U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 No. 0-23170
HEADWAY CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2134871
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
850 Third Avenue, New York, New York 10022
(Address of principal executive offices)
(212) 508-3560
(Registrant's telephone number)
(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 Exchange
Act during the preceding 12 months (or for such shorter period that
the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Exchange Act subsequent to the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
11,372,561 shares of common stock.
<PAGE>
FORM 10-Q
HEADWAY CORPORATE RESOURCES, INC. AND SUBSIDIARIES
INDEX
Page
PART I. Financial Information
Financial Statements
Consolidated Balance Sheets
March 31, 2000 (Unaudited) and December 31, 1999 3
Unaudited Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999 4
Unaudited Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 2000 5
Unaudited Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. Other Information 13
Signatures 13
FORWARD-LOOKING STATEMENT NOTICE
When used in this report, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27a of the Securities Act of 1933 and Section 21e of the
Securities Exchange Act of 1934 regarding events, conditions, and financial
trends that may affect the Company's future plans of operations, business
strategy, operating results, and financial position. Persons reviewing this
report are cautioned that any forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties and that
actual results may differ materially from those included within the forward-
looking statements as a result of various factors. Such factors are
discussed under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and also include general
economic factors and conditions that may directly or indirectly impact the
Company's financial condition or results of operations.
2
<PAGE>
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(Dollars In Thousands)
March 31, December 31,
2000 1999
------------------------
Assets
Current assets:
Cash and cash equivalents $ 1,433 $ 1,867
Accounts receivable, trade, net 64,321 53,555
Prepaid expenses and other current assets 1,290 990
-----------------------
Total current assets 67,044 56,412
Property and equipment, net 5,743 5,601
Intangibles, net 84,852 83,872
Deferred financing costs 1,458 1,546
Other assets 1,079 988
-----------------------
Total assets $ 160,176 $ 148,419
=======================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,292 $ 2,389
Accrued expenses 2,336 3,215
Accrued payroll 14,780 14,241
Capital lease obligations, current portion 454 435
Long-term debt, current portion 68 152
Income taxes payable 2,623 533
Earnout payable 4,193 3,861
Other liabilities - 1,020
-----------------------
Total current liabilities 25,746 25,846
Capital lease obligations, less current portion 392 523
Long-term debt, less current portion 83,200 72,750
Deferred rent 1,221 1,246
Deferred income taxes 53 53
Stockholders' equity
Preferred stock--$.0001 par value, 5,000,000
shares authorized:
Series F, convertible preferred stock-$.0001
par value, 1,000 shares authorized, issued and
outstanding (aggregate liquidation
value $20,000) 20,000 20,000
Common stock--$.0001 par value, 20,000,000 shares
authorized, 11,372,561 shares issued and
outstanding at March 31, 2000 and December 31,
1999 1 1
Additional paid-in capital 19,820 19,820
Treasury stock at cost (3,211) (3,191)
Notes receivable (102) (126)
Deferred compensation (425) (440)
Retained earnings 13,459 11,929
Other comprehensive income 22 8
-----------------------
Total stockholders' equity 49,564 48,001
Total liabilities and stockholders' equity $ 106,176 $ 148,419
=======================
See accompanying notes
3
<PAGE>
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
(Dollars In Thousands)
Three months ended
March 31,
2000 1999
---------------------------
Revenues: $ 96,315 $ 92,653
Operating expenses:
Direct costs 69,896 69,730
Selling, general and administrative 20,141 16,978
Termination of employment contract - 2,329
Depreciation and amortization 1,280 1,016
---------------------------
91,317 90,053
Operating income 4,998 2,600
Other (income) expenses:
Interest expense 1,848 1,459
Interest income (23) (27)
---------------------------
1,825 1,432
Income before income tax expense 3,173 1,168
Income tax expense 1,354 519
---------------------------
Net income 1,819 649
Preferred dividend requirements (289) (275)
---------------------------
Net income available for common stockholders $ 1,530 $ 374
===========================
Basic earnings per common share $ .14 $ .04
===========================
Diluted earnings per common share $ .13 $ .04
===========================
See accompanying notes
4
<PAGE>
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 2000
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Series F Convertible Additional
Preferred Stock Common Stock Paid-in Treasury Stock
Shares Amount Shares Amount Capital Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1999 1,000 $20,000 11,372,561 $ 1 $ 19,820 (670,100) $ (3,191)
Repayment of notes receivable - - - - - - -
Amortization of stock-based - - - - - - -
compensation
Preferred stock dividends - - - - - - -
Purchase of treasury stock - - - - - (5,000) (20)
Translation adjustment - - - - - - -
Net income - - - - - - -
Comprehensive income - - - - - - -
Balance - March 31, 2000 1,000 $20,000 11,372,561 $ 1 $ 19,820 (675,100) $ (3,211)
</TABLE>
5
<PAGE>
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity, Continued
Three Months Ended March 31, 2000
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Other Total
Notes Deferred Retained Comprehensive Stockholders'
Receivable Compensation Earnings Income Equity
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1999 $ (126) $ (440) $ 11,929 $ 8 $ 48,001
Repayment of notes receivable 24 24
Amortization of stock-based 15 15
compensation
Preferred stock dividends (289) (289)
Purchase of treasury stock (20)
Translation adjustment 14 14
Net income 1,819 1,819
Comprehensive income 1,833
Balance - March 31, 2000 $ (102) $ (425) $ 13,459 $ 22 $ 49,564
</TABLE>
6
<PAGE>
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three months ended
March 31,
2000 1999
------------------------
Operating activities
Net Income $ 1,819 $ 649
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation and amortization 1,280 1,016
Amortization of deferred financing costs 88 86
Provision for bad debt 117 168
Amortization of deferred compensation 15 -
Changes in assets and liabilities:
Accounts receivable (10,883) (9,768)
Prepaid expenses and other assets (391) (323)
Accounts payable and accrued expenses (1,983) 864
Accrued payroll 539 2,175
Income taxes payable 2,090 446
Deferred rent (25) -
------------------------
Net cash (used in) operating activities (7,334) (4,687)
------------------------
Investing activities
Expenditures for property and equipment (463) (430)
Repayment from notes receivable 24 17
Cash paid for acquisitions (1,600) (1,486)
Net cash (used in) investing activities (2,039) (1,899)
Financing activities
Proceeds from long-term debt 10,450 6,200
Repayment of long-term debt (84) (73)
Payment of capital lease obligations (112) (97)
Payments of loan acquisition fees - (10)
Payments of other loans (1,020) -
Purchase of treasury stock (20) (268)
Cash dividends paid (289) (275)
-----------------------
Net cash provided by financing activities 8,925 5,477
-----------------------
Effect of exchange rate changes on cash and
cash equivalents 14 (10)
(Decrease) in cash and cash equivalents (434) (1,119)
Cash and cash equivalents at beginning of period 1,867 4,157
Cash and cash equivalents at end of period $ 1,433 $ 3,038
======================
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 1,645 $ 1,373
Income taxes $ 142 $ 44
7
<PAGE>
HEADWAY CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(1) BASIS OF PRESENTATION
Headway Corporate Resources, Inc. and its wholly owned subsidiaries provide
strategic staffing solutions and personnel worldwide. Its operations include
information technology staffing, temporary staffing, contract staffing,
permanent placement and executive search. Headquartered in New York, the
Company also has offices in California, Connecticut, Florida, New Jersey,
North Carolina, Virginia, and Texas and executive search offices in New York,
Illinois, Massachusetts, the United Kingdom, Japan, Hong Kong and Singapore.
These consolidated financial statements include the accounts of Headway
Corporate Resources, Inc. and its subsidiaries (collectively referred to as
the "Company").
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three months ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
For further information, refer to the consolidated financial statements
amendment no. 1 to the company's form 10-K for the year ended December 31,
1999.
(2) INTANGIBLES
During the quarter ended March 31, 2000, additional purchase price of
$1,932,000 was recorded as goodwill upon the determination that the earnouts
had been met on certain acquisitions made in 1998.
(3) TERMINATION OF EMPLOYMENT CONTRACT
In March 1999, the Company incurred costs of $2,329,000 associated with the
termination of an employment contract.
8
<PAGE>
(4) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share for the three months ended March 31, 2000 and 1999:
2000 1999
-----------------------
Numerator:
Net income $ 1,819,000 $ 649,000
Preferred dividend requirements (289,000) (275,000)
-----------------------
Numerator for basic earnings per share - net
income available for common stockholders 1,530,000 374,000
Effect of dilutive securities:
Preferred dividend requirements 289,000 275,000
-----------------------
Numerator for diluted earnings per share - net income
available for common stockholders after
assumed conversions $ 1,819,000 $ 649,000
=======================
Denominator:
Denominator for basic earnings per share -
weighted average shares 10,572,571 10,354,981
Effect of dilutive securities:
Stock options, warrants and restricted
common stock 202,420 640,950
Convertible preferred stock 3,584,299 3,584,299
-----------------------
Dilutive potential common stock 3,786,719 4,225,249
Denominator for diluted earnings per share -
adjusted weighted- average shares and
assumed conversions $14,359,290 14,580,230
=======================
Basic earnings per share $ .14 $ .04
=======================
Diluted earnings per share $ .13 $ .04
=======================
9
<PAGE>
(5) BUSINESS SEGMENTS
The Company classifies its business into two fundamental areas, staffing and
executive search. Staffing consists of the placement and payrolling of
temporary and permanent office, clerical and information technology
professional personnel. Executive search focuses on placing middle to upper
level management positions. The Company evaluates performance based on the
segments' profit from operations before unallocated corporate overhead.
Executive
Staffing Search
Three months ended March 31, 2000 Services Services Total
- -------------------------------------------------------------------------------
Revenues $ 84,927,000 $ 11,388,000 $ 96,315,000
Segment profit 469,000 1,850,000 2,319,000
Executive
Staffing Search
Three months ended March 31, 1999 Services Services Total
- -------------------------------------------------------------------------------
Revenues $ 83,960,000 $ 8,693,000 $ 92,653,000
Segment profit 1,065,000 1,484,000 2,549,000
Three months ended March 31,
Reconciliation to net income 2000 1999
- ----------------------------------------------------------------
Total profit for reportable segments $ 2,319,000 $ 2,549,000
Unallocated amounts:
Interest expense (78,000) (87,000)
Corporate overhead (796,000) (859,000)
Termination of employment contract - (2,329,000)
Income tax benefit 374,000 1,375,000
---------------------------
Net income (loss) $ 1,819,000 $ 649,000
=========== =============
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
The Company had strong financial performance for the first quarter of 2000
achieving record revenues and operating income. The executive search segment
exhibited strong growth due to the continued demand for high level personnel
in the financial services industry. The staffing business started off slowly
in the area of information technology as expected due to the Year 2000
transition but has begun to pick up in the second quarter. The Company
expects this trend to continue as long as there is no drastic change in the
economy or the financial services industry. The Company expects to continue
to grow both internally and through acquisitions.
Consolidated
Revenues increased $3,662,000 or 4% to $96,315,000 for the three months ended
March 31, 2000, from $92,653,000 for the same period in 1999. The increase
was attributable to the executive search acquisition completed in the latter
part of 1999 as well as strong internal growth from the executive search
segment.
The executive search subsidiary, Whitney Partners, LLC (Whitney), contributed
$11,388,000 to consolidated revenues in the first quarter of 2000, an
increase of $2,695,000 from $8,693,000 for the same period in 1999. This
increase is attributable to the Tyzack acquisition completed in the latter
part of 1999, as well as internal growth.
The staffing subsidiary, Headway Corporate Staffing Services, Inc. (HCSS)
contributed revenues of $84,927,000 to consolidated revenues in the first
quarter of 2000, an increase of $967,000 from $83,960,000 for first quarter
of 1999. Revenues were only slightly ahead of 1999 as the information
technology staffing business has not come back to the level that it was a
year ago. With the Year 2000 transition completed, it is management's
expectation that the demand for information technology specialists will
increase significantly.
Total operating expenses increased $1,264,000 to $91,317,000 for the three
months ended March 31, 2000, from $90,053,000 for the same period in 1999.
Direct costs decreased as a percentage of revenues to 72.6% in 2000 from
75.3% in 1999. The decrease is a result of the Company's business mix.
Specifically, the executive search business that has no direct costs has
grown versus the first quarter of 1999 while the staffing companies have
remained relatively flat. Direct costs for HCSS declined slightly as a
percentage of HCSS revenue to 82.3% for the three months ended March 31,
2000, from 83.1% for the same period in 1999. Selling, general and
administrative expenses increased as a percentage of revenues from 18.3% in
first quarter 1999 to 20.9% in first quarter 2000. The increase relates
primarily to higher compensation expense related to the growth in revenues
from executive search.
Included in the operating expenses for the first quarter of 1999 was a
special charge of $2,329,000 paid in connection with the termination of an
employment agreement.
11
<PAGE>
Whitney's operating expenses increased $1,902,000 to $7,962,000 in the first
quarter of 2000, from $6,060,000 for the same period last year. This
increase is primarily a result of higher compensation expense directly
related to the increase in revenue as well as the operating expenses of
Tyzack that was acquired in the latter part of 1999.
Operating income increased 92% or $2,398,000 to $4,998,000 for the three
months ended March 31, 2000, compared to $2,600,000 for the three months
ended March 31, 1999. The increase is primarily related to the $2,329,000
termination payment made in 1999. Excluding this payment, operating income
increased 1.4% to $4,998,000 for the three months ended March 31, 2000,
compared to $4,929,000 for the same period in 1999.
Liquidity and Capital Resources
Cash used in operations during the three months ended March 31, 2000 was
$7,334,000. The cash used in 2000 was primarily attributable to an increase
in accounts receivable, partially offset by an increase in income taxes
payable.
For the three months ended March 31, 2000, the Company used $2,039,000 in
investing activities almost exclusively for earnout payments for acquisitions
completed during 1997 and 1998 and capital expenditures. This compares to
cash used in investing activities of $1,899,000 for the same period in 1999.
The cash used for investing activities in 1999 also related primarily to
earnout payments for acquisitions completed during 1997 and 1998 as well as
capital expenditures.
Total net cash received from financing activities was $8,925,000 for the
three months ended March 31, 2000, compared to net cash provided by financing
activities of $5,477,000 for the same period in 1999. The cash generated in
2000 was a result of additional borrowings under the Company's senior credit
facility.
The Company's working capital improved to $41,298,000 at March 31, 2000, from
$30,566,000 at December 31, 1999. Management expects that the Company's
working capital position will be sufficient to meet all of the working
capital needs for the remainder of the year. In addition, at March 31, 2000,
the Company had approximately $27 million available under its senior credit
facility.
Impact of Year 2000
In prior years, Headway discussed the nature of its plans related to Year
2000 compliance. As a result of those planning efforts, Headway experienced
no significant disruptions in mission critical information technology and non-
information technology systems and believes those systems successfully
responded to the Year 2000 date change. The costs associated with Year 2000
compliance was nominal. Headway is not aware of any material problems
resulting from Year 2000 issues with its internal systems or the services of
third parties. Headway will continue to monitor its mission critical
computer applications and those of its supplier and vendors throughout the
year to ensure that any latent Year 2000 matters that may arise are addressed
properly.
12
<PAGE>
PART II. OTHER INFORMATION
EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS: Attached only to the electronic filing by the Company with the
Securities and Exchange Commission is the Financial Data Schedule, Exhibit
Reference Number 27, in accordance with Item 601(c) of Regulation S-K.
REPORTS ON FORM 8-K: None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
HEADWAY CORPORATE RESOURCES, INC.
Date: May 10, 1999 By: /s/ Barry S. Roseman, President
and Chief Operating Officer
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,433
<SECURITIES> 0
<RECEIVABLES> 64,321
<ALLOWANCES> 1,075
<INVENTORY> 0
<CURRENT-ASSETS> 67,044
<PP&E> 9,158
<DEPRECIATION> 3,415
<TOTAL-ASSETS> 160,176
<CURRENT-LIABILITIES> 25,746
<BONDS> 0
0
20,000
<COMMON> 1
<OTHER-SE> 29,563
<TOTAL-LIABILITY-AND-EQUITY> 160,176
<SALES> 0
<TOTAL-REVENUES> 96,315
<CGS> 0
<TOTAL-COSTS> 91,317
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,848
<INCOME-PRETAX> 3,173
<INCOME-TAX> 1,354
<INCOME-CONTINUING> 1,819
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,819
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.13
</TABLE>
