SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
OR
[ ] 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 0-23534
CAREER HORIZONS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 22-3038096
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
177 CROSSWAYS PARK DRIVE, WOODBURY, NY 11797
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 682-1400
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 the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date:
Class Outstanding at May 1, 1996
----- --------------------------
Common Stock, $.01 par value 17,635,422
CAREER HORIZONS, INC. and SUBSIDIARIES
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets -
March 31, 1996 and Dec. 31, 1995 3
Unaudited Condensed Consolidated Statements
of Income - Three months ended March 31,
1996 and 1995 5
Unaudited Condensed Consolidated Statements
of Cash Flows - Three months ended
March 31, 1996 and 1995 6
Notes to Unaudited Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 16
Index to Exhibits 17
CAREER HORIZONS, INC. and SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
ASSETS
March 31, Dec. 31,
1996 1995
--------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 69,835 $ 11,712
Reverse repurchase agreements 41,908 48,449
Accounts receivable, net of allowance for
doubtful accounts of $2,480 and $1,848 78,362 62,346
Due from Associated Offices, net of
allowance for doubtful accounts
of $1,373 and $1,254 34,723 35,832
Other receivables, net 1,487 1,060
Prepaid expenses 1,235 988
Deferred income taxes 3,345 2,771
-------- --------
Total current assets 230,895 163,158
INTANGIBLE ASSETS, net 94,560 29,719
FURNITURE, FIXTURES AND EQUIPMENT, net 5,838 5,003
OTHER RECEIVABLES, net 287 310
OTHER ASSETS, net 3,379 3,368
-------- --------
$334,959 $201,558
======== ========
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
CAREER HORIZONS, INC. and SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, Dec. 31,
1996 1995
--------- --------
CURRENT LIABILITIES:
Bank overdrafts $ 10,649 $ 10,511
Accounts payable and accrued liabilities 17,682 11,898
Accrued compensation and related taxes 30,907 23,007
Notes payable 1,539 6,966
Current income taxes payable 1,192 1,677
-------- --------
Total current liabilities 61,969 54,059
DEFERRED INCOME TAXES 231 280
OTHER LIABILITIES 53 66
7% CONVERTIBLE SENIOR NOTES DUE 2002 86,250 86,250
-------- --------
Total liabilities 148,503 140,655
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
authorized, 1,000,000 shares;
issued and outstanding - none --- ---
Common stock, $.01 par value; authorized,
25,000,000 shares; issued and
outstanding - 17,618,500 and 5,622,038 176 56
Nonvoting common stock, $.01 par value;
shares authorized, issued and outstanding
- none and 392,638 --- 4
Additional paid-in capital 169,474 46,585
Retained earnings 16,861 14,329
-------- --------
186,511 60,974
Less: treasury stock, at cost, 6,318
and 4,068 shares (55) (71)
-------- --------
Total stockholders' equity 186,456 60,903
-------- --------
$334,959 $201,558
======== ========
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
CAREER HORIZONS, INC. and SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DATA IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended
March 31,
-------------------
1996 1995
---- ----
REVENUES $127,192 $89,583
EXPENSES:
Cost of services 97,409 69,024
Selling, general and administrative
expenses 19,649 12,762
Remittance to franchisees 4,652 4,630
Other expense, net 187 1,052
-------- -------
Total expenses 121,897 87,468
Income from operations 5,295 2,115
Interest expense, net (1,178) (517)
------- ------
Income before income taxes 4,117 1,598
Provision for income taxes (1,585) (674)
------- -------
NET INCOME $ 2,532 $ 924
======= =======
INCOME PER COMMON SHARE $.18 $.08
==== ====
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 14,440 12,305
======= =======
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
CAREER HORIZONS, INC. and SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES $(2,463) $8,400
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in reverse repurchase
agreements, net 6,541 ---
Acquisition of furniture, fixtures
and equipment (392) (173)
Acquisition of businesses, net of
cash acquired (67,333) (6,553)
-------- -------
Net cash used by investing activities (61,184) (6,726)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in senior credit facility --- (820)
Increase (decrease) in bank overdrafts 137 (266)
Repayment of debt assumed in acquisitions --- (674)
Payments under capital lease obligation (11) (14)
Exercise of stock options 1,221 92
Proceeds from public offering of
common stock, net 120,423 ---
------- -------
Net cash provided (used) by financing
activities 121,770 (1,682)
------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 58,123 (8)
CASH AND CASH EQUIVALENTS, AT BEGINNING
OF YEAR 11,712 741
------- -------
CASH AND CASH EQUIVALENTS, AT END OF
PERIOD $69,835 $ 733
======= =======
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
CAREER HORIZONS, INC. and SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the
instructions to Form 10-Q and, accordingly, do not include all
of the information and disclosures required by generally
accepted accounting principles. The accompanying condensed
consolidated financial statements have not been audited by
independent accountants in accordance with generally accepted
auditing standards, but, in the opinion of the Company, such
financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly its
financial position as of March 31, 1996, and the results of
operations and changes in cash flows for the three month periods
ended March 31, 1996 and 1995, and are not necessarily
indicative of the results to be expected for the full year.
In reading the interim condensed consolidated financial
statements, reference should be made to the summary of
accounting policies and notes to the financial statements
included in the Company's Annual Report on Form 10-K, as filed
with the Securities and Exchange Commission on February 28,
1996.
2. ACQUISITION OF SUBSIDIARIES
In January 1996, the Company acquired all of the outstanding
common stock of Programming Enterprises, Inc. d.b.a. Mini-
Systems Associates ("Mini-Systems") and substantially all of the
assets of Zeitech Inc. ("Zeitech"). In addition, in March 1996,
the Company acquired substantially all of the assets relating to
the temporary staffing business of Management Search, Inc. and
its affiliate Temps & Co. Services, Inc. (collectively "MSI").
The aggregate purchase price of these acquisitions, including
fees and expenses, was $63.8 million. In addition, the purchase
agreements provide for contingent consideration in the case of
Mini-Systems (up to a maximum of $10 million) and Zeitech, based
upon operating results of the acquired businesses over a three-
year period. The acquisition of MSI was partially financed by
the issuance of a note payable in the amount of $1,539,000 due
in 1997.
These acquisitions have been accounted for as purchase
transactions and, accordingly, the purchase price was allocated
to the assets acquired and liabilities assumed based on their
estimated fair values as of the dates of acquisition. Goodwill
resulting from these transactions, which represents the excess
of the consideration paid over the estimated fair value of net
assets acquired, amounted to $65.4 million, and will be
amortized over 32 years.
CAREER HORIZONS, INC. and SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Contd.)
Pro forma data for the three months ended March 31, 1996 and
1995, as if the acquisitions of Mini-Systems, Zeitech and MSI as
well as the issuance of the 7% Convertible Senior Notes Due 2002
(the "Convertible Notes") and the public offering of 5,377,500
shares of common stock (the "Stock Offering") all had occurred
as of January 1, 1995 is as follows (in thousands, except per
share amounts):
Three months ended
March 31,
------------------
1996 1995
-------- --------
Revenues $131,369 $116,711
Net income 2,584 698
Income per common share $0.14 $0.04
Note: Assuming the Company had invested the net proceeds of
the Convertible Notes and Stock Offering into
interest-bearing cash equivalents at an interest rate
of 5%, pro forma earnings per share would have been
$0.20 and $0.10 for the three months ended March 31,
1996 and 1995, respectively.
3. COMMON STOCK
On January 17, 1996, the Board of Directors declared a two-for-one
stock split of the Common Stock in the form of a 100% stock
dividend distributed on February 22, 1996 to shareholders of
record at the close of business on February 8, 1996. Accordingly,
$56,000 has been transferred from additional paid-in capital to
Common Stock.
In March 1996, the Company completed a public offering of
6,727,500 shares of its $.01 par value Common Stock (1,350,000
shares were sold by certain selling shareholders and 5,377,500
shares were sold by the Company). The Company received, net of
expenses associated with the offering, $120.4 million.
4. SUBSEQUENT EVENTS
In April 1996, the Company acquired substantially all of the
assets of American Computing Professionals, Inc. ("ACP") and The
Richard Michael Group, Inc. and its affiliate Richard Michael
Temps, Inc. (collectively "Richard Michael"), as well as all of
the outstanding Common Stock of Century Temporary Services, Inc.
and its affiliate Le-Gals, Inc. (collectively "Cencor"). The
aggregate purchase price of these acquisitions was approximately
$25 million plus amounts contingent (in the case of Richard
Michael, up to $12 million) upon the operating results of the
acquired businesses over periods ranging from one to five years.
These acquisitions will be accounted for as purchase transactions,
and, accordingly, the purchase price will be allocated to the
assets acquired and liabilities assumed based on their estimated
fair values as of the dates of acquisition. Goodwill resulting
from these transactions, which represents the excess of the
consideration paid over the estimated fair value of net assets
acquired, will be amortized over 32 years.
CAREER HORIZONS, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1995
Revenues. Revenues for the three months ended March 31, 1996 were
$127.2 million, an increase of $37.6 million, or 42.0%, from revenues
of $89.6 million for the three months ended March 31, 1995. Of the
increase, $31.7 million was attributable to the inclusion of the
operations of Computer Consulting Group, Professionals for Computing,
Mini-Systems, Zeitech and MSI (the "Acquired Businesses"), which the
Company has purchased since March 31, 1995. The remaining increase
was primarily attributable to increased volume by the company-owned
HR Services locations. Revenues across all lines of the Company's
businesses were influenced by severe winter weather, which caused
office closures and reduced work hours in many markets.
Gross profit. Gross profit increased by $9.2 million to $29.8
million, or 23.4% of revenues, for the three months ended March 31,
1996, compared to $20.6 million, or 23.0% of revenues, for the three
months ended March 31, 1995. The increase in gross profit as a
percentage of revenues is primarily the result of higher margins
generated by the Company's recent acquisitions.
Selling, general and administrative expenses. Selling, general and
administrative expenses ("SG&A") increased by $6.9 million to $19.6
million, or 15.4% of revenues, for the three months ended March 31,
1996, compared to $12.8 million, or 14.2% of revenues, for the three
months ended March 31, 1995. The increase of 1.2% as a percentage of
revenues was primarily attributable to the Acquired Businesses which
generate higher gross margins, but require higher operating expense
levels. In addition, new offices opened and franchises acquired
since March 1995 accounted for $656,000 of the increase in SG&A.
Remittance to franchisees. Remittance to franchisees was $4.7
million, or 3.7% of revenues, for the three months ended March 31,
1996, compared to $4.6 million, or 5.2% of revenues, for the three
months ended March 31, 1995. The decrease of 1.5% was attributable
to the decrease in revenues from the Company's franchised HR Services
and health care operations, which results in decreased remittances to
the franchisees.
Other expense, net. Other expense, net for the three months ended
March 31, 1995 includes a one-time charge of $965,000 ($550,000 after
tax) for expenses relating to the resignation of the former Chief
Executive Officer.
CAREER HORIZONS, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Contd.)
Interest expense, net. Net interest expense increased by $661,000
to $1,178,000 for the three months ended March 31, 1996, compared to
$517,000 for the three months ended March 31, 1995. The increase in
net interest expense reflects the issuance of the 7% Convertible
Senior Notes Due 2002 in October 1995, partially offset by the
investment of proceeds from the public offering of common stock in
March 1996.
Income taxes. The Company's effective income tax rate was 38.5%
for the three months ended March 31, 1996, compared to 42.2% for the
three months ended March 31, 1995. The decrease in the effective
income tax rate was primarily attributable to Company programs to
reduce state income tax expense.
Net income. Net income was $2,532,000 for the three months ended
March 31, 1996, compared to $924,000 for the three months ended March
31, 1995. The increase in profitability is a result of the above-
mentioned items.
CAREER HORIZONS, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Contd.)
LIQUIDITY AND CAPITAL RESOURCES
On March 6, 1996, the Company received, net of fees and expenses,
approximately $120.4 million from the issuance of 5,377,500 shares of
common stock. Such proceeds were used to fund the acquisition of MSI
and the remainder was invested in cash equivalents and reverse
repurchase agreements. The proceeds will be used for general
corporate purposes, primarily acquisitions.
As of March 31, 1996, the Company had no borrowings under the Senior
Credit Facility and had outstanding letters of credit, totaling
approximately $11.0 million, primarily to guarantee the payment of
its workers' compensation expenses. In addition, the Company could
borrow an additional $49.0 million under the Senior Credit Facility.
While the amounts available under the Senior Credit Facility are
determined by the terms of that Facility, management believes that,
based on the Company's current financial position, borrowings of up
to $100 million could readily be attained. Management believes that
this borrowing capacity and cash flow from operations, together with
amounts invested in cash equivalents and reverse repurchase agreement
will be sufficient to fund the Company's current operations and
anticipated capital expenditure requirements, as well as provide at
least a portion of the funds for future acquisitions. However,
depending on the size and extent of any such acquisitions, additional
acquisition or working capital financing might be required.
As collateral for its obligations under the Facility, the Company has
granted its lender a security interest in substantially all of the
Company's assets. Since the Company's borrowings under the Senior
Credit Facility are primarily subject to variable interest rates, a
significant increase in interest rates at a time when the Company has
substantial outstanding borrowings would have a negative effect on
the Company's results of operations.
The 7% Convertible Senior Notes Due 2002 are guaranteed by all of the
direct and indirect subsidiaries of the Company ("the guarantor
subsidiaries"). All of the guarantor subsidiaries are wholly-owned,
and the guarantee of the guarantor subsidiaries is full and
unconditional, and joint and several. There are no restrictions on
the ability of any of the guarantor subsidiaries to distribute funds
to the Company.
Capital expenditures, generally for computer equipment and
peripherals and office furniture and fixtures, were $392,000 for the
three months ended March 31, 1996. The Company is in the process of
implementing an enhanced billing system, the remaining payment on
which (approximately $350,000) will be made by June 30, 1996. The
Company is presently considering various enhancements to its health
care management information system, which, if implemented, may
require, depending on the final configuration and system
requirements, an investment of not less than $1.0 million. Other
than the purchase of the enhanced billing system and the possible
enhancement of its health care management information system, the
Company anticipates that recurring capital expenditures, primarily
for computer equipment and peripherals, will be approximately $1.5
million per year.
CAREER HORIZONS, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Contd.)
INFLATION
The effects of inflation on the Company's operations were not
significant during the periods presented in the financial statements.
CAREER HORIZONS, INC. and SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
a) Exhibit No. Description
----------- -----------
Exhibit 2.1 Asset Purchase Agreement by and among
Career Horizons, Inc., Temps & Co.
Services, Inc., Management Search, Inc.
and Eric J. Lindberg
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
b) Since January 1, 1996, the Company has filed the following
Reports on Form 8-K with the Securities and Exchange
Commission:
Date of Report Explanation
-------------- -----------
December 20, 1995 Financial Statements of Programming
(Form 8-K/A) Enterprises, Inc. d.b.a.
(filed January 18, 1996) Mini-Systems Associates as of
September 22, 1995 and September
23, 1994 and for the thirty-nine
week periods then ended (Unaudited).
Financial Statements of Mini-Systems
Associates as of December 23, 1994
and December 24, 1993 and for the
fifty-two week periods then ended
(Audited).
Financial Statements of Zeitech, Inc.
as of September 30, 1995 and 1994 and
for the nine months then ended
(Unaudited).
Financial Statements of Zeitech, Inc.
as of December 31, 1994 and 1993 and
for the years then ended (Audited).
Unaudited Pro Forma Financial
Information as follows:
Pro forma Combined Balance Sheet as
of September 30, 1995.
Pro forma Combined Statements of
Income for the year ended June 30,
1995 and three months ended
September 30, 1995.
January 11, 1996 Signing of Asset Purchase Agreement
to acquire the business of Zeitech,
Inc.
January 17, 1996 Filing of Consolidated Financial
Statements of Career Horizons, Inc.
as of June 30, 1995 and 1994 and for
the three years then ended (addition
of Note 23 to the Consolidated
Financial Statements).
CAREER HORIZONS, INC. and SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K (Contd.)
-----------------------------------------
January 18, 1996 Listing of Common Stock on New York
Stock Exchange and notification of
two-for-one stock split payable to
stockholders of record on February 8,
1996 which was effective on February
22, 1996.
February 8, 1996 Notice of filing a Registration
Statement on Form S-3 in connection
with a public offering of Common
Stock.
February 20, 1996 Press release reporting results of
operations for the three and six
months ended December 31, 1995.
March 1, 1996 Press release reporting commencement
of public offering.
March 4, 1996 Press release reporting the
acquisition of MSI.
April 1, 1996 Press release reporting the
acquisition of American Computer
Professionals, Inc.
April 24, 1996 Press release reporting results of
operations for the three months ended
March 31, 1996.
April 30, 1996 Press release reporting the
acquisitions of CenCor and Richard
Michael.
May 1, 1996 Financial statements of Management
Search, Inc. and Subsidiary and
Affiliate as of December 31, 1995 and
1994 and for the nine months then
ended (Unaudited).
Financial Statements of Management
Search, Inc. and Subsidiary and
Affiliate as of March 31, 1995 and
1994 and for the years then ended
(Audited).
Combined Financial Statements of
Century Temporary Services, Inc.
(d.b.a. CenCor Temporary Services)
and Grant Management Company (d.b.a.
Le-Gals) as of December 31, 1995 and
1994 and for the years then ended
(Audited).
CAREER HORIZONS, INC. and SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K (Contd.)
----------------------------------------
Unaudited Pro Forma Financial
Information as follows:
Pro forma Combined Balance Sheet as
of December 31, 1995.
Pro forma Combined Statements of
Income for the year ended June 30,
1995 and the six months ended
December 31, 1995.
CAREER HORIZONS, INC. and SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
CAREER HORIZONS, INC.
---------------------
Registrant
Date: May 6, 1996 /s/ Michael T. Druckman
----------- -------------------------
Michael T. Druckman
Senior Vice President,
Treasurer and Asst. Secretary
(Principal Financial and
Accounting Officer)
CAREER HORIZONS, INC. and SUBSIDIARIES
EXHIBIT NO. DESCRIPTION
----------- -----------
Exhibit 2.1 Asset Purchase Agreement by and among Career
Horizons, Inc., Temps & Co. Services, Inc.,
Management Search, Inc. and Eric J. Lindberg
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule