-----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, Su2k3w7Uh1fx6NN8aBHP1cg3TJpb9/ku6s/Vd0kEri7iEds79BX/XRctFLK+zUpE S6DW7Z7H890ks3ZHWHPSjA== 0000912057-01-539771.txt : 20020410 0000912057-01-539771.hdr.sgml : 20020410 ACCESSION NUMBER: 0000912057-01-539771 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER HORIZONS CORP CENTRAL INDEX KEY: 0000023019 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 132638902 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07282 FILM NUMBER: 1790277 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-Q 1 a2063216z10-q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------------------------- FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 -------------------------------------------- For Quarter Ended SEPTEMBER 30, 2001 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 Number) 49 OLD BLOOMFIELD AVENUE, MOUNTAIN LAKES, NEW JERSEY 07046-1495 --------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (973) 299-4000 NOT APPLICABLE -------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. X -- Yes No As of November 12, 2001 the issuer had 31,898,622 shares of common stock outstanding. 1 COMPUTER HORIZONS CORP. Index Page No. Part I Financial Information Consolidated Balance Sheets September 30, 2001 (unaudited) and December 31, 2000 3 Consolidated Statements of Operations Three and Nine Months Ended September 30, 2001 and September 30, 2000 (unaudited) 4 Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2001 and September 30, 2000 (unaudited) 5 Notes to Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Part II Other Information 21 Signatures 21 2 COMPUTER HORIZONS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data)
September 30, December 31, 2001 2000 ---- ---- (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 44,526 $ 17,559 Accounts receivable, net of allowance for doubtful accounts of $5,743 and $2,702 at September 30, 2001 and December 31, 2000, respectively 94,130 98,021 Net assets held for sale 18,698 35,274 Deferred income tax benefit 18,007 19,207 Refundable income taxes 3,621 21,325 Other 7,338 2,998 --------- --------- TOTAL CURRENT ASSETS 186,320 194,384 --------- --------- PROPERTY AND EQUIPMENT 35,252 31,962 Less accumulated depreciation (21,053) (17,920) --------- --------- 14,199 14,042 --------- --------- OTHER ASSETS - NET: Goodwill 49,340 51,264 Deferred income tax benefit 603 603 Other 9,082 9,103 --------- --------- TOTAL OTHER ASSETS 59,025 60,970 --------- --------- TOTAL ASSETS $ 259,544 $ 269,396 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable, current $ - $ 20,704 Accrued payroll, payroll taxes and benefits 17,976 14,194 Accounts payable 24,552 17,945 Restructuring reserve 1,298 2,887 Other accrued expenses 5,590 4,182 --------- --------- TOTAL CURRENT LIABILITIES 49,416 59,912 --------- --------- LONG-TERM DEBT 14,081 - OTHER LIABILITIES 1,669 1,560 --------- --------- 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 33,152,855 shares at September 30, 2001 and 33,152,206 shares at December 31, 2000 respectively 3,315 3,315 Additional paid-in capital 135,230 139,418 Accumulated comprehensive loss (3,031) (980) Retained earnings 69,340 80,741 --------- --------- 204,854 222,494 --------- --------- Less shares held in treasury, at cost; 1,293,688 shares and 1,344,615 shares at September 30, 2001 and December 31, 2000, respectively (10,476) (14,570) --------- --------- TOTAL SHAREHOLDERS' EQUITY 194,378 207,924 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 259,544 $ 269,396 ========= =========
3 COMPUTER HORIZONS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (dollars in thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED ---------------------------------------------- -------------------------------------------- September 30, 2001 September 30, 2000 September 30, 2001 September 30, 2000 ------------------ ------------------ ------------------ ------------------ % of % of % of % of revenue revenue revenue revenue ------- ------- ------- ------- REVENUES: IT Services $ 65,242 69.3% $ 72,694 69.6% $ 212,659 69.6% $ 229,813 68.2% Solutions Group 28,970 30.7% 31,811 30.4% 93,029 30.4% 107,069 31.8% ----------- ------ ----------- ----- ----------- ----- ----------- ----- 94,212 100.0% 104,505 100.0% 305,688 100.0% 336,882 100.0% ----------- ----- ----------- ----- ----------- ----- ----------- ----- COSTS AND EXPENSES: Direct costs 67,672 71.8% 75,011 71.8% 215,515 70.5% 237,604 70.5% Selling, general and administrative 30,404 32.3% 38,550 36.9% 97,626 31.9% 108,243 32.1% Restructuring charge / (credit) - 0.0% - 0.0% 5,473 1.8% (2,376) -0.7% Amortization of intangibles 650 0.7% 1,662 1.6% 2,080 0.7% 5,118 1.5% ----------- ------ ----------- ----- ----------- ----- ----------- ----- 98,726 104.8% 115,223 110.3% 320,694 104.9% 348,589 103.4% ----------- ------ ----------- ----- ----------- ----- ----------- ----- LOSS FROM OPERATIONS (4,514) -4.8% (10,718) -10.3% (15,006) -4.9% (11,707) -3.4% ----------- ------ ----------- ----- ----------- ----- ----------- ----- OTHER INCOME / (EXPENSE): Loss on sale of assets (2,833) -3.0% - 0.0% (2,395) -0.8% - 0.0% Interest income 537 0.6% 41 0.0% 1,761 0.6% 330 0.1% Interest expense (494) -0.5% (414) -0.4% (1,637) -0.5% (1,270) -0.4% ----------- ------ ----------- ---- ----------- ----- ----------- ----- (2,790) -2.9% (373) -0.4% (2,271) -0.7% (940) -0.3% ----------- ------ ----------- ---- ----------- ----- ----------- ----- LOSS BEFORE INCOME TAXES (7,304) -7.7% (11,091) -10.7% (17,277) -5.6% (12,647) -3.7% ----------- ------ ----------- ----- ----------- ----- ----------- ----- INCOME (BENEFIT) / TAXES: Current (2,483) -2.6% (4,725) -4.5% (7,074) -2.3% (6,196) -1.8% Deferred - 0.0% 400 0.4% 1,200 0.4% 1,202 0.3% ----------- ------ ----------- ---- ----------- ----- ----------- ----- (2,483) -2.6% (4,325) -4.1% (5,874) -1.9% (4,994) -1.5% ----------- ------ ----------- ---- ----------- ----- ----------- ----- NET LOSS $ (4,821) -5.1% $ (6,766) -6.6% $ (11,403) -3.7% $ (7,653) -2.2% =========== ====== =========== ==== =========== ===== =========== ===== LOSS PER SHARE: Basic $ (0.15) $ (0.21) $ (0.36) $ (0.24) =========== =========== =========== =========== Diluted $ (0.15) $ (0.21) $ (0.36) $ (0.24) =========== =========== =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 31,964,000 31,710,000 31,953,000 31,605,000 =========== =========== =========== =========== Diluted 31,964,000 31,710,000 31,953,000 31,605,000 =========== =========== =========== ===========
Note: Certain reclassifications have been made to the prior periods to conform to the 2001 presentation. 4 COMPUTER HORIZONS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (dollars in thousands)
Nine Months Ended ---------------------------------- September 30, September 30, 2001 2000 ---- ---- CASH FLOWS PROVIDED BY/(USED IN) OPERATING ACTIVITIES $ 30,025 $ (976) -------- -------- CASH FLOWS PROVIDED BY/(USED IN) INVESTING ACTIVITIES Purchases of property and equipment (4,160) (1,692) Additions to goodwill (173) - Cash received from the sale of assets 10,027 - -------- -------- 5,694 (1,692) -------- -------- CASH FLOWS (USED IN)/PROVIDED BY FINANCING ACTIVITIES (Decrease)/increase in borrowings (20,688) 1,697 Increase/(decrease) in long-term debt 14,081 (4,100) Repurchase of common stock (1,842) - Stock options exercised 1,748 3,785 -------- -------- (6,701) 1,382 -------- -------- Effect of exchange rate difference on cash (2,051) 8 -------- -------- NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 26,967 (1,278) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 17,559 17,072 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 44,526 $ 15,794 ======== ========
5 COMPUTER HORIZONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Periods September 30, 2001 and September 30, 2000 (unaudited) 1. BASIS OF PRESENTATION The consolidated balance sheet as of September 30, 2001, the consolidated statements of operations for the three and nine months ended September 30, 2001 and September 30, 2000, respectively and the statement of cash flows for the nine months ended September 30, 2001 and 2000 have been prepared by the Company without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 30, 2001 (and for all periods presented) have been made. Certain information and note disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2000 filed by the Company. The results of operations for the periods ended September 30, 2001 and 2000 are not necessarily indicative of the operating results for the respective full years. 2. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board approved the issuance of SFAS No. 141, "Business Combinations" and SFAS 142, "Goodwill and Other Intangible Assets" which was issued July 20, 2001. The new standards require that all business combinations initiated after June 30, 2001 must be accounted for under the purchase method. In addition, all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged shall be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives will no longer be subject to amortization, but will be subject to at least an annual assessment for impairment by applying a fair value based test. The Company will continue to amortize goodwill existing at September 30, 2001 under its current method until January 1, 2002. Thereafter, annual and quarterly goodwill amortization of approximately $2.6 million and $650,000, respectively, will no longer be recognized. By June 30, 2002, the Company will perform a transitional fair value based impairment test and if the fair value is less than the recorded value at January 1, 2002, the Company will record an impairment loss in the March 31, 2002 quarter, as a cumulative effect of a change in accounting principle. In August 2001, the FASB issued statement of Financial Accounting Standard No. 144 "Accounting for the Impairment or Disposal of Long Lived Assets", ("SFAS 144"). This statement is effective for fiscal years beginning after December 15, 2001. This supercedes SFAS 121, while retaining many of the requirements of such statement. The Company is currently evaluating the impact of the statement. 6 COMPUTER HORIZONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Periods September 30, 2001 and September 30, 2000 (unaudited) 3. EARNINGS PER SHARE Basic Earnings Per Share ("EPS") is based on the weighted average number of common shares outstanding without consideration of common stock equivalents. Diluted earnings per share is based on the weighted average number of common and common equivalent shares outstanding, except where the effect would have been antidilutive. 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. In accordance with SFAS No.128, the table below presents both basic and diluted loss per share:
Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ----------------------------------------------------------------- Numerator: Net loss (in thousands) $ (4,821) $ (6,766) $ (11,403) $ (7,653) Denominator: Denominator for basic loss per share Weighted average shares outstanding 31,964,000 31,710,000 31,953,000 31,605,000 Effect of stock options -- -- -- -- Diluted potential loss per share: Denominator for diluted loss per share Adjusted weighted average shares outstanding and assumed conversions 31,964,000 31,710,000 31,953,000 31,605,000 Basic loss per share $ (0.15) $ (0.21) $ (0.36) $ (0.24) Diluted loss per share $ (0.15) $ (0.21) $ (0.36) $ (0.24)
The computation of diluted loss per share excludes options with exercise prices greater than the average market price as their effect would have been antidilutive. During 2001, there were 3,880,100 excluded options with exercise prices of $3.65 to $26.63 per share at September 30. During 2000, there were 1,469,653 excluded options outstanding at September 30, 2000 with exercise prices of $13.81 to $26.63 per share. 7 COMPUTER HORIZONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Periods Ended September 30, 2001 and September 30, 2000 (unaudited) 4. SEGMENT INFORMATION The Company has identified two segments: IT Services and the 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 and Outsourcing. The 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, restructuring charge/(credit), loss on the sale of assets and amortization of intangibles. These exclusions total $3.4 million and $2.0 million in the third quarter of 2001 and 2000, respectively and $9.8 million and $3.7 million in the first nine months of 2001 and 2000, respectively. 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 revenue. Nine Months Ended September 30, September 30, 2001 2000 ---------------------------- REVENUE: IT Services $212,659 $229,813 Solutions Group 93,029 107,069 -------------------------- TOTAL $305,688 $336,882 -------------------------- OPERATING INCOME / (LOSS): IT Services $ 7,122 $4,736 Solutions Group (14,575) (13,701) -------------------------- TOTAL $ (7,453) $ (8,965) -------------------------- ASSETS: IT Services $105,261 $204,835 Solutions Group 78,550 62,828 Corporate and other 75,733 60,962 -------------------------- TOTAL $259,544 $328,625 -------------------------- 8 COMPUTER HORIZONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Periods Ended September 30, 2001 and September 30, 2000 (unaudited) 5. 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. At December 31, 2000, the Company recorded a write down of goodwill of $7.2 million for the shutdown of ESG. In addition, a non-cash charge writing down goodwill of $26 million and purchased software of $6.9 million was recorded in the fourth quarter of 2000, in connection with the write down of assets held for sale to realizable value. The closing of IT Services and Solutions offices resulted in the termination of 90 employees with a severance charge of $1.3 million. As of September 30, 2001, $963,000 had been paid to date in severance to the terminated employees. Remaining at Remaining at September 30, Dec. 31, 2000 Paid 2001 ---------------------------------------------------- Severance: United States $1,020 $(716) $ 304 ---------------------------------------------------- Lease Obligations: United States $1,600 $(730) $ 870 ---------------------------------------------------- ---------------------------------------------------- Total $2,620 $(1,446) $1,174 ---------------------------------------------------- 9 COMPUTER HORIZONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Periods Ended September 30, 2001 and September 30, 2000 (unaudited) 5. RESTRUCTURING CHARGES (CONTINUED) 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. 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 third quarter 1999 restructuring reserve and the reversal of an over accrual of employee severance benefits due to terminated employees in the UK and Canada. The remaining balance at September 30, 2001 includes continuing rents on two properties with the leases terminating in 2004 and 2005 and severance amounting to $118,000, of which $70,000 was paid in the third quarter of 2001. Remaining at Remaining at September 30, Dec. 31, 2000 Paid 2001 --------------------------------------------------- Severance: United States $118 $ (70) $ 48 --------------------------------------------------- --------------------------------------------------- Lease Obligations: United States $267 $(191) $ 76 --------------------------------------------------- --------------------------------------------------- Total $385 $(261) $124 --------------------------------------------------- 10 COMPUTER HORIZONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Periods Ended September 30, 2001 and September 30, 2000 (unaudited) 6. 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, in the fourth quarter of 2000, 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. During the second quarter of 2001 one of the Company's subsidiaries, eB Networks, was revalued and accordingly another approximately $5.5 million loss was recorded to reduce the carrying amount to the current estimated net realizable value. 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 Solutions segment. During the third quarter ended September 30, 2001 and 2000 these respective entities generated net loss of $1.5 million, excluding $1.8 million from the loss on the sale of assets, and $2.8 million, respectively and amortization expense of nil and $0.9 million, respectively. For the first nine months of 2001 and 2000 these respective entities generated net loss of $4.2 million, excluding $1.6 million from the loss on the sale of assets, and $4.2 million, respectively and amortization expense of nil and $2.6 million, respectively. (See Note 8 for information on the sale of certain of these assets). As of September 30, 2001, the remaining net assets held for sale are attributable to Princeton Softech, and are as follows: Current Assets $22,337 Property and equipment 1,398 Other assets 2,797 ----- Total assets 26,532 Total liabilities (7,834) ------- Total net assets held for sale $18,698 ======= 11 COMPUTER HORIZONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Periods Ended September 30, 2001 and September 30, 2000 (unaudited) 7. COMPREHENSIVE INCOME / (LOSS) Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No.130"), requires that items defined as other comprehensive income/(loss), such as foreign currency translation adjustments, be separately classified in the financial statements and that the accumulated balance of other comprehensive income/(loss) be reported separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. The components of comprehensive income/(loss) for the three and nine months ended September 30, 2001 and September 30, 2000 are as follows:
Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ---------------------------------------------------------------- Comprehensive Income/(Loss): Net Loss $(4,821) $(6,766) $(11,403) $ (7,653) Other Comprehensive income/(loss)- foreign currency adjustment (7) 1,055 (2,051) 8 ---------------------------------------------------------------- Comprehensive Loss $(4,828) $(5,711) $(13,454) $ (7,645) ----------------------------------------------------------------
12 COMPUTER HORIZONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Periods Ended September 30, 2001 and September 30, 2000 (unaudited) 8. SALE OF SUBSIDIARIES On September 10, 2001, the Company sold the assets of eB Networks to Inrange Technologies, a storage networking company, for cash of $4.9 million and a short-term note receivable of $540,000. The loss from the transaction was $3.2 million, which included the final write-down of related goodwill of $2.1 million. The results of operations are included in the consolidated financial statements through September 10, 2001 within the Solutions group. On August 30, 2001, the Company sold the ICM Education name to AlphaNet Solutions, Inc., an IT professional services firm, for $0.5 million. The gain from the transaction was $332,000. The results of operations are included in the consolidated financial statements through August 30, 2001 within the Solutions group. On April 17, 2001, the Company sold the SELECT Software Tools division "Select" of Princeton Softech to Aonix, a member of the Gores Technology Group, for approximately $895,000 including $545,000 of cash received and a note receivable of $350,000. This sale included all the software assets and intellectual property rights of Select and was sold at book value. The results of operations are included in the consolidated financial statements through April 17, 2001 within the Solutions group. 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 gain from the transaction was $438,000. The results of operations are not included in the consolidated financial statements as of January 1, 2001. 9. PURCHASE OF TREASURY STOCK In April 2001, the Board of Directors approved the repurchase in the open market of up to 10% of its common shares outstanding, or approximately 3.2 million shares. As of November 13, 2001 the Company had repurchased, in the open market, 670,000 shares of its stock at an average price of $3.17 per share for an aggregate purchase amount of $2.2 million. 10. ASSET-BASED LENDING FACILITY On July 31, 2001 the Company entered into an agreement with a secured asset-based lending facility which replaced its two unsecured discretionary lines of credit. This new line of credit is a three-year, $40 million facility with availability based primarily on eligible customer receivables. The interest rate for the first ninety days from closing is Prime plus 0.5%, thereafter the rate is LIBOR plus 2.75% based on the unpaid principal. The borrowing base less outstanding loans must equal or exceed $15 million. At the time of closing there was a $170,000 commitment fee paid to the agent. As of September 30, 2001 there was $14 million in borrowing outstanding against the facility. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Periods Ended September 30, 2001 and September 30, 2000 RESULTS OF OPERATIONS REVENUES. Revenues decreased to $94.2 million in the third quarter of 2001 from $104.5 million in the third quarter of 2000, a decrease of $10.3 million or 9.9%. The Solutions Group decreased to $29.0 million in the third quarter of 2001 from $31.8 million in the third quarter of 2000, a decrease of $2.8 million or 8.8%. IT Services revenues decreased to $65.2 million in the third quarter of 2001 from $72.7 million in the third quarter of 2000, a decrease of $7.5 million or 10.3%. The decrease in Solutions Group revenue is entirely attributable to the revenue decline experienced by the business units held for sale. Solutions Group revenue, excluding the operations of units held for sale, actually increased by $7.4 million in the third quarter of 2001 to $22.3 million. The decrease in IT Services revenue is primarily attributed to the current softness in the IT Staffing business. This softness is the result of a combination of spending shifts of customers from legacy environments to e-business initiatives and reductions in IT spending due to current economic conditions. Revenues decreased to $305.7 million in the first nine months of 2001 from $336.9 million in the first nine months of 2000, a decrease of $31.2 million or 9.3%. The Solutions Group decreased to $93.0 million in the first nine months of 2001 from $107.1 million in the first nine months of 2000, a decrease of $14.1 million or 13.2%. Excluding the operations of the business units held for sale, Solutions Group revenue increased by $16.9 million or 37.4% for the first nine months of 2001. IT Services decreased to $212.7 million in the first nine months of 2001 from $229.8 million in the first nine months of 2000, a decrease of $17.1 million or 7.4% which is attributable to the softness in the IT Staffing business. DIRECT COSTS. Direct costs decreased to $67.7 million and $215.5 million in the third quarter and nine months of 2001, respectively, from $75.0 million and $237.6 million in the comparable periods of 2000. Gross margin was flat, at 28.2% and 29.5%, respectively, in the third quarter and first nine months of 2001, as compared to the third quarter and first nine months of 2000. The Company's margins are subject to fluctuations due to a number of factors, including the level of salary and other compensation necessary to attract and retain qualified technical personnel. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses (excluding the restructuring charge/(credit)) decreased to $30.4 million and $97.6 million in the third quarter and first nine months of 2001, respectively, from $38.6 million and $108.2 million in the comparable 2000 periods, a decrease of $8.2 million or 21.2% and $10.6 million or 9.8%, respectively. As a percentage of revenues, selling, general and administrative expenses decreased to 32.3% and 31.9% of revenues in the third quarter and first nine months of 2001 from 36.9% and 32.1% of revenues in the comparable periods of 2000. During the first nine months of 2001, the Company recorded a restructuring charge of $5.5 million related to the further write-down of one of the Company's assets held for sale to current fair value. During the first nine months of 2000, the Company recorded a restructuring credit to reverse $2.4 million of the restructuring charge recorded in the third quarter of 1999, leaving approximately $0.4 million of the original reserve relating to future costs associated with continuing rent and severance commitments in the United States. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Periods Ended September 30, 2001 and September 30, 2000 LOSS FROM OPERATIONS. Operating margins, excluding the restructuring charge in 2001 and the restructuring credit in 2000, increased to a loss of 4.8% and 3.1% in the third quarter and first nine months of 2001 from a loss of 10.3% and 4.2% in the comparable 2000 periods. 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). Other expense increased to $2.8 million and $2.3 million in the third quarter and first nine months of 2001, respectively, compared to other expense of $0.4 million and $0.9 million in the same periods of 2000. This increase in other expense was primarily the result of the loss on sale of assets. PROVISION FOR INCOME TAXES. The effective tax rates for Federal, state and local income taxes were 34.0% for the third quarter and first nine months of 2001. For the comparable 2000 periods, the rate was 39.0% and 39.5%. NET LOSS. Net loss for the third quarter of 2001 was $4.8 million, or $0.15 loss per diluted share, compared to net loss of $6.8 million, or $0.21 loss per diluted share for the third quarter of 2000, an increase of $2.0 million. For the first nine months of 2001, the net loss was $11.4 million, or $0.36 loss per diluted share, compared to net loss of $7.7 million, or $0.24 loss per diluted share for the first nine months of 2000. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2001, the Company had $136.9 million in working capital, of which $44.5 million was cash and cash equivalents. Net cash provided by operating activities in the first nine months of 2001 was $30.0 million, consisting primarily of a $21 million tax refund as a result of the carryback of year 2000 operating losses to profitable prior years. Net cash provided by investing activities in the first nine months of 2001 was $5.7 million, consisting primarily of cash received from the sale of assets, offset by purchases of equipment. Net cash used in financing activities was $6.7 million for the first nine months of 2001, primarily consisting of the decrease in borrowings. At September 30, 2001, the Company had a current ratio position of 3.8 to 1. The Company believes that its cash and cash equivalents, line of credit and internally generated funds will be sufficient to meet its working capital needs through 2001. On July 31, 2001 the Company entered into an agreement with a secured asset-based lending facility which replaced its two unsecured discretionary lines of credit. This new line of credit is a three-year, $40 million facility with availability based primarily on eligible customer receivables. The interest rate for the first ninety days from closing is Prime plus 0.5%, thereafter the rate is LIBOR plus 2.75% based on the unpaid principal. The borrowing base less outstanding loans must equal or exceed $15 million. At the time of closing there was a $170,000 commitment fee paid to the agent. As of September 30, 2001 there was $14 million in borrowing outstanding against the facility. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Periods Ended September 30, 2001 and September 30, 2000 LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) In June 2001, the Financial Accounting Standards Board approved the issuance of SFAS No. 141, "Business Combinations" and SFAS 142, "Goodwill and Other Intangible Assets" which was issued July 20, 2001. The new standards require that all business combinations initiated after June 30, 2001 must be accounted for under the purchase method. In addition, all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged shall be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives will no longer be subject to amortization, but will be subject to at least an annual assessment for impairment by applying a fair value based test. The Company will continue to amortize goodwill existing at September 30, 2001 under its current method until January 1, 2002. Thereafter, annual and quarterly goodwill amortization of approximately $2.6 million and $650,000, respectively, will no longer be recognized. By June 30, 2002, the Company will perform a transitional fair value based impairment test and if the fair value is less than the recorded value at January 1, 2002, the Company will record an impairment loss in the March 31, 2002 quarter, as a cumulative effect of a change in accounting principle. In August 2001, the FASB issued statement of Financial Accounting Standard No. 144 "Accounting for the Impairment or Disposal of Long Lived Assets", ("SFAS 144"). This statement is effective for fiscal years beginning after December 15, 2001. This supercedes SFAS 121, while retaining many of the requirements of such statement. The Company is currently evaluating the impact of the statement. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Periods Ended September 30, 2001 and September 30, 2000 PRO FORMA FINANCIAL INFORMATION EXCLUDING ASSETS HELD FOR SALE The accompanying unaudited pro forma condensed consolidated statement of operations as of the quarters ended September 30, 2001, June 30, 2001, March 31, 2001, March 31, 2000, June 30, 2000, September 30, 2000 and December 31, 2000 have been prepared to give effect of the consolidated operations excluding net assets held for sale and is intended for informational purposes only. All adjustments necessary to fairly present this pro forma condensed consolidated financial information have been made based on available information and assumptions, which, in the opinion of management, are reasonable. The unaudited pro forma condensed consolidated financial information is based upon and should be read in conjunction with, the historical consolidated financial statements of the Company and the notes thereto. Quarter Ended September 30, 2001 -------------------------------------------- Consolidated Assets held Pro forma CHC for Sale CHC -------------------------------------------- Revenues $94,212 $6,597 $87,615 Direct Costs 67,672 2,409 65,263 ------- ------- ------- Gross Profit 26,540 4,188 22,352 SG&A 29,790 6,321 23,469 Bad Debt Expense 614 89 525 ------- ------- ------- Operating Loss (3,864) (2,222) (1,642) Interest Income (43) -- (43) Loss on Sale of Assets 2,833 2,833 -- Amortization of Intangibles 650 -- 650 ------- ------- ------- Loss before taxes (7,304) (5,055) (2,249) Income taxes/(benefit) (2,483) (1,718) (765) ------- ------- ------- Net Loss $(4,821) $(3,337) $(1,484) ======= ======= ======= 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Periods Ended September 30, 2001 and September 30, 2000 Quarter Ended June 30, 2001 ------------------------------------------- Consolidated Assets held Pro forma CHC for Sale CHC ------------------------------------------- Revenues $104,995 $11,140 $93,855 Direct Costs 74,927 4,057 70,870 -------- ------- ------- Gross Profit 30,068 7,083 22,985 SG&A 32,162 9,614 22,548 Bad Debt Expense 396 37 359 -------- ------- ------- Operating Income/(loss) (2,490) (2,568) 78 Restructuring Charge 5,473 -- 5,473 Interest Income (256) -- (256) Amortization of Intangibles 723 -- 723 -------- ------- ------- Loss before taxes (8,430) (2,568) (5,862) Income taxes/(benefit) (2,866) (873) (1,993) -------- ------- ------- Net Loss $ (5,564) $(1,695) $(3,869) ======== ======= ======= Quarter Ended March 31, 2001 --------------------------------------- Consolidated Assets held Pro forma CHC for Sale CHC --------------------------------------- Revenues $106,481 $13,265 $93,216 Direct Costs 72,916 4,997 67,919 -------- ------- ------- Gross Profit 33,565 8,268 25,297 SG&A 34,221 9,793 24,428 Bad Debt Expense 443 48 395 -------- ------- ------- Operating Income/(loss) (1,099) (1,573) 474 Gain on sale of Spargo 438 438 -- Interest Expense 175 -- 175 Amortization of Intangibles 707 -- 707 -------- ------- ------- Loss before taxes (1,543) (1,135) (408) Income taxes/(benefit) (525) (386) (139) -------- ------- ------- Net Loss $(1,018) $ (749) $ (269) ======== ======= ======= 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Periods Ended September 30, 2001 and September 30, 2000 Quarter Ended March 31, 2000 --------------------------------------- Consolidated Assets held Pro forma CHC for Sale CHC --------------------------------------- Revenues $114,282 $21,397 $92,885 Direct Costs 83,015 11,505 71,510 -------- -------- ------- Gross Profit 31,267 9,892 21,375 SG&A 32,073 12,549 19,524 Bad Debt Expense 1,087 -- 1,087 -------- -------- ------- Operating Income/(loss) (1,893) (2,657) 764 Interest Expense 266 -- 266 Amortization of Intangibles 1,776 897 879 -------- -------- ------- Loss before taxes (3,935) (3,554) (381) Income taxes/(benefit) (1,692) (1,528) (164) -------- -------- ------- Net Loss $ (2,243) $ (2,026) $ (217) ======== ======== ======= Quarter Ended June 30, 2000 --------------------------------------- Consolidated Assets held Pro forma CHC for Sale CHC --------------------------------------- Revenues $118,095 $23,655 $94,440 Direct Costs 79,578 9,145 70,433 -------- -------- ------- Gross Profit 38,517 14,510 24,007 SG&A 35,049 12,684 22,365 Bad Debt Expense 1,484 -- 1,484 -------- -------- ------- Operating Income/(loss) 1,984 1,826 158 Restructuring Credits (2,376) -- (2,376) Interest Expense 301 -- 301 Amortization of Intangibles 1,680 787 893 -------- -------- ------- Income before taxes 2,379 1,039 1,340 Income taxes 1,023 447 576 -------- -------- ------- Net Income $ 1,356 $ 592 $ 764 ======== ======= ======= 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Periods Ended September 30, 2001 and September 30, 2000 Quarter Ended September 30, 2000 --------------------------------------- Consolidated Assets held Pro forma CHC for Sale CHC --------------------------------------- Revenues $104,505 $16,877 $87,628 Direct Costs 75,011 7,818 67,193 -------- ------- ------- Gross Profit 29,494 9,059 20,435 SG&A 36,634 12,686 23,948 Bad Debt Expense 1,916 -- 1,916 -------- ------- ------- Operating Loss (9,056) (3,627) (5,429) Interest Expense 373 -- 373 Amortization of Intangibles 1,662 935 727 -------- ------- ------- Loss before taxes (11,091) (4,562) (6,529) Income taxes/(benefit) (4,325) (1,779) (2,546) -------- ------- ------- Net Loss $(6,766) $(2,783) $(3,983) ======== ======= ======= Quarter Ended December 31, 2000 --------------------------------------- Consolidated Assets held Pro forma CHC for Sale CHC --------------------------------------- Revenues $108,597 $19,849 $ 88,748 Direct Costs 75,211 8,745 66,466 -------- ------- -------- Gross Profit 33,386 11,104 22,282 SG&A 39,935 12,420 27,515 Bad Debt Expense 21,965 -- 21,965 -------- ------- -------- Operating Loss (28,514) (1,316) (27,198) Restructuring Charges 43,904 -- 43,904 Interest Expense 265 -- 265 Amortization of Intangibles 2,316 1,517 799 -------- ------- -------- Loss before taxes (74,999) (2,833) (72,166) Income taxes/(benefit) (24,825) (938) (23,887) -------- ------- -------- Net Loss $(50,174) $(1,895) $(48,279) ======== ======= ======== CERTAIN DISCLOSURES This report contains certain forward-looking statements for purposes of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties that could cause actual results to differ materially. Such statements are based upon, among other things, assumptions made by, and information currently available to management, including management's own knowledge and assessment of the Company's industry and competition. 20 PART II Other Information Item 6. b) None Signatures Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COMPUTER HORIZONS CORP. ---------------------- (Registrant) DATE: NOVEMBER 14, 2001 /S/ JOHN J. CASSESE ----------------- -------------------- John J. Cassese Chairman of the Board and President DATE: NOVEMBER 14, 2001 /S/ WILLIAM J. MURPHY ----------------- --------------------- William J. Murphy Executive Vice President, Chief Financial Officer (Principal Financial Officer) and Director DATE: NOVEMBER 14, 2001 /S/ MICHAEL J. SHEA ----------------- ------------------- Michael J. Shea, Vice President and Controller (Principal Accounting Officer) 21 -----END PRIVACY-ENHANCED MESSAGE-----