<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 0-13984
DIVERSIFIED CORPORATE RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 75-1565578
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12801 NORTH CENTRAL EXPRESSWAY
SUITE 350
DALLAS, TEXAS 75243
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 458-8500
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR IF CHANGED
SINCE LAST REPORT:
Indicate by check mark whether registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
Number of shares of common stock of the registrant outstanding on November
13, 2000 was 2,818,830
<PAGE>
<TABLE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
2000 1999
--------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,263,867 $ 847,171
Trade accounts receivable, less allowance for doubtful accounts
of approximately $1,414,000 and $1,005,000, respectively 14,442,517 9,987,318
Receivables from related parties 409,938 75,263
Prepaid expenses and other current assets 362,676 256,714
Federal income taxes receivable - 148,523
Deferred income taxes 963,708 713,853
--------------- --------------
Total current assets 17,442,706 12,028,842
Property and equipment, net 3,706,929 3,342,524
Other assets:
Intangibles, net 10,440,118 6,882,809
Other 242,819 293,574
--------------- --------------
$ 31,832,572 $ 22,547,749
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable and accrued expenses $ 7,770,053 $ 5,128,069
Federal income taxes payable 149,163 -
Short-term borrowings under line of credit - 1,480,000
Current maturities of capital lease obligations 78,370 13,413
Current maturities of long-term debt 876,834 1,220,733
--------------- --------------
Total current liabilities 8,874,420 7,842,215
Deferred lease rents 119,635 93,528
Deferred income taxes 305,697 93,487
Bank borrowings under revolving credit agreement 5,602,271 -
Long-term maturities of capital lease obligations 250,163 -
Long-term debt, net of current maturities 2,150,938 1,590,757
--------------- --------------
Total liabilities 17,303,124 9,619,987
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized,
none issued - -
Common stock, $.10 par value; 10,000,000 shares authorized,
3,397,224 and 3,289,946 shares issued, respectively 339,722 328,995
Additional paid-in capital 12,638,492 12,378,909
Retained earnings 3,413,469 1,999,549
Common stock held in treasury (578,594 and 549,594 shares,
respectively), at cost (1,623,846) (1,541,302)
Receivables from related parties (238,389) (238,389)
--------------- --------------
Total stockholders' equity 14,529,448 12,927,762
--------------- --------------
$ 31,832,572 $ 22,547,749
=============== ==============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------------- -----------------------------------
2000 1999 2000 1999
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net service revenues:
Permanent placement $ 8,136,134 $ 6,797,445 $ 23,870,157 $ 20,013,717
Specialty services 1,760,987 2,118,417 5,502,394 5,754,646
Contract placement 11,706,815 5,445,198 30,111,372 11,973,638
------------- ------------- -------------- --------------
21,603,936 14,361,060 59,483,923 37,742,001
Cost of services 15,922,110 10,234,438 43,589,445 26,861,232
------------- ------------- -------------- --------------
Gross margin 5,681,826 4,126,622 15,894,478 10,880,769
Selling, general and administrative expenses 4,217,180 3,286,354 11,736,654 8,341,734
Depreciation and amortization expense 463,883 319,020 1,267,289 856,750
Interest expense, net 160,440 37,325 411,567 54,095
Other (income) expense, net (3,853) - (9,683) -
------------- ------------- -------------- --------------
Income from continuing operations before
income taxes and discontinued operations 844,176 483,923 2,488,651 1,628,190
Income tax expense 337,037 160,097 993,731 609,695
------------- ------------- -------------- --------------
Income from continuing operations before
discontinued operations 507,139 323,826 1,494,920 1,018,495
Discontinued operations, net of income taxes:
Loss from operations of discontinued
training operations (less income tax
benefit of $54,000, $66,583, $54,000 and
$238,935, respectively) (81,000) (139,106) (81,000) (400,133)
------------- ------------- -------------- --------------
Net income $ 426,139 $ 184,720 $ 1,413,920 $ 618,362
============= ============= ============== ==============
Basic earnings per share:
Income from continuing operations $ 0.18 $ 0.12 $ 0.54 $ 0.37
Loss from discontinued operations (0.03) (0.05) (0.03) (0.15)
------------- ------------- -------------- --------------
$ 0.15 $ 0.07 $ 0.51 $ 0.22
============= ============= ============== ==============
Weighted average common shares outstanding 2,818,630 2,771,987 2,781,163 2,753,434
============= ============= ============== ==============
Diluted earnings per share:
Income from continuing operations $ 0.18 $ 0.12 $ 0.54 $ 0.37
Loss from discontinued operations (0.03) (0.05) (0.03) (0.15)
------------- ------------- -------------- --------------
$ 0.15 $ 0.07 $ 0.51 $ 0.22
============= ============= ============== ==============
Weighted average common and common
equivalent shares outstanding 2,829,964 2,774,257 2,785,448 2,776,352
============= ============= ============== ==============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Nine Months Ended
September 30,
----------------------------------
2000 1999
------------- ------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 1,413,920 $ 618,362
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 1,267,289 905,985
Provision for allowances 402,279 14,552
Income tax effect of options exercised - 22,744
Deferred income taxes (37,645) 148,684
Accretion of interest on deferred payment obligations 227,680 132,674
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (3,273,147) (911,435)
Federal income taxes receivable, net 148,523 (25,694)
Deferred lease rents 18,280 24,516
Prepaid expenses and other assets (214,461) (84,834)
Trade accounts payable and accrued expenses 1,734,211 (222,364)
Federal income taxes payable 149,163 -
------------- ------------
Cash provided by operating activities 1,836,092 623,190
------------- ------------
Cash flows from investing activities:
Capital expenditures (817,352) (895,465)
Deposits (8,823) (6,287)
Business acquisition costs (3,675,518) (2,765,986)
Loans and advances to related parties (334,758) (23,166)
Repayment from related parties 83 16,406
------------- ------------
Cash used in investing activities (4,836,368) (3,674,498)
------------- ------------
Cash flows from financing activities:
Issuance of common stock under stock options - 181,641
Net repayments on line of credit (1,480,000) -
Advances on long-term line of credit borrowings 33,792,425 600,000
Repayments of long-term line of credit borrowings (28,190,154) -
Repurchase of treasury stock (82,544) (26,130)
Principal payments under long-term debt obligations (580,958) -
Principal payments under capital lease obligations (41,797) (34,539)
------------- ------------
Cash provided by financing activities 3,416,972 720,972
------------- ------------
Change in cash and cash equivalents 416,696 (2,330,336)
Cash and cash equivalents at beginning of year 847,171 3,472,990
------------- ------------
Cash and cash equivalents at end of period $ 1,263,867 $ 1,142,654
============= ============
Supplemental cash flow information:
Cash paid for interest $ 262,091 $ 11,415
============= ============
Cash paid for taxes $ 529,820 $ 261,302
============= ============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include the operations of Diversified
Corporate Resources, Inc. and its wholly owned subsidiaries (the "Company").
The financial information for the three and nine months ended September 30,
2000 and 1999, is unaudited, but includes all adjustments (consisting only of
normal recurring accruals), which the Company considers necessary for a fair
presentation of the results for the periods presented. The financial
information should be read in conjunction with the consolidated financial
statements for the presented year ended December 31, 1999, included in the
Company's Annual Report on Form 10-K ("Form 10-K"). Operating results for the
three and nine months ended September 30, 2000, are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 2000.
All inter-company accounts and transactions have been eliminated in
consolidation.
Certain reclassifications have been made to prior year balances to conform to
the current year presentation.
2. EARNINGS PER SHARE
Basic earnings per share ("EPS") was determined by dividing net income by the
weighted average number of shares of common stock outstanding during the
year. Diluted EPS includes these shares plus common stock equivalents
outstanding during the year. (Common stock equivalents are excluded if the
effects of inclusion are anti-dilutive.)
Following is a reconciliation of the weighted average number of shares
outstanding during the periods indicated for basic and diluted EPS:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ---------------------------
2000 1999 2000 1999
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic 2,818,630 2,771,987 2,781,163 2,753,434
Net effect of dilutive stock options 11,334 2,270 4,285 22,918
------------ ----------- ----------- -----------
Diluted 2,829,964 2,774,257 2,785,448 2,776,352
============ =========== =========== ===========
Total options and warrants outstanding 705,419 604,757 705,419 604,757
============ =========== =========== ===========
Options and warrants not considered
because effects of inclusion would be
anti-dilutive 667,919 553,257 667,919 277,590
============ =========== =========== ===========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------- -------------
<S> <C> <C>
Computer equipment and software $ 4,222,027 $ 3,071,644
Equipment and furniture 1,863,459 1,814,910
Leasehold improvements 410,968 386,589
-------------- -------------
6,496,454 5,273,143
Less accumulated depreciation and amortization (2,789,525) (1,930,619)
-------------- -------------
Net property and equipment $ 3,706,929 $ 3,342,524
============== =============
</TABLE>
Depreciation and amortization expense of property and equipment for the three
months ended September 30, 2000 and 1999 was approximately $315,000 and
$242,000, respectively. Depreciation and amortization
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
expense of property and equipment for the nine months ended September 30,
2000 and 1999 was approximately $866,000 and $667,000, respectively.
4. INTANGIBLES
Intangibles consist of:
<TABLE>
<CAPTION>
Amortization September 30, December 31,
Period 2000 1999
------------- ------------- -------------
<S> <C> <C> <C>
Non-compete agreements 3 - 5 years $ 150,000 $ 100,000
Goodwill 10 - 20 years 10,997,004 7,097,269
------------- -------------
11,147,004 7,197,269
Accumulated amortization (706,886) (314,460)
------------- -------------
$ 10,440,118 $ 6,882,809
============= =============
</TABLE>
During the period ended September 30, 2000, Mountain Ltd. achieved the minimum
operational thresholds outlined in the original purchase agreement thereby
requiring the Company to make a contingent payment in the amount of $650,000.
Such amount has been recorded as additional goodwill.
Amortization of intangibles for the three months ended September 30, 2000 and
1999 was approximately $140,000 and $77,000, respectively. Amortization of
intangibles for the nine months ended September 30, 2000 and 1999 was
approximately $392,000 and $190,000, respectively.
5. BUSINESS ACQUISITIONS
DATATEK CORPORATION:
In March, 2000, the Company completed the acquisition of substantially all of
the assets of Datatek Corporation ("Datatek"). The purchase price consisted
of $3,000,000 in cash, which was paid at closing; 75,000 shares of the
Company's common stock valued at $2.50 per share (which was the then market
value at the date the acquisition was announced less a discount for the
restrictive nature of the stock); and four annual installment payments,
payable on January 1 of each of the years 2001 through 2005, in the
anticipated amount of $170,625 each; contingent payments payable annually, on
April 15 of each of the years 2001 through 2005, in an amount equal to
twenty-five percent (25%) of the increased profits, as defined, of the
business acquired from Datatek (increased profits are based upon Datatek's
profits in 1999).
The Company incurred acquisition costs totaling $287,000 in connection with
the acquisition. Following is a summary of the transaction:
<TABLE>
<S> <C>
Costs:
Fair value of net assets acquired $ 829,356
Covenants not to compete 50,000
Goodwill 3,194,481
------------
Total $ 4,073,837
============
Source:
Cash and current liabilities assumed $ 3,316,777
Present value of minimum deferred payments 569,560
Fair value of common stock issued 187,500
------------
Total $ 4,073,837
============
</TABLE>
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The Datatek acquisition was accounted for under the purchase method. The
results of Datatek are included in the statement of operations beginning
March 6, 2000. Goodwill is being amortized over twenty years utilizing the
straight-line method. The contingent deferred payments will be recorded as
goodwill when earned.
The following unaudited pro forma results of operations for the nine months
ended September 30, 2000 have been prepared assuming the Datatek acquisition
had taken place at the beginning of the period. The following unaudited pro
forma results of operations for the nine months ended September 30, 1999 have
been prepared assuming the Datatek acquisition and the August 6, 1999
acquisition of Mountain, Ltd. ("Mountain") had taken place at the beginning
of the period. The results of operations give effect to certain adjustments,
including amortization of intangible assets, interest effects of the
transaction, income taxes and the additional shares of common stock issued in
the transaction. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of results which may occur
in the future.
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
--------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Net service revenues: $ 61,531,915 $ 54,181,355
Net income from continuing operations
before taxes 2,531,939 2,005,818
Net income from continuing operations 1,520,892 1,245,072
Net income 1,520,892 844,939
Basic earnings per share:
Net income from continuing operations $ 0.55 $ 0.43
Net income $ 0.55 $ 0.29
Diluted earnings per share:
Net income from continuing operations $ 0.55 $ 0.43
Net income $ 0.55 $ 0.29
</TABLE>
6. LINE OF CREDIT AND DEBT
On May 18, 2000, the Company entered into a three year revolving line of
credit agreement with GE Capital (the "GE facility"). The agreement permits
borrowings up to $15,000,000. Upon the closing of this facility, the Company
borrowed $3,800,000 and repaid in its entirety the outstanding borrowings
under its previous debt agreement. The borrowings are collateralized by the
Company's accounts receivable and other assets and are based upon a borrowing
base as defined in the agreement. The agreement also contains various
financial and non-financial covenants, the most restrictive of which requires
the Company to maintain tangible net worth of $3,000,000 and fixed charge
coverage, as defined in the agreement, ranging from 1.5 to 1 at June 30, 2000
to 1.65 to 1 as of September 30, 2000. As of September 30, 2000, the Company
was in compliance with all covenants associated with this credit facility.
Outstanding balances bear interest at the bank's index rate which is defined
as the latest prime rate quoted on the last business day of each calendar
month plus 0.125%. Interest is payable monthly and all outstanding principal
and interest is due May 17, 2003. The weighted average interest rate on the
borrowings was 9.50% at September 30, 2000. In accordance with the terms and
provisions of the GE facility agreement, the Company had approximately
$3,400,000 of net borrowing availability at September 30, 2000.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
7. CAPITAL LEASE OBLIGATIONS
In fiscal 2000, the Company entered into various capital lease obligations
for the purchase of certain computer equipment totaling $355,003. The
following is a schedule of future minimum payments under this obligations as
of September 30, 2000 along with the present value of these payments:
<TABLE>
<S> <C>
2001 $ 120,184
2002 120,184
2003 155,917
-----------
396,285
Less amount representing interest (67,752)
-----------
Present value of future minimum
lease payments 328,533
Less current maturities (78,370)
-----------
$ 250,163
===========
</TABLE>
Amortization of assets under capital leases for the three and nine-month
periods ended September 30, 2000 was $26,470.
8. INCOME TAXES
The income tax provision from continuing operations and the amount computed
by applying the federal statutory income tax rate to income before income
taxes differs as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Tax provision at statutory
rate of 35% for continuing
operations $ 295,462 $ 169,374 $ 871,028 $ 569,867
Loss from discontinued
operations (54,000) (66,583) (54,000) (238,935)
State income taxes net of
federal income tax benefits 36,252 11,129 117,465 39,564
Other 5,323 (20,406) 5,238 264
---------- ---------- ---------- ----------
$ 283,037 $ 93,514 $ 939,731 $ 370,760
========== ========== ========== ==========
The allocation of income tax expense (benefit) is:
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Continuing operations $ 337,037 $ 160,097 $ 993,731 $ 609,695
Discontinued operations (54,000) (66,583) (54,000) (238,935)
---------- ---------- ---------- ----------
$ 283,037 $ 93,514 $ 939,731 $ 370,760
========== ========== ========== ==========
</TABLE>
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
9. RELATED PARTY TRANSACTIONS
During the three and nine months ended September 30, 2000, the Company
advanced approximately $133,000 and $336,000, respectively, to or for the
benefit of Mr. J. Michael Moore, the Chairman of the Board and Chief
Executive Officer of the Company. Such advances primarily related to debt
payments to certain financial institutions and legal expenses in connection
with litigation involving, among others, Donald R. Ditto Sr. and Ditto
Properties Company (collectively "Ditto"); See "Commitments and
Contingencies" below for more information related to such lawsuits. All such
advances are interest bearing at the prime rate which at September 30, 2000
was 9.5%; are collateralized by assets owned by Mr. Moore or by entities
controlled by Mr., Moore; which have a collective value that management of
the Company believes to exceed the amount of these advances (including
accrued interest thereon); and are required to be repaid by year end.
10. COMMITMENTS AND CONTINGENCIES
Mr. J. Michael Moore and several of the entities he controls are involved in
litigation with Ditto. The Company is a party to one of such lawsuits and has
filed a claim in the litigation against Ditto seeking damages and
reimbursement of expenses, alleging that Ditto interfered with Company
business transactions and proposed financing resulting in delays of certain
transactions, lost opportunities, lost profits and other significant losses.
The Company is also involved in certain other litigation and disputes. With
respect to all of these litigation matters, management believes the claims
against the Company are without merit and has concluded that the ultimate
resolution of such will not have a material negative effect on the Company's
consolidated financial position or results of operations.
11. DISCONTINUED OPERATIONS
In December 1999, the Company sold all of its assets of the Geier Assessment
and Performance Systems, Inc. ("GAPS") to the former owner and managers of
the GAPS operations. GAPS was engaged in developing software for use in
testing and improving the work performance of the Company's and clients'
employees.
In December 1999, the Company implemented a plan whereby the Company would
place its remaining training business assets of Train for sale. Train has
historically provided information technology training to its clients'
employees and the Company's applicant pool on a fee basis. In connection with
the plan to dispose of Train by June 30, 2000, the Company recorded a loss in
December 1999, which included a provision of $240,000 for estimated operating
losses during the period subsequent to January 1, 2000. Train operating
losses of $144,119 for the nine months ended September 30, 2000 have been
recorded against this reserve. The Company is currently in negotiations
regarding the disposition of Train and it is anticipated that negotiations
will be completed no later than year end. Due to management's decision to
extend the decision date to dispose of Train, the Company determined that the
remaining reserve of approximately $96,000 was not sufficient and has
recorded an additional reserve of $135,000 for estimated losses and
disposition costs to be incurred through December 31, 2000.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(FISCAL 1999 RESULTS HAVE BEEN RECLASSIFIED FOR THE EFFECTS
OF DISCONTINUED OPERATIONS)
Service revenue summary:
<TABLE>
<CAPTION>
For the Three Months Ended Increase/
September 30, (Decrease)
-------------------------- --------
2000 vs.
($ in millions) 2000 1999 1999
-------- ------- --------
<S> <C> <C> <C>
Permanent placement $ 8.1 $ 6.8 $ 1.3
Contract placement 11.7 5.5 6.2
Specialty services 1.8 2.1 (0.3)
-------- ------- --------
Net service revenue $ 21.6 $ 14.4 $ 7.2
======== ======= ========
</TABLE>
For the quarter ended September 30, 2000, net service revenue increased $7.2
million, or 50%, to $21.6 million as compared to $14.4 million for the
previous year period. As noted in the table above, revenue derived from
contract placements increased $6.2 million. $2.6 million of this increase was
attributable to the inclusion of the results of Mountain, which was acquired
in August 1999, and $3.2 million was attributable to the inclusion of the
results of Datatek, which was acquired in March 2000. Permanent placement
revenue increased $1.3 million, or 20% as a result of increased placements.
The remainder is attributable to growth of the Company's existing contract
business of information technology employees.
Contract placement and specialty services revenue accounted for 62% of net
service revenue for the quarter ended September 30, 2000. The inclusion of
revenue from the operations of the recently acquired Mountain and Datatek,
which are primarily contract placement operations, accounted for
substantially all of this change. Permanent placement revenues comprised 38%
of net service revenue for the quarter ended September 30, 2000. In the
previous year period, permanent placement revenues comprised 47% of the net
service revenue. As a percentage of net service revenue, net revenue derived
from contract placements will continue to increase over the next several
quarters due to the Company's strategic decision to focus its growth in
contract placement through acquisitions.
Gross margin increased $1.6 million, or 38%, to $5.7 million for the quarter
ended September 30, 2000 as compared to $4.1 million in the previous year
period. As previously noted above, as a percentage of total net service
revenue, revenue from contract placements continues to grow. As such, the
overall gross margin percentage has declined compared to the previous year
level because the gross margin from net contract placement revenue is less
than the gross margin from permanent placements. For the quarter ended
September 30, 2000, as a percentage of net service revenue, the gross margin
percentage amounted to 26%, down three percentage points as compared to the
previous year period gross margin percentage of 29%.
Selling, general and administrative expenses ("SG&A"), excluding depreciation
and amortization, increased $0.9 million, or 28%, to $4.2 million for the
quarter ended September 30, 2000, as compared to $3.3 million in the previous
year period. The inclusion of the operations of Mountain and Datatek
accounted for nearly half of the absolute increase in SG&A. The remaining
increase is due to increased revenue of the Company's existing business. SG&A
as a percentage of net service revenue has declined three percentage points
to 20% as compared to the previous year period of 23%. For the quarter ended
September 30, 2000, depreciation and amortization expense amounted to $0.5
million as compared to $0.3 million in the previous year period. This
increase was due largely to amortization expense related to the Company's
acquisitions combined with increased depreciation on computer equipment
purchased in association with the further automation of the Company's back
office operations.
For the quarter ended September 30, 2000, the Company reported net interest
expense of $0.2 million, primarily associated with borrowings on its line of
credit and imputed interest on deferred payment obligations related to the
Company's acquisitions of Texcel, Inc. ("Texcel"), Mountain and Datatek.
Interest expense was $37,000 in the previous year period.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
For the quarter ended September 30, 2000, net income from continuing
operations was $0.5 million, up over 56% as compared to the previous year
period.
In December 1999, the Company implemented a plan whereby the Company would
place its remaining training business assets of Train for sale. In connection
with the plan to dispose of Train by June 30, 2000, the Company recorded a
loss in December 1999, which included a provision of $0.2 million for
estimated operating losses during the period subsequent to January 1, 2000.
Train operating losses of $0.1 million for the nine months ended September
30, 2000 have been recorded against this reserve. The Company is currently in
negotiations regarding the disposition of Train and it is anticipated that
negotiations will be completed no later than year end. Due to management's
decision to extend the decision date to dispose of Train, the Company
determined that the remaining reserve was not sufficient and has recorded an
additional reserve of $0.1 million for estimated losses and disposition costs
to be incurred through December 31, 2000. Fiscal 1999 results of operations
reflect treatment of the results of operations for this segment as
discontinued operations. Losses from the operations of discontinued
operations, net of income tax, amounted to $0.1 million in the quarter ended
September 30, 1999.
As a result of the items discussed above, net income for the three-months
ended September 30, 2000 amounted to $0.4 million, up over $0.2 million over
the previous year period.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(FISCAL 1999 RESULTS HAVE BEEN RECLASSIFIED FOR THE EFFECTS
OF DISCONTINUED OPERATIONS)
Service revenue summary:
<TABLE>
<CAPTION>
For the Nine Months Ended Increase/
September 30, (Decrease)
-------------------------- --------
2000 vs.
($ in millions) 2000 1999 1999
-------- ------- --------
<S> <C> <C> <C>
Permanent placement $ 23.9 $ 20.0 $ 3.9
Contract placement 30.1 12.0 18.1
Specialty services 5.5 5.7 (0.2)
-------- ------- --------
Net service revenue $ 59.5 $ 37.7 $ 21.8
======== ======= ========
</TABLE>
For the nine months ended September 30, 2000, net service revenue increased
$21.8 million, or 58%, to $59.5 million as compared to $37.7 million for the
previous year period. As noted in the table above, revenue derived from
contract placements increased $18.1 million. Approximately $9.9 million of
this increase was attributable to the inclusion of the results of Mountain,
which was acquired in August 1999, and $7.2 million was attributable to the
inclusion of the results of Datatek, which was acquired in March 2000.
Permanent placement revenue increased $3.9 million, or 19% as a result of
increased placements of information technology employees on a full time basis.
Contract placement and specialty services revenue accounted for 60% of net
service revenue for the nine months ended September 30, 2000. The inclusion
of revenue from the operations of the recently acquired Mountain and Datatek,
which are primarily contract placement operations, accounted for
substantially all of this change. Permanent placement revenues comprised 40%
of net service revenue for the nine months ended September 30, 2000. In the
previous year period, permanent placement revenues comprised 53% of the net
service revenue. As a percentage of net service revenue, net revenue derived
from contract placements will continue to increase over the next several
quarters due to the Company's strategic decision to focus its growth in
contract placement through acquisitions.
Gross margin increased $5.0 million, or 46%, to $15.9 million for the nine
months ended September 30, 2000 as compared to $10.9 million in the previous
year period. As previously noted, revenue from contract placements continues
to grow as a percentage of total net service revenue. As such, the Company
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
anticipates that the gross margin percentage will decline from the previous
year's level. For the nine months ended September 30, 2000, as a percentage
of net service revenue, the gross margin percentage amounted to 27%, down two
percentage points as compared to the previous year period gross margin
percentage of 29%.
Selling, general and administrative expenses ("SG&A"), excluding depreciation
and amortization, increased $3.4 million, or 41%, to $11.7 million for the
nine months ended September 30, 2000, as compared to $8.3 million in the
previous year period. The inclusion of the acquired operations of Mountain
and Datatek accounted for nearly half of the absolute increase in SG&A. The
remaining increase is due to increased revenue of the Company's existing
business. SG&A as a percentage of net service revenue has declined two
percentage points to 20% as compared to the previous year period of 22%. For
the nine months ended September 30, 2000, depreciation and amortization
expense amounted to $1.3 million as compared to $0.9 million in the previous
year period. This increase was due largely to amortization expense related to
the Company's acquisitions combined with increased depreciation on computer
equipment purchased in association with the further automation of the
Company's back office operations.
For the nine months ended September 30, 2000, the Company reported net
interest expense of $0.4 million, primarily associated with borrowings on its
line of credit and imputed interest on deferred payment obligations related
to the Company's acquisitions of Texcel, Mountain and Datatek. Interest
expense was $54,000 in the previous year period.
For the nine months ended September 30, 2000, net income from continuing
operations amounted to $1.5 million, up 47% over the previous year period.
In December 1999, the Company implemented a plan whereby the Company would
place its remaining training business assets of Train for sale. In connection
with the plan to dispose of Train by June 30, 2000, the Company recorded a
loss in December 1999, which included a provision of $0.2 million for
estimated operating losses during the period subsequent to January 1, 2000.
Train operating losses of $0.1 million for the nine months ended September
30, 2000 have been recorded against this reserve. The Company is currently in
negotiations regarding the disposition of Train and it is anticipated that
negotiations will be completed no later than year end. Due to management's
decision to extend the decision date to dispose of Train, the Company
determined that the remaining reserve was not sufficient and has recorded an
additional reserve of $0.1 million for estimated losses and disposition costs
to be incurred through December 31, 2000. Fiscal 1999 results of operations
reflect treatment of the results of operations for this segment as
discontinued operations. Losses from the operations of discontinued
operations, net of income tax, amounted to $0.4 million for the nine months
ended September 30, 1999.
As a result of the items discussed above, net income for the nine months
ended September 30, 2000 amounted to $1.4 million, up $0.8 million over the
previous year period.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 2000, net cash flow generated from
operations amounted to $1.8 million. Additionally, the Company borrowed a net
$4.1 million under the Company's line of credit facilities. The company used
$5.5 million of its net proceeds as follows: (a) $4.3 million to fund current
year acquisitions and to pay previously deferred purchase liabilities
associated with prior years acquisitions, (b) $0.1 million to repurchase
Company stock under the Company's stock repurchase program, (c) $0.8 million
for capital expenditures for computer equipment and software associated with
the upgrade of the Company's computer systems and further automation of the
back office, and (d) $0.3 million advanced to related parties.
As a result of the above-mentioned transactions, working capital amounted to
$8.6 million at September 30, 2000, as compared to $4.2 million at December
31, 1999.
As discussed more fully in the footnotes to the financial statements, in May
2000, the Company entered into a three year revolving line of credit
agreement with the GE facility. This agreement permits borrowings of up to
$15,000,000 based on availability criteria outlined in the agreement. At
October 30, 2000, net borrowing availability under the credit facility was
approximately $3,600,000, after
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
excluding the reserve for deferred payment obligations to be paid in the
future. The Company believes that the GE facility will provide the Company
with sufficient liquidity to fund its internal 2000 growth plans and
operations for the foreseeable future. The Company's internal 2000 growth
plans include the expansion and improvement of its applicant database and
back office, and the expansion and opening of new profit centers in existing
cities. Management expects these items to cost approximately $1,000,000 in
fiscal 2000, of which approximately $817,000 has been spent through September
2000.
The Company is continually evaluating various financing strategies to be
utilized in expanding its business and to fund future growth and acquisitions.
Inflation has not had a significant effect on the Company's operating results.
ACTUAL RESULTS MAY DIFFER FROM FORWARD-LOOKING STATEMENTS
Statements in this Form 10-Q that reflect projections or expectations of
future financial or economic performance of the Company, and statements of
the Company's plans and objectives for future operations are
"forward-looking" statements within the meaning of Section 27A of the
Securities Act of 1993, as amended and Section 21E of the Securities Exchange
Act of 1934, as amended. No assurance can be given that actual results or
events will not differ materially from those projected, estimated, assumed or
anticipated in any such "forward-looking" statements. Important factors (the
"Cautionary Disclosures") that could result in such differences include:
general economic conditions in the Company's markets, including inflation,
recession, interest rates and other economic factors; the availability of
qualified personnel; the level of competition experienced by the Company; the
Company's ability to implement its business strategies and to manage its
growth; the level of development revenues and expenses; the level of
litigation expenses; the Company's ability to effectively implement an
e-commerce strategy; those factors identified in the Company's Prospectus
dated September 30, 1997 as risk factors; and other factors that affect
businesses generally. Subsequent written and oral "forward-looking"
statements attributable to the Company or persons acting on its behalf are
expressly qualified by the Cautionary Disclosures.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risks from fluctuations in interest rates
and the effects of those fluctuations on interest expense on line of credit
borrowings. Assuming interest rates increased by 200 basis points (2%) above
the interest rate at September 30, 2000, on an annualized basis interest
expense would increase by approximately $112,000 on the outstanding line of
credit borrowings of $5.6 million at September 30, 2000.
<PAGE>
PART II: OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS ON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.2 Employment Agreement, by and between the Company and
J. Michael Moore, effective June 15, 2000.
10.21 Employment Agreement, by and between the Company and
M. Ted Dillard, effective June 15, 2000.
10.22 Employment Agreement, by and between the Company and
Anthony G. Schmeck, effective September 20, 1999.
27* Financial Data Schedule
* Filed herewith
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIVERSIFIED CORPORATE RESOURCES, INC.
Registrant
DATE: November 13, 2000 By: /s/ J. Michael Moore
------------------------------
J. Michael Moore
CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
DATE: November 13, 2000 By: /s/ M. Ted Dillard
------------------------------
M. Ted Dillard
PRESIDENT AND SECRETARY
DATE: November 13, 2000 By: /s/ Anthony G. Schmeck
------------------------------
Anthony G. Schmeck
TREASURER AND CHIEF FINANCIAL
OFFICER
(Principal Financial Officer)
