-----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, IfhdLpiFm63Ekoac5SrU3EXE+Lr0Vx/5440spnaQPboTXNhgb0xduGZ7FYOS4R+1 xIOUQeyN0cWNhznxzAS9jw== 0000950123-99-007741.txt : 19990817 0000950123-99-007741.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950123-99-007741 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: SEC FILE NUMBER: 000-07282 FILM NUMBER: 99692792 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 COMPUTER HORIZONS CORP. 1 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 June 30, 1999 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 August 10, 1999 the issuer had 30,695,172 shares of common stock outstanding. 1 2 COMPUTER HORIZONS CORP. Index
Page No. Part I Financial Information Consolidated Balance Sheets June 30, 1999 and December 31, 1998 3 Consolidated Statements of Income Three Months and Six Months Ended June 30, 1999 and June 29, 1998 4 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 1999 and June 29, 1998 5 Notes to Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II Other Information 13 Signatures 13
2 3 COMPUTER HORIZONS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 (dollars in thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents $19,755 $51,796 Short term investments 2,450 11,259 Accounts receivable, net of allowance for doubtful accounts of $5,284,000 and $3,209,000 at June 30, 1999 and December 31, 1998, respectively 175,793 135,447 Deferred income tax benefit 6,254 4,987 Other 3,584 2,049 ----- ----- TOTAL CURRENT ASSETS 207,836 205,538 PROPERTY AND EQUIPMENT 32,157 26,469 Less accumulated depreciation 10,922 11,141 ------ ------ 21,235 15,328 OTHER ASSETS - NET: Goodwill 89,694 66,315 Deferred income tax benefit 1,639 1,348 Other 8,061 7,523 ----- ----- TOTAL OTHER ASSETS 99,394 75,186 TOTAL ASSETS $328,465 $296,052 ============== ================ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable, current $ 20,014 - Accrued payroll, payroll taxes and benefits 25,342 $ 24,262 Accounts payable 3,585 5,258 Income taxes payable 2,207 6,437 Other accrued expenses 8,165 10,821 ----- ------ TOTAL CURRENT LIABILITIES 59,313 46,778 LONG-TERM DEBT 4,348 - OTHER LIABILITIES 7,696 2,740 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 32,351,580 shares at June 30, 1999 and December 31, 1998 3,235 3,235 Additional paid-in capital 128,818 128,821 Accumulated comprehensive income -593 -762 Retained earnings 141,675 123,943 ------- ------- 273,135 255,237 Less shares held in treasury, at cost; 1,656,408 shares and 1,061,662 shares at June 30, 1999 and December 31, 1998, respectively 16,027 8,703 ------ ----- TOTAL SHAREHOLDERS' EQUITY 257,108 246,534 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $328,465 $296,052 ============== ================
3 4 COMPUTER HORIZONS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED JUNE 30, 1999 JUNE 29, 1998 (dollars in thousands, except per share data) REVENUES: IT Services $133,716 93.6% $118,144 95.5% Products 9,158 6.4% 5,592 4.5% ----- ---- ----- ---- 142,874 100.0% 123,736 100.0% COSTS AND EXPENSES: Direct costs - Services 93,810 65.7% 78,702 63.6% Direct costs - Products 2,020 1.4% 918 0.7% Selling, general and administrative 34,684 24.3% 26,244 21.2% Merger-related expenses 0 0.0% 2,209 1.8% - ---- ----- ---- 130,514 91.3% 108,073 87.3% INCOME FROM OPERATIONS 12,360 8.7% 15,663 12.7% OTHER INCOME (expense): Interest income 363 0.3% 1,542 1.2% Interest expense -239 -0.2% -16 0.0% Equity in Joint Venture net earnings (loss) 0 0.0% 0 0.0% - ---- - ---- 124 0.1% 1,526 1.2% INCOME BEFORE INCOME TAXES 12,484 8.7% 17,189 13.9% INCOME TAXES: Current 5,909 4.1% 8,346 6.7% Deferred -666 -0.5% -693 -0.6% ---- ----- ---- ----- 5,243 3.7% 7,653 6.2% NET INCOME $7,241 5.1% $9,536 7.7% EARNINGS PER SHARE: Basic $0.24 $0.31 Diluted $0.23 $0.30 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 30,515,000 30,827,000 Diluted 31,323,000 32,214,000 SIX MONTHS ENDED JUNE 30, 1999 JUNE 29, 1998 (dollars in thousands, except per share data) REVENUES: IT Services $265,782 94.6% $226,117 96.1% Products 15,233 5.4% 9,130 3.9% ------ ---- ----- ---- 281,015 100.0% 235,247 100.0% COSTS AND EXPENSES: Direct costs - Services 183,490 65.3% 148,854 63.3% Direct costs - Products 3,060 1.1% 1,511 0.6% Selling, general and administrative 65,817 23.4% 50,683 21.5% Merger-related expenses 0 0.0% 3,537 1.5% - ---- ----- ---- 252,367 89.8% 204,585 87.0% INCOME FROM OPERATIONS 28,648 10.2% 30,662 13.0% OTHER INCOME (expense): Interest income 801 0.3% 2,875 1.2% Interest expense -411 -0.1% -16 0.0% Equity in Joint Venture net earnings (loss) 0 0.0% -90 0.0% - ---- --- ---- 390 0.1% 2,769 1.2% INCOME BEFORE INCOME TAXES 29,038 10.3% 33,431 14.5% INCOME TAXES: Current 13,837 4.9% 16,276 6.9% Deferred -1,559 -0.6% -1,017 -0.4% ------ ----- ----- ----- 12,278 4.4% 15,259 6.5% NET INCOME $16,760 6.0% $18,172 7.7% EARNINGS PER SHARE: Basic $0.54 $0.59 Diluted $0.53 $0.56 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 30,868,000 30,771,500 Diluted 31,578,000 32,246,000
4 5 COMPUTER HORIZONS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30 June 29 1999 1998 (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES $(24,305) $ 4,082 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Sales/(Purchases) of short-term investments 8,809 (17,636) Purchases of property and equipment (8,095) (4,940) Acquisitions, net of cash (14,100) (Increase) decrease in other assets (538) (586) Repurchase of common stock (11,604) - ---------- ---------- (25,528) (23,162) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Increase/(decrease) in borrowings 16,362 (1,432) Dividends paid - (773) Stock options exercised 1,261 2,865 ---------- ---------- 17,623 660 ---------- ---------- Foreign currency gain 169 - ---------- ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS (32,041) (18,420) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 51,796 92,087 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,755 $73,667 =========== =========== DETAILS OF ACQUISITIONS: Fair value of assets 18,548 Liabilities (4,991) ---------- Cash paid for acquisitions 13,557
5 6 COMPUTER HORIZONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Quarters Ended June 30, 1999 and June 29, 1998 The information furnished reflects all adjustments which, in the opinion of the Company, are necessary to present fairly its consolidated financial position and the results of its operations and changes in financial position for the periods indicated. Reference is made to the Company's annual financial statements for the year ended December 31, 1998, for a description of the accounting policies, which have been continued without change. Also refer to the footnotes with those annual statements for additional details of the Company's financial condition, results of operations and changes in cash flows. The details in those notes have not changed except as a result of normal transactions in the interim. On June 1, 1999, 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. The acquisition was accounted for as a purchase. The cost of the purchased software and other intangibles approximates $12 million, and is being amortized to operations over a five year period. On May 10, 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 $16 million. 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. Earnings per Share: Basic Earnings Per Share ("EPS") is based on the weighted average number of common shares outstanding without consideration of common stock equivalents. Diluted earnings per share is based on the weighted average number of common and common equivalent shares outstanding. The calculation takes into account the shares that may be issued upon exercise of stock options, reduced by the shares that may be repurchased with the funds received from the exercised, based on the average price during the year. In accordance with SFAS No.128, the table below presents both basic and diluted earnings per share: 6 7
Six Months Ended June 30, June 29, 1999 1998 Numerator: Net income (in thousands) $16,760 $18,172 Denominator: Denominator for basic earnings per share Weighted average shares outstanding 30,868,000 30,770,500 Effect of stock options 710,000 1,475,500 Dilutive potential earnings per share: Denominator for diluted earnings per share Adjusted weighted average shares outstanding and assumed conversions 31,578,000 32,246,000 Basic earnings per share $0.54 $0.59 Diluted earnings per share $0.53 $0.56
Segment Information: The Company has identified two segments: IT Services and Products. Segment information for revenues and operating income (which consists of income before income taxes, excluding net interest income and amortization of intangibles) consisted of the following:
Six Months Ended June 30, June 29, 1999 1998 ---- ---- Revenue IT Services $265,782 $226,117 Products 15,233 9,130 Corporate and other -- -- TOTAL 281,015 235,247 Operating Income IT Services 27,862 29,085 Products (excluding one time merger related expenses in 1998) 3,498 2,398 Corporate and other -- (90) TOTAL $ 31,360 $ 31,393
7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Quarters Ended June 30, 1999 and June 29, 1998 Revenues. Revenues increased to $142.9 million in the second quarter of 1999 from $123.7 million in the second quarter of 1998, an increase of $19.2 million or 15.5%. Staffing revenues increased to $77.2 million in the second quarter of 1999 from $62.6 million in the second quarter of 1998, an increase of $14.6 million or 23.3%. Total solutions revenues, including Year 2000 revenues, increased to $56.0 million in the second quarter of 1999 from $55.6 million in the second quarter of 1998, an increase of $0.4 million or 0.7%. Year 2000 services revenues decreased to $14.8 million in the second quarter of 1999 from $36.6 million in the second quarter of 1998, a decrease of $21.8 million. The Company's Year 2000 business accounted for 10.4% of total revenues in the second quarter of 1999 versus 29.5% of total revenues in the second quarter of 1998. As anticipated, the sharp decline in Year 2000 business is reflective of the completion of code remediation assignments for major customers. This trend is expected to continue for the remainder of 1999. Solutions revenues, excluding Year 2000 services, increased to $41.2 million in the second quarter of 1999 from $19.0 million in the second quarter of 1998, an increase of $22.2 million. Product revenues increased to $9.2 million for the second quarter of 1999 from $5.6 million in the second quarter of 1998, an increase of $3.6 million or 64.3% Revenues increased to $281.0 million in the first six months of 1999 from $235.2 million in the first six months of 1998, an increase of $45.8 million or 19.5%. Staffing revenues increased to $154.4 million in the first six months of 1999 from $121.1 million in the first six months of 1998, an increase of $33.3 million or 27.5%. Total solutions revenues, including Year 2000 revenues, increased to $109.4 million in the first six months of 1999 from $105.0 million in the first six months of 1998, an increase of $4.4 million or 4.2%. Year 2000 services revenues decreased to $32.8 million in the first six months of 1999 from $69.8 million in the first six months of 1998, a decrease of $37.0 million or 53.0%. The Company's Year 2000 business accounted for 11.7% of total revenues in the first six months of 1999 versus 29.7% of total revenues in the first six months of 1998. Solutions revenues, excluding Year 2000 services, increased to $76.6 million in the first six months of 1999 from $35.2 million in the first six months of 1998, an increase of $41.4 million. Product revenues increased to $15.2 million in the first six months of 1999 from $9.1 million in the first six months of 1998, an increase of $6.1 million or 67.0%. Direct Costs. Direct costs increased to $95.8 million and $186.6 million in the second quarter and first six months of 1999, respectively, from $79.6 million and $150.4 million in the comparable 1998 periods. Gross margin decreased to 32.9% and 33.6% in the second quarter and first six months of 1999, respectively, from 35.7% and 36.1% in the second quarter and first six months of 1998, respectively. The decrease in gross margin was primarily due to stable margins in the Company's staffing business and a decrease in the Company's higher margin Year 2000 business. The Company's margins are subject to fluctuations due to a number of factors, including the level of salary and other compensation necessary to attract and retain qualified technical personnel, and the mix of staffing versus solutions business during a particular quarter. 8 9 Selling, General and Administrative. Selling, general and administrative expenses (excluding merger-related expenses) increased to $34.7 million and $65.8 million in the second quarter and first six months of 1999, respectively, from $26.2 million and $50.7 million in the comparable 1998 periods. As a percentage of revenues, selling, general and administrative expenses increased to 24.3% of revenues and 23.4% of revenues in the second quarter and first six months of 1999, respectively, from 21.2% of revenues and 21.5% of revenues in the comparable 1998 periods. 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 Company's general and administrative infrastructure. The Company incurred merger-related expenses of approximately $2.2 million and $3.5 million in the second quarter and first six months of 1998, respectively. Income from Operations. Operating margins decreased to 8.7% and 10.2% in the second quarter and first six months of 1999, respectively, from 12.7% and 13.0% in the comparable 1998 periods. These decreases were primarily due to decreases in the Company's higher margin Year 2000 business, partially offset by merger-related expenses in 1998. The Company's business is labor-intensive and, as such, is sensitive to inflationary trends. This sensitivity applies to client billing rates, as well as to payroll costs. Other Income. Other income decreased to $0.1 million and $0.4 million in the second quarter and first six months of 1999, respectively, from $1.5 million and $2.8 million in the comparable 1998 periods. This decrease was primarily the result of decreased interest income. The Company completed several acquisitions during the second half of 1998 and first half of 1999 which decreased cash available for investment. Provision for Income Taxes. The effective tax rates for Federal, state and local income taxes were 42.0% and 42.3% for the second quarter and first six months of 1999, respectively. For the comparable 1998 periods, the rates were 44.5% and 45.6%, respectively. The decrease in the 1999 rates was primarily due to the inclusion of certain non-deductible merger-related expenses in 1998 operating results. Net Income. Net income decreased to $7.2 million, or $0.23 per share (diluted) for the second quarter of 1999, from $9.5 million, or $0.30 per share (diluted) for the second quarter of 1998, a decrease of $2.3 million or 24.2%. For the first six months of 1999, net income decreased to $16.8 million, or $0.53 per share (diluted), from $18.2 million, or $0.57 per share (diluted) for the first six months of 1998. Liquidity and Capital Resources. At June 30, 1999, the Company had $148.5 million in working capital, of which $22.2 million was cash, cash equivalents and short-term investments. There was a $15 million borrowing outstanding against one of the Company's bank lines of credit. Net cash used by operating activities in the first six months of 1999 was $24.3 million, consisting primarily of an increase in accounts receivable, partially offset by net income. During the first six months of 1998, net cash provided by operating activities was $4.1 million, consisting primarily of net income, offset in part by an increase in accounts receivable. The significant increase in accounts receivable during the first six months of 1999 was a temporary condition caused by delays in billing to customers, resulting from the implementation of an enterprise-wide information system. The Company expects its investment in receivables to be normalized in the second half of 1999. 9 10 Net cash used in investing activities in the first six months of 1999 was $25.5 million, consisting primarily of the funds used to complete the acquisitions of Select products and ICM, as well as the Company's repurchase of approximately 1,015,000 shares of common stock. During the first six months of 1998, cash used in investing activities was $23.2 million, primarily as a result of the purchases of short-term investments, as well as equipment purchases. Net cash provided by financing activities was $17.6 million for the first six months of 1999, primarily consisting of borrowings against the Company's line of credit. For the first six months of 1998, net cash provided by financing activities was $0.7 million, consisting of cash received from stock option exercises, reduced by a scheduled repayment of long term debt and the payment by Spargo of dividends to its shareholders. At June 30, 1999, the Company had a current ratio position of 3.5 to 1. The Company believes that its cash and cash equivalents and short-term investments, lines of credit and internally generated funds will be sufficient to meet its working capital needs through 1999. Year 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any company's computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruptions of operations including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company's plan to resolve the Year 2000 issue involves the following four phases: assessment, remediation, testing and implementation. The assessment phase included an examination of all systems that could be significantly affected by the Year 2000. With the completion of this phase, it was concluded that many of the Company's significant information technology systems could be affected, particularly in the time capture and billing areas. Concurrently, a review was being conducted to select a new accounting/information system to support the future growth of the Company. As a result, as part of the remediation phase, the Company chose a new system that addressed, among other areas, Year 2000 compliance. Following extensive testing procedures, including Year 2000 compliance, the new system was implemented in late 1998. Subsidiaries operating with independent accounting/information systems are already compliant or will transfer financial operations to the Company's core business system during the fourth quarter of 1999. The Company has utilized both internal and external resources to implement the new accounting/information system. The total cost of the project was approximately $9 million, of which approximately $8 million was capitalized. The project was funded through operating cash flows. The Company has queried and continues to monitor Year 2000 compliance of all significant outside vendors and service providers. To date, the Company is not aware of any outside vendor with a Year 2000 issue that would materially impact the Company's results of operations. However, the Company has no means of ensuring that external vendors will be Year 2000 ready. The inability of external vendors to complete their Year 2000 resolution process in a timely fashion could materially impact the Company. 10 11 As described above, the Company believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. However, there is no guarantee that possible "worst case" Year 2000 issues of outside vendors, suppliers and customers would not impact the Company. In addition, disruptions in the economy generally resulting from Year 2000 issues could adversely affect the Company. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. The Company has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and adjusting staffing strategies. Certain Disclosures. This report contains certain forward-looking statements for purposes of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties that could cause actual results to differ materially. Such statements are based upon, among other things, assumptions made by, and information currently available to management, including management's own knowledge and assesment of the Company's industry and competition. 11 12 PART II Other Information Item 6. b) One report on Form 8-K was filed during the quarter for which this report is filed. This form was filed on July 15, 1999, in connection with the Company's declaration of a stock purchase right dividend distribution. 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: August 11, 1999 /s/ John J. Cassese --------------- ---------------------- John J. Cassese Chairman of the Board and President DATE: August 11, 1999 /s/ William J. Murphy --------------- ------------------------ William J. Murphy Executive Vice President and Chief Financial Officer (Principal Financial Officer) DATE: August 11, 1999 /s/ Michael J. Shea --------------- ---------------------- Michael J. Shea Vice President and Controller (Principal Accounting Officer) 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1999 JUN-30-1999 19,755 2,450 175,793 5,284 0 207,836 32,157 10,922 328,465 59,313 0 0 0 3,235 253,873 328,465 0 281,015 0 186,550 65,817 0 390 29,038 12,278 16,760 0 0 0 16,760 0.54 0.53
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