an international clientele. We also expanded our Birla Horizons subsidiary in these markets. From our Toronto-based team, Canadian companies can select from the same menu of services available to their United States counterparts. From our London headquarters, we offer the European community the complete range of total solutions available to our domestic clients. Large companies around the world share the same need for quality IT solutions to solve the complex technical and business problems of a competitive global marketplace. Computer Horizons is successfully transferring its knowledge, skills, offerings and reputation abroad by offering the same high quality solutions delivered domestically by Computer Horizons Solutions. Fueling this expansion are several of our domestic clients who have selected us to provide leadership, services and staff for projects with their foreign subsidiaries and parent companies. From these early efforts and international outposts, we are systematically globalizing our company. INTERNAL INFRASTRUCTURE Perhaps the most dramatic and significant "firsts" for Computer Horizons have been the investments in, additions to and changes in our internal infrastructure. Our executive team has been invigorated by the addition of important new functions. Our Solutions unit has created new positions and staffed them with experienced leaders. These organizational enhancements were necessary to deliver increasingly complex services well into the next century. Faced with the challenge of housing growing numbers of staff in our facilities or on large projects for prolonged periods of time, a formalized and much strengthened Human Resource Department has been added. With leadership from the corporate level, the Vice President of Human Resources has HR staff assigned to the Millennium Refurbishment Centers and in our Solutions units. The newly created Corporate Resource Center commands a globally based corporate recruiting team deployed to meet the staffing challenges facing our industry. Tackling the complex issues of staff retention, turnover, competitive benefits and international staffing, our HR group has already made a significant contribution to meeting our obligations to all our stakeholders. Computer Horizons has succeeded in building marketplace awareness and assuming a position of leadership. Through a bold plan that combined conference and exhibition participation, public relations, new collateral material, unified corporate image and capability presentations, the recently created Corporate Marketing Department has spread the knowledge of our successes to a vast new audience. Supported by a team of marketing professionals in each business unit, the Corporate Vice President of Marketing keeps our name and reputation in the general and trade media, and before the executives who make the buying decisions. Within Computer Horizons Solutions, we have added delivery executives charged with examining, closing and the eventual completion of complex technical projects. Supported by an equally talented group of engagement executives and project managers working in concert with our field organization, Computer Horizons is now routinely engaged in larger and larger projects that were once out of our reach. Our software development team has been able to turn the vision of our solutions executives into new software tools. Each innovative tool has been conceived and created by our team of industry professionals. Working together, our solutions professionals have created the project management process and methodology used internally and which are now sought after in the marketplace. Their successes have added to the reputation and capabilities of Computer Horizons. OUR FIRSTS ARE DIFFERENTIATORS FOR THE FUTURE The same determination and creativity that existed for the past 27 years will continue to forge opportunities and successes for Computer Horizons. The creative talents of our people have energized our company. Many of our recent achievements can be traced to the skillful blending of our tenured staff with the many newcomers who have joined our ranks. Our innovative tools and approaches for solving the complex needs of a competitive market have brought us many new customers. Teams are spreading out within this new client base to establish lasting relationships. Our philosophy of establishing a partnership type relationship with each of our clients has rewarded Computer Horizons with a loyal following. Our people's ability to recognize the future needs of the business community and translate them into new offerings is a key component to future growth. With leadership from the executive core, we will continue to develop new tools, improved methodologies and processes. We will reach out and attract future leaders to join us. We will continue to challenge our people to reach into new markets with solutions superior to those of our competitors. Computer Horizons will continue to distinguish itself with differentiating "firsts" well into the future.
Computer Horizons Corp. and Subsidiaries SELECTED FINANCIAL DATA Year Ended December 31, 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------ (dollars in thousands, except per share data) Summary Income Statements Revenues $233,858 $200,050 $152,192 $121,550 $102,206 Direct costs 163,272 140,344 108,189 87,800 74,200 Selling, general and administrative 52,146 42,131 32,992 26,256 23,536 Income from operations 18,440 17,575 11,011 7,494 4,470 Interest expense--net (163) (365) (638) (584) (578) Equity in net earnings of joint venture 885 361 Income before income taxes 19,162 17,571 10,373 6,910 3,892 Income taxes 7,930 7,664 4,687 3,206 1,866 - ------------------------------------------------------------------------------------------------------ Net Income $ 11,232 $ 9,907 $ 5,686 $ 3,704 $ 2,026 ====================================================================================================== Earnings per share Primary $.66 $.64 $.40 $.25 $.15 ====================================================================================================== Weighted average number of shares outstanding Primary 16,974,000 15,576,000 14,258,000 14,994,000 13,624,000 ====================================================================================================== Computer Horizons Corp. and Subsidiaries SELECTED FINANCIAL DATA (continued) Year Ended December 31, 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------ (dollars in thousands, except per share data) Analysis (%) Revenues 100.0% 100.0% 100.0% 100.0% 100.0% Gross margin 30.2% 29.8% 28.9% 27.8% 27.4% Selling, general and administrative 22.3% 21.1% 21.7% 21.6% 23.0% Income from operations 7.9% 8.8% 7.2% 6.2% 4.4% Interest expense--net -0.1% -0.2% -0.4% -0.5% -0.6% Equity in net earnings of joint venture 0.4% 0.2% Income before income taxes 8.2% 8.8% 6.8% 5.7% 3.8% Income taxes 3.4% 3.8% 3.1% 2.6% 1.8% Net Income 4.8% 5.0% 3.7% 3.0% 2.0% Revenue growth YOY 16.9% 31.4% 25.2% 18.9% 8.1% Net income growth YOY 13.4% 74.2% 53.5% 82.8% -10.6% Return on equity, average 18.3% 23.5% 20.5% 14.1% 8.3% Effective tax rate 41.4% 43.6% 45.2% 46.4% 47.9% At year-end Total assets $ 88,412 $ 76,037 $ 49,150 $ 40,600 $ 41,249 Working capital 50,562 39,224 20,484 17,531 20,317 Long-term debt 1,432 3,299 4,288 5,843 7,144 Shareholders' equity 68,814 54,267 29,917 25,689 26,856 Stock price $38.50 $25.33 $6.00 $3.48 $1.96 P/E multiple 58 39 15 14 13 Employees* 2,916 2,511 2,150 1,603 1,414 Clients (during year)* 453 462 455 458 402 Offices (worldwide) 43 39 33 30 29 ====================================================================================================== *Does not include Birla Horizons International.
Computer Horizons Corp. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth (i) certain income and expense items expressed as a percentage of the Company's consolidated revenues and (ii) the percentage of dollar increase in the amount of such items in 1996 compared to 1995:
Percentage of Dollar Year Ended December 31, Increase - ------------------------------------------------------------------------------------------------------- 1996 1995 1994 1996/1995 - ------------------------------------------------------------------------------------------------------- Revenues 100.0% 100.0% 100.0% 16.9% Direct costs 69.8% 70.2% 71.1% 16.3% Selling, general and administrative 22.3% 21.1% 21.7% 23.8% Income from operations 7.9% 8.8% 7.2% 4.9% Interest expense--net -0.1% -0.2% -0.4% -55.3% Equity in net earnings of joint venture 0.4% 0.2% 145.2% Income before income taxes 8.2% 8.8% 6.8% 9.1% Income taxes 3.4% 3.8% 3.1% 3.5% Net income 4.8% 5.0% 3.7% 13.4%
Revenues Consolidated revenues in 1996 increased by 17% compared to 1995, and in 1995 consolidated revenues increased by 31% compared to 1994. In dollars, these amounts were $233.9, $200.1 and $152.2 million in 1996, 1995 and 1994, respectively. The increase in 1996 was primarily the result of increased staffing business ($171.1 million compared to $140.6 million in 1995), which was partially offset by the decline in solutions revenues. 1996 solutions revenues were negatively impacted by the unexpected termination by one large customer during the second quarter of 1996, which had the effect of reducing solutions revenues by approximately $6.0 million when compared to 1995. The increase in 1995 revenues was attributable to increased solutions business and improved pricing applicable thereto. The Company's core staffing business has increased by 22% in 1996 as compared to 1995. The solutions business, impacted by the above mentioned early termination, declined by 11%, while the Year 2000 services revenues, virtually nil in 1995, exceeded $10 million in 1996. Direct Costs Direct costs, as a percentage of consolidated revenues, were 69.8%, 70.2% and 71.1% in 1996, 1995 and 1994, respectively. The Company is committed to maintaining and improving gross margins through cost containment and providing more value-added services. In general, gross margins are better for Year 2000 business and solutions than for staffing. Selling, General and Administrative Selling, general and administrative expenses, as a percentage of consolidated revenues, were 22.3%, 21.1% and 21.7% in 1996, 1995 and 1994, respectively. In dollars, these amounts were $52.1, $42.1 and $33.0 million, respectively, for those years. The increase in these expenses in 1996 is almost entirely attributable to the investments associated with the Company's Year 2000 strategy; investments in engagement and technical managers and infrastructure necessary to pursue large, high profile opportunities, as well as marketing expenses incurred to raise the Company's visibility through public relations, trade shows and conferences. Profitability Consolidated income from operations was $18.4 million in 1996, compared to $17.6 million in 1995 and $11.0 million in 1994. As a percentage of consolidated revenues, income from operations was 7.9%, 8.8% and 7.2% in 1996, 1995 and 1994, respectively. The dollar gains are 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. In 1996, Other Income exceeded $700 thousand, compared to nil in 1995 and an expense of over $600 thousand in 1994. This area has been favorably impacted by reduced interest expense due to the June 1995 public offering, as well as by the increased earnings of the Company's international joint venture--Birla Horizons. Consolidated net income for 1996 was $11.2 million, or $.66 per share, compared with $9.9 million, or $.64 per share in 1995 and $5.7 million, or $.40 per share in 1994. The Company's effective tax rate for Federal, state and local income taxes was 41.4%, 43.6% and 45.2% for 1996, 1995 and 1994, respectively. After accounting for non-tax benefited charges and credits, such as goodwill amortization and certain travel and entertainment deduction limitations, and the undistributed earnings of Birla Horizons, as well as taking into consideration the states in which business has been conducted, the Company's income tax rate approximated 41% in 1996 and 42% in 1995 and 1994. Liquidity and Capital Resources At December 31, 1996, the Company had a current ratio of 4.0 to 1, including cash and cash equivalents of $10.9 million, and had available bank lines of credit of $25.0 million. There were no borrowings under the Company's lines of credit during 1996. In 1995, The Company had a maximum amount of $7.2 million outstanding under its lines of credit which was repaid in June 1995 with the cash proceeds of $13.3 million from the sale of 1,710,000 shares of its common stock in a public offering. During 1995, the average outstanding amount under the Company's lines of credit was $1.7 million and the weighted average interest rate approximated 7%. The Company's long-term debt consists of notes issued to financial institutions in the outstanding principal amount of $2.9 million as of December 31, 1996, payable in installments of $1.4 million on April 15, 1997 and 1998, bearing interest at the rate of 9.55% per annum; and notes issued to the four former shareholders of Unified Systems Solutions in the outstanding amount of $0.4 million, payable on April 1, 1997, with 8.75% imputed interest. The Company believes that its cash, lines of credit and internally generated funds will be sufficient to meet its working capital needs through 1997. In 1996, the Company acquired $1.4 million of capital assets. Although there are no material, firm commitments for capital spending in 1997, the Company anticipates a spending level in line with that of 1996. AUDITORS' REPORT Report of [GRAPHIC-Logo] Independent Certified Public Accountants Board of Directors and Shareholders Computer Horizons Corp. We have audited the accompanying consolidated balance sheets of Computer Horizons Corp. and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995 and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/GRANT THORNTON LLP - --------------------- GRANT THORNTON LLP Parsippany, New Jersey January 27, 1997
Computer Horizons Corp. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------- (in thousands, except per share data) Revenues (Notes 1 and 9) $233,858 $200,050 $152,192 - ------------------------------------------------------------------------------------------------------- Costs and expenses: Direct costs 163,272 140,344 108,189 Selling, general and administrative 52,146 42,131 32,992 - ------------------------------------------------------------------------------------------------------- 215,418 182,475 141,181 - ------------------------------------------------------------------------------------------------------- Income from operations 18,440 17,575 11,011 - ------------------------------------------------------------------------------------------------------- Other income (expense): Interest income 307 266 53 Interest expense (470) (631) (691) Equity in net earnings of joint venture (Note 3) 885 361 - ------------------------------------------------------------------------------------------------------- 722 (4) (638) - ------------------------------------------------------------------------------------------------------- Income before income taxes 19,162 17,571 10,373 - ------------------------------------------------------------------------------------------------------- Income taxes (Notes 1 and 6): Current 8,292 8,138 5,044 Deferred (362) (474) (357) - ------------------------------------------------------------------------------------------------------- 7,930 7,664 4,687 - ------------------------------------------------------------------------------------------------------- Net Income $ 11,232 $ 9,907 $ 5,686 ======================================================================================================= Earnings per share $.66 $.64 $.40 ======================================================================================================= Weighted average number of shares outstanding 16,974,000 15,576,000 14,258,000 ======================================================================================================= The accompanying notes are an integral part of these statements.
Computer Horizons Corp. and Subsidiaries CONSOLIDATED BALANCE SHEETS December 31, 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Assets Current assets: Cash and cash equivalents $10,937 $ 9,166 Accounts receivable, net of allowance for doubtful accounts of $1,203,000 and $840,000 at December 31, 1996 and 1995, respectively 54,280 44,729 Deferred income tax benefit (Note 6) 1,024 1,122 Other 962 1,618 - ------------------------------------------------------------------------------------------------------------------------------------ Total current assets 67,203 56,635 - ------------------------------------------------------------------------------------------------------------------------------------ Property and equipment: Furniture, equipment and other 9,449 7,454 Less accumulated depreciation 5,228 4,031 - ------------------------------------------------------------------------------------------------------------------------------------ 4,221 3,423 - ------------------------------------------------------------------------------------------------------------------------------------ Other assets - net: Goodwill (Note 1) 13,322 13,526 Deferred income tax benefit (Note 6) 583 123 Other (Note 3) 3,083 2,330 - ------------------------------------------------------------------------------------------------------------------------------------ 16,988 15,979 - ------------------------------------------------------------------------------------------------------------------------------------ Total Assets $88,412 $76,037 ==================================================================================================================================== The accompanying notes are an integral part of these statements.
December 31, 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Liabilities and Current liabilities: Shareholders' Current portion of long-term debt (Note 4) $ 1,867 $ 2,385 Equity Accrued payroll, payroll taxes and benefits 11,963 10,359 Accounts payable 1,122 1,746 Income taxes payable 940 1,535 Other accrued expenses 749 1,386 - ------------------------------------------------------------------------------------------------------------------------------------ Total current liabilities 16,641 17,411 - ------------------------------------------------------------------------------------------------------------------------------------ Long-term debt (Note 4) 1,432 3,299 - ------------------------------------------------------------------------------------------------------------------------------------ Other liabilities (Note 7) 1,525 1,060 - ------------------------------------------------------------------------------------------------------------------------------------ Commitments (Note 8) - ------------------------------------------------------------------------------------------------------------------------------------ Shareholders' equity: Preferred stock, $.10 par; authorized and unissued, 200,000 shares, including 50,000 Series A Common stock, $.10 par; authorized, 30,000,000 shares; issued 17,874,536 shares and 17,407,514 shares at December 31, 1996 and 1995, respectively 1,787 1,741 Additional paid-in capital 30,685 27,416 Retained earnings 50,990 39,758 - ------------------------------------------------------------------------------------------------------------------------------------ 83,462 68,915 Less shares held in treasury, at cost; 1,786,883 shares at December 31, 1996 and 1995 14,648 14,648 - ------------------------------------------------------------------------------------------------------------------------------------ Total shareholders' equity 68,814 54,267 - ------------------------------------------------------------------------------------------------------------------------------------ Total Liabilities and Shareholders' Equity $88,412 $76,037 ====================================================================================================================================
Computer Horizons Corp. and Subsidiaries CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Additional Notes Common stock paid-in Retained Treasury stock receivable, Shares Amount capital earnings Shares Amount officers - ------------------------------------------------------------------------------------------------------------------------------------ Years Ended December 31, 1996, 1995 and 1994 (dollars in thousands) Balance, January 1, 1994 5,366,272 $ 537 $12,155 $24,165 1,437,278 $10,539 $ 629 Three-for-two stock split declared February 1994 1,964,497 196 (196) Stock options exercised 408,807 41 1,981 Purchases of treasury stock 349,605 4,109 Repayment of notes receivable, officers (629) Net income for the year 5,686 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1994 7,739,576 774 13,940 29,851 1,786,883 14,648 -- Three-for-two stock split declared: April 1995 3,002,998 300 (300) December 1995 5,206,877 521 (521) Stock options exercised 318,063 32 1,138 Sale of common stock, net of expenses 1,140,000 114 13,159 Net income for the year 9,907 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1995 17,407,514 1,741 27,416 39,758 1,786,883 14,648 -- Stock options exercised 467,022 46 1,680 Tax benefits related to stock option plans 1,589 Net income for the year 11,232 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1996 17,874,536 $1,787 $30,685 $50,990 1,786,883 $14,648 $ -- - ------------------------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of this statement.
Computer Horizons Corp. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities Net income $11,232 $ 9,907 $ 5,686 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Deferred taxes (362) (474) (357) Depreciation 1,192 683 754 Amortization of intangibles 587 505 568 Changes in assets and liabilities, net of acquisitions: Accounts receivable (9,551) (14,093) (9,770) Other current assets 9 (510) (433) Accrued payroll, payroll taxes and benefits 1,604 3,054 1,287 Accounts payable (624) 1,186 273 Income taxes payable 994 655 705 Accrued expenses (637) 578 11 Other liabilities 465 424 341 - -------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 4,909 1,915 (935) - -------------------------------------------------------------------------------------------------------- Cash flows from investing activities Purchases of furniture and equipment (1,364) (1,471) (1,353) Acquisitions (363) (2,966) (245) Change in other assets (753) (1,673) 254 Loans to officers, net 629 - -------------------------------------------------------------------------------------------------------- Net cash used in investing activities (2,480) (6,110) (715) - -------------------------------------------------------------------------------------------------------- Cash flows from financing activities Notes payable - banks, net (3,200) 3,200 Long-term debt, net (2,385) (160) (1,555) Stock options exercised 1,727 1,170 2,022 Proceeds from issuance of stock 13,273 Purchases of treasury stock (4,109) - -------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (658) 11,083 (442) - -------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 1,771 6,888 (2,092) Cash and cash equivalents at beginning of year 9,166 2,278 4,370 - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $10,937 $ 9,166 $ 2,278 ======================================================================================================== Cash paid during the year for: Interest $ 433 $ 597 $ 713 Income taxes 7,112 6,514 4,269 ======================================================================================================== The accompanying notes are an integral part of these statements.
Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 December 31, 1996, 1995 and 1994 Summary of Significant Description of Business Accounting The Company provides a wide range of information technology services and solutions to major corporations. In addition to professional services staffing, the Company has developed the technological and managerial infrastructure to offer its clients Year 2000 conversion services, as well as other value-added services including client/server systems development and migration, network and facility management and administration, systems and business process re-engineering and outsourcing solutions. Principles of Consolidation The consolidated financial statements include the accounts of Computer Horizons Corp. and its wholly-owned subsidiaries (the "Company"). The Company's investment in a joint venture (Note 3) is accounted for under the equity method of accounting. All material intercompany accounts and transactions have been eliminated. Revenue Recognition The Company recognizes revenues as professional services are performed. On fixed fee engagements, revenue and gross profit adjustments are made to reflect revisions in estimated total costs and contract values. Estimated losses are recorded when identified. Recruitment Costs Recruitment costs are charged to operations as incurred. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid instruments with a maturity of three months or less at the time of purchase and consist of the following at December 31:
1996 1995 - -------------------------------------------------------------------------------- (in thousands) Cash $ 997 $2,017 Money market funds 5,926 3,549 Demand obligations 2,767 1,500 Commercial paper 1,247 Repurchase agreements 2,100 - -------------------------------------------------------------------------------- $10,937 $9,166 ================================================================================
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 and trade accounts receivable. The Company invests the majority of its excess cash in money market funds, demand obligations, commercial paper and repurchase agreements 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 two financial institutions located in New York and New Jersey. These balances are insured by the Federal Deposit Insurance Corporation up to $100,000 for each entity at each institution. At December 31, 1996, uninsured amounts held at these financial institutions total approximately $2,306,000. 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 12% of accounts receivable at December 31, 1996. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information. Fair Value of Financial Instruments The carrying value of financial instruments (principally consisting of cash and cash equivalents, 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 $3,921,000 and $3,333,000 at December 31, 1996 and 1995, respectively. On an ongoing basis, management reviews the valuation and amortization of goodwill. As part of this review, the Company estimates the value and future benefits of income generated, to determine that no impairment has occurred. Income Taxes Deferred income taxes result from temporary differences between income reported for financial and income tax purposes. These temporary differences result primarily from the allowance for doubtful accounts provision and certain accrued expenses which are deductible, for tax purposes, only when paid. 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 earnings from its foreign corporate joint venture and, accordingly, is not providing deferred taxes on its share of undistributed earnings. Earnings Per Share Earnings per share are 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. Reclassifications Certain amounts in the 1995 financial statements were reclassified to conform to the current year's presentation. New Accounting Pronouncements SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," implemented in 1996, requires that long-lived assets and certain identifiable intangibles held and used by the entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future cash flows (undiscounted and without interest) is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of that loss would be based on the fair value of the asset. Implementation of this statement has had no material effect on the Company's financial position. SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), implemented in 1996, introduces a choice of the method of accounting used for stock-based compensation. Entities may use the "intrinsic value" method currently based on APB No. 25 or the "fair value" method contained in SFAS No. 123. The Company implemented SFAS No. 123 in 1996 by continuing to measure stock-based compensation under APB No. 25. As required by SFAS No. 123, the pro forma effects on net income and earnings per share have been determined as if the fair value based method had been applied and are disclosed in Note 5 of the notes to the consolidated financial statements. - -------------------------------------------------------------------------------- Note 2 In June 1994, the Company acquired the net assets of Acquisitions 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 1996 and 1995, the Company recorded contingent consideration, totaling approximately $137,000 and $202,000, as additional goodwill, with certain additional amounts payable subject to future performance. These contingent consideration payments are not dependent upon the continued employment of the former shareholder. The results of operations of SOS are included in the consolidated financial statements from June 1, 1994. The consolidated results of operations in 1994 would not have been materially different had the acquisition taken place at the beginning of the year. In January 1993, the Company acquired Unified Systems Solutions, Inc. ("USS"), a New Jersey-based provider of systems and network integration services, for approximately $750,000. The acquisition agreement also provides for contingent consideration based on the future performance of USS through 1996. The acquisition was accounted for as a purchase. The excess of cash over the fair value of assets acquired, totaling approximately $509,000, was recorded as goodwill in 1994. In 1995 and 1994, the Company recorded contingent consideration, totaling 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. - -------------------------------------------------------------------------------- Note 3 In 1995, the Company entered into a software development Investment in and services joint venture with the Birla Group, a large Joint Venture multinational conglomerate located in India. The foreign joint venture, known as Birla Horizons International ("BHI"), is headquartered in New Delhi, India and currently has operations in 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 $1,746,000 and $861,000 at December 31, 1996 and 1995, respectively, representing the initial cost plus equity in the undistributed net earnings since formation, and is included in other non-current assets. - -------------------------------------------------------------------------------- Note 4 Long-term debt consists of the following at December 31: Long-Term Debt and Lines of Credit
1996 1995 - -------------------------------------------------------------------------------- (in thousands) 9.55% senior notes $2,860 $4,288 Notes payable at prime 439 1,396 - -------------------------------------------------------------------------------- 3,299 5,684 Less current maturities 1,867 2,385 - -------------------------------------------------------------------------------- $1,432 $3,299 ================================================================================
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. Long-term debt matures as follows: $1,867,000 in 1997 and $1,432,000 in 1998. At December 31, 1996, the Company has two unused bank lines of credit totaling $25,000,000 at rates below the banks' prime lending rates. During 1996, the Company had no borrowings against either line. - -------------------------------------------------------------------------------- Note 5 Authorized Shares Shareholders' On June 15, 1994, the Company approved an amendment to Equity the Company's Certificate of Incorporation increasing the authorized number of shares of the Company's common stock from 10,000,000 to 30,000,000. Stock Splits The Board of Directors of the Company has declared three-for-two common stock splits in the form of 50% stock distributions as follows:
Shareholder of Date declared record date Date payable - -------------------------------------------------------------------------------------------- December 12, 1995 December 22, 1995 January 9, 1996 April 24, 1995 May 9, 1995 May 30, 1995 February 17, 1994 March 1, 1994 March 22, 1994
Amounts equal to the $.10 par value of the common shares distributed have been retroactively transferred from additional paid-in capital to common stock. All references in the financial statements with regard to number of shares of common stock, common stock prices and per share amounts have been restated to reflect the above-mentioned stock splits. Repurchases of Stock In 1994, the Company repurchased 350,000 shares of its common stock from three officers of the Company for approximately $4,109,000. The repurchase of 240,000 shares for $2,792,000 was related to the retirement of the Vice Chairman and Executive Vice President (Note 8). The remaining 110,000 shares were repurchased for $1,317,000 from two other active officers. Approximately $824,000 of the repurchase amount was used by these officers to repay amounts they owed the Company, $629,000 in note repayments and $195,000 in accrued interest. Stock Options and 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 5,063,000 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, 1996. This plan, which replaces the Company's 1985 Plan, will terminate on June 15, 2004. There were 3,915,000 shares available for option at December 31, 1996. 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 253,000 to 563,000, and providing that each new director of the Company who is not an employee of the Company (i) shall immediately receive options to purchase 50,625 shares of its common stock and (ii) shall receive up to five annual grants to purchase 6,750 shares of its common stock. The plan expires on March 4, 2001. There were 121,300 shares available for option at December 31, 1996. 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:
1996 1995 - -------------------------------------------------------------------------------------------------------- Net income As reported $11,232,000 $9,907,000 Pro forma 8,037,000 8,962,000 Earnings per share As reported $.66 $.64 Pro forma .47 .58
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 1996 and 1995, respectively: expected volatility of 97% and 70%; risk-free interest rates of 6.28% and 6.27%; and expected lives of 4.9 and 4.5 years. A summary of the status of the Company's stock option plans as of December 31, 1996, 1995 and 1994, and changes during the years ending on those dates is presented below:
1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted average average average exercise exercise exercise Shares price Shares price Shares price - ------------------------------------------------------------------------------------------------------------------------------- (000) (000) (000) Outstanding--January 1 1,476 $ 5.53 1,471 $ 3.05 1,876 $1.94 Granted 558 22.98 525 9.01 515 5.33 Exercised (452) 3.74 (517) 1.94 (920) 1.87 Canceled/forfeited (168) 26.93 (3) 10.17 - ------------------------------------------------------------------------------------------------------------------------------- Outstanding--December 31 1,414 $10.45 1,476 $ 5.53 1,471 $3.05 =============================================================================================================================== Options exercisable--December 31 509 $ 7.41 666 $ 3.63 772 $2.36 =============================================================================================================================== Weighted average fair value of options granted during the year $17.47 $ 5.46 $3.25
The following information applies to options outstanding at December 31, 1996:
Options outstanding Options exercisable - ------------------------------------------------------------------------------------------------------------------------------ Weighted average Weighted Exercisable Weighted Range of Outstanding as of remaining average as of average exercise prices December 31, 1996 contractual life exercise price December 31, 1996 exercise price - ------------------------------------------------------------------------------------------------------------------------------ (000) (000) $ 0.00-$ 4.99 366 6.3 $ 2.94 306 $ 3.02 5.00- 9.99 381 6.6 6.22 96 6.55 10.00- 14.99 266 5.1 11.09 12 13.50 15.00- 19.99 212 5.7 18.18 20.00- 24.99 81 9.0 21.00 81 21.00 25.00- 29.99 108 6.3 25.99 14 25.33 - ------------------------------------------------------------------------------------------------------------------------------ 1,414 6.2 $10.45 509 $ 7.41 ==============================================================================================================================
Certain officers have the right to borrow from the Company against the exercise price of options exercised. Such borrowings were repaid in 1994 in connection with the repurchase of common stock from these officers. The Company has issued warrants to purchase shares of its common stock to two outside business/legal consulting firms. Warrants for 20,000 and 6,750 shares were granted, respectively, in 1996 and 1995. The exercise price is the fair value at the date of grant. Shareholder Rights Plan In July 1989, the Board of Directors declared a dividend distribution of .197 preferred stock purchase right on each outstanding share of common stock of the Company. The rights were amended on February 13, 1990. Each right will, under certain circumstances, entitle the holder to buy one one-hundredth (1/100) of a share of Series A preferred stock at an exercise price of $30.00 per one one-hundredth (1/100) share, subject to adjustment. Each one one-hundredth (1/100) of a share of Series A preferred stock has voting, dividend and liquidation rights and preferences substantively equivalent to one share of common stock. The rights will be exercisable and transferable separately from the common stock only if a person or group acquires 20% or more, subject to certain exceptions, of the Company's outstanding common stock or announces a tender offer that would result in the ownership of 20% or more of the common stock. If a person becomes the owner of at least 20% of the Company's common shares (an "Acquiring Person"), each holder of a right other than the Acquiring Person is entitled, upon payment of the then current exercise price per right (the "Exercise Price"), to receive shares of common stock (or common stock equivalents) having a market value equal to twice the Exercise Price. Additionally, if the Company subsequently engages in a merger or other business combination with the Acquiring Person in which the Company is not the surviving corporation, or in which the outstanding shares of the Company's common stock are changed or exchanged, or if more than 50% of the Company's assets or earning power is sold or transferred, a right would entitle a Computer Horizon Corp. shareholder, other than the Acquiring Person and its affiliates, to purchase upon payment of the Exercise Price, shares of the Acquiring Person having a market value of twice the Exercise Price. Prior to a person becoming an Acquiring Person, the rights may be redeemed at a redemption price of one cent per right, subject to adjustment. The rights are subject to amendment by the Board. No shareholder rights have become exercisable. The rights will expire on July 16, 1999. - -------------------------------------------------------------------------------- Note 6 The provision for income taxes consists of the following Income Taxes for the years ended December 31:
1996 1995 1994 - -------------------------------------------------------------------------------- (in thousands) Current: Federal $6,282 $5,875 $3,645 State 2,010 2,263 1,399 Deferred: Federal (331) (339) (255) State (31) (135) (102) - -------------------------------------------------------------------------------- $7,930 $7,664 $4,687 ================================================================================
Deferred tax assets and liabilities consist of the following at December 31:
1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Deferred tax assets: Accrued insurance $ 291 $ 477 Accrued payroll and benefits 938 516 Deferred lease obligations 72 99 Allowance for doubtful accounts 249 221 Other 77 140 - ------------------------------------------------------------------------------------------------------------------------------------ 1,627 1,453 - ------------------------------------------------------------------------------------------------------------------------------------ Deferred tax liabilities: Depreciation 20 208 - ------------------------------------------------------------------------------------------------------------------------------------ Deferred tax assets, net $1,607 $1,245 ====================================================================================================================================
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, 1996 and 1995 and 34% for the year ended December 31, 1994, is as follows:
1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Statutory Federal income taxes $6,707 $6,149 $3,527 State and local income taxes, net of Federal tax benefit 1,286 1,382 858 Amortization of goodwill 201 180 158 Equity in net earnings of joint venture (310) (126) Other, net 46 79 144 - ------------------------------------------------------------------------------------------------------------------------------------ $7,930 $7,664 $4,687 ====================================================================================================================================
Deferred income taxes of approximately $436,000 ($310,000 in 1996 and $126,000 in 1995) have not been provided on undistributed earnings of a foreign joint venture in the amount of $1,246,000 ($885,000 in 1996 and $361,000 in 1995) as the earnings are considered to be permanently reinvested. - -------------------------------------------------------------------------------- Note 7 The Company maintains a defined contribution savings Savings Plan plan covering eligible employees. The Company makes and Other contributions up to a specific percentage of Retirement Plans participants' contributions. The Company contributed approximately $324,000, $229,000 and $204,000 in 1996, 1995 and 1994, respectively. In 1995, the Company instituted a Supplemental Executive Retirement Plan whereby key executives are entitled to receive lump-sum payments (or, if they elect, a ten-year payout) upon reaching the age of 65 and being in the employ of the Company. The maximum commitment if all plan members remain in the employ of the Company until age 65 is approximately $6 million. Benefits accrue and vest based on a formula which includes total years with the Company and total years possible until age 65. The plan is 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 $97,000 and $82,000 in 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 have been included in other non-current liabilities. - -------------------------------------------------------------------------------- Note 8 Leases Commitments The Company leases office space under long-term operating leases expiring through 2001. As of December 31, 1996, approximate minimum rental commitments were as follows:
Year ending (in thousands) - -------------------------------------------------------------------------------------- 1997 $2,588 1998 2,234 1999 1,611 2000 324 2001 158 - -------------------------------------------------------------------------------------- $6,915 ======================================================================================
Office rentals are subject to escalations based on increases in real estate taxes and operating expenses. Aggregate rent expense for operating leases approximated $2,612,000, $2,007,000 and $1,796,000 in the years ended December 31, 1996, 1995 and 1994, 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 February 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. In connection with this resignation, the Company repurchased approximately 240,000 shares of common stock of the Company from this former officer for approximately $2,792,000. - -------------------------------------------------------------------------------- Note 9 The Company's largest client accounted for 9.8%, 7.8% Major Client and 9.0%, respectively, of the Company's consolidated revenues in 1996, 1995 and 1994. No other client accounted for more than 7% in those years. Note 10 For the years ended December 31, 1996 and 1995, selected Selected Quarterly quarterly financial data is as follows: Financial Data (Unaudited)
Quarters - ------------------------------------------------------------------------------------------------------------------------------ First Second Third Fourth - ------------------------------------------------------------------------------------------------------------------------------ (in thousands, except per share data) 1996 - ------------------------------------------------------------------------------------------------------------------------------ Revenues $ 57,031 $ 56,032 $ 57,275 $ 63,520 Direct costs 39,368 39,960 39,756 44,188 Selling, general and administrative 12,120 12,505 13,177 14,344 Income from operations 5,543 3,567 4,342 4,988 Interest expense--net (41) (83) (16) (23) Equity in net earnings of joint venture 213 230 200 242 Income before income taxes 5,715 3,714 4,526 5,207 Income taxes 2,413 1,576 1,893 2,048 Net income $ 3,302 $ 2,138 $ 2,633 $ 3,159 - ------------------------------------------------------------------------------------------------------------------------------ Earnings per share $.20 $.13 $.16 $.19 ============================================================================================================================== 1995 - ------------------------------------------------------------------------------------------------------------------------------ Revenues $ 43,867 $ 48,397 $ 51,467 $ 56,319 Direct costs 31,366 34,230 35,696 39,052 Selling, general and administrative 9,294 10,222 10,922 11,693 Income from operations 3,207 3,945 4,849 5,574 Interest expense--net (175) (165) (36) 11 Equity in net earnings of joint venture 96 124 141 Income before income taxes 3,032 3,876 4,937 5,726 Income taxes 1,350 1,711 2,133 2,470 Net income $ 1,682 $ 2,165 $ 2,804 $ 3,256 - ------------------------------------------------------------------------------------------------------------------------------ Earnings per share $.12 $.15 $.17 $.20 ==============================================================================================================================
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, 1996 and 1995, retroactively adjusted to reflect the three-for-two common stock split declared by the Board of Directors in December 1995, is as follows:
1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- Quarter High Low High Low - ------------------------------------------------------------------------------------------------------------------------------- First $38.50 $19.00 $ 8.44 $ 5.89 Second 54.00 33.00 10.83 7.33 Third 42.25 15.00 15.83 10.17 Fourth 38.75 24.25 26.67 11.50 - -------------------------------------------------------------------------------------------------------------------------------
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, 1996, there were approximately 1,200 holders of record of common stock. Computer Horizons Corp. and Subsidiaries - -------------------------------------------------------------------------------- CORPORATE INFORMATION Board of Directors John J. Cassese Chairman and President Thomas J. Berry Retired--AT&T Rocco J. Marano Retired--Bellcore Wilfred R. Plugge Retired--SRI International Corporate John J. Cassese Chairman and President William J. Murphy Executive Vice President & CFO David M. Reingold Vice President 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 Companies Pamela A. Fredette President--Horizons Consulting Arthur V. Quinlan Senior V.P.--Horizons Consulting Steven J. Morgenthal President--Unified Systems Solutions David M. Reingold Vice Chairman--Birla Horizons International Barry D. Olson President--ComputerKnowledge Edward D. Williams President--Strategic Outsourcing Services Corporate and Financial Headquarters 49 Old Bloomfield Avenue Mountain Lakes, New Jersey 07046-1495 (201) 402-7400 Regional and Local Offices Eastern Region Hartford, CT Washington, DC Pompano Beach, FL Boston, MA Iselin, NJ Mountain Lakes, NJ New York, NY Philadelphia, PA Central States Region Atlanta, GA Indianapolis, IN Louisville, KY Charlotte, NC Raleigh, NC Cincinnati, OH Cleveland, OH Columbus, OH Dayton, OH Memphis, TN Nashville, TN Dallas, TX Houston, TX Midwest/West Region Phoenix, AZ Concord, CA Los Angeles, CA Colorado Springs, CO Denver, CO Cedar Rapids, IA Chicago, IL Detroit, MI Minneapolis, MN Kansas City/St. Louis, MO Toronto, Canada Communications Division Washington, DC Jacksonville, FL Orlando, FL Tampa, FL Clark, NJ Dallas, TX Birla Horizons International New Delhi, India London, England Sunnyvale, CA Iselin, NJ Toronto, Canada Corporate Counsel Dennis M. DiVenuta, Esq. General Counsel Proskauer Rose Goetz & Mendelsohn LLP Auditors Grant Thornton LLP Transfer Agent Registrar & Transfer Company Cranford, New Jersey Shares Traded Nasdaq National Market Symbol--CHRZ Options Traded Chicago Board Options Exchange Symbol--ZQH 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, New Jersey 07046-1495 Annual Meeting The Annual Meeting of Shareholders will be held at The Parsippany Hilton One Hilton Court Parsippany, New Jersey, on Wednesday, May 7, 1997 at 10:00 A.M. EX-21 5 Exhibit 21 The Company's only active subsidiaries are each wholly owned and are included in the consolidated financial statements of the Company, and their jurisdictions of incorporation are as follows: Jurisdiction of Name of Subsidiary Incorporation ------------------ ------------- CHC Solutions Europe Limited England and Wales Computer Horizons (Canada) Corp. Toronto, Canada Horizon Enterprises Inc. Delaware Horizons Consulting, Inc. Delaware Strategic Outsourcing Systems, Inc. Delaware Unified Systems Solutions, Inc. New Jersey EX-27 6
5 1,000 12-MOS DEC-31-1996 DEC-31-1996 10,937 0 55,483 1,203 0 67,203 9,449 5,228 88,412 16,641 1,432 0 0 1,787 67,027 88,412 0 233,858 0 163,272 51,261 0 163 19,162 7,930 11,232 0 0 0 11,232 0.66 0.66
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