-----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, B4GiZh88RwGO7J3bURjlxz+Ef+hqTp0yQAq59fESwF08d0ZvpiCmzyLa/ukOoJB2 OIUcckeTs2w+Oc1Akb/YSg== 0000912057-01-506205.txt : 20010410 0000912057-01-506205.hdr.sgml : 20010410 ACCESSION NUMBER: 0000912057-01-506205 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER HORIZONS CORP CENTRAL INDEX KEY: 0000023019 STANDARD INDUSTRIAL CLASSIFICATION: 7373 IRS NUMBER: 132638902 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-07282 FILM NUMBER: 1589810 BUSINESS ADDRESS: STREET 1: 49 OLD BLOOMFIELD AVE CITY: MOUNTAIN LAKES STATE: NJ ZIP: 07046-1495 BUSINESS PHONE: 9732994000 MAIL ADDRESS: STREET 1: 49 0LD BLOOMFIELD AVE CITY: MOUNTAIN LAKES STATE: NJ ZIP: 07046-1495 10-K 1 a2042348z10-k.txt FORM 10-K 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, 2000 ----------------------------------- / / 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 (Zip Code) executive offices) Registrant's telephone number, including area code: (973) 299-4000 ----------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - - ------------------- --------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock (Par value $.10 per share) --------------------------------------- (Title of class) Series A Preferred Stock Purchase Rights ---------------------------------------- (Title of class) 1 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 28, 2001, was approximately $108,739,000. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of March 28, 2001: 33,152,855 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, 2000, in Part II of this Report and (ii) Proxy Statement for the 2001 Annual Meeting of Shareholders, expected to be filed with the Securities and Exchange Commission on or before April 10, 2001, in Part III hereof. 2 PART I Item 1. BUSINESS GENERAL The Company provides a wide range of information technology services and solutions to major corporations. Historically a professional services staffing firm, the Company has, over the past six years, developed the technological and managerial infrastructure to offer its clients value added services, e-business solutions, human resource e-procurement solutions, enterprise network management, software products, outsourcing, customer relationship management and knowledge transfer. 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. 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. The Company's clients primarily are Global 1000 companies with significant information technology budgets and recurring staffing or software development needs. In 2000, the Company provided information technology services to 800 clients. During 2000, the Company's largest client, Merrill Lynch, accounted for 5.0% of the Company's consolidated 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 3 programs. The Company offers a range of information technology services and solutions, which include (1) e-Business Solutions, (2) Consolidated Hiring Internet Management Efficiency System ("CHIMES"), (3) enterprise network management, (4) software products, (5) outsourcing, (6) professional services staffing, (7) knowledge transfer and (8) during 1999 and 1998, the solution for the millennium change. (1) e-BUSINESS SOLUTIONS: CHC eB Solutions is a leader in a new breed of end-to-end eSolutions providers, enabling legacy corporations and dot coms to build business-critical and highly scalable solutions. The company offers a comprehensive list of integrated solutions. CHC eB Solutions' offerings include: e-Business Strategy and Assessment, Web Architecture Design and Integration, Application Development, Customer Relationship Management (CRM), Project Management, Outsourcing and Networking Services. G.Triad Development Corp. ("G.Triad"), a wholly owned subsidiary of the Company, provides comprehensive web application development and Internet-working solutions, as well as network engineering and server management. G.Triad's development practice specializes in information design, data driven web site development, systems integration, project management and web hosting services. (2) CHIMES: Chimes, Inc. ("Chimes"), a wholly owned subsidiary of the Company, is a leading provider of e-Procurement Solutions for Human Capital Acquisition and Management. Chimes' Centralized Vendor Management (CVM) offering procures the top professionals on demand by utilizing proven supply chain management techniques. CVM manages the entire process, simplifying billing and timesheet administration and coordinating the activities of all the customer's vendors. Chimes uses scalable ISO 9002 compliant procedures and browser based software to provide customers access to the best workers, in a shorter period of time. This is accomplished while cost is controlled through competitive "e-market effect pricing." 4 (3) ENTERPRISE NETWORK MANAGEMENT: eB Networks, Inc., a wholly-owned subsidiary of the Company, specializes in building and implementing strategic network infrastructure to assist companies in achieving e Business objectives. eB Networks' service offerings include infrastructure architecture, enterprise management, security, operating systems integration and high availability internet. As of December 31, 2000 this subsidiary is an asset held for sale. (4) SOFTWARE PRODUCTS: Princeton Softech, Inc. ("Princeton"), a wholly-owned subsidiary of the Company, is a software products company that delivers leveraging technologies for enterprise-scale solutions. Princeton's patented Relationship Engine technology enables companies with large databases and large amounts of data to manage their mission critical applications through database's relational integrity in its business context. As of December 31, 2000 this subsidiary is an asset held for sale. (5) OUTSOURCING: Spurred by global competition and rapid technological change, large companies, in particular, are downsizing and outsourcing for reasons ranging from cost reduction to capital asset improvement and from improved technology introduction to better strategic focus. In response to this trend, the Company has created a group of regional outsourcing centers with 24 hour/7 day a week support, which are fully equipped with the latest technology and communications, as well as a complete staff that includes experienced project managers, technicians and operators. These professionals facilitate essential data functions including: applications development, systems maintenance, data network management, voice network administration and help desk operations. (6) 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 2,400 software professionals. The Company is committed to expanding its professional services staffing operations in 5 conjunction with its solutions business. (7) KNOWLEDGE TRANSFER: The Company's Education Division offers custom-designed and/or existing training programs to enhance the competencies of client staff in specific technologies, languages, methodologies and applications. The prevailing focus of the Company is to assist clients through instructor-led, on-site training and consulting in the transitioning IT organization of Fortune 1000 corporations nationwide. To support these changing technologies, the Company has developed extensive curriculum offerings in Web technologies, Relational Databases, Programming Languages, Reporting Tools, Process Improvement, UNIX, Client/Server and Mainframe technologies. (8) SOLUTION FOR THE MILLENNIUM CHANGE: The Company's Signature 2000 offering combines an internally developed proprietary software toolkit, skilled resources, proven methodologies, experienced project management, as well as significant millennium project experience. PERSONNEL As of December 3l, 2000, the Company had a staff of 4,186, of whom more than 3,179 were IT 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 6 equipment companies, facilities management and management information systems ("MIS") outsourcing companies, certain "Big Five" accounting firms, and general management consulting firms. The Company's competitors also include companies such as Accenture (formerly 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. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934. Accordingly, the Company files annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any document filed by the Company at the SEC's public reference room in Washington, D.C. at 450 Fifth Street, N.W., Washington, D.C. 20549, or in the public reference rooms located in New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. The Company's SEC filings are also available to the public from the SEC's website at http://www.sec.gov. Item 2. PROPERTIES The Company's Corporate and Financial Headquarters, as well as its Eastern Regional Office, comprising approximately 63,000 square feet, are located at 49 Old Bloomfield Avenue, Mountain Lakes, New Jersey. The Mountain Lakes lease is for a term expiring December 31, 2002, at a current annual rental of approximately $1,500,000. As of December 3l, 2000, the Company also maintained facilities in Arizona, California, Colorado, Connecticut, Florida, 7 Georgia, Illinois, Indiana, Iowa, Kansas, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Washington and Washington D.C. as well as international operations located in Europe and Canada, with an aggregate of approximately 302,000 square feet. The leases for these facilities are at a current annual aggregate rental of approximately $7,036,000. These leases expire at various times with no lease commitment longer than December 31, 2009. Item 3. LEGAL PROCEEDINGS There are no material pending legal proceedings. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 8 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 56 Chairman of the Board 1982 - Present and President Director 1969 - Present William J. Murphy 56 Executive Vice President 1997 - Present and CFO Director 1999 - Present Michael J. Shea 40 Controller 1995-Present Vice President 1996-Present
9 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, 2000, 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, 2000, 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, 2000, which material is incorporated by reference in this Form 10-K Annual Report. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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, 2000, which material is incorporated by reference in this Form 10-K Annual Report. 10 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, 2000, 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. 11 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 2001 Annual Meeting of Shareholders which is expected to be filed with the Securities and Exchange Commission on or before April 10, 2001 (the "2001 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 2001 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 2001 Proxy Statement. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None 12 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. The following consolidated financial statements, appearing in the Company's 2000 Annual Report to Shareholders, are incorporated herein by reference. - Report of independent certified public accountants on the consolidated financial statements - Consolidated balance sheets as of December 3l, 2000 and 1999 - Consolidated statements of operations for each of the three years in the period ended December 31, 2000 - Consolidated statement of shareholders' equity for each of the three years in the period ended December 31, 2000 - Consolidated statements of cash flows for each of the three years in the period ended December 31, 2000 - Notes to consolidated financial statements 2. Schedule II - Valuation and qualifying accounts for the years ended December 31, 2000, 1999 and 1998. 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 have been filed during the quarter for which this report is filed. 13 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: April 2, 2001 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: April 2, 2001 By: /s/ John J. Cassese ------------------- John J. Cassese, Chairman of the Board and President (Principal Executive Officer) and Director Date: April 2, 2001 By: /s/ William J. Murphy --------------------- William J. Murphy, Executive Vice President and CFO (Principal Financial Officer) and Director Date: April 2, 2001 By: /s/ Michael J. Shea ------------------- Michael J. Shea Vice President and Controller (Principal Accounting Officer) Date: April 2, 2001 By: /s/ Thomas J. Berry -------------------- Thomas J. Berry, Director Date: April 2, 2001 By: /s/ William M. Duncan --------------------- William M. Duncan, Director Date: April 2, 2001 By: /s/ Rocco J. Marano ------------------- Rocco J. Marano, Director Date: April 2, 2001 By: /s/ Earl Mason -------------- Earl Mason, Director 14 EXHIBIT INDEX
Exhibit Description Incorporated by Reference to 3(a-1) Certificate of Incorporation as Exhibit 3(a) to Registration amended through 1971. Statement on Form S-1 (File No. 2-42259). 3(a-2) Certificate of Amendment dated Exhibit 3(a-2) to Form 10K May 16, 1983 to Certificate of for the fiscal year ended Incorporation. February 28, 1983. 3(a-3) Certificate of Amendment dated Exhibit 3(a-3) to Form 10K June 15, 1988 to Certificate of for the fiscal year ended Incorporation. December 31, 1988. 3(a-4) Certificate of Amendment dated Exhibit 3(a-4) to Form 10K July 6, 1989 to Certificate of for the fiscal year ended Incorporation. December 31, 1994. 3(a-5) Certificate of Amendment dated Exhibit 3(a-5) to Form 10K February 14, 1990 to Certificate for the fiscal year ended of Incorporation. December 31, 1989. 3(a-6) Certificate of Amendment dated Exhibit 3(a-6) to Form 10K May 1, 1991 to Certificate of for the fiscal year ended Incorporation. December 31, 1994. 3(a-7) Certificate of Amendment dated Exhibit 3(a-7) to Form 10K July 12, 1994 to Certificate of for the fiscal year ended Incorporation. December 31, 1994. 3(b) Bylaws, as amended and Exhibit 3(b) to Form 10K for presently in effect. the year ended December 31, 1988. 4(a) Rights Agreement dated as of Exhibit 1 to Registration July 6, 1989 between the Statement on Form 8-A dated Company and Chemical Bank, as July 7, 1989. Rights Agent ("Rights Agreement") which includes the form of Rights Certificate as Exhibit B. 4(b) Amendment No. 1 dated as of Exhibit 1 to Amendment No. February 13, 1990 to Rights 1 on Form 8 dated February Agreement. 13, 1990 to Registration Statement on Form 8-A.
15 4(c) Amendment No. 2 dated as of Exhibit 4(c) to Form 10K August 10, 1994 to Rights for the fiscal year ended Agreement. December 31, 1994. 4(d) Employee's Savings Plan and Exhibit 4.4 to Registration Amendment Number One. Statement on Form S-8 dated December 5, 1995. 4(e) Employee's Savings Plan Trust Exhibit 4.5 to Registration Agreement as Amended and Statement on Form S-3 dated Restated Effective January 1, December 5, 1995. 1996. 4(f) Amendment No. 3 dated as of Exhibit 4.1 to Form 8-K July 13, 1999 to Rights dated July 13, 1999 Agreement. 10(a) Employment Agreement dated as Exhibit 10(a) to Form 10K for of February 16, 1990 between the the year ended December 31, Company and John J. Cassese. 1989. 10(b) Employment Agreement dated as Exhibit 10(g) to Form S-3 dated of January 1, 1997 between the August 14, 1997. Company and William J. Murphy. 10(c) Employment Agreement dated as Exhibit 10(c) to Form 10K for of March 6, 1997 between the the year ended December 31, Company and Michael J. Shea. 1996. 10(d) 1991 Directors' Stock Option Exhibit 10(g) to Form 10-K Plan, as amended. for the year ended December 31, 1994. 10(e) 1994 Incentive Stock Option and Exhibit 10(h) to Form 10K Appreciation Plan. for the fiscal year ended December 31, 1994. 10(f) $15,000,000 Discretionary Line Exhibit 10(h) to Form S-3 of Credit payable to Chase dated August 14, 1997. Manhattan Bank dated as of June 30, 1998. 10(g) $10,000,000 Discretionary Line Exhibit 10(h) to Form 10K of Credit from PNC Bank dated for the fiscal year ended as of June 5, 1998 December 31, 1996 10(h) 1999 Employee Stock Purchase Plan Exhibit 99.1 to Form S8 dated March 17, 1999
16 10 (i) Amendment to the employment agreement Exhibit 10(i) to Form 10K dated as of March 24, 2000 between the for the fiscal year ended Company and William J. Murphy. December 31, 1999. 10 (j) $15,000,000 Discretionary Line of Exhibit 10(j) to Form 10K Credit payable to Chase Manhattan for the fiscal year ended Bank dated as of June 30, 1998, as December 31, 1999. amended on March 15, 2000 (increased to 30,000,000). 10 (k) $20,000,000 Discretionary Line of Credit payable to Chase Manhattan Bank dated as of March 20, 2001. 13 Annual Report to Security Holders. 21 List of Subsidiaries. 23 Consent of Grant Thornton LLP, Independent Public Accountants
17 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS ON SCHEDULE II 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 February 21, 2001 (except for Note 5, as to which the date is March 20, 2001), which is included in the 2000 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, 2000, 1999 and 1998. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. /s/ Grant Thornton LLP - - ---------------------- Grant Thornton LLP Edison, New Jersey February 21, 2001 (except for Note 5, as to which the date is March 20, 2001) 18 Computer Horizons Corp. and Subsidiaries SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 2000, 1999 and 1998
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Balance at beginning Charged to cost Deductions - Balance at end Description of period and expenses describe of period ----------- --------- ------------ ------------ --------- Year ended December 31, 2000 Allowance for doubtful accounts $ 5,819,000 $26,452,000 $29,569,000 (1) $ 2,702,000 ----------- ----------- ----------- ----------- Deferred tax asset valuation $ -- $ 2,727,000 $ -- $ 2,727,000 ----------- ----------- ----------- ----------- 2000 Restructure Reserve $ -- $43,904,000 $41,284,000 (2) $ 2,620,000 ----------- ----------- ----------- ----------- 1999 Restructure Reserve $ 4,003,000 $(2,376,000) (3) $1,242,000 385,000 ----------- ----------- ----------- ----------- Year ended December 31, 1999 Allowance for doubtful accounts $ 3,209,000 $ 3,367,000 $ 757,000 (1) $ 5,819,000 ----------- ----------- ----------- ----------- 1999 Restructure Reserve $ -- $ 6,355,000 $ 2,352,000 $ 4,003,000 ----------- ----------- ----------- ----------- Year ended December 31, 1998 Allowance for doubtful accounts $ 1,742,000 $ 1,676,000 $ 209,000 (1) $ 3,209,000 ----------- ----------- ----------- -----------
Notes (1) Uncollectible accounts written off, net of recoveries. (2) Includes, write-down of assets held for sale and write-off of ceased operations. (3) Credit recorded resulting from earlier than expected subleasing of properties. 19 Computer Horizons Corp. and Subsidiaries SELECTED FINANCIAL DATA Year ended December 31,
2000 1999 1998 1997 1996 ------------ ------------ ------------ ------------ ------------ ---------------(dollar amounts in thousands, except per share data)----------------- Revenues $ 445,479 $ 534,594 $ 514,921 $ 350,310 $ 261,411 Costs and expenses: Direct costs 312,815 365,310 326,795 233,574 180,410 Selling, general and administrative 143,691 127,720 107,829 72,988 58,946 Bad debt expense 26,452 3,367 1,676 575 54 Amortization of intangibles 7,434 6,202 3,530 602 677 Restructuring charges 41,528 6,355 -- -- -- Merger-related expenses -- -- 4,272 976 -- Income / (loss) from operations (86,441) 25,640 70,819 41,595 21,324 Other income (expense): Interest income 620 1,353 5,334 1,700 404 Interest expense (1,825) (1,355) (750) (276) (507) Equity in net earnings of joint venture -- -- (90) 13 885 Gain on sale of joint venture -- -- 4,180 -- -- Income / (loss) before income taxes (87,646) 25,638 79,493 43,032 22,106 Income taxes / (benefit) (29,819) 11,013 35,906 18,498 9,031 ------------ ------------ ------------ ------------ ------------ Net income / (loss) $ (57,827) $ 14,625 $ 43,587 $ 24,534 $ 13,075 ============ ============ ============ ============ ============ Earnings / (loss) per share: Basic $ (1.83) $ 0.47 $ 1.41 $ 0.89 $ 0.50 ============ ============ ============ ============ ============ Diluted $ (1.83) $ 0.46 $ 1.35 $ 0.85 $ 0.47 ============ ============ ============ ============ ============ Weighted average number of shares outstanding: Basic 31,656,000 30,940,000 30,925,000 27,567,000 26,380,000 ============ ============ ============ ============ ============ Diluted 31,656,000 31,647,000 32,230,000 28,999,000 27,932,000 ============ ============ ============ ============ ============
20 Computer Horizons Corp. and Subsidiaries SELECTED FINANCIAL DATA (CONTINUED) Year ended December 31,
2000 1999 1998 1997 1996 --------- --------- ----------- --------- -------- ------------------(in thousands, except per share data)----------------------- Analysis (%) Revenues 100.0% 100.0% 100.0% 100.0% 100.0% Gross margin 29.8 31.7 36.6 33.3 31.0 Selling, general and administrative 32.3 23.9 20.9 20.8 22.5 Bad debt expense 5.9 0.6 0.3 0.2 -- Amortization of intangibles 1.7 1.2 0.7 0.1 0.3 Restructuring charges 9.3 1.2 -- -- -- Merger-related expenses -- -- 0.8 0.3 -- Income / (loss) from operations (19.4) 4.8 13.8 11.9 8.2 Interest income / (expense) - net (0.3) -- 0.9 0.4 -- Equity in net earnings of joint venture -- -- -- -- 0.3 Gain on sale of joint venture -- -- 0.8 -- -- Income / (loss) before income taxes (19.7) 4.8 15.5 12.3 8.5 Income taxes / (benefit) (6.7) 2.1 7.0 5.3 3.5 Net income / (loss) (13.0) 2.7 8.5 7.0 5.0 Revenue growth / (decline) YOY (16.7) 3.8 47.0 34.0 16.3 Net income growth (decline)YOY (495.4) (66.4) 77.7 87.6 15.6 Return on equity, average (24.6) 5.7 20.2 18.9 19.9 Effective tax rate 34.0 43.0 45.2 43.0 40.9 At year-end Total assets $ 269,396 $ 347,994 $ 296,052 $ 217,625 $ 96,610 Working capital 134,472 129,857 158,760 160,370 55,052 Long-term debt -- 4,100 -- -- 1,442 Shareholders' equity 207,924 262,652 246,534 185,974 73,747 Stock price $ 2.44 $ 16.19 $ 26.63 $ 45.50 $ 25.67 P/E multiple N/A 34 19 51 51 Employees 4,186 4,149 4,834 3,794 3,228 Clients (during year) 800 785 768 549 556 Offices (worldwide) 43 50 55 49 49
21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth certain operating data as a percentage of consolidated revenues for the period indicated:
YEAR ENDED DECEMBER 31, ------------------------------------------ 2000 1999 1998 ---- ---- ---- Revenues 100.0% 100.0% 100.0% Cost and expenses: Direct costs 70.2 68.3 63.4 Selling, general, and administrative 32.3 23.9 20.9 Bad debt expense 5.9 0.6 0.3 Amortization of intangibles 1.7 1.2 0.7 Restructuring charges 9.3 1.2 -- Merger-related expenses -- -- 0.8 Income / (loss) from operations (19.4) 4.8 13.8 Other income (expense): Interest income/(expense), net (0.3) -- 0.9 Gain on sale of joint venture -- -- 0.8 Income / (loss) before income taxes (19.7) 4.8 15.5 Income taxes / (benefit): Current (4.3) 3.0 7.7 Deferred (2.4) (0.9) (0.7) Net income / (loss) (13.0) 2.7 8.5
22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 REVENUES Revenues decreased to $445.5 million in the year ended December 31, 2000 from $534.6 million in the year ended December 31, 1999, a decrease of $89.1 million, or 16.7%. E-Solutions Group revenues increased to $141.8 million in the year ended December 31, 2000 from $104.8 million in the year ended December 31,1999, an increase of $37.0 million or 35.3%. IT Services revenues, including Year 2000 revenues, decreased to $303.7 million in the year ended December 31, 2000 from $429.8 million in the year ended December 31, 1999, a decrease of $126.1 million or 29.3%. Year 2000 services revenues accounted for $44.3 million of the decline. As anticipated, the decline in Year 2000 business is reflective of the completion of code remediation assignments for major customers. The remaining decrease in IT Services revenue of $81.8 million is primarily attributed to softness in the IT Staffing business. This softness is the result of spending shifts of customers from legacy environments to e-business initiatives. DIRECT COSTS Direct costs decreased to $312.8 million in the year ended December 31, 2000 from $365.3 million in the year ended December 31, 1999. Gross margin decreased to 29.8% in the year ended December 31, 2000 from 31.7% in the year ended December 31, 1999. This decrease in gross margin was primarily due to a decrease in the Company's higher margin Year 2000 business. The Company's margins are subject to fluctuation due to a number of factors, including the level of salary and other compensation-related expenses necessary to attract and retain qualified technical personnel and the mix of IT Services versus E-Solutions business during the year. SELLING, GENERAL, AND ADMINISTRATIVE Selling, general and administrative expenses (excluding bad debt expense, amortization expense, restructuring charges and merger-related expenses) increased to $143.7 million in the year ended December 31, 2000 from $127.7 million in the year ended December 31, 1999, an increase of $16.0 million or 12.5%. The increase in selling, general and administrative expenses was primarily attributable to an increase in the E-Solutions Group, as the Company continues to invest in its business development organization, Chimes and the development and sales staff of its software products company. This increase was partially offset by cost reductions in the IT Services Group during 2000. 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BAD DEBT EXPENSE Bad debt expense increased to $26.5 million in the year ended December 31, 2000 from $3.4 million in the year ended December 31, 1999, an increase of $23.1 million. This increase includes a charge of $21.6 million in the fourth quarter of 2000 as a direct result of problems created in late 1998 and early 1999 relating to the flawed implementation of an enterprise-wide information system. The system was stabilized in the latter part of 1999 and much of 2000 was spent attempting to reconcile and settle outstanding balances with customers. However, it was deemed necessary in the fourth quarter of 2000 to make major concessions with customers for old balances in order to avoid potentially damaging conflicts. AMORTIZATION OF INTANGIBLES Amortization of intangibles increased to $7.4 million in the year ended December 31, 2000 from $6.2 million in the year ended December 31, 1999, an increase of $1.2 million or 19.4%. This increase in amortization of intangibles was primarily due to additional goodwill resulting from acquisition earnouts. RESTRUCTURING CHARGES / (CREDITS) During the fourth quarter of 2000, the Company recorded a restructuring charge of $43.9 million related to the closing of seven offices, the size reduction of other IT Services offices, a non-cash write down of assets held for sale of $26.2 million for eB Networks and $6.9 million for Select Software, along with $7.2 million for ceased operations. During the second quarter of 2000, the Company recorded a restructuring credit of $2.4 million. This credit resulted primarily from the earlier than expected subleasing of discontinued properties that were part of the third quarter 1999 restructuring charge. During the third quarter of 1999, the Company recorded a restructuring charge of $6.4 million primarily related to the consolidating and closing of certain facilities, generally used for Year 2000 and other legacy related services, as well as reduction of related staff levels. INCOME / (LOSS) FROM OPERATIONS Income / (loss) from operations, excluding bad debt expense and restructuring charges, decreased to a loss of $18.5 million in the year ended December 31, 2000 from income of $35.4 million in the year ended December 31, 1999, a decrease of $53.9 million or 152.3%. Operating margins, excluding bad debt expense and restructuring charges, decreased to a loss of 4.1% in the year ended December 31, 2000 from income of 6.6% in the year ended December 31,1999. The decrease was primarily due to decreases in the Company's higher margin Year 2000 business, a softness in the IT Staffing business and investments in the E-Solutions business, including Chimes in 2000. 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. 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OTHER INCOME / EXPENSE For the year ended December 31, 2000, other expense increased to $1.2 million. This increase in other expenses was primarily due to interest expense on higher borrowings and a decrease of interest income. PROVISION FOR INCOME TAXES The effective tax rate for Federal, state, and local income taxes was 34.0% and 43.0% in the years ended December 31, 2000 and 1999, respectively. The decrease in the 2000 effective tax rate was primarily due to losses incurred in 2000. NET INCOME / (LOSS) Net income / (loss) decreased to a loss of $57.8 million in the year ended December 31, 2000 from net income of $14.6 million in the year ended December 31, 1999, a decrease of $72.4 million or 495.9%. Net loss per share (diluted) decreased to $1.83 in the year ended December 31, 2000 from net income per share (diluted) of $0.46 in the year ended December 31, 1999. The effect of bad debt expense and restructuring charges amounted to $1.42 loss per share, net of taxes, in 2000. The effect of bad debt expense and restructuring charges totaled $0.18 per diluted share in 1999, net of taxes. YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 REVENUES Revenues increased to $534.6 million in the year ended December 31, 1999 from $514.9 million in the year ended December 31, 1998, an increase of $19.7 million, or 3.8%. E-Solutions Group revenues increased to $104.8 million in the year ended December 31, 1999 from $56.3 million in the year ended December 31, 1998, an increase of $48.5 million or 86.1%. IT Services revenues, including Year 2000 revenues, decreased to $429.8 million in the year ended December 31, 1999 from $458.6 million in the year ended December 31, 1998, a decrease of $28.8 million or 6.3%. Year 2000 services revenues decreased to $44.5 million in the year ended December 31, 1999, from $136.0 million in the year ended December 31, 1998, a decrease of $91.5 million or 67.3%. The Company's Year 2000 business accounted for approximately 8% of total revenues in the year ended December 31, 1999 versus approximately 26% of total revenues in 1998. As anticipated, the decline in Year 2000 business is reflective of the completion of code remediation assignments for major customers. IT Services revenues, excluding Year 2000 services, increased to $385.3 million in the year ended December 31, 1999, from $322.6 million in the year ended December 31, 1998, an increase of $62.7 million. 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DIRECT COSTS Direct costs increased to $365.3 million in the year ended December 31, 1999 from $326.8 million in the year ended December 31, 1998. Gross margin decreased to 31.7% in the year ended December 31, 1999 from 36.6% in the year ended December 31, 1998. This decrease in gross margin was primarily due to a decrease in the Company's higher margin Year 2000 business and significant investments in the E-Solutions business during 1999. The Company's margins are subject to fluctuation due to a number of factors, including the level of salary and other compensation-related expenses necessary to attract and retain qualified technical personnel and the mix of IT Services versus E-Solutions business during the year. SELLING, GENERAL, AND ADMINISTRATIVE Selling, general and administrative expenses (excluding bad debt expense, amortization expense, restructuring charges and merger-related expenses) increased to $127.7 million in the year ended December 31, 1999 from $107.8 million in the year ended December 31, 1998, an increase of $19.9 million or 18.5%. The increase in selling, general and administrative expenses was primarily a result of salaries and commissions for additional sales and recruiting personnel and, to a lesser extent, growth in the administrative infrastructure of certain subsidiaries. During 1998, the Company incurred merger-related expenses of approximately $4.3 million or 0.8% of revenues. BAD DEBT EXPENSE Bad debt expense increased to $3.4 million in the year ended December 31, 1999 from $1.7 million in the year ended December 31, 1998, an increase of $1.7 million. This increase was due to the write-off of accounts receivable balances related to the flawed implementation of an enterprise-wide information system. AMORTIZATION OF INTANGIBLES Amortization of intangibles increased to $6.2 million in the year ended December 31, 1999 from $3.5 million in the year ended December 31, 1998, an increase of $2.7 million or 77.1%. This increase in amortization of intangibles was primarily due to the acquisitions of G. Triad Enterprises, Inc., Integrated Computer Management and SELECT Software Tools plc. RESTRUCTURING CHARGES During the third quarter of 1999, the Company recorded a restructuring charge of $6.4 million primarily related to the consolidating and closing of certain facilities, generally used for Year 2000 and other legacy related services, as well as attendant reduction of related staff levels. This provision includes an accrued payment of approximately $4.0 million as of December 31, 1999 relating to future costs associated with continuing rent and severance commitments. 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCOME FROM OPERATIONS Income from operations, excluding bad debt expense and restructuring charges in 1999 and bad debt expense and merger-related expenses in 1998, decreased to $35.4 million in the year ended December 31, 1999 from $76.8 million in the year ended December 31, 1998, a decrease of $41.4 million or 53.9%. Operating margins, excluding bad debt expense and restructuring charges in 1999 and bad debt expense and merger-related expenses in 1998, decreased to 6.6% in the year ended December 31, 1999 from 14.9% in the year ended December 31,1998. The decrease was primarily due to decreases in the Company's higher margin Year 2000 business and personnel investments in the E-Solutions business in 1999. The Company's business is labor-intensive and, as such, is sensitive to inflationary trends. This sensitivity applies to client billing rates, as well as to payroll costs. OTHER INCOME / EXPENSE For the year ended December 31, 1999, other income decreased $8.7 million. This reduction in other income was due to a decrease in the Company's cash position during 1999, primarily as a result of several acquisitions and the stock repurchase program. In addition, other income in 1998 included a gain on the sale of the Company's Birla Horizons Joint Venture ($4.2 million or $0.06 per share). PROVISION FOR INCOME TAXES The effective tax rate for Federal, state, and local income taxes was 43.0% and 45.2% in the years ended December 31,1999 and 1998, respectively. The decrease in the 1999 effective tax rate was primarily due to less non-deductible acquisition costs than in 1998. NET INCOME Net income decreased to $14.6 million in the year ended December 31, 1999 from $43.6 million in the year ended December 31, 1998, a decrease of $29.0 million or 66.5%. Net income per share (diluted) decreased to $0.46 in the year ended December 31, 1999 from $1.35 in the year ended December 31, 1998. The effect of bad debt expense and restructuring charges amounted to $0.18 per share in 1999 while the effect of bad debt expense and merger related expenses amounted to $0.10 per share in 1998. LIQUIDITY AND CAPITAL RESOURCES Computer Horizons finances its operations primarily through cash generated from operations, borrowings against bank lines of credit and the public sale of its common stock. At December 31, 2000, the Company had $134.5 million in working capital, of which $17.6 million was cash and cash equivalents. 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net cash provided by operating activities for the year ended December 31, 2000 totaled $9.9 million, primarily attributable to a non-cash charge relating to an increase in the provision for bad debts, the amortization and write-off of intangibles and the write-down of assets held for sale, offset in part by the current year operating loss. Net cash used in operating activities was $19.5 million in 1999 and net cash provided by operating activities was $15.8 million in 1998, consisting primarily of net income, offset in part by an increase in accounts receivable. The significant increase in accounts receivable during 1999 was primarily attributable to delays in billing to customers resulting from the implementation of an enterprise-wide information system. Net cash used in investing activities was $9.1 million, $14.3 million and $55.6 million in the years ended December 31, 2000, 1999, and 1998, respectively. Net cash used in investing activities in 2000 primarily was attributable to acquisition related earnouts. Net cash used in investing activities in 1999 consisted primarily of $14.0 million used for the acquisitions of the assets of SELECT Software Tools plc, Integrated Computer Management, G. Triad Enterprises, Inc., SPP, and Unibase. Net cash used in investing activities in 1998 consisted primarily of $50.4 million used for the acquisitions of the assets of Enterprise Solutions Group, RPM Consulting, and Infomatics Search Group. In addition, the Company used approximately $6.0 million relating to the Company's new accounting/information system. For the year ended December 31, 2000, net cash provided by financing activities was $1.1 million, resulting from $1.2 million in borrowings against the Company's bank lines of credit, $2.2 million of stock issued as a result of the Company's employee stock purchase program and stock option exercises partially offset by a reduction of $4.1 of the Company's long-term debt. Net cash used in financing activities in 1999 was $2.1 million, primarily resulting from $15.0 million in borrowings against the Company's bank lines of credit, partially offset by $12.8 million used to repurchase the Company's stock. Net cash used in financing activities in 1998 totaled $0.6 million and resulted primarily from repayments of notes to banks, offset by cash received from the exercise of stock options. At December 31, 2000, the Company had a current ratio position of 3.2 to 1, no long-term debt and $16.5 million of outstanding borrowing under its two unsecured discretionary lines of credit of $20.0 million and $10.0 million. The Company intends to convert its two unsecured discretionary lines of credit into a secured asset-based lending facility and is currently in discussions with an asset-based lending institution. The Company expects this arrangement to be a $40 million facility with availability based primarily on eligible customer receivables. In addition, the Company expects a federal income tax refund of approximately $21 million as a result of the carryback of current year operating losses to profitable prior years. The Company believes that its cash and cash equivalents, lines of credit, internally generated funds and tax refunds will be sufficient to meet its working capital needs through 2001. The Company's billed accounts receivable were $65.4 million and $128.2 million at December 31, 2000 and December 31, 1999, respectively. Billed days sales outstanding were 61 days at December 31, 2000 and 84 days at December 31, 1999, based on annual sales. 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MARKET RISK EXPOSURE The Company has financial instruments that are subject to interest rate risk. Historically, the Company has not experienced material gains or losses due to interest rate changes. Based on the current holdings, the exposure to interest rate risk is not material. Additionally, the Company had $16.5 million in outstanding borrowings against a bank line of credit at December 31, 2000, which has a floating LIBOR interest rate plus 1.2%. FOREIGN CURRENCY EXPOSURE The Company's international operations expose it to translation risk when the local currency financial statements are translated to U.S. dollars. As currency exchange rates fluctuate, translation of the statements of income of international business into U.S. dollars will affect the comparability of revenues and expenses between years. None of the components of the Company's consolidated statements of income was materially affected by exchange rate fluctuations in 2000, 1999 or 1998. 29 FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS COMPUTER HORIZONS CORP. December 31, 2000 and 1999 30 REPORT OF 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, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States of America. 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, 2000 and 1999 and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ Grant Thornton LLP - - ---------------------- GRANT THORNTON LLP Edison, New Jersey February 21, 2001 (except for Note 5, as to which the date is March 20, 2001) 31 Computer Horizons Corp. and Subsidiaries CONSOLIDATED BALANCE SHEETS
December 31, -------------------------- ASSETS 2000 1999 -------- -------- (in thousands, except per share data) CURRENT ASSETS: Cash and cash equivalents (Note 1) $ 17,559 $ 17,072 Accounts receivable (Note 3) 98,021 172,806 Net assets held for sale (Note 2) 35,274 -- Deferred income taxes (Note 7) 19,207 8,945 Refundable income taxes 21,325 5,499 Other 2,998 4,459 -------- -------- Total current assets 194,384 208,781 -------- -------- PROPERTY AND EQUIPMENT: Furniture, equipment and other 31,962 38,365 Less accumulated depreciation 17,920 18,144 -------- -------- 14,042 20,221 -------- -------- OTHER ASSETS - NET: Goodwill (Note 1) 51,264 94,349 Deferred income taxes (Note 7) 603 2,458 Purchased software (Note 1) -- 9,306 Other 9,103 12,879 -------- -------- 60,970 118,992 -------- -------- TOTAL ASSETS $269,396 $347,994 ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 32
December 31, ------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999 --------- --------- (in thousands, except per share data) CURRENT LIABILITIES: Current portion of long-term debt (Note 5) $ 20,704 $ 19,502 Accrued payroll, payroll taxes and benefits 14,194 17,764 Accounts payable 17,945 17,741 Restructuring reserve 2,887 4,003 Deferred revenue -- 9,576 Other accrued expenses 4,182 10,338 --------- --------- Total current liabilities 59,912 78,924 --------- --------- Long-term debt -- 4,100 Other liabilities 1,560 2,318 --------- --------- SHAREHOLDERS' EQUITY: Preferred stock, $.10 par; authorized and unissued, 200,000 shares, including 50,000 Series A Common stock, $.10 par; authorized, 100,000,000 shares; issued 33,152,206 shares and 33,149,595 shares at December 31, 2000 and 1999, respectively 3,315 3,315 Additional paid-in capital 139,418 138,821 Accumulated comprehensive income/(loss) (980) 385 Retained earnings 80,741 138,568 --------- --------- 222,494 281,089 --------- --------- Less shares held in treasury, at cost; 1,344,615 shares and 1,780,721 shares at December 31, 2000 and 1999, respectively (14,570) (18,437) --------- --------- Total shareholders' equity 207,924 262,652 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 269,396 $ 347,994 ========= =========
33 Computer Horizons Corp. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, ------------------------------------------------ 2000 1999 1998 ------------ ------------ ------------ -------(in thousands, except per share data)---- Revenues $ 445,479 $ 534,594 $ 514,921 ------------ ------------ ------------ COSTS AND EXPENSES: Direct costs 312,815 365,310 326,795 Selling, general and administrative 143,691 127,720 107,829 Bad debt expense (Note 3) 26,452 3,367 1,676 Amortization of intangibles 7,434 6,202 3,530 Restructuring charges (Note 13) 41,528 6,355 -- Merger-related expenses -- -- 4,272 ------------ ------------ ------------ 531,920 508,954 444,102 ------------ ------------ ------------ Income / (loss) from operations (86,441) 25,640 70,819 ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest income 620 1,353 5,334 Interest expense (1,825) (1,355) (750) Equity in net loss of joint venture (Note 4) -- -- (90) Gain on sale of joint venture (Note 4) -- -- 4,180 ------------ ------------ ------------ (1,205) (2) 8,674 ------------ ------------ ------------ Income / (loss) before income taxes (87,646) 25,638 79,493 ------------ ------------ ------------ INCOME TAXES/ (BENEFIT) (Notes 1 and 7): Current (19,339) 16,081 39,645 Deferred (10,480) (5,068) (3,739) ------------ ------------ ------------ (29,819) 11,013 35,906 ------------ ------------ ------------ NET INCOME / (LOSS) $ (57,827) $ 14,625 $ 43,587 ============ ============ ============ Earnings / (loss) per share (Notes 1 and 8): Basic $ (1.83) $ 0.47 $ 1.41 ============ ============ ============ Diluted $ (1.83) $ 0.46 $ 1.35 ============ ============ ============ Weighted average number of shares outstanding: Basic 31,656,000 30,940,000 30,925,000 ============ ============ ============ Diluted 31,656,000 31,647,000 32,230,000 ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 34 Computer Horizons Corp. and Subsidiaries CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Years ended December 31, 2000, 1999 and 1998
Accumulated Addi- other COMMON STOCK tional comprehensive ------------------------ paid-in income/ Retained TREASURY STOCK Shares Amount Capital (loss) earnings Shares Amount Total ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------------------------------(dollars in thousands)-------------------------------------------- BALANCE, DECEMBER 31, 1997 31,247,069 $ 3,125 $ 117,718 $ 84 $ 78,919 1,692,253 $ 13,872 $ 185,974 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Net income for the year 43,587 43,587 Other comprehensive income: Foreign currency translation Adjustments (846) (846) ----------- Total comprehensive income 42,741 Increase resulting from immaterial pooling 954,213 95 170 2,607 2,872 Stock options exercised 2,265 (250) (399) (510,209) (4,182) 3,533 Tax benefits related to stock option plans 2,998 2,998 Stock issuance costs (20) (20) Issuance of common stock for purchase of assets 148,033 15 8,205 (120,382) (987) 9,207 Dividends paid (Spargo) (771) (771) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- BALANCE, DECEMBER 31, 1998 32,351,580 $ 3,235 $ 128,821 $ (762) $ 123,943 1,061,662 $ 8,703 $ 246,534 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Net income for the year 14,625 14,625 Other comprehensive income: Foreign currency translation adjustments 1,147 1,147 ---------- Total comprehensive income 15,772 Stock options exercised (14) (230,684) (1,890) 1,876 Other issuances of common stock 32,816 3 3 Tax benefits related to stock option plans 99 99 Stock warrants exercised (76) (9,250) (76) -- Issuance of common stock for purchase of assets 765,199 77 9,840 (5,575) (48) 9,965 Employee Stock Purchase program 151 (122,432) (1,004) 1,155 Purchase of Treasury Shares 1,087,000 12,752 (12,752) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- BALANCE, DECEMBER 31, 1999 33,149,595 $ 3,315 $ 138,821 $ 385 $ 138,568 1,780,721 $ 18,437 $ 262,652 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Net loss for the year (57,827) (57,827) Other comprehensive loss: Foreign currency translation adjustments (1,365) (1,365) ----------- Total comprehensive loss (59,192) Stock options exercised (171,311) (1,695) 1,695 Other issuances of common stock 2,611 -- Tax benefits related to stock option plans 64 64 Issuance of common stock for purchase of assets 237 (32,470) (266) 503 Employee Stock Purchase program 296 (232,325) (1,906) 2,202 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- BALANCE, DECEMBER 31, 2000 33,152,206 $ 3,315 $ 139,418 $ (980) $ 80,741 1,344,615 $ 14,570 $ 207,924 =========== =========== =========== =========== =========== =========== =========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT. 35 Computer Horizons Corp. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ------------------------------------ 2000 1999 1998 -------- -------- -------- ----------(in thousands)------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income/(loss) $(57,827) $ 14,625 $ 43,587 Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Deferred taxes (10,480) (5,068) (3,665) Depreciation 7,655 5,463 3,218 Gain on sale of joint venture -- -- (3,125) Amortization of intangibles 7,434 6,202 4,145 Provision for bad debts 26,452 3,367 1,676 Write-down of assets held for sale 33,114 -- -- Write off of goodwill 7,248 -- -- Changes in assets and liabilities, net of acquisitions: Accounts receivable 18,278 (36,009) (43,085) Other current assets (2,873) (2,036) (572) Assets held for sale (6,428) -- -- Other assets 3,778 (5,898) (1,462) Refundable income taxes (12,862) (5,499) -- Accrued payroll, payroll taxes and benefits (3,261) (6,498) 5,784 Accounts payable 1,475 10,750 415 Income taxes payable -- (6,547) 4,544 Other accrued expenses (1,267) 8,650 (1,529) Other liabilities (544) (1,030) 5,866 -------- -------- -------- Net cash provided by/(used in) operating activities 9,892 (19,528) 15,797 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of furniture and equipment (5,607) (7,924) (11,122) Acquisitions, net of cash -- (13,955) (51,948) Changes in goodwill (3,496) (3,670) 262 Proceeds from sale of joint venture -- -- 4,695 Purchases of short-term investments -- 11,259 2,556 -------- -------- -------- Net cash used in investing activities (9,103) (14,290) (55,557) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Notes payable - banks, net 1,202 7,502 (2,313) Long-term debt (4,100) 100 (1,000) Dividends paid (Spargo) -- -- (771) Stock issuance cost -- -- (20) Stock options exercised 1,759 1,989 3,533 Purchase of treasury shares -- (12,752) -- Other stock issuances -- (11) -- Stock issued on employee stock purchase plan 2,202 1,155 -- Issuance of common stock for purchase of assets -- (36) -- -------- -------- -------- Net cash provided by/(used in) financing activities 1,063 (2,053) (571) -------- -------- -------- Foreign currency (losses)/gains (1,365) 1,147 41 Net increase/(decrease) in cash and cash equivalents 487 (34,724) (40,290) Cash and cash equivalents at beginning of year 17,072 51,796 92,086 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 17,559 $ 17,072 $ 51,796 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid (received) during the year for: Interest $ 1,538 $ 811 $ 132 Income taxes (2,890) 28,025 35,111 Details of acquisition: Fair value of assets $ -- $ 46,853 $ 70,590 Liabilities -- 32,898 20,177 -------- -------- -------- Cash paid for acquisition $ -- $ 13,955 $ 50,413 ======== ======== ======== Book value of assets held for sale, net of cash $ 80,035 $ -- $ -- Liabilities 18,075 -- -- -------- -------- -------- Net assets held for sale before write-down, net of cash 61,960 -- -- Write-down of assets held for sale 33,114 -- -- -------- -------- -------- Net assets held for sale, net of cash $ 28,846 $ -- $ -- ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 36 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Computer Horizons Corp. is a strategic e-Business solutions and professional services company. The Company enables its Global 1000 customer base to realize competitive advantages through two major divisions, CHC eB-Solutions and IT Services. Combined, Computer Horizons provides enterprise application services, e-business solutions, customized Web development and Web enablement of strategic applications, Customer Relationship Management (CRM), network services, e-procurement solutions for Human Resource acquisition and management (CHIMES), strategic outsourcing and managed resourcing as well as software and relational database products. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Computer Horizons Corp. and its wholly-owned subsidiaries (the "Company"). The Company's investment in a joint venture (Note 4) was 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. The Company's Chimes division recognizes revenue on a net fee basis. Estimated losses are recorded when identified. RECRUITMENT COSTS Recruitment costs are charged to operations as incurred. ADVERTISING COSTS The Company expenses all advertising costs as incurred and classifies these costs under selling, general and administrative expenses. Advertising costs for the years ended December 31, 2000, 1999 and 1998 were $0.8 million, $0.9 million and $1.2 million, respectively. RESEARCH AND DEVELOPMENT COSTS The Company charges all costs incurred to establish the technological feasibility of software products or product enhancements to research and development costs, which are included in selling, general and administrative expenses. Research and Development costs for the years ended December 31, 2000, 1999 and 1998 were $6.9 million, $6.3 million and $2.5 million, respectively. 37 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 1 (CONTINUED) CASH AND CASH EQUIVALENTS Cash and cash equivalents include highly liquid instruments with a maturity of three months or less at the time of purchase and consist of the following at December 31:
2000 1999 ------- ------- ----(in thousands)--- Cash $11,126 $10,762 Money market funds 83 4,830 Demand obligations 1 1,480 Commercial paper 6,349 -- ------- ------- $17,559 $17,072 ======= =======
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. In addition, as of December 31, 2000, the Company had $16.5 million of debt outstanding with a floating LIBOR interest rate plus 1.2%. The Company invests the majority of its excess cash in money market funds, commercial paper and demand obligations of high-credit, high-quality financial institutions or companies, with certain limitations as to the amount that can be invested in any one entity. 38 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 1 (CONTINUED) The Company maintains its cash balances principally in six financial institutions located in the United States, Canada and the United Kingdom. The balances in U.S. banks are insured by the Federal Deposit Insurance Corporation up to $100,000 for each entity at each institution. The balance in the Canadian bank is insured by the Canadian Deposit Insurance Corporation up to $60,000 Canadian (approximately $40,000 U.S.). There is no depository insurance in the United Kingdom. At December 31, 2000, uninsured amounts held by the Company at these financial institutions total approximately $16,919,000. The Company's customers are generally very large, Global 1000 companies in many industries and with wide geographic dispersion. The Company's largest customer accounts for approximately 8.8% and 4.1% of billed accounts receivable at December 31, 2000 and 1999, respectively. 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 which range from three to seven years. GOODWILL AND PURCHASED SOFTWARE Goodwill, the cost in excess of the fair value of net assets acquired, is being amortized by the straight-line method, for periods ranging from twenty to thirty years. Accumulated amortization is $15,875,000 and $10,303,000 at December 31, 2000 and 1999, respectively. Purchased software was being amortized by the straight-line method, for a period of five years and is now included in net assets held for sale (See Note 2). Accumulated amortization was $5,604,000 and $3,742,000 at December 31, 2000 and 1999. 39 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 1 (CONTINUED) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company evaluates its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or intangibles may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such as asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. INCOME TAXES The Company and its domestic subsidiaries file a consolidated Federal income tax return. The foreign subsidiaries file in each of their local jurisdictions. Deferred income taxes result from temporary differences between income reported for financial and income tax purposes. These temporary differences result primarily from the allowance for doubtful accounts provision and certain accrued expenses which are deductible, for tax purposes, only when paid. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax asset will not be realized. 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 provides United States income taxes on the earnings of foreign subsidiaries, unless they are considered permanently invested outside the United States. As of December 31, 2000, there is no cumulative amount of earnings on which United States income taxes have not been provided. EARNINGS PER SHARE Basic earnings per share is based on the weighted average number of common shares outstanding without consideration of common stock equivalents. Diluted earnings per share is based on the weighted average number of common and common equivalent shares outstanding, except when the effect is anti-dilutive. 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 accounting principles generally accepted in the United States of America, 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. 40 Computer Horizons Corp. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 1 (CONTINUED) FOREIGN CURRENCY TRANSLATION For operations outside the United States that prepare financial statements in currencies other than the United States dollar, results of operations and cash flows are translated at the average exchange rates during the period, and assets and liabilities are translated at end of period exchange rates. Translation adjustments are included as a separate component of comprehensive income/(loss) within the statement of shareholders' equity. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," and SFAS 138, "Accounting for Certain Derivatives Instruments and certain Hedging Activities," (collectively referred to as "SFAS 133"), which establishes new accounting and reporting standards for derivative financial instruments and for hedging activities. Effective for fiscal years beginning after June 30, 2000, entities are required by SFAS 133 to measure all derivatives at fair value and to recognize them in the balance sheet as an asset or liability, depending on the entity's rights or obligations under the applicable derivative contract. The impact of adopting SFAS 133, is not expected to be material to the consolidated financial statements or notes to consolidated financial statements. In December 1999, the Securities and Exchange Commission (the "SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying accounting principles generally accepted in the United States of America to revenue recognition in financial statements. The Company adopted SAB 101 in 2000. The adoption of SAB 101 did not have a material impact on the Company's financial position or results of operations. 41 Computer Horizons Corp. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 1 (CONTINUED) In March 2000, the FASB issued Financial Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of APB No. 25, "Accounting for stock issued to employees." FIN 44 clarifies the application of APB 25 for certain issues, including (a) the definition of employee for purposes of applying APB 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, except for the provisions that relate to modifications that directly or indirectly reduce the exercise price of an award and the definition of an employee, which were effective after December 15, 1998. The adoption of FIN 44 did not have a material impact on the Company's financial position or results of operations. RECLASSIFICATIONS Certain reclassifications have been made to the 1999 and 1998 comparative financial statements to conform to the 2000 presentation. 42 Computer Horizons Corp. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 2 - NET ASSETS HELD FOR SALE The Company decided in 2000 to offer three of its subsidiaries (Princeton Softech "Princeton", including the SELECT Software Tools division "Select", CHC International Limited "Spargo" and eB Networks) for sale or disposition and accordingly classified these entities as "assets held for sale." This decision resulted in the recording of a net loss of $33.1 million to reduce the carrying amount to estimated net realizable value. The fair value of the assets held for sale was based on estimates of selling value from independent third party appraisals. For financial reporting purposes, the assets and liabilities attributable to these subsidiaries have been classified in the consolidated balance sheet as net assets held for sale and are included in the E-Solutions segment (see Note 9). During the year ended December 31, 2000, 1999 and 1998 these respective entities generated net income/(loss) of $(9.3) million, $2.5 million and $5.3 million, respectively and amortization expense of $3.6 million, $3.4 million and $0.5 million, respectively. Such net assets consist of the following:
DECEMBER 31, 2000 ---------------------------(in thousands)------------------------ PRINCETON SELECT SPARGO eB NETWORKS TOTAL --------- -------- -------- ----------- -------- Current assets $ 24,519 $ 2,729 $ 4,169 $ 9,714 $ 41,131 Property and equipment 1,444 1,087 212 1,388 4,131 Other assets 1,394 6,526 -- 33,281 41,201 -------- -------- -------- -------- -------- Total assets 27,357 10,342 4,381 44,383 86,463 Total liabilities (10,443) (2,504) (1,916) (3,212) (18,075) -------- -------- -------- -------- -------- Net assets 16,914 7,838 2,465 41,171 68,388 Estimated loss in sale -- (6,943) -- (26,171) (33,114) -------- -------- -------- -------- -------- Total net assets held for sale $ 16,914 $ 895 $ 2,465 $ 15,000 $ 35,274 ======== ======== ======== ======== ========
43 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 3 - ACCOUNTS RECEIVABLE Accounts receivable consist of the following at December 31:
2000 1999 ------- -------- ----(in thousands)--- Billed $65,391 $128,197 Unbilled 35,332 50,428 ------- -------- 100,723 178,625 Less allowance for doubtful accounts 2,702 5,819 ------- -------- $ 98,021 $172,806 ======== ========
The decrease in billed accounts receivable includes a $21.6 million write-off of accounts receivable, primarily during the fourth quarter of 2000. This charge is the direct result of problems created in late 1998 and early 1999 relating to the flawed implementation of an enterprise-wide information system. The system was stabilized in the latter part of 1999 and much of 2000 was spent attempting to reconcile and settle outstanding balances with customers. However, it was deemed necessary in the fourth quarter of 2000 to make major concessions with customers for old balances in order to avoid potentially damaging conflicts. NOTE 4 - GAIN ON SALE OF JOINT VENTURE IN 1998 In 1995, the Company entered into a software development and services joint venture with the Birla Group, a large multinational conglomerate located in India. During the fourth quarter of 1998, the Company sold its 50% interest in the joint venture to the Birla Group for a cash payment of $5,750,000. Accordingly, a gain of $4,180,000 was recognized. The impact on net income was $1,975,000 or $0.06 per share. Birla Horizons International provided consultants to the Company at a total cost of $3,437,000 in 1998. 44 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 5 - LONG-TERM DEBT AND LINES OF CREDIT Long-term debt and lines of credit consist of the following at December 31:
2000 1999 ------- ------- (in thousands) Lines of Credit $16,500 $15,000 Debt pertaining to acquisitions 4,000 8,000 Other 204 602 ------- ------- 20,704 23,602 Less current maturities 20,704 19,502 ------- ------- Long-term debt $ -- $ 4,100 ======= =======
LINES OF CREDIT At December 31, 2000, the Company has three unsecured bank lines of credit. The available borrowings under the first line of credit was $20 million at December 31, 2000 and $30 million at December 31, 1999. This line of credit expires December 31, 2000 and was amended on December 8, 2000 to extend to March 31, 2001 and was subsequently amended on March 20, 2001, extending the line to May 31, 2001. The unused portion of the line at December 31, 2000 and December 31, 1999 was $8.5 million and $14.1 million, respectively. Interest rates for these lines of credit were LIBOR plus 1.2%, the range for 2000 and 1999 was 5.8% through 9.5% and 5.5% through 8.5%, respectively. There were no commitment fees incurred in either year. The available borrowings under the second line of credit was $10 million at both December 31, 2000 and December 31, 1999. This line of credit expires May 31, 2001. At both December 31, 2000 and December 31, 1999, the unused portion of the line of credit was both $5.0 million. Subsequent to December 31, 2000 the Company executed a security agreement with both lenders whereby a collateral interest in the Company's accounts receivable was given. The Company's subsidiary, G. Triad Enterprises Inc., also has a line of credit in the amount of $50,000. As of December 31, 2000 and December 31,1999, there were no outstanding balances due on this line of credit. DEBT PERTAINING TO ACQUISITIONS The Company financed part of the acquisition of Integrated Computer Management ("ICM") by issuing ten promissory notes totaling $8 million, bearing interest at 7%. Four million of the notes came due and were paid on May 6, 2000 and the remainder are payable on May 6, 2001. LETTERS OF CREDIT ICM, a subsidiary of the Company, has two letters of credit in the amount of $101,414 and $76,800. These letters expire on June 30, 2005 and September 30, 2005, respectively. There were no outstanding balances at December 31, 2000 or December 31, 1999, respectively. Princeton, another subsidiary, has a letter of credit outstanding at December 31, 2000 in the amount of $302,953. OTHER The Company also has a $1,000,000 Canadian (approximately $666,889 US) demand loan with a Canadian bank, of which $360,000 and $320,000 Canadian (approximately $204,000 and $222,000 US) was outstanding as of December 31, 2000 and December 31, 1999, respectively. Subsequent to year end, the outstanding balance was paid in full. 45 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 6 - SHAREHOLDERS' EQUITY STOCK OPTIONS AND SFAS NO. 123 PRO FORMA DISCLOSURE In 1994, the Company adopted a stock option plan which provides for the granting, to officers and key employees, of options for the purchase of a maximum of 7,594,000 shares of common stock and stock appreciation rights (SARs). Options and SARs generally expire five years from the date of grant and become exercisable in specified amounts during the life of the respective options. No SARs have been granted as of December 31, 2000. This plan, which replaces the Company's 1985 Plan, will terminate on June 15, 2004. There were 2,655,000, 3,400,000 and 4,789,000 shares available for option at December 31, 2000, 1999 and 1998. In 1998, the Company amended the non-qualified Directors' Stock Option Plan, providing that each new director of the Company who is not an employee of the Company (i) shall immediately receive options to purchase 10,000 shares of its common stock and (ii) shall receive annual grants to purchase 10,000 shares of its common stock. The plan expired on March 4, 2001. The Board of Directors has extended the plan for three years, subject to shareholder approval, which will be voted on at the annual shareholders meeting in May of 2001. There were 424,000 and 454,000 shares available for option at December 31, 2000 and 1999. The exercise price per share on all options granted may not be less than the fair value at the date of the option grant. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for stock-based employee compensation, whereby no compensation cost had 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 and been 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: 46 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 6 (CONTINUED)
2000 1999 1998 ---------- --------- ------ Net income / (loss) As reported $(57,827,000) $14,625,000 $43,587,000 Pro forma $(61,895,000) $12,721,000 $39,516,000 Earnings per share Basic As reported $ (1.83) $ 0.47 $ 1.41 Pro forma $ (1.96) $ 0.41 $ 1.28 Diluted As reported $ (1.83) $ 0.46 $ 1.35 Pro forma $ (1.96) $ 0.40 $ 1.23
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 2000, 1999 and 1998, respectively: expected volatility of 105%, 77% and 127%; risk-free interest rates of 4.71%, 6.52% and 6.00%; and expected lives of 4.5, 5.0 and 4.5 years. A summary of the status of the Company's stock option plans as of December 31, 2000, 1999 and 1998, and changes during the years ending on those dates is presented below:
2000 1999 1998 ---------------------- --------------------- ------------------- WEIGHTED Weighted Weighted AVERAGE Average Average EXERCISE Exercise Exercise SHARES PRICE Shares Price Shares Price -------- --------- ------- -------- -------- ------- (000) (000) (000) Outstanding - January 1 3,600 $ 13.46 2,410 $ 13.94 2,035 $ 9.97 Granted 1,500 11.98 1,571 11.75 1,634 26.39 Exercised (159) 9.90 (230) 5.97 (512) 6.88 Canceled/forfeited (725) 13.60 (151) 14.67 (747) 35.09 ------ --------- ------ --------- ------- --------- Outstanding - December 31 4,216 13.05 3,600 13.46 2,410 13.94 ====== ========= ====== ========= ======= ========= Options exercisable - December 31 2,125 13.81 1,547 13.61 1,003 10.84 ====== ========= ====== ========= ======= ========= Weighted average fair value of options granted during the year $ 9.42 $ 7.78 $ 13.03
47 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 6 (CONTINUED) The following information applies to options outstanding at December 31, 2000:
Options outstanding Options exercisable ---------------------------------- --------------------- Weighted Outstanding Average Weighted Exercisable Weighted as of Remaining average as of average December 31, Contractual exercise December 31, exercise Range of Exercise Prices 2000 life price 2000 price ------------------------ ------------ ----------- -------- ------------ ------- (000's) (000's) $ 0.00 - $ 9.99 532 2.6 $4.29 519 $4.19 10.00 - 14.99 2,513 4.0 11.60 633 11.83 15.00 - 19.99 346 5.4 16.72 258 16.64 20.00 and over 825 4.2 21.41 715 21.52 ----- ----- 4,216 4.0 $13.05 2,125 $13.81 ===== === ====== ===== ======
Certain officers have the right to borrow from the Company against the exercise price of options exercised. As of December 31, 2000 and 1999, total outstanding borrowings, pertaining to one officer, amounted to $100,000. The Company has issued warrants to purchase shares of its common stock to two outside business/ legal consulting firms. There were no warrants issued in 2000, 1999 or 1998. The exercise price is the fair value at the date of grant. As of December 31, 2000, 29,375 warrants were outstanding. There were 9,250 warrants exercised in 1999. There were no warrants exercised in 2000 or 1998. SHAREHOLDER RIGHTS PLAN In July 1989, the Board of Directors declared a dividend distribution of .131 preferred stock purchase right on each outstanding share of common stock of the Company. The rights were amended on February 13, 1990. Each right will, under certain circumstances, entitle the holder to buy one one-hundredth (1/100) of a share of Series A preferred stock at an exercise price of $30.00 per one one-hundredth (1/100) share, subject to adjustment. Each one one-hundredth (1/100) of a share of Series A preferred stock has voting, dividend and liquidation rights and preferences substantively equivalent to one share of common stock. The rights will be exercisable and transferable separately from the common stock only if a person or group acquires 20% or more, subject to certain exceptions, of the Company's outstanding common stock or announces a tender offer that would result in the ownership of 20% or more of the common 48 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 6 (CONTINUED) 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 originally would have expired on July 16, 1999, however, the Board of Directors approved the adoption of a new Shareholder Rights Plan to replace the existing plan. The terms of the new Rights Plan are substantially the same as the original plan. The new rights will expire on July 15, 2009. REPRICING OF STOCK OPTIONS On October 16, 1998, the Company's Board of Directors approved the repricing of approximately 732,000 stock options that had been granted to employees earlier in the year. This decision was made in response to competitive pressures and as a means to retain key employees. No compensation expense was recorded as a result of the above referenced repricing. NOTE 7 - INCOME TAXES The following is a geographical breakdown of the Company's income/(loss) before taxes:
Year Ended December 31, ------------------------------------- 2000 1999 1998 -------- -------- --------- -----------(in thousands)------------ Domestic $ (85,463) $31,650 $72,714 Foreign (2,183) (6,012) 6,779 ---------- ------- ------- $ (87,646) $25,638 $79,493 ========== ======= =======
49 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 7 (CONTINUED) The provision for income taxes/(benefit) consists of the following for the years ended December 31:
2000 1999 1998 -------- -------- -------- -----------(in thousands)----------- Current Federal $(18,775) $ 12,348 $ 28,539 State (662) 2,865 8,334 Foreign 98 868 2,772 -------- -------- -------- Total current (19,339) 16,081 39,645 Deferred Federal (7,736) (2,403) (2,926) State (5,079) (330) (794) Foreign 2,335 (2,335) (19) -------- -------- -------- Total deferred (10,480) (5,068) (3,739) -------- -------- -------- $(29,819) 11,013 $ 35,906 ======== ======== ========
Refundable income taxes result primarily from net operating loss carrybacks. 50 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 7 (CONTINUED) Deferred tax assets and liabilities consist of the following at December 31:
2000 1999 ------- -------- ----(in thousands)----- Deferred tax liabilities Depreciation and amortization $ (2,487) $(1,044) Capitalized software development costs (102) (241) ---------- ------- Total deferred tax liabilities (2,589) (1,285) ---------- ------- Deferred tax assets Accrued insurance 36 123 State net operating losses 1,681 -- Foreign net operating losses 2,727 2,336 Accrued payroll and benefits 2,199 2,593 Deferred revenue 2,498 2,712 Allowance for doubtful accounts 2,184 1,968 Restructuring charges 14,574 -- Accrued severance and lease costs 425 2,052 Other 875 904 ---------- ------ Total deferred tax assets 27,199 12,688 Valuation allowance (2,727) -- ---------- ------ Net deferred tax assets $ 21,883 $11,403 ========== =======
Net deferred tax assets in the amount of $2,073 are included in net assets held for sale. 51 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 7 (CONTINUED) A reconciliation of income taxes/(benefit), as reflected in the accompanying statements, with the statutory Federal income tax rate of 35% for the years ended December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998 -------- -------- -------- ----------(in thousands)----------- Statutory Federal income taxes/ (benefit) $ (30,676) $8,973 $27,822 State and local income taxes/(benefit), net of Federal tax benefit (3,732) 1,648 4,901 Foreign taxes provided at rates other than the U.S. statutory rate -- 98 122 Amortization of goodwill 688 282 203 Equity in net earnings of joint venture -- -- 343 Merger-related expenses -- -- 1,673 Change in valuation allowance 2,727 -- -- Other, net 1,174 12 842 ----------- ------- ------- $ (29,819) $11,013 $35,906 =========== ======= =======
Certain foreign subsidiaries of the Company have net operating loss carryforwards at December 31, 2000, totaling approximately $8,700,000; $264,000 expires in 2005, $1,136,000 expires in 2006, $649,000 expires in 2007 and the remainder has no expiration. A full valuation allowance has been recorded due to the uncertainty of the recognition of these net operating loss carryforwards. During 1998, the Company completed a business combination which, for financial statement purposes, has been accounted for as a pooling-of-interests. For income tax purposes the Company believes the transaction qualifies as a taxable purchase that gives rise to future tax deductions. Since the tax structure of the transaction is subject to determination by the tax authorities, the Company has not recorded any potential tax impact in its financial statements. When resolved, the Company will record a deferred tax asset net of an appropriate valuation allowance. The net benefit will be reflected as an increase in additional paid-in-capital. Any adjustments to the valuation allowance will be charged or credited to income. 52 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 8 - EARNINGS/(LOSS) PER SHARE DISCLOSURES
For the Year Ended ------------------------------------------------------- Per Income / (loss) Shares share (numerator) (denominator) amount ----------- ------------- ------ ------(in 000's, except share and per share data)------ December 31, 2000 Net loss $(57,827) ========= Basic loss per share Loss available to common stockholders $(57,827) 31,656,000 $(1.83) ====== Effect of diluted securities Options -- ---------- Diluted loss per share Income available to common stock- holders plus assumed conversions $(57,827) 31,656,000 $(1.83) ======== ========== ====== December 31, 1999 Net income $14,625 ======= Basic earnings per share Income available to common stockholders $14,625 30,940,000 $ 0.47 ====== Effect of diluted securities Options 707,000 ---------- Diluted earnings per share Income available to common stock- holders plus assumed conversions $14,625 31,647,000 $ 0.46 ======= ========== ====== December 31, 1998 Net income $43,587 ======= Basic earnings per share Income available to common stockholders $43,587 30,925,000 $ 1.41 ====== Effect of diluted securities Options 1,305,000 ----------- Diluted earnings per share Income available to common stock- holders plus assumed conversions $43,587 32,230,000 $ 1.35 ======= =========== ======
53 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 8 (CONTINUED) The computation of diluted earnings per share excludes options with exercise prices greater than the average market price. During 2000, there were 3,003,000 excluded options outstanding at December 31, 2000 with exercise prices of $11.13 to $26.63 per share. During 1999, there were 1,322,000 excluded options outstanding at December 31, 1999 with exercise prices of $15.53 to $28.13 per share. All options to purchase shares of common stock were included in the computation of diluted earnings per share in 1998. NOTE 9 - SEGMENT INFORMATION In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company has identified two segments: IT Services and the E-Solutions Group. The IT Services segment consists largely of the professional services traditionally rendered by the Company and primarily related to legacy and client server environments. IT Services is primarily Staffing, Outsourcing and Y2K. The E-Solutions Group consists of e-products, e-services and e-commerce components. Broadly defined, revenue is derived from product sales and services that enable customers to conduct business electronically. Operating income / (loss) consists of income / (loss) before income taxes, excluding interest income, interest expense, amortization of intangibles, restructuring charges, merger related expenses, equity in earnings of joint venture and gain on sale of joint venture, amounting to $50.2 million, $12.6 million and $(0.9) million in 2000, 1999 and 1998, respectively. Long-term assets include goodwill and property, plant and equipment for 2000. In 1999 and 1998 long-term assets also includes purchased software. Corporate services, consisting of general and administrative services are provided to the segments from a centralized location. Such costs are allocated to the segments based on either revenue or headcount. 54 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 9 (CONTINUED)
BY LINE OF BUSINESS 2000 1999 1998 --------- --------- --------- -----------(in thousands)------------- REVENUE IT Services $ 303,713 $ 429,757 $ 458,593 E-Solutions Group 141,766 104,837 56,328 --------- --------- --------- TOTAL REVENUE $ 445,479 $ 534,594 $ 514,921 ========= ========= ========= OPERATING INCOME / (LOSS) IT Services (14,615) 47,252 69,718 E-Solutions Group (22,864) (9,055) 8,993 Corporate and other -- -- (90) --------- --------- --------- TOTAL OPERATING INCOME / (LOSS) $ (37,479) $ 38,197 $ 78,621 ========= ========= ========= ASSETS IT Services 131,694 179,965 151,111 E-Solutions Group 63,947 113,151 57,802 Corporate and other 73,755 54,878 87,139 --------- --------- --------- TOTAL ASSETS $ 269,396 $ 347,994 $ 296,052 ========= ========= ========= DEPRECIATION EXPENSE IT Services 1,267 1,066 810 E-Solutions Group 3,930 1,879 681 Corporate and other 2,458 2,518 1,727 --------- --------- --------- TOTAL DEPRECIATION $ 7,655 $ 5,463 $ 3,218 ========= ========= =========
55 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 9 (CONTINUED)
BY GEOGRAPHIC AREA 2000 1999 1998 -------- -------- -------- ----------(in thousands)---------- REVENUE United States $393,060 $480,131 $476,252 Europe 26,777 26,134 23,651 Australia 3,602 757 -- Canada 22,040 27,572 15,018 -------- -------- -------- TOTAL REVENUE $445,479 $534,594 $514,921 ======== ======== ======== LONG-TERM ASSETS United States 43,398 102,562 63,478 Europe 1,462 1,623 334 Australia 35 55 -- Canada 20,411 19,636 19,494 -------- -------- -------- TOTAL LONG-TERM ASSETS $ 65,306 $123,876 $ 83,306 ======== ======== ========
NOTE 10 - SAVINGS PLAN AND OTHER RETIREMENT PLANS The Company maintains a defined contribution savings plan covering eligible employees. The Company makes contributions up to a specific percentage of participants' contributions. The Company contributed approximately $1,563,000, $1,440,000 and $704,000 in 2000, 1999 and 1998, 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 employment of the Company. The maximum commitment if all plan members remain in the employment of the Company until age 65 is approximately $11.1 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 nonqualified 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 was $311,000 in 2000, nil in 1999 and $285,000 in 1998. 56 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 10 (CONTINUED) During 1999 the Company adopted an Employee Stock Purchase Plan to provide substantially all employees who have completed one year of service an opportunity to purchase shares of its common stock through payroll deductions, up to 10 percent of eligible compensation. Quarterly, participant account balances are used to purchase shares of stock at 85 percent of its fair market value on either the first or last trading day of each calendar quarter. A total of 500,000 shares are available for purchase under the plan. There were 232,325 and 122,432 shares purchased under the plan in 2000 and 1999, 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 under the plan are expensed in the period incurred. Amounts deferred have been included in accrued payroll and amounted to $4.1 million and $4.0 million as of December 31, 2000 and 1999, respectively. NOTE 11 - COMMITMENTS LEASES The Company leases office space under long-term operating leases expiring through 2006. As of December 31, 2000, approximate minimum rental commitments were as follows:
Year ending (in thousands) 2001 $7,780 2002 6,874 2003 4,849 2004 3,399 2005 2,607 Thereafter 1,967 ------- $27,476 =======
Office rentals are subject to escalations based on increases in real estate taxes and operating expenses. Aggregate rent expense for operating leases approximated $8,536,000, $7,500,000 and $5,136,000, in the years ended December 31, 2000, 1999 and 1998, respectively. 57 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) For the years ended December 31, 2000 and 1999, selected quarterly financial data is as follows:
QUARTERS ------------------------------------------------------ FIRST SECOND THIRD FOURTH --------- --------- -------- --------- ------(in thousands, except per share data)----------- 2000 REVENUES $ 114,282 $ 118,095 $ 104,505 $ 108,597 DIRECT COSTS 83,015 79,578 75,011 75,211 SELLING, GENERAL AND ADMINISTRATIVE 32,073 35,049 36,634 39,935 BAD DEBT EXPENSE 1,087 1,484 1,916 21,965 AMORTIZATION OF INTANGIBLES 1,776 1,680 1,662 2,316 RESTRUCTURING CHARGES/(CREDITS) -- (2,376) -- 43,904 INCOME/(LOSS) FROM OPERATIONS (3,669) 2,680 (10,718) (74,734) INTEREST INCOME/(EXPENSE) - NET (266) (301) (373) (265) INCOME/(LOSS) BEFORE INCOME TAXES (3,935) 2,379 (11,091) (74,999) INCOME TAXES (BENEFIT) (1,692) 1,023 (4,325) (24,825) NET INCOME/(LOSS) (2,243) 1,356 (6,766) (50,174) EARNINGS/(LOSS) PER SHARE: BASIC $ (0.07) $ 0.04 $ (0.21) $ (1.58) DILUTED $ (0.07) $ 0.04 $ (0.21) $ (1.58)
58 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 12 (CONTINUED)
QUARTERS ---------------------------------------------------- FIRST SECOND THIRD FOURTH --------- --------- -------- --------- -------(in thousands, except per share data)-------- 1999 Revenues $ 138,141 $ 142,874 $ 135,061 $ 118,518 Direct costs 90,720 95,830 95,017 83,743 Selling, general and administrative 29,180 31,850 33,609 33,080 Bad debt expense 761 1,314 224 1,068 Amortization of intangibles 1,192 1,520 1,629 1,861 Restructuring charges -- -- 6,355 -- Income/(loss) from operations 16,288 12,360 (1,773) (1,234) Interest income/(expense) - net 266 124 (232) (161) Income/(loss) before income taxes 16,554 12,484 (2,005) (1,395) Income taxes/(benefit) 7,035 5,243 (842) (423) Net income/(loss) 9,519 7,241 (1,163) (972) Earnings/(loss) per share: Basic 0.30 0.24 (0.04) (0.03) Diluted 0.30 0.23 (0.04) (0.03)
59 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 13 - RESTRUCTURING CHARGES During the fourth quarter of 2000, the Company recorded restructuring charges of $43.9 million. The Company's restructuring plan included the offering for sale of four businesses acquired between 1998 and 1999, including Princeton Softech, Inc., SELECT Software Tools division ("Select"), eB Networks and CHC International, Ltd (formerly Spargo Consulting PLC). In addition, restructuring charges included the shutdown of Enterprise Solutions Group ("ESG") which was acquired in 1998, the closing of seven offices and the site reduction of two other IT Services offices. The shutdown of ESG resulted in a write down of goodwill of $7.2 million. The closing of IT Services and E-Solutions offices resulted in the termination of 90 employees with a severance charge of $1.3 million. As of December 31, 2000, $247,000 had been paid in severance to the terminated employees. In addition, a non-cash charge writing down goodwill of $26 million and purchased software of $6.9 million was recorded in connection with the write down of assets held for sale to realizable value.
Cash Non-Cash Remaining at Recorded Charges Charges Dec. 31, 2000 ------------------------------------------------- -------------------(in thousands)---------------- Severance ------------------------------------------------- United States $ 1,267 $ (247) $ -- $ 1,020 ------------------------------------------------- Lease Obligations: ------------------------------------------------- United States $ 2,275 $ (675) $ -- $ 1,600 ------------------------------------------------- Write Down of Assets Held for Sale: eB Networks 26,171 -- (26,171) -- Select 6,943 -- (6,943) -- ------------------------------------------------- Total write-down of assets held for sale $ 33,114 $ -- $(33,114) $ -- ------------------------------------------------- Write-off of ceased operations - ESG: ------------------------------------------------- Goodwill $ 7,248 $ -- $ (7,248) $ -- ------------------------------------------------- ------------------------------------------------- Total $ 43,904 $ (922) $(40,362) $ 2,620 -------------------------------------------------
60 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2000, 1999 and 1998 NOTE 13 - RESTRUCTURING CHARGES (CONTINUED) During the third quarter of 1999, the Company recorded a restructuring charge of approximately $6.4 million primarily related to the consolidating and closing of certain facilities, generally used for Year 2000 and other legacy related services, as well as attendant reduction of related staff levels. The provision included an accrued payment of approximately $4.0 million relating to the future costs associated with continuing rent and severance commitments at December 31, 1999. During the second quarter of 2000, the Company recorded a restructuring credit of $2.4 million. This credit resulted primarily from the earlier than expected occupancy of two abandoned properties that were part of the restructuring reserve and the reversal of an over accrual of employee severance benefits due to terminated employees in the UK and Canada. The balance remaining at December 31, 2000 includes continuing rents on two properties with the leases terminating on 2004 and 2005 and payments due to severance amounting to $118,000, which is shown as a component of assets held for sale. This amount is currently in dispute regarding the violation of a non-compete agreement with a former executive of eB Networks.
Balance at Balance at Recorded Paid Dec. 31, 1999 Paid Reversed Dec. 31, 2000 ----------------------------(in thousands)---------------------------- ---------------------------------------------------------------------- Severance: United States $ 1,172 $(1,021) $ 151 $ (33) $ -- $ 118 Europe 1,127 (775) 352 -- (352) -- Canada 122 (89) 33 -- (33) -- ---------------------------------------------------------------------- Total Severance $ 2,421 $(1,885) $ 536 $ (33) $ (385) $ 118 ---------------------------------------------------------------------- Lease Obligations: United States 3,564 (254) 3,310 $(1,203) $(1,840) $ 267 Canada 101 (25) 76 -- (76) -- ---------------------------------------------------------------------- Total Lease Obligations 3,665 $ (279) $ 3,386 $(1,203) $(1,916) $ 267 ---------------------------------------------------------------------- General Office Closure: Canada $ 269 $ (188) $ 81 $ (6) $ (75) $ -- ---------------------------------------------------------------------- ---------------------------------------------------------------------- Total $ 6,355 $(2,352) $ 4,003 $(1,242) $(2,376) $ 385 ----------------------------------------------------------------------
61 Computer Horizons Corp. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2000, 1999 and 1998 NOTE 14 - ACQUISITIONS On October 18, 1999, the Company acquired G. Triad Enterprises, Inc, ("G. Triad" a New Jersey based Internet / Intranet development firm, for approximately $14.5 million in cash and stock. The acquisition was accounted for as a purchase. The resulting goodwill of approximately $14 million is being amortized to operations over a 20-year period. Subsequently in 2000, the Company recorded an additional earnout of $500,000 to goodwill based on G. Triad meeting a projected revenue target. On May 6, 1999, the Company acquired all the common stock of Integrated Computer Management ("ICM") a New Jersey-based solutions company that provides technology consulting, packaged software integration, customer software development, systems integration and advanced learning solutions, for stock, cash and promissory notes totaling approximately $17 million. The acquisition was accounted for as a purchase. The resulting goodwill of approximately $15 million was being amortized to operations over a 20-year period. Effective April 1, 2000 the assets of ICM were divided between three divisions of the Company, G. Triad, eB Networks and IT Services. Approximately $10 million of its net goodwill was allocated to eB Networks and is included in the assets held for sale. On June 1, 1999, Princeton Softech Inc. ("Princeton"), a wholly-owned subsidiary of the Company, acquired the software products, intellectual property rights and certain other assets of SELECT Software Tools plc ("Select"), a London-based software firm, for approximately $8 million cash plus the assumption of certain liabilities such as severance, certain payments due to a vendor under a contract that the Company expected to derive no future benefit, and certain other assumed liabilities in connection with its acquisition. These liabilities had the effect of increasing the value of the intangible assets (purchased software) that were acquired. The amount of such liabilities aggregated $3,100,000 of which approximately $1,800,000 had been paid prior to December 31, 1999. Substantially all of the accrued severance (which was for employees that had been made redundant upon acquisition in the United Kingdom) had been paid prior to December 31, 1999. The remaining accrued liabilities of approximately $1,300,000 consist primarily of payments due pursuant to the contract discussed above. The acquisition was accounted for as a purchase. The cost of the purchased software and other intangibles approximates $12 million, and was being amortized to operations over a five-year period. During the fourth quarter of 2000 the Company made the decision to sell Select. The assets of Select have been written down to net realizable value and are included in the assets held for sale. On May 7, 1999, Princeton purchased the distribution rights in Australia held by its former distributor, SPP. No tangible assets of SPP were acquired. The aggregate cash purchase price was approximately $740,000 of which approximately $672,000 was paid prior to year-end. The transaction was accounted for using purchase accounting, and the aggregate cash purchase price of $740,000 was allocated to distribution right which is being amortized to operations over a 48 month period. On April 14, 1999, Princeton purchased all of the capital stock of Unibase, its French distributor. The aggregate cash purchase price was approximately $1,424,000 including approximately $92,000 of fees and expenses relating to such transaction. The transaction was accounted for using purchase accounting. The excess of purchase price over tangible assets acquired of approximately $1,090,000 was allocated to distribution rights which are being amortized to operations over a 48 month period. On September 25, 1998, the Company acquired the assets of Enterprise Solutions Group, LLC ("ESG"), a Cincinnati, Ohio-based technology organization that provides training and educational services as well as consulting services for Global 1000 companies. The acquisition was accounted for as a purchase. The total adjusted purchase price was approximately $8,883,000 in cash and common stock which was being amortized to operations over a 20-year period. Approximately $1,550,000 was to be paid out in two payments, approximately $1 million was paid in January of 2000 and the remaining $550,000 was paid in January of 2001. The Company has shut down these operations and has written off the remaining net goodwill of $7.2 million, which is a component of the restructure charge. On August 4, 1998, the Company acquired the assets of RPM Consulting ("RPM"), a Maryland based provider of network consulting services, specializing in architecting, designing and upgrading large enterprise networks. The subsidiary subsequently changed its name in 2000 to eB Networks. The purchase agreement was for a combination of cash and common stock totaling approximately $27,700,000, and two earnout payments (totaling $2.2 million) based on pretax profit margins, which were paid during 1999. The acquisition was accounted for as a purchase and was being amortized to operations over a 20-year period. In the fourth quarter of 2000, the Company made the decision to sell eB Networks. The assets of eB Networks have been written down to net realizable value and are included in the assets held for sale, On July 2, 1998, the Company's Canadian subsidiary acquired the net assets of Infomatics Search Group ("ISG"), a Toronto, Canada based information technology service firm, offering both professional staffing and career placement services. The acquisition was accounted for as a purchase and was being amortized to operations over a 20-year period. The total purchase price was approximately $21,600,000 in cash. The purchase agreement includes an earnout clause equal to two times increases in prior period adjusted earnings (as defined in the purchase agreement) to be earned in 1999 and 2000. During 2000, the Company recorded $2.9 million as an addition to goodwill based on meeting the earnout. There were no earnout adjustments for 1999 or 1998. On June 24,1998, the Company acquired all of the common stock of Spargo Consulting PLC ("Spargo"), an information technology consultancy service provider, organized under the laws of the United Kingdom or 1,887,000 shares of Computer Horizon stock. This transaction was accounted for as a pooling of interests and, accordingly, the consolidated financial statements for the periods presented have been restated to include the accounts of Spargo. On February 27, 1998, the Company acquired all of the common stock of Princeton Softech, Inc. ("Princeton") in exchange for 954,213 shares of Computer Horizons stock. Princeton specializes in relational databases, data synchronization, intelligent data migration and data management tools, and is based in Princeton, New Jersey. This transaction was accounted for as an immaterial pooling of interests and the results of Princeton have been included since January 1 1998. 62 NOTE 15 - SUBSEQUENT EVENT (UNAUDITED) On January 31, 2001, the Company sold the stock of CHC International Limited ("Spargo"), to an information technology consultancy service provider for cash of $3.2 million. The estimated gain from the transaction is $500,000. Total revenues for CHC International Limited for the years 2000, 1999 and 1998 were $11.3 million, $18.3 million and $21.7 million, respectively. Computer Horizons Corp. and Subsidiaries MARKET AND DIVIDEND INFORMATION Years ended December 31, 2000 and 1999 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, 2000 and 1999 is as follows:
2000 1999 ------------------ ------------------- HIGH LOW HIGH LOW ---- --- ---- --- Quarter First $25.00 $13.63 $28.63 $10.63 Second 16.25 11.00 19.25 9.50 Third 13.63 6.81 14.25 10.88 Fourth 6.80 2.38 18.56 11.06
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, 2000, there were approximately 1,107 holders of record of common stock. EX-10.(K) 2 a2042348zex-10_k.txt EXHIBIT 10(K) EXHIBIT 10(k) [CHASE LETTERHEAD] March 20, 2001 Mr. William J. Murphy Executive Vice President and CFO Computer Horizons Corp. 49 Old Bloomfield Avenue Mountain Lakes, NJ 07046-1495 Dear Mr. Murphy: We are pleased to advise you that based upon your annual audited financial statements for the fiscal year ended 12/31/99, The Chase Manhattan Bank (the "Bank") has approved a $20,000,000 line of credit for Computer Horizons Corp. Our officers may, in their discretion, make short term loans to Computer Horizons Corp. on such terms as are mutually agreed upon between us, from time to time. As this line is not a commitment, credit availability is, in addition, subject to your execution and delivery of such documents as the Bank deems appropriate including, without limitation, a General Security Agreement and UCC 1 financing statements, and the receipt and continuing satisfaction with current financial information, which information will be furnished to the Bank as it may from time to time reasonably request. This line of credit expires on May 31,2001. Please execute the enclosed note and have it returned to me at your earliest convenience to finalize this matter. Upon execution, this note will replace the $20,000,000 note previously executed by you on December 1, 2000. Please feel free to contact me should you have any questions. Sincerely, /s/ Eileen McEvoy Higgins - - ------------------------- Eileen McEvoy Higgins Vice President cc: Michael J. Shea NOTE $20,000,000 New York, New York March 20, 2000 1. For value received, the undersigned, by this promissory note (the "Note") unconditionally promises to pay to the order of THE CHASE MANHATTAN 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 TWENTY MILLION DOLLARS ($20,000,000) 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 May 31, 2001 (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 within 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 OTHER THAN IN FAVOR OF THE BANK OR PNC BANK, NATIONAL ASSOCIATION (THE "PERMITTED LIENS"); THE OCCURRENCE OF AN "EVENT OF DEFAULT" UNDER ANY AGREEMENTS CREATING SUCH PERMITTED LIENS; 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 indemnify 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. 2 9. THIS NOTE IS SECURED BY THE COLLATERAL DESCRIBED IN A CERTAIN SECURITY AGREEMENT (GENERAL PURPOSE) DATED MARCH 23, 2001 AND EXECUTED BY THE BORROWER IN FAVOR OF THE BANK, TOGETHER WITH ANY AND ALL AMENDMENTS, MODIFICATIONS, AND SUPPLEMENTS THERETO OR SUBSTITUTES THEREFOR, AND REFERENCE IS MADE TO SUCH AGREEMENT FOR A FULL DESCRIPTION OF THE TERMS AND CONDITIONS THEREOF. 10. The Bank shall have a continuing lien and/or right of set-on 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. 11. 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 affect the Bank's right to effect service of process in any other manner permitted by law; and the undersigned and the Bank hereby irrevocably waive, in any such legal proceeding, trial by jury. 12. This Note shall be governed by, and construed in accordance with, the laws of the State of New York. COMPUTER HORIZONS CORP. By: /s/ Michael J. Shea ----------------------------- Title: V.P. Controller 3 EX-21 3 a2042348zex-21.txt EXHIBIT 21 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:
Name of Subsidiary Jurisdiction of Incorporation CHC Consulting Services Limited England and Wales CHC International England and Wales Computer Horizons (Canada) Corp. Toronto, Canada Horizons Technologies, Inc. Delaware Strategic Outsourcing Systems, Inc. Delaware Princeton Softech, Inc. New Jersey G. Triad Development Corp. New Jersey Integrated Computer Management New Jersey CHIMES, Inc. Delaware eB Networks, Inc. Delaware
EX-23 4 a2042348zex-23.txt EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated February 21, 2001 (except for Note 5, as to which the date is March 20, 2001), accompanying the consolidated financial statements incorporated by reference in the Annual Report of Computer Horizons Corp. on Form 10-K for the year ended December 31, 2000 and our report dated February 21, 2001 (except for Note 5, as to which the date is March 20, 2001), accompanying the financial statement schedule included in that Form 10-K. We hereby consent to the incorporation by reference of said report in the Registration Statements of Computer Horizons Corp. on Forms S-3 (File No. 333-33665, effective September 24, 1997, File No. 333-44417, effective February 27, 1998, and File No. 333-48877, effective March 30, 1998) and on Forms S-8 (File No. 033-41726, effective July 16, 1991, File No. 033-59437, effective May 18, 1995, File No. 033-64763, effective December 5, 1995, and File No. 333-60751, effective August 5, 1998, and File No. 333-74579, effective March 17, 1999). /s/ GRANT THORNTON LLP - - ---------------------- GRANT THORNTON LLP Edison, New Jersey March 30, 2001 -----END PRIVACY-ENHANCED MESSAGE-----