-----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, FNEBTLzgYfzUV6AnSB7adkU0hwQ91Oln0cM/dUAxeYyj0CpapdH6FBqjftGlnim6 IFk7tKIVEpS2BXVi2nbKZg== 0000950123-99-010278.txt : 19991117 0000950123-99-010278.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950123-99-010278 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99756592 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 September 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 November 15, 1999 the issuer had 31,165,193 shares of common stock outstanding. 1 2 COMPUTER HORIZONS CORP. Index
Page No. Part I Financial Information Consolidated Balance Sheets September 30, 1999 and December 31, 1998 3 Consolidated Statements of Income (Loss) Three Months and Nine Months Ended September 30, 1999 and September 28, 1998 4 Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1999 and September 28, 1998 5 Notes to Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II Other Information 13 Signatures 13
2 3 COMPUTER HORIZONS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands) (unaudited)
Sept. 30, December 31, 1999 1998 ----------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 6,622 $ 51,796 Short term investments 1,046 11,259 Accounts receivable, net of allowance for doubtful accounts of $5,508,000 and $3,209,000 at September 30, 1999 and December 31, 1998, respectively 185,777 135,447 Deferred income tax benefit 7,619 4,987 Prepaid Income Taxes 5,801 -- Other 4,561 2,049 --------- --------- TOTAL CURRENT ASSETS 211,426 205,538 --------- --------- PROPERTY AND EQUIPMENT 42,706 26,469 Less accumulated depreciation (17,508) (11,141) --------- --------- 25,198 15,328 --------- --------- OTHER ASSETS - NET: Goodwill 78,047 66,315 Deferred income tax benefit 1,794 1,348 Other 14,060 7,523 --------- --------- TOTAL OTHER ASSETS 93,901 75,186 --------- --------- TOTAL ASSETS $ 330,525 $ 296,052 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable, current $ 14,546 -- Accrued payroll, payroll taxes and benefits 19,366 24,262 Accounts payable 11,399 5,258 Income taxes payable -- 6,437 Other accrued expenses 22,019 10,821 --------- --------- TOTAL CURRENT LIABILITIES 67,330 46,778 --------- --------- LONG-TERM DEBT 4,326 -- --------- --------- OTHER LIABILITIES 5,935 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 32,601,580 shares at September 30, 1999 and 32,351,580 shares at December 31, 1998 respectively 3,261 3,235 Additional paid-in capital 132,128 128,821 Accumulated comprehensive income (165) (762) Retained earnings 137,599 123,943 --------- --------- 272,823 255,237 --------- --------- Less shares held in treasury, at cost; 1,951,586 shares and 1,061,662 shares at September 30, 1999 and December 31, 1998, respectively (19,889) (8,703) --------- --------- TOTAL SHAREHOLDERS' EQUITY 252,934 246,534 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 330,525 $ 296,052 ========= =========
3 4 COMPUTER HORIZONS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Unaudited) (dollars in thousands, except per share data)
THREE MONTHS ENDED ------------------------------------------------------------------------ September 30, 1999 September 28, 1998 --------------------------------- --------------------------------- REVENUES: IT Services $ 109,795 81.3% $ 126,233 92.4% E-Solutions Group 25,266 18.7% 10,400 7.6% ------------ -------------- ------------ -------------- 135,061 100.0% 136,633 100.0% ------------ -------------- ------------ -------------- COSTS AND EXPENSES: Direct costs - Services 83,247 61.6% 83,027 60.8% Direct costs - E-Solutions Group 11,770 8.7% 3,560 2.6% Selling, general and administrative 33,833 25.1% 28,075 20.5% Restructuring charges 6,355 4.7% -- 0.0% Amortization of intangibles 1,629 1.2% 1,052 0.8% Merger-related expenses -- 0.0% 735 0.5% ------------ -------------- ------------ -------------- 136,834 101.3% 116,449 85.2% ------------ -------------- ------------ -------------- INCOME / (LOSS) FROM OPERATIONS (1,773) -1.3% 20,184 14.8% ------------ -------------- ------------ -------------- OTHER INCOME (EXPENSE): Interest income 133 0.1% 1,011 0.7% Interest expense (365) -0.3% (60) 0.0% Equity in Joint Venture net earnings (loss) -- 0.0% -- 0.0% ------------ -------------- ------------ -------------- (232) -0.2% 951 0.7% ------------ -------------- ------------ -------------- INCOME / (LOSS) BEFORE INCOME TAXES (2,005) -1.5% 21,135 15.5% ------------ -------------- ------------ -------------- INCOME (BENEFIT) / TAXES: Current 677 0.5% 10,149 7.4% Deferred (1,519) -1.1% (833) -0.6% ------------ -------------- ------------ -------------- (842) -0.6% 9,316 6.8% ------------ -------------- ------------ -------------- NET INCOME / (LOSS) (1,163) -0.9% 11,819 8.7% ============ ============== ============ ============== EARNINGS / (LOSS) PER SHARE: Basic $ (0.04) $ 0.38 ============ ============ Diluted $ (0.04) $ 0.37 ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 30,679,000 30,960,000 ============ ============ Diluted 30,679,000 32,209,000 ============ ============
NINE MONTHS ENDED ------------------------------------------------------------------------ September 30, 1999 September 28, 1998 --------------------------------- --------------------------------- REVENUES: IT Services $ 355,958 85.6% $ 352,380 94.8% E-Solutions Group 60,118 14.4% 19,500 5.2% ------------ -------------- ------------ -------------- 416,076 100.0% 371,880 100.0% ------------ -------------- ------------ -------------- COSTS AND EXPENSES: Direct costs - Services 253,766 61.0% 231,881 62.3% Direct costs - E-Solutions Group 27,801 6.7% 5,071 1.4% Selling, general and administrative 96,939 23.3% 78,025 21.0% Restructuring Charges 6,355 1.5% -- 0.0% Amortization of intangibles 4,341 1.0% 1,785 0.5% Merger-related expenses -- 0.0% 4,272 1.1% ------------ -------------- ------------ -------------- 389,202 93.5% 321,034 86.3% ------------ -------------- ------------ -------------- INCOME / (LOSS) FROM OPERATIONS 26,874 6.5% 50,846 13.7% ------------ -------------- ------------ -------------- OTHER INCOME (EXPENSE): Interest income 934 0.2% 3,886 1.0% Interest expense (775) -0.2% (76) 0.0% Equity in Joint Venture net earnings (loss) -- 0.0% (90) 0.0% ------------ -------------- ------------ -------------- 159 0.0% 3,720 1.0% ------------ -------------- ------------ -------------- INCOME / (LOSS) BEFORE INCOME TAXES 27,033 6.5% 54,566 14.7% ------------ -------------- ------------ -------------- INCOME (BENEFIT) / TAXES: Current 14,514 3.5% 26,426 7.1% Deferred (3,078) -0.7% (1,852) -0.5% ------------ -------------- ------------ -------------- 11,436 2.8% 24,574 6.6% ------------ -------------- ------------ -------------- NET INCOME / (LOSS) 15,597 3.7% 29,992 8.1% ============ ============== ============ ============== EARNINGS / (LOSS) PER SHARE: Basic $ 0.51 $ 0.97 ============ ============ Diluted $ 0.50 $ 0.93 ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 30,805,000 30,834,000 ============ ============ Diluted 31,488,000 32,234,000 ============ ============
Note: Certain reclassifications have been made to the prior periods to conform to the 1999 presentation. 4 5 COMPUTER HORIZONS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (dollars in thousands)
Nine Months Ended ------------------------ Sept. 30, Sept. 28, 1999 1998 -------- -------- CASH FLOWS (USED IN)/PROVIDED BY OPERATING ACTIVITIES $(25,084) $ 12,220 -------- -------- CASH FLOWS (USED IN)/PROVIDED BY INVESTING ACTIVITIES Sales of short-term investments 10,213 1,197 Purchases of property and equipment (14,061) (6,299) Acquisitions, net of cash (4,858) (47,344) (Increase) decrease in other assets (11,129) 169 -------- -------- (19,835) (52,277) -------- -------- CASH FLOWS (USED IN)/PROVIDED BY FINANCING ACTIVITIES Increase/(decrease) in borrowings 10,546 (1,432) Long-term debt 326 -- Dividends paid -- (773) Repurchase of common stock (12,801) -- Stock options exercised 1,077 3,038 -------- -------- (852) 833 -------- -------- Foreign currency gain 597 -- -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (45,174) (39,224) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 51,796 92,087 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,622 $ 52,863 ======== ======== DETAILS OF ACQUISITIONS: Fair value of assets acquired, net of cash $ 19,105 $ 61,588 Less liabilities assumed (10,855) (5,037) Less stock issued in connection with acquisitions (3,392) (9,207) -------- -------- Net cash paid for acquisitions $ 4,858 $ 47,344 ======== ========
5 6 COMPUTER HORIZONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Quarters Ended September 30, 1999 and September 28, 1998 1. BASIS OF PRESENTATION 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. 2. 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 the three month period ended September 30, 1999 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 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:
Three Months Ended Nine Months Ended September 30, September 28, September 30, September 28, 1999 1998 1999 1998 ------------------------------ ----------------------------- Numerator: Net income/(loss) (in thousands) $ (1,163) $ 11,819 $ 15,597 $ 29,992 Denominator: Denominator for basic earnings per share Weighted average shares outstanding 30,679,000 30,960,000 30,805,000 30,834,000 Effect of stock options -- 1,249,000 683,000 1,400,000 Diluted potential earnings/(loss) per share: Denominator for diluted earnings per share Adjusted weighted average shares Outstanding and assumed conversions 30,679,000 32,209,000 31,488,000 32,234,000 Basic earnings/(loss) per share $ (0.04) $ 0.38 $ 0.51 $ 0.97 Diluted earnings/(loss) per share $ (0.04) $ 0.37 $ 0.50 $ 0.93
6 7 COMPUTER HORIZONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Quarters Ended September 30, 1999 and September 28, 1998 The computation of diluted earnings per share excludes options with exercise prices greater than the average market price. During 1999, there were 1,593,217 excluded options outstanding at September 30, 1999 with exercise prices of $12.92 to $28.13 per share. The computation of diluted earnings per share in 1998 excludes options with exercise prices greater than the average market price. During 1998, there were 581,975 excluded options outstanding at September 28, 1998 with exercise prices of $33.41 to $45.50 per share. 3. SEGMENT INFORMATION The Company has identified two segments: IT Services and E-Solutions Group. The IT Service segment consists largely of the professional services traditionally rendered by the Company and primarily related to legacy and client server environments. 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. Segment information for revenues and operating income (which consists of income before income taxes, excluding interest income, interest expense, amortization of intangibles, restructuring charges and merger related expenses) consisted of the following:
Nine Months Ended September 30, September 28, 1999 1998 Revenue: IT Services $ 355,958 $ 352,380 E-Solutions Group 60,118 19,500 Corporate and other -- -- --------- --------- TOTAL 416,076 371,880 --------- --------- Operating Income: IT Services 35,006 51,632 E-Solutions Group 2,564 5,271 Corporate and other -- (90) --------- --------- TOTAL 37,570 56,813 --------- --------- Assets: IT Services 211,639 151,989 E-Solutions Group 78,395 46,031 Corporate and other 40,491 85,630 --------- --------- TOTAL 330,525 283,650 --------- ---------
4. RESTRUCTURING CHARGES AND RETROACTIVE REBATE 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 attendant reduction of related staff levels. This provision includes an accrued payment of approximately $4.5 million relating to future costs associated with continuing rent and severance commitments. 7 8 COMPUTER HORIZONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Quarters Ended September 30, 1999 and September 28, 1998 In early September 1999, the Company's largest customer, responding to market conditions and competitive issues facing their business, requested the Company and other key IT suppliers, to voluntarily participate in an enterprise-wide retroactive rebate program. On September 13, 1999, the Company chose to participate in the rebate program, resulting in a one-time material charge to third quarter earnings of approximately $1.5 million or $0.03 per share. The rebate was recorded as a reduction of revenue. Based on information received from this customer, the program is not expected to continue into future periods. 5. SUBSEQUENT EVENTS On October 8, 1999, the Company announced that it plans to offer public ownership in two of its business units. Through two separate initial public offerings, the Company is planning to offer to the public early to mid-2000 next year approximately 20 percent ownership in each of its Princeton Softech and Network Services units. On October 18, 1999, the Company acquired G. Triad Enterprises, Inc., 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. 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Quarters Ended September 30, 1999 and September 28, 1998 Revenues. Revenues decreased to $135.1 million in the third quarter of 1999 from $136.6 million in the third quarter of 1998, a decrease of $1.5 million or 1.1%. The E-Solutions Group increased to $25.3 million in the third quarter of 1999 from $10.4 million in the third quarter of 1998, an increase of $14.9 million or 143.3%. IT Services revenues, including Year 2000 revenues, decreased to $109.8 million in the third quarter of 1999 from $126.2 million in the third quarter of 1998, a decrease of $16.4 million or 13.0%. Year 2000 services revenues decreased to $8.2 million in the third quarter of 1999 from $36.9 million in the third quarter of 1998, a decrease of $28.7 million. The Company's Year 2000 business accounted for 6.1% of total revenues in the third quarter of 1999 versus 27.0% of total revenues in the third quarter of 1998. As anticipated, the 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. IT Services revenues, excluding Year 2000 services, increased to $101.6 million in the third quarter of 1999 from $89.3 million in the third quarter of 1998, an increase of $12.3 million. Revenues increased to $416.1 million in the first nine months of 1999 from $371.9 million in the first nine months of 1998, an increase of $44.2 million or 11.9%. The E-Solutions Group, increased to $60.1 million in the first nine months of 1999 from $19.5 million in the first nine months of 1998, an increase of $40.6 million or 208.2%. IT Services, including Year 2000 revenues, increased to $356.0 million in the first nine months of 1999 from $352.4 million in the first nine months of 1998, an increase of $3.6 million or 1.0%. Year 2000 services revenues decreased to $41.0 million in the first nine months of 1999 from $106.7 million in the first nine months of 1998, a decrease of $65.7 million or 61.6%. The Company's Year 2000 business accounted for 9.9% of total revenues in the first nine months of 1999 versus 28.7% of total revenues in the first nine months of 1998. IT Services revenues, excluding Year 2000 services, increased to $315.0 million in the first nine months of 1999 from $245.7 million in the first nine months of 1998, an increase of $69.3 million. Direct Costs. Direct costs increased to $95.0 million and $281.6 million in the third quarter and first nine months of 1999, respectively, from $86.6 million and $237.0 million in the comparable 1998 periods. Gross margin decreased to 29.6% and 32.3% in the third quarter and first nine months of 1999, respectively, from 36.6% and 36.3% in the third quarter and first nine months of 1998, respectively. The 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 fluctuations due to a number of factors, including the level of salary and other compensation necessary to attract and retain qualified technical personnel. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Quarters Ended September 30, 1999 and September 28, 1998 Selling, General and Administrative. Selling, general and administrative expenses (excluding restructuring charges and merger-related expenses) increased to $35.5 million and $101.3 million in the third quarter and first nine months of 1999, respectively, from $29.1 million and $79.8 million in the comparable 1998 periods. As a percentage of revenues, selling, general and administrative expenses increased to 26.3% of revenues and 24.3% of revenues in the third quarter and first nine months of 1999, respectively, from 21.3% of revenues and 21.5% of revenues in the comparable 1998 periods. During the third quarter of 1999, the Company recorded a restructuring charge of $6.4 million related to the realignment of its cost structure to focus on its E-Solutions strategy. The charge primarily related to the consolidating and closing of certain facilities, used generally for Year 2000 and other legacy related services, as well as attendant reductions of related staff levels. The Company incurred merger-related expenses of approximately $0.7 million and $4.3 million in the third quarter and first nine months of 1998, respectively. Income from Operations. Operating margins, excluding the restructuring charges in 1999 and merger-related expenses in 1998, decreased to 3.4% and 8.0% in the third quarter and first nine months of 1999, respectively, from 15.3% and 14.8% in the comparable 1998 periods. These decreases were primarily due to decreases in the Company's higher margin Year 2000 business and 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. Other expense increased to $0.2 million in the third quarter of 1999 compared to other income of $1.0 million in the third quarter of 1998. Other income decreased to $0.2 million in the first nine months of 1999 from $3.7 million in the comparable 1998 period. This decrease in other income was primarily the result of decreased interest income. The Company completed several acquisitions during the second half of 1998 and first nine months 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 third quarter and first nine months of 1999, respectively. For the comparable 1998 periods, the rates were 44.1% and 45.0%, 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/Loss. Net loss for the third quarter of 1999 was $1.2 million, or $0.04 loss per diluted share compared to net income of $11.8 million, or $0.37 earnings per diluted share for the third quarter of 1998, a decrease of $13.0 million. For the first nine months of 1999, net income decreased to $15.6 million, or $0.50 earnings per diluted share, from $30.0 million, or $0.93 earnings per diluted share for the first nine months of 1998. Liquidity and Capital Resources. At September 30, 1999, the Company had $144.1 million in working capital, of which $7.7 million was cash, cash equivalents and short-term investments. There was $10.0 million in borrowings outstanding against one of the Company's bank lines of credit. 10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Quarters Ended September 30, 1999 and September 28, 1998 Net cash used by operating activities in the first nine months of 1999 was $25.1 million, consisting primarily of an increase in accounts receivable, partially offset by net income. During the first nine months of 1998, net cash provided by operating activities was $12.2 million, consisting primarily of net income, offset in part by an increase in accounts receivable. The significant increase in accounts receivable during the first nine months of 1999 was primarily attributable to 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 first quarter of 2000. Net cash used in investing activities in the first nine months of 1999 was $19.8 million, consisting primarily of purchases of equipment. During the first nine months of 1998, cash used in investing activities was $52.3 million, primarily as a result of the cost of acquisitions. Net cash used in financing activities was $0.9 million for the first nine months of 1999, primarily consisting of the repurchase of the Company's common stock offset by borrowings against the Company's line of credit. For the first nine months of 1998, net cash provided by financing activities was $0.8 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 September 30, 1999, the Company had a current ratio position of 3.1 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 2000. 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 has involved 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 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. 11 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Quarters Ended September 30, 1999 and September 28, 1998 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. 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 assessment of the Company's industry and competition. 12 13 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 preferred 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: November 15, 1999 /s/ John J. Cassese ------------------ ---------------------- John J. Cassese Chairman of the Board and President DATE: November 15, 1999 /s/ William J. Murphy ------------------- ------------------------ William J. Murphy Executive Vice President and Chief Financial Officer (Principal Financial Officer) DATE: November 15, 1999 /s/ Michael J. Shea ------------------- ---------------------- Michael J. Shea, Vice President and Controller (Principal Accounting Officer) 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1999 SEP-30-1999 6,622 1,046 185,777 5,508 0 211,426 42,706 17,508 330,525 67,330 0 0 0 3,261 249,673 330,525 0 416,076 0 281,567 107,635 0 (159) 27,033 11,436 15,597 0 0 0 15,597 0.51 0.50
EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1998 SEP-28-1998 52,863 13,293 122,310 2,190 0 194,854 21,279 9,090 283,650 46,500 1,000 0 0 3,220 227,690 283,650 0 371,880 0 236,952 84,082 0 (3,810) 54,566 24,574 29,992 0 0 0 29,992 0.97 0.93
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