<PAGE> 1
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 June 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 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) 214-7000
(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 July 24, 2000 there were 5,635,096 shares of the Registrant"s Common Stock
outstanding.
Exhibit Index is on page 13.
<PAGE> 2
TALX CORPORATION AND SUBSIDIARIES
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000
and March 31, 2000 3
Consolidated Statements of Earnings for the Three Months Ended
June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Three Months Ended
June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Securities Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
2
<PAGE> 3
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
---------------- -----------------
(unaudited)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,012 $ 3,276
Short-term investments 3,000 3,015
Trade receivables, net 7,062 7,980
Inventories 915 832
Work in progress, less progress billings 3,074 2,684
Prepaid expenses and other current assets 1,205 2,404
Deferred tax assets, net 476 624
------------- --------------
Total current assets 19,744 20,815
Property and equipment, net 5,605 5,777
Capitalized software development costs, net 3,583 3,401
Other assets 128 140
-------------- ---------------
$ 29,060 $ 30,133
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 925 $ 803
Accrued expenses and other liabilities 929 2,737
Income taxes payable 196 87
Progress billings in excess of work in progress 1,123 931
Deferred revenue 919 1,099
-------------- ---------------
Total current liabilities 4,092 5,657
Deferred tax liabilities, net 1,238 1,168
-------------- ---------------
Total liabilities 5,330 6,825
-------------- ---------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares and
no shares issued or outstanding at June 30, and March 31, 2000 - -
Common stock, $.01 par value; authorized 30,000,000 shares,
issued and outstanding 5,635,096 shares at June 30, 2000
and 5,616,448 shares at March 31, 2000 56 56
Additional paid-in capital 24,060 23,978
Accumulated deficit (347) (726)
Accumulated other comprehensive income:
Unrealized gain (loss) on securities classified
as available for sale, net of tax of $2 (4) -
Treasury stock, at cost, 2,427 shares at June 30, 2000, and
no shares at March 31, 2000 (35) -
-------------- ---------------
Total stockholders' equity 23,730 23,308
-------------- ---------------
$ 29,060 $ 30,133
============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands, except share information)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------
2000 1999
---------------- -----------------
<S> <C> <C>
Revenues:
The Work Number $ 4,132 $ 2,635
Application services 2,061 1,155
Customer premises systems 2,127 3,151
Maintenance and support 1,142 1,262
---------------- -----------------
Total revenues 9,462 8,203
---------------- -----------------
Cost of revenues:
The Work Number 1,291 905
Application services 1,305 722
Customer premises systems 1,950 2,179
Maintenance and support 340 337
---------------- -----------------
Total cost of revenues 4,886 4,143
---------------- -----------------
Gross margin 4,576 4,060
---------------- -----------------
Operating expenses:
Selling and marketing 2,055 1,883
General and administrative 1,368 1,384
---------------- -----------------
Total operating expenses 3,423 3,267
---------------- -----------------
Operating income 1,153 793
---------------- -----------------
Other income (expense), net:
Interest income 121 4
Interest expense - (1)
---------------- -----------------
Total other income (expense), net 121 3
---------------- -----------------
Earnings before income tax expense 1,274 796
Income tax expense 533 310
---------------- -----------------
Net earnings $ 741 $ 486
================ =================
---------------- -----------------
Basic earnings per share $ 0.13 $ 0.09
================ =================
Diluted earnings per share $ 0.13 $ 0.09
================ =================
Weighed average number of shares outstanding - basic 5,614,041 5,528,707
================ =================
Weighed average number of shares outstanding - diluted 5,755,542 5,607,278
================ =================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 741 $ 486
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,157 975
Net assets of business held for sale - (160)
Deferred taxes 218 310
Change in assets and liabilities:
Trade receivables 918 (422)
Inventories (83) 171
Work in progress in excess of progress billings (390) (887)
Prepaid expenses and other current assets 1,199 145
Other assets 12 (20)
Accounts payable 122 (98)
Accrued expenses and other liabilities (1,808) (610)
Income taxes payable 111 -
Progress billings in excess of work in progress, net 192 470
Deferred revenue (180) (84)
----------------- -----------------
Net cash provided by operating activities 2,209 276
----------------- -----------------
Cash flows from investing activities:
Additions to property and equipment (373) (142)
Capitalized software development costs (785) (285)
----------------- -----------------
Net cash used in investing activities (1,158) (427)
----------------- -----------------
Cash flows from financing activities:
Issuance of common stock 388 245
Purchases of treasury stock (703) (273)
Borrowings under note payable - 114
----------------- -----------------
Net cash provided by (used in) financing activities (315) 86
----------------- -----------------
Net increase (decrease) in cash and cash equivalents 736 (65)
Cash and cash equivalents at beginning of period 3,276 267
----------------- -----------------
Cash and cash equivalents at end of period $ 4,012 $ 202
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
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, 2000 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 ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending March 31, 2001. 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, 2000.
2. EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number
of common shares outstanding during the period. Diluted earnings per
share reflects the incremental increase in common shares outstanding
assuming the exercise of all employee stock options and warrants that
would have had a dilutive effect on earnings per share. The weighted
average number of shares is based on common stock outstanding for basic
earnings per share and common stock outstanding and common stock
options and warrants for diluted earnings per share in periods when
such common stock options and warrants are not antidilutive.
3. RECLASSIFICATIONS
Certain balances as of March 31, 2000 have been reclassified to conform
with the current period presentation.
4. COMPREHENSIVE INCOME
Comprehensive income for the three months ended June 30, 2000 and 1999
was $737,000 and $486,000, respectively. The difference between
comprehensive income and net income for the three months ended June 30,
2000 arose from unrealized holding losses on the Company's debt
securities portfolio. There was no difference between comprehensive
income and net income for the three months ended June 30, 1999.
6
<PAGE> 7
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 integration ("CTI") software and services,
which consist of The Work Number, application 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 income 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. The Company has adopted the
American Institute of CPA's Statement of Position 97-2 ("SOP 97-2"). Under SOP
97-2, the Company recognizes hardware and software license revenue upon
shipment. Revenues for customization services are recognized by the contract
method of accounting using percentage of completion for larger, more complex
systems and the completed contract method for smaller systems. Sales are
effected through a direct sales force and in conjunction with strategic
marketing alliances. 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 client service line. Revenues from maintenance
and support are recognized ratably over the term of the maintenance agreement.
The Company's application 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 application services include fees derived from
establishment of the service and transaction-based fees.
In addition to providing software and services, the Company formerly provided
database and document services. In August 1996, the Company determined to pursue
the divestiture of the database and document services businesses and,
accordingly, reflected the results of operations of such businesses as
discontinued operations. In January 1997, the document services business was
sold and in March 2000, the database services business was sold.
This Form 10-Q 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. All statements other than statements of
historical facts included herein 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) risk of uncertainty regarding possible applicability of the Fair
Credit Reporting Act to The Work Number(R), (3) intense competition in the
interactive web and interactive voice response industry, (4) risk of
interruption of computer network and telephone operations, (5) risks associated
with rapid technological change, and (6) risks associated with a lengthy sales
cycle. See a more comprehensive description of risk factors in Item 1 of the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
7
<PAGE> 8
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>
THREE MONTHS PERCENTAGE CHANGE
ENDED JUNE 30, THREE MONTHS
--------------------- ENDED JUNE 30,
2000 1999 2000 OVER 1999
---- ---- --------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
-----------------------------
Revenues
The Work Number 43.7% 32.1% 56.8%
Application services 21.8 14.1 78.4
Customer premises systems 22.4 38.4 (32.5)
Maintenance and support 12.1 15.4 (9.5)
------ ------
Total revenues 100.0 100.0 15.3
------ ------
Cost of revenues
The Work Number 13.6 11.0 42.7
Application services 13.8 8.8 80.7
Customer premises systems 20.6 26.6 (10.5)
Maintenance and support 3.6 4.1 0.9
------ ------
Total cost of revenues 51.6 50.5 17.9
------ ------
Gross margin 48.4 49.5 12.7
------ ------
Operating expenses
Selling and marketing 21.7 23.0 9.1
General and administrative 14.5 16.8 (1.2)
------ ------
Total operating expenses 36.2 39.8 4.8
------ ------
Operating income 12.2 9.7 45.4
Other income (expense), net 1.3 0.0 *
------ ------
Earnings from continuing operations
before income tax expense 13.5 9.7 60.1
Income tax expense 5.7 3.8 71.9
------ ------
Net earnings from continuing operations 7.8% 5.9% 52.5
====== ======
</TABLE>
* - not meaningful.
THREE MONTHS ENDED JUNE 30, 1999 AND 2000
REVENUES. Total revenues increased by 15.3% from $8.2 million for the three
months ended June 30, 1999 to $9.5 million for the three months ended June 30,
2000. Revenues from The Work Number increased 56.8% from $2.6 million for the
three months ended June 30, 1999 to $4.1 million for the three months ended June
30, 2000 due to an increase in the number of employment records, and related
transaction volume, on the system, the continued expansion of marketing on a
nationwide basis and an increase in pricing during the third quarter of fiscal
2000. Revenues from application services increased 78.4% from $1.2 million for
the three months ended June 30, 1999 to $2.1 million for the three months ended
June 30, 2000, due primarily to the Company capitalizing on the trend of some
companies to outsource their non-core functions. Revenues from customer premises
systems decreased 32.5% from $3.2 million for the three months ended June 30,
1999 to $2.1 million for the three months ended June 30, 2000. This decrease was
due primarily to a shift in both the Company focus and the market from
purchasing in-house systems to utilizing the Company's applications services.
Revenues from maintenance and support related to the customer premises systems
decreased by 9.5% from $1.3 million for the three months ended June 30, 1999 to
$1.1 million for the three months ended June 30, 2000, reflecting the support
provided to a slightly shrinking installed base as the Company shifts its
strategy towards providing the same solutions through application services.
COST OF REVENUES. Total cost of revenues increased by 17.9%, from $4.1 million
for the three months ended June 30, 1999 to $4.9 million for the three months
ended June 30, 2000. Cost of revenues from The Work Number increased 42.7% from
$905,000 for the three months ended June 30, 1999 to $1.3 million for the three
months ended June 30, 2000, due principally to increased personnel and
infrastructure costs associated with the delivery of the increased revenue,
offset by improved leveraging of such costs. Cost of revenues from application
services increased by 80.7%, from $722,000 for the three months ended June 30,
1999 to $1.3
8
<PAGE> 9
million for the three months ended June 30, 2000. This increase in cost is due
principally to increased personnel and infrastructure costs associated with the
delivery of the increased revenue. Cost of revenues from customer premises
systems decreased by 10.5%, from $2.2 million for the three months ended June
30, 1999 to $2.0 million for the three months ended June 30, 2000. This decrease
in cost is related to the decrease in revenue, partially offset by higher fixed
labor costs. Cost of revenues from maintenance and support related to customer
premises systems increased by 0.9%, from $337,000 for the three months ended
June 30, 1999 to $340,000 for the three months ended June 30, 2000, due to fixed
labor costs.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased by
9.1%, from $1.9 million for the three months ended June 30, 1999 to $2.1 million
for the three months ended June 30, 2000. As a percentage of revenues, such
expenses decreased from 23.0% for the three months ended June 30, 1999 to 21.7%
for the three months ended June 30, 2000. The increase in expense reflects the
expansion of the Company's sales and marketing efforts. The decrease in
percentage of revenues is due to improved leveraging of personnel and related
costs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
remained consistent at $1.4 million for the three months ended June 30, 1999 and
2000. As a percentage of revenues, such expenses decreased from 16.8% for the
three months ended June 30, 1999 to 14.5% for the three months ended June 30,
2000. The decrease is due to improved leveraging of infrastructure costs.
OTHER INCOME (EXPENSE), NET. Other income (expense) improved from $3,000 of net
interest income for the three months ended June 30, 1999 to $121,000 for the
three months ended June 30, 2000, due to an increased level of invested funds.
INCOME TAX EXPENSE. The Company's effective income tax rate was 38.9% for the
three months ended June 30, 1999 and 41.8% for the three months ended June 30,
2000. The increase in effective tax rate is due to higher state tax rates and
the expiration of certain tax credit carryforwards. The Company expects that the
effective rate during fiscal 2001 will be generally consistent with the June 30,
2000 effective rate.
DISCONTINUED OPERATIONS
In August 1996, the Company determined to pursue the divestiture of the database
and document services businesses and, accordingly, 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. The net assets
related to this sale were approximately $566,000. As of 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.
Effective March 31, 2000, the Company sold substantially all of the assets, net
of liabilities, of the database services business to WPZ Holdings, Inc., the
parent company of one of the division's largest customers. The sales price was
$1,273,000, which represented the current book value of the net assets sold. The
Company realized pre-tax and after-tax gains of $187,000 and $117,000,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a current ratio of 3.68 to 1 and 4.83 to 1 at March 31, 2000 and
June 30, 2000, respectively. The Company's working capital was $15.2 million and
$15.7 million at March 31, 2000 and June 30, 2000, respectively. Total working
capital increased during the three months ended June 30, 2000 due to the
Company's earnings for the period, offset by net stock repurchases by the
Company.
The Company's accounts receivable decreased from $8.0 million at March 31, 2000
to $7.1 million at June 30, 2000. As a percentage of the Company's total
revenues for the respective quarter, accounts receivable decreased from 86% of
revenues at March 31, 2000 to 75% of revenues at June 30, 2000. These decreases
are due primarily to improved collections of accounts receivable.
9
<PAGE> 10
The Company's capital expenditures, principally computer equipment, were
$373,000 during the three months ended June 30, 2000. At June 30, 2000, the
Company had no significant capital spending or purchase commitments other than
normal purchase commitments and commitments under facilities and operating
leases.
In November 1998, the Company's Board of Directors authorized the Company to
repurchase up to 350,000 shares of its stock in the open market over a two-year
period. During the three months ended June 30, 2000 the Company repurchased
47,500 shares for $703,000. Cumulative shares repurchased amount to 147,587.
Except for the 2,427 shares remaining in the treasury at June 30, 2000, all
shares repurchased have been reissued to fund employee stock option exercises
and employee stock purchase plan purchases.
The Company believes that its working capital, together with its anticipated
cash flows from operations, will be sufficient to meet its working capital and
capital expenditure requirements for at least the next 12 months. The Company
has a $5,000,000 line of credit facility with a commercial bank, all of which
was available at June 30, 2000. Outstanding borrowings, if any, bear interest at
LIBOR plus 2.25% and will be secured by accounts receivable and inventory.
The Company's net increase to capitalized software development costs was
$182,000 in the first three months of fiscal 2001. This increase is due to
increased labor costs and several projects gearing up for release. The Company
anticipates that the capitalized software balance will decrease slightly in
future periods as amortization exceeds capitalized costs.
YEAR 2000 COMPLIANCE
As of the date of this filing, the Company has had no reported year 2000
incidents from its clients. However, the Company may in the future be subject to
claims based on century compliance issues related to a client'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. While the Company has not been a
party to any proceeding involving its products or services in connection with
century compliance issues, 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.
As of the date of this filing, the Company has not experienced any year 2000
issues involving its internal use information systems. However, there is no
assurance that such century compliance problems will not arise, and if so that
such problems will not have a material adverse effect on the Company's business,
operating results and financial condition.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company maintains a short-term investment portfolio consisting of federal
agency debt obligations. These available for sale securities are subject to
interest rate risk and will fall in value if market interest rates increase. The
Company has the ability to hold its fixed income investments until maturity, and
therefore, the Company would not expect its operating results or cash flows to
be affected to any significant degree by the effect of a sudden change in market
interest rates on its securities portfolio.
The Company's current line of credit facility with a commercial bank provides
for borrowings that bear interest at LIBOR plus 2.25%. The Company had no
borrowings outstanding under this line of credit at June 30, 2000. The Company
currently believes that the effect, if any, of changes in interest rates on the
Company's financial position, results of operations and cash flows would not be
material.
10
<PAGE> 11
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.
11
<PAGE> 12
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: July 28, 2000 By /s/ William W. Canfield
---------------------------------
William W. Canfield
Chairman, President and
Chief Executive Officer
Date: July 28, 2000 By /s/ Craig N. Cohen
----------------------------------
Craig N. Cohen
Chief Financial Officer
12
<PAGE> 13
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)
13
