<PAGE> 1
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 December 31, 1998 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 000-21465
TALX CORPORATION
(Exact name of registrant as specified in its charter)
MISSOURI 43-0988805
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 BORMAN COURT, ST. LOUIS, MO 63146
(Address of principal executive offices) (Zip Code)
(314) 434-0046
(Registrant's telephone
number, including area code)
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 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
As of January 15, 1999 there were 5,468,702 shares of the Registrant's Common
Stock outstanding.
Exhibit Index is on page 15.
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TALX CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1998 3
and March 31, 1998
Consolidated Statements of Operations for the Three Months and
Nine Months Ended December 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Three Months and
Nine Months Ended December 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Securities Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
DEC. 31, MARCH 31,
1998 1998
-------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 613 $ 2,879
Trade receivables, net 9,747 8,422
Inventories 989 1,452
Prepaid expenses and other current assets 800 754
Income tax refund receivable 14 14
Deferred tax assets, net 181 171
-------- --------
Total current assets 12,344 13,692
Property and equipment, net 6,080 3,956
Capitalized software development costs, net 3,998 3,837
Net assets of business held for sale 1,071 1,157
Deferred tax asset, net 1,324 1,324
Other assets 388 155
-------- --------
$ 25,205 $ 24,121
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 1,232 $ -
Accounts payable 1,690 1,778
Accrued expenses and other liabilities 1,081 1,702
Progress billings in excess of work in progress 430 176
Deferred maintenance revenue 1,189 957
-------- --------
Total current liabilities 5,622 4,613
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares and
no shares issued or outstanding at December 31, 1998 and March 31, 1998 - -
Common stock, $.01 par value; authorized 30,000,000 shares,
issued and outstanding 5,468,702 shares at December 31, 1998
and 5,316,032 at March 31, 1998 55 53
Additional paid-in capital 23,350 23,225
Accumulated deficit (3,822) (3,770)
-------- --------
Total stockholders' equity 19,583 19,508
-------- --------
$ 25,205 $ 24,121
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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TALX Corporation and Subsidiaries
Consolidated Statements of Operations
(dollars in thousands, except per share information)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Dec. 31, Nine Months Ended Dec. 31,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
The Work Number $ 2,518 $ 1,151 $ 6,258 $ 2,862
Outsourced services 1,791 1,043 4,184 2,513
Customer premises systems 2,843 2,376 8,074 8,628
Maintenance and support 1,133 1,022 3,733 3,028
--------- -------- ------ --------
Total revenues 8,285 5,592 22,249 17,031
--------- -------- ------ --------
Cost of revenues:
The Work Number 871 496 2,235 1,220
Outsourced services 1,021 604 2,441 1,423
Customer premises systems 2,302 1,590 5,764 4,602
Maintenance and support 367 324 1,201 937
--------- -------- ------ --------
Total cost of revenues 4,561 3,014 11,641 8,182
--------- -------- ------ --------
Gross margin 3,724 2,578 10,608 8,849
--------- -------- ------ --------
Operating expenses:
Selling and marketing 2,091 1,848 6,668 5,592
General and administrative 1,209 916 3,506 2,438
Restructuring charge 496 - 496 -
--------- -------- ------ --------
Total operating expenses 3,796 2,764 10,670 8,030
--------- -------- ------ --------
Operating income (loss) (72) (186) (62) 819
--------- -------- ------ --------
Other income (expense), net:
Interest income 3 51 52 201
Interest expense (26) - (38) (2)
Other, net - (74) 19 (73)
--------- -------- ------ --------
Total other income (expense), net (23) (23) 33 126
--------- -------- ------ --------
Earnings (loss) before income tax expense (benefit) (95) (209) (29) 945
Income tax expense (benefit) (35) (77) (10) 350
--------- -------- ------ --------
Net earnings (loss) $ (60) $ (132) $ (19) $ 595
========= ======== ====== ========
Basic and diluted earnings (loss) per share $ (0.01) $ (0.02) $(0.00) $ 0.11
========= ======== ====== ========
</TABLE>
See accompanying notes to consolidated financial statements
4
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TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Dec. 31,
------------------------------
1998 1997
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ (19) $ 595
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 2,171 1,952
Net assets of business held for sale 86 -
Deferred taxes (10) 349
Change in assets and liabilities:
Trade receivables (1,325) (1,909)
Inventories 463 (137)
Prepaid expenses and other current assets (46) (124)
Other assets (233) (730)
Accounts payable (88) (144)
Accrued expenses and other liabilities (621) 141
Progress billings in excess of work in progress, net 254 59
Deferred maintenance revenue 232 29
------- -------
Net cash provided by operating activities 864 81
------- -------
Cash flows from investing activities:
Additions to property and equipment (3,202) (1,734)
Capitalized software development costs (1,254) (1,735)
Maturities of short-term investments - 3,091
------- -------
Net cash used in investing activities (4,456) (378)
------- -------
Cash flows from financing activities
Issuance of common stock 217 146
Borrowings under line of credit 1,232 -
Purchases of treasury stock (123) -
Payments on capitalized lease obligations - (36)
------- -------
Net cash provided by financing activities 1,326 110
------- -------
Net decrease in cash and cash equivalents (2,266) (187)
Cash and cash equivalents at beginning of period 2,879 1,684
------- -------
Cash and cash equivalents at end of period $ 613 $ 1,497
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
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TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated balance sheet of TALX Corporation ("TALX" or the
"Company") at March 31, 1998 was obtained from the Company's audited
balance sheet as of that date. All other financial statements contained
herein are unaudited and, in the opinion of management, contain all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation. Operating results for the three
months and nine months ended December 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending
March 31, 1999. The Company's accounting policies and certain other
disclosures are set forth in the notes to the Company's audited
consolidated financial statements as of and for the year ended March
31, 1998.
2. EARNINGS PER SHARE
Effective with the fiscal year ended March 31, 1998, the Company
adopted Statement of Financial Accounting Standards No. 128 (SFAS No.
128). SFAS No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of stock options. Diluted earnings per share is
similar to the previously reported fully diluted earnings per share.
The weighted average number of shares used in computing basic and
diluted earnings per share for the nine months ended December 31, 1998
was 5,370,136 and 5,508,480, respectively.
3. RESTRUCTURING CHARGE
During the quarter ended December 31, 1998, the Company reorganized its
sales and delivery operations and refocused its product line, related
to its customer premises systems line of business. In conjunction with
the reorganization, the Company reduced its workforce by approximately
8% and closed certain regional sales offices. As a result of these
actions, the Company incurred restructuring charges of $318,000 related
to employee severance costs and $178,000 of other costs. These items
are reflected in the line item "restructuring charge" on the statement
of operations and $257,000 is reflected in accrued expenses on the
balance sheet.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues are derived from interactive Web, interactive voice
response (IVR), computer telephony (CTI) software and services, which consist of
The Work Number, outsourced services, the sale of customer premises systems, and
maintenance and support services related to those systems.
Revenues derived from The Work Number include fees charged to mortgage lenders
and other verifiers for verification of employment history, including the past
three years of salary history of participating employers' current and former
employees, ongoing maintenance fees charged to employers and one-time conversion
fees from new employers.
The Company's customer premises systems business provides interactive Web, IVR,
CTI software and services that enable an organization's users to access, input
and update information without human assistance. Revenues from customer premises
systems are derived from the license or sale of software, custom applications,
and related hardware and are generally recognized upon shipment of the system.
Sales are effected through a direct sales force and in conjunction with
strategic marketing alliances (including third party resellers). In the case of
a third party reseller, revenues are recognized at the time of shipment to the
reseller; however, the Company does not have any future obligations related to
these types of sales. The Company provides maintenance and support services with
respect to installed customer premises systems. These services include a 24-hour
per day, 7-day a week toll-free customer service line. Revenues from maintenance
and support are recognized ratably over the term of the maintenance agreement.
The Company's outsourced services business provides interactive Web and
interactive voice response services to organizations that choose not to purchase
a customer premises system. The Company maintains a system on its premises that
contains a customer database and receives incoming requests for access to the
information. Revenues from outsourced services include fees derived from
establishment of the service and transaction-based fees.
In addition to providing software and services, the Company has historically
provided database and document services. Database services include sales leads
and pre-press services for directory publishers, and document services include
the preparation and mailing of invoices, statements and confirmation letters for
organizations with high volume requirements. Revenues from database and document
services are recognized as the services are performed through progress billings.
These customers' contracts cover periods generally from one to six months and
progress billings are made in accordance with individual customer contract
terms. In August 1996, the Company determined to pursue the divestiture of the
database and document services businesses and, accordingly, has reflected the
results of operations of such businesses as discontinued operations. In January
1997, the document services business was sold. The Company is actively marketing
its database services business.
This discussion and analysis contains certain statements regarding future
results, performance, expectations, or intentions that may be considered forward
looking statements ("Forward Looking Statements") within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding Year 2000
matters. All statements other than statements of historical facts are Forward
Looking Statements. Although the Company believes that the expectations
reflected in such Forward Looking Statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Actual results could
differ materially from those projected in the Forward Looking Statements as a
result of risks facing the Company. Such risks include, but are not limited to,
(1) the Company's ability to successfully market and expand The Work Number for
Everyone(R) and its other products and services, (2) the successful divestiture
of the remaining assets of the discontinued operations, (3) intense competition
in the interactive web and interactive voice response industry, (4) dependence
on certain strategic marketing alliances, (5) risks associated with rapid
technological change, (6) risks associated with a lengthy sales cycle and (7)
other factors set forth under "Risk Factors" in Item 1 of the Company's Annual
Report on Form 10-K for the year ended March 31, 1998 filed with the Securities
and Exchange Commission.
7
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All subsequent written and oral Forward Looking Statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the foregoing cautionary statements. The Company does not undertake
any obligation to release publicly any revisions to Forward Looking Statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from
the Company's consolidated statements of operations, expressed as a percentage
of total revenues, and the percentage change in the dollar amount of such items
compared to the prior comparable period.
<TABLE>
<CAPTION>
Percentage Change
Three Months Nine Months --------------------------------
Ended Dec. 31, Ended Dec. 31, Three Months Nine Months
----------------- ----------------- Ended Dec. 31, Ended Dec. 31,
1998 1997 1998 1997 1998 over 1998 over
---- ---- ---- ---- 1997 1997
---- ----
STATEMENT OF OPERATIONS DATA:
Revenues
<S> <C> <C> <C> <C> <C> <C>
The Work Number 30.4% 20.6% 28.1% 16.8% 118.8% 118.7%
Outsourced services 21.6 18.6 18.8 14.8 71.7 66.5
Customer premises systems 34.3 42.5 36.3 50.6 19.7 (6.4)
Maintenance and support 13.7 18.3 16.8 17.8 10.9 23.3
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0 48.2 30.6
----- ----- ----- -----
Cost of revenues
The Work Number 10.5 8.9 10.0 7.1 75.6 83.2
Outsourced services 12.3 10.8 11.0 8.4 69.0 71.5
Customer premises systems 27.9 28.4 25.9 27.0 44.8 25.2
Maintenance and support 4.4 5.8 5.4 5.5 13.3 28.2
----- ----- ----- -----
Total cost of revenues 55.1 53.9 52.3 48.0 51.3 42.3
----- ----- ----- -----
Gross margin 44.9 46.1 47.7 52.0 44.5 19.9
----- ----- ----- -----
Operating expenses
Selling and marketing 25.2 33.0 30.0 32.9 13.1 19.2
General and administrative 14.6 16.4 15.8 14.3 32.0 43.8
Restructuring charge 6.0 0.0 2.2 0.0 * *
----- ----- ----- -----
Total operating expenses 45.8 49.4 48.0 47.2 37.3 32.9
----- ----- ----- -----
Operating income (loss) (0.9) (3.3) (0.3) 4.8 * (107.9)
Other income (expense), net (0.2) (0.4) 0.1 0.7 0.0% (73.8)
----- ----- ----- -----
Earnings (loss) before income tax exp
(benefit) (1.1) (3.7) (0.2) 5.5 * (103.1)
Income tax expense (benefit) (0.4) (1.4) (0.1) 2.0 * (102.9)
----- ----- ----- -----
Net earnings (loss) (0.7)% (2.3)% (0.1)% 3.5% * (103.2)%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1998
REVENUES. Total revenues increased by 48.2%, from $5.6 million for the three
months ended December 31, 1997 to $8.3 million for the three months ended
December 31, 1998. Revenues from The Work Number increased 118.8% from $1.2
million for the three months ended December 31, 1997 to $2.5 million for the
three months ended December 31, 1998, due to the continued expansion of
marketing to employers and verifiers on a nationwide basis and an increase in
the number of employment records, and related transaction volume, on the system.
Revenues from outsourced services increased 71.7% from $1.0 million for the
three months ended December 31, 1997 to $1.8 million for the three months ended
December 31, 1998, due to the Company capitalizing on the trend of some
corporations to outsource their non-core functions. Revenues from customer
premises systems increased 19.7% from $2.4 million for the three months ended
December 31, 1997 to $2.8 million for the three months ended December 31, 1998.
Management believes that the revenue increase is due to the Company having a
higher backlog at the beginning of the third fiscal quarter of 1999 over the
comparable quarter of fiscal 1998, offset by a lengthened sales cycle. Revenues
from maintenance and support related to the customer premises systems increased
10.9% from $1.0 million for the three months ended December 31, 1997 to $1.1
million for the three months ended December 31, 1998, reflecting the support
provided to an increased installed base of customer premises systems.
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COST OF REVENUES. Total cost of revenues increased by 51.3%, from $3.0 million
for the three months ended December 31, 1997 to $4.6 million for the three
months ended December 31, 1998. Cost of revenues from The Work Number increased
75.6% from $496,000 for the three months ended December 31, 1997 to $871,000 for
the three months ended December 31, 1998, due principally to the growth in
revenues. Cost of revenues from outsourced services increased by 69.0%, from
$604,000 for the three months ended December 31, 1997 to $1.0 million for the
three months ended December 31, 1998. This increase in cost is attributable to
the revenue growth described above and the increase of fixed labor costs and
telephone and network infrastructure to support possible future increases in
revenue. Cost of revenues from customer premises systems increased by 44.8%,
from $1.6 million for the three months ended December 31, 1997 to $2.3 million
for the three months ended December 31, 1998. This increase in cost is
attributable to the increase in revenues and an increase in labor costs. Cost of
revenues from maintenance and support related to customer premises systems
increased by 13.3%, from $324,000 for the three months ended December 31, 1997
to $367,000 for the three months ended December 31, 1998, due to the revenue
growth and an increase in personnel costs to provide an appropriate level of
customer service.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased 13.1%
from $1.8 million for the three months ended December 31, 1997 to $2.1 million
for the three months ended December 31, 1998. As a percentage of revenues, such
expenses decreased from 33.0% for the three months ended December 31, 1997 to
25.2% for the three months ended December 31, 1998. The increase in expense
reflects the expansion of the Company's sales and marketing efforts. The
decrease in expense as a percentage of revenues reflects a better leveraging of
sales and marketing costs as revenues increased.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 32.0% from $916,000 for the three months ended December 31, 1997 to
$1.2 million for the three months ended December 31, 1998. As a percentage of
revenues, such expenses decreased from 16.4% for the three months ended December
31, 1997 to 14.6% for the three months ended December 31, 1998. The increase in
expense reflects the expansion of the Company's infrastructure to respond to
increased revenues and possible future increased levels of revenues. The
decrease in the expense as a percentage of revenues is reflective of a better
leveraging of costs as revenues increased.
RESTRUCTURING CHARGE. During the quarter ended December 31, 1998, the Company
reorganized its sales and delivery operations and refocused its product line,
related to its customer premises systems line of business. In conjunction with
the reorganization, the Company reduced its workforce by approximately 8% and
closed certain regional sales offices. As a result of these actions, the Company
incurred restructuring charges of $318,000 related to employee severance costs
and $178,000 of other costs.
OTHER INCOME (EXPENSE), NET. Interest income decreased 94.1% from $51,000 for
the three months ended December 31, 1997 to $3,000 for the three months ended
December 31, 1998, due to a lower level of invested funds. The Company also
incurred $26,000 of interest expense on borrowings under its line of credit
during the three months ended December 31, 1998.
INCOME TAX EXPENSE. The Company's effective income tax rate was 36.8% for the
three months ended December 31, 1997 and for the three months ended December 31,
1998.
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1998
REVENUES. Total revenues increased by 30.6%, from $17.0 million for the nine
months ended December 31, 1997 to $22.2 million for the nine months ended
December 31, 1998. Revenues from The Work Number increased 118.7% from $2.9
million for the nine months ended December 31, 1997 to $6.3 million for the nine
months ended December 31, 1998, due to the continued expansion of marketing on a
nationwide basis and an increase in the number of employment records on the
system. Revenues from outsourced services increased 66.5% from $2.5 million for
the nine months ended December 31, 1997 to $4.2 million for the nine months
ended December 31, 1998, due to the Company capitalizing on the trend of some
corporations to outsource their non-core functions. Revenues from customer
premises systems decreased 6.4% from $8.6 million for the nine months ended
December 31, 1997 to $8.1 million for the nine months ended December 31, 1998.
Management believes that the revenue decrease is due principally to a lengthened
sales cycle.
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Revenues from maintenance and support related to the customer premises systems
increased 23.3% from $3.0 million for the nine months ended December 31, 1997 to
$3.7 million for the nine months ended December 31, 1998, reflecting the support
provided to an increased installed base of customer premises systems.
COST OF REVENUES. Total cost of revenues increased by 42.3%, from $8.2 million
for the nine months ended December 31, 1997 to $11.6 million for the nine months
ended December 31, 1998. Cost of revenues from The Work Number increased 83.2%
from $1.2 million for the nine months ended December 31, 1997 to $2.2 million
for the nine months ended December 31, 1998, due principally to the growth in
revenues. Cost of revenues from outsourced services increased by 71.5%, from
$1.4 million for the nine months ended December 31, 1997 to $2.4 million for the
nine months ended December 31, 1998. This increase in cost is attributable to
the revenue growth described above and the increase of fixed labor costs and
telephone and network infrastructure to support possible future increases in
revenue. Cost of revenues from customer premises systems increased by 25.2%,
from $4.6 million for the nine months ended December 31, 1997 to $5.8 million
for the nine months ended December 31, 1998. This increase in cost is primarily
attributable to an increase in labor costs. Cost of revenues from maintenance
and support related to customer premises systems increased by 28.2%, from
$937,000 for the nine months ended December 31, 1997 to $1.2 million for the
nine months ended December 31, 1998, due to the revenue growth and an increase
in personnel costs to provide an appropriate level of customer service.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased 19.2%
from $5.6 million for the nine months ended December 31, 1997 to $6.7 million
for the nine months ended December 31, 1998. As a percentage of revenues, such
expenses decreased from 32.9% for the nine months ended December 31, 1997 to
30.0% for the nine months ended December 31, 1998. The increase in expense
reflects the expansion of the Company's sales and marketing efforts. The
decrease in expense as a percentage of revenues reflects a better leveraging of
sales and marketing costs as revenues increased.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 43.8% from $2.4 million for the nine months ended December 31, 1997 to
$3.5 million for the nine months ended December 31, 1998. As a percentage of
revenues, such expenses increased from 14.3% for the nine months ended December
31, 1997 to 15.8% for the nine months ended December 31, 1998. The increase in
expense reflects the expansion of the Company's infrastructure to respond to
increased revenues and possible future increased levels of revenues. The
increase in the expense as a percentage of revenues is reflective of revenues
for the nine months being lower than management expectations.
RESTRUCTURING CHARGE. During the quarter ended December 31, 1998, the Company
reorganized its sales and delivery operations and refocused its product line,
related to its customer premises systems line of business. In conjunction with
the reorganization, the Company reduced its workforce by approximately 8% and
closed certain regional sales offices. As a result of these actions, the Company
incurred restructuring charges of $318,000 related to employee severance costs
and $178,000 of other costs.
OTHER INCOME (EXPENSE), NET. Interest income decreased 74.1% from $201,000 for
the nine months ended December 31, 1997 to $52,000 for the nine months ended
December 31, 1998, due to a lower level of invested funds. The Company also
incurred $38,000 of interest expense on borrowings under its line of credit
during the nine months ended December 31, 1998.
INCOME TAX EXPENSE. The Company's effective income tax rate was 37.0% for the
nine months ended December 31, 1997 and for the nine months ended December 31,
1998.
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DISCONTINUED OPERATIONS
In August 1996, the Company determined to pursue the divestiture of the database
and document services businesses and, accordingly, has reflected the results of
operations of such businesses as discontinued operations. A provision of
$350,000 was made as of June 30, 1996 to reflect the anticipated loss from
operations until the time of disposal. On January 31, 1997, the Company sold
substantially all of the assets of the document services business to Sterling
Direct, Inc., the largest customer of the division. The sales price, after
giving effect to the post-closing adjustments, was $1,241,000. Of this amount,
$200,000 was in the form of a subordinated note and the remainder was paid in
cash. The net assets related to this sale were approximately $566,000. At March
31, 1997 and 1998, the Company provided additional provisions for loss, net of
tax, in the amount of $550,000 and $374,000, respectively. The Company
anticipates disposition of the remaining operations through sale during the next
twelve months.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a current ratio of 4.64 to 1, 2.97 to 1 and 2.20 to 1 at March
31, 1997, March 31, 1998 and December 31, 1998, respectively. The Company's
working capital was $13.4 million, $9.1 million and $6.7 million at March 31,
1997, March 31, 1998 and December 31, 1998, respectively. Total working capital
decreased in fiscal 1998 due to the Company's net loss and investments in
property and equipment and capitalized software development costs. Total working
capital decreased during the nine months ended December 31, 1998 due principally
to current year operating results, offset by investments in property and
equipment and capitalized software development costs.
The Company's accounts receivable increased from $8.4 million at March 31, 1998
to $9.7 million at December 31, 1998. The increase is due to increased revenues
in the third quarter of fiscal 1999 compared to the fourth quarter of fiscal
1998, offset by improved collections of accounts receivable. As a percentage of
the Company's total revenues for the respective quarter, accounts receivable
decreased from 199% of revenues at March 31, 1998 to 118% of revenues at
December 31, 1998.
The Company's capital expenditures were $2.3 million in fiscal 1998 and $3.2
million for the first nine months of fiscal 1999. At December 31, 1998, the
Company had no significant capital spending or purchase commitments other than
normal purchase commitments and commitments under facilities and operating
leases. The Company believes that its working capital, together with its
anticipated cash flows from operations and borrowing capacity under a $5 million
line of credit ($3.8 million available at December 31, 1998), will be sufficient
to meet its working capital and capital expenditure requirements for at least
the next 12 months. Outstanding borrowings under the line of credit bear
interest at LIBOR plus 2.25% and are secured by accounts receivable and
inventory.
The Company's net increase to capitalized software development costs was
$735,000 in fiscal 1998 and $161,000 in the first nine months of fiscal 1999.
See Notes 1 and 5 of Notes to Consolidated Financial Statements contained in the
Company's Annual Report on Form 10-K for the year ended March 31, 1998. The
Company intends to continue to make investments in software solutions at
comparable or increasing levels in fiscal 1999.
YEAR 2000 COMPLIANCE
Many installed computer systems used by numerous companies to run a variety of
applications are not capable of processing date sensitive information that falls
beyond the twentieth century. Unless these computer systems are replaced or
upgraded prior to the year 2000 to process such date sensitive information, the
systems may experience severe operating difficulties or system failures. Based
on a review and testing of its software products and other products, the Company
believes that its current products are century compliant. The Company's
assessment of its current products is partially dependent upon the accuracy of
representations concerning century compliance made by its suppliers, such as
Microsoft and IBM. Many of the Company's customers are, however, using earlier
versions of the Company's software products and other products that may not be
century compliant. The Company has instituted programs to warn these customers
of the risks associated with using software and other products which may not be
century compliant, and to encourage such customers to migrate to the Company's
current products.
11
<PAGE> 12
In addition, the Company's products are generally integrated with a customer's
enterprise system, which typically utilize software products developed by other
vendors. A customer may mistakenly believe that century compliance problems with
its enterprise system are attributable to products provided by the Company. The
Company may in the future be subject to claims based on century compliance
issues related to a customer's enterprise system or other products provided by
third parties, custom modifications to the Company's products made by third
parties, or issues arising from the integration of the Company's products with
other products. The Company has not been a party to any proceeding involving its
products or services in connection with century compliance issues; however,
there is no assurance that the Company will not in the future be required to
defend its products or services in such proceedings against claims of century
compliance issues, and any resulting liability of the Company for damages could
have a material adverse effect on the Company's business, operating results and
financial condition.
During fiscal 1998, the Company initiated a program to review, replace and
upgrade its internal use information systems and non-information technology
systems to accommodate the Company's growth, improve productivity and remedy any
century compliance problems. The Company has substantially completed the
inventory phase for its hardware and purchased software. The assessment and
remediation stages are currently underway. This phase is expected to be
substantially complete by March 31, 1999. Testing is targeted for completion by
June 30, 1999. To a large extent, the Company is dependent on its suppliers and
their efforts. The Company believes that its internal use information systems
will be century compliant prior to the year 2000. However, there is no assurance
that the Company will identify and resolve any and all century compliance
problems with its internal use information systems in timely manner, that the
expenses associated with such remedial efforts will not be significant, or that
such problems will not have a material adverse effect on the Company's business,
operating results and financial condition. The Company is also beginning the
development of a contingency plan, in the event some systems are not year 2000
compliant prior to the end of calender 1999.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter for
which this report is filed.
13
<PAGE> 14
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.
TALX CORPORATION
(Registrant)
Date: February 5, 1998 By /s/ William W. Canfield
---------------------------------
William W. Canfield
Chairman, President and
Chief Executive Officer
Date: February 5, 1998 By /s/ Craig N. Cohen
---------------------------------
Craig N. Cohen
Chief Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
3.1 Restated Articles of Incorporation, as amended (incorporated
by reference from Exhibit 3.1 to the Company's Form 10-K for
the fiscal year ended March 31, 1997 (File No. 000-21465))
3.3 Bylaws of the Company (incorporated by reference from Exhibit
3.3 to the Company's Registration Statement on Form S-1 (File
No. 333-10969))
11 Computation of Earnings Per Share
27 Financial Data Schedule (provided for the information of the
Securities and Exchange Commission only)
15
<PAGE> 1
Exhibit 11.1
TALX CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Three Months and Nine Months Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED DEC. 31, NINE MONTHS ENDED DEC. 31,
------------------------------ -----------------------------
1998 1997 1998 1997
------------ ------------- ------------ ------------
Basic Earnings Per Share:
<S> <C> <C> <C> <C>
Actual shares outstanding - beginning of period 5,350,025 5,289,949 5,316,032 5,263,455
Weighted average number of common shares issued 92,753 4,737 54,104 21,602
------------- ------------- ------------ ------------
Weighted average number of common
shares outstanding - end of period 5,442,778 5,294,686 5,370,136 5,285,057
============= ============= ============ ============
Net earnings (loss) $ (60,000) $ (132,000) $ (19,000) $ 595,000
============= ============= ============ ===========
Basic earnings (loss) per common share $ (0.01) $ (0.02) $ (0.00) $ 0.11
============= ============= ============ ============
Diluted Earnings Per Share:
Actual shares outstanding - beginning of period 5,350,025 5,289,949 5,316,032 5,263,455
Weighted average number of common shares issued (1) 153,412 228,775 192,448 230,610
------------- ------------- ------------ ------------
Weighted average number of common
shares outstanding - end of period 5,503,437 5,518,724 5,508,480 5,494,065
============= ============= ============ ============
Net earnings (loss) $ (60,000) $ (132,000) $ (19,000) $ 595,000
============= ============= ============ ============
Diluted earnings (loss) per common share $ (0.01) $ (0.02) $ (0.00) $ 0.11
============= ============= ============ ============
</TABLE>
(1) Basic and diluted earnings (loss) per share has been computed using the
number of shares of common stock and common stock options and warrants
outstanding. The weighted average number of shares was based on common
stock outstanding for basic earnings (loss) per share and common stock
outstanding and common stock options and warrants for diluted earnings
(loss) per share in periods when such common stock options and warrants are
not antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 613
<SECURITIES> 0
<RECEIVABLES> 9895
<ALLOWANCES> 148
<INVENTORY> 989
<CURRENT-ASSETS> 12344
<PP&E> 9959
<DEPRECIATION> 3879
<TOTAL-ASSETS> 25205
<CURRENT-LIABILITIES> 5622
<BONDS> 0
0
0
<COMMON> 55
<OTHER-SE> 19528
<TOTAL-LIABILITY-AND-EQUITY> 25205
<SALES> 22249
<TOTAL-REVENUES> 22249
<CGS> 11641
<TOTAL-COSTS> 11641
<OTHER-EXPENSES> 10670
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> (29)
<INCOME-TAX> (10)
<INCOME-CONTINUING> (19)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
