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UNITED STATES
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, 2004 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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [x] Yes [ ] No
As of July 29, 2004 there were 13,734,991 shares of the Registrant's Common
Stock outstanding, net of treasury shares held by the Registrant.
Exhibit Index is on page 29.
TALX CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 2004 and June 30, 2004..................... 3
Consolidated Statements of Earnings for the Three Months Ended
June 30, 2003 and 2004................................................................. 4
Consolidated Statements of Cash Flows for the Three Months Ended
June 30, 2003 and 2004................................................................. 5
Notes to Unaudited Consolidated Financial Statements................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................ 25
Item 4. Controls and Procedures................................................................... 25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................................... 27
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.......... 27
Item 6. Exhibits and Reports on Form 8-K.......................................................... 27
Signatures ...................................................................................... 28
2
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share information)
MARCH 31, JUNE 30,
2004 2004
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 8,568 $ 5,795
Short term investments 1,475 1,475
Accounts receivable, net 15,456 17,893
Work in progress, less progress billings 1,714 2,040
Prepaid expenses and other current assets 10,406 5,110
Deferred tax assets, net 30 -
------------ ------------
Total current assets 37,649 32,313
Restricted cash 38,645 -
Property and equipment, net 8,966 10,424
Capitalized software development costs, net 3,186 3,104
Goodwill 106,739 124,118
Other intangibles, net 17,387 39,485
Other assets 1,418 1,403
------------ ------------
$ 213,990 $ 210,847
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,374 $ 1,669
Accrued expenses and other current liabilities 16,794 12,927
Dividends payable 682 685
Current portion of long term debt 10,000 10,000
Deferred tax liabilities, net - 112
Deferred revenue 2,803 4,580
------------ ------------
Total current liabilities 31,653 29,973
Deferred tax liabilities, net 5,912 6,473
Long term debt, less current portion 40,000 37,500
Other non-current liabilities 2,608 2,647
------------ ------------
Total liabilities 80,173 76,593
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares and no
shares issued or outstanding at March 31, 2004 and June 30, 2004 - -
Common stock, $.01 par value; authorized 30,000,000 shares, issued
13,948,542 shares at March 31, 2004 and June 30, 2004 140 140
Additional paid-in capital 163,190 163,395
Accumulated deficit (25,536) (25,964)
Accumulated other comprehensive income:
Unrealized loss on interest rate swap contract, net of tax of $33
at March 31, 2004 and $75 at June 30, 2004 (51) (115)
Treasury stock, at cost, 301,041 shares at March 31, 2004 and
244,172 shares at June 30, 2004 (3,926) (3,202)
------------ ------------
Total shareholders' equity 133,817 134,254
------------ ------------
$ 213,990 $ 210,847
============ ============
See accompanying notes to consolidated financial statements.
3
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands, except share information)
(unaudited)
THREE MONTHS ENDED JUNE 30,
-----------------------------
2003 2004
------------ ------------
Revenues:
The Work Number services $ 10,943 $ 14,417
Unemployment cost management services 18,183 20,900
Maintenance and support 1,015 744
------------ ------------
Total revenues 30,141 36,061
------------ ------------
Cost of revenues:
The Work Number services 3,333 4,192
Unemployment cost management services 9,723 11,134
Maintenance and support 332 232
------------ ------------
Total cost of revenues 13,388 15,558
------------ ------------
Gross margin 16,753 20,503
------------ ------------
Operating expenses:
Selling and marketing 6,027 7,020
General and administrative 6,017 7,670
------------ ------------
Total operating expenses 12,044 14,690
------------ ------------
Operating income 4,709 5,813
------------ ------------
Other income (expense), net:
Interest income 23 23
Interest expense (295) (549)
Reserve for contingent claim - (3,000)
Other, net 3 -
------------ ------------
Total other income (expense), net (269) (3,526)
------------ ------------
Earnings from continuing operations before
income tax expense 4,440 2,287
Income tax expense 1,709 2,089
------------ ------------
Earnings from continuing operations 2,731 198
Discontinued operations, net of income taxes:
Earnings (loss) from discontinued operations, net 80 (16)
Gain on disposal of discontinued operations, net - 174
------------ ------------
Earnings from discontinued operations 80 158
------------ ------------
Net earnings $ 2,811 $ 356
============ ============
Basic earnings per share:
Continuing operations $ 0.20 $ 0.02
Discontinued operations 0.01 0.01
------------ ------------
Net earnings $ 0.21 $ 0.03
============ ============
Diluted earnings per share:
Continuing operations $ 0.19 $ 0.01
Discontinued operations 0.01 0.01
------------ ------------
Net earnings $ 0.20 $ 0.02
============ ============
Weighted average number of shares outstanding - basic 13,507,758 13,669,955
============ ============
Weighted average number of shares outstanding - diluted 14,023,878 14,377,849
============ ============
See accompanying notes to consolidated financial statements.
4
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
THREE MONTHS ENDED JUNE 30,
-----------------------------
2003 2004
------------ ------------
Cash flows from operating activities:
Net earnings $ 2,811 $ 356
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 2,036 2,500
Deferred taxes 445 703
Net assets of business held for sale (123) -
Change in assets and liabilities, excluding those acquired:
Accounts receivable, net 1,388 (1,367)
Work in progress, less progress billings (1,037) (326)
Prepaid expenses and other current assets (600) 5,547
Other assets (2) 28
Accounts payable (27) 295
Accrued expenses and other current liabilities (1,033) (4,346)
Deferred revenue (861) (143)
Other non-current liabilities 22 (14)
------------ ------------
Net cash provided by operating activities 3,019 3,233
------------ ------------
Cash flows from investing activities:
Additions to property and equipment (1,023) (2,070)
Decrease in restricted cash - 38,645
Acquisitions, net of cash received - (39,851)
Deposit associated with acquisition (1,596) -
Purchases of short-term investments (3,975) -
Proceeds from sale of short-term investments 1,700 -
Capitalized software development costs (266) (378)
------------ ------------
Net cash used in investing activities (5,160) (3,654)
------------ ------------
Cash flows from financing activities:
Issuance of common stock 499 830
Purchase of common stock (1,795) -
Repayments under long-term debt facility (2,500) (2,500)
Dividends paid (542) (682)
------------ ------------
Net cash used in financing activities (4,338) (2,352)
------------ ------------
Net decrease in cash and cash equivalents (6,479) (2,773)
Cash and cash equivalents at beginning of period 9,409 8,568
------------ ------------
Cash and cash equivalents at end of period $ 2,930 $ 5,795
============ ============
See accompanying notes to consolidated financial statements.
5
TALX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
Our consolidated balance sheet at March 31, 2004 was obtained from our audited
balance sheet as of that date, as set forth in our Annual Report on Form 10-K
for the year ended March 31, 2004. 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, 2004 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2005. Our accounting policies and certain other disclosures are set
forth in the notes to our audited consolidated financial statements as of and
for the year ended March 31, 2004.
NOTE 2 - EARNINGS PER SHARE AND STOCK-BASED COMPENSATION
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.
THREE MONTHS ENDED JUNE 30,
----------------------------
2003 2004
----------- ------------
BASIC EARNINGS PER SHARE:
Net earnings:
Continuing operations................................................... $ 2,731,000 $ 198,000
Discontinued operations................................................. 80,000 158,000
----------- ------------
Net earnings.......................................................... $ 2,811,000 $ 356,000
=========== ============
Weighted average number of common shares outstanding....................... 13,948,542 13,948,542
Less: weighted average number of treasury shares........................... (440,784) (278,587)
----------- ------------
Weighted average number of common and common
equivalent shares outstanding......................................... 13,507,758 13,669,955
=========== ============
Basic earnings per common share:
Continuing operations................................................... $ 0.20 $ 0.02
Discontinued operations................................................. 0.01 0.01
----------- ------------
Net earnings......................................................... $ 0.21 $ 0.03
=========== ============
6
THREE MONTHS ENDED JUNE 30,
------------------------------
2003 2004
------------ ------------
DILUTED EARNINGS PER SHARE:
Net earnings:
Continuing operations ............................................. $ 2,731,000 $ 198,000
Discontinued operations ........................................... 80,000 158,000
------------ ------------
Net earnings ................................................... $ 2,811,000 $ 356,000
============ ============
Weighted average number of common shares outstanding ................. 13,948,542 13,948,542
Weighted average of shares issuable under employee
stock plans ....................................................... 15,100 9,308
Dilutive effect of the exercise of stock options ..................... 469,232 662,511
Dilutive effect of the exercise of warrants .......................... 31,788 36,075
Less: weighted average number of treasury shares ..................... (440,784) (278,587)
------------ ------------
Weighted average number of common and common
equivalent shares outstanding .................................. 14,023,878 14,377,849
============ ============
Diluted earnings per common share:
Continuing operations ............................................. $ 0.19 $ 0.01
Discontinued operations ........................................... 0.01 0.01
------------ ------------
Net earnings ................................................... $ 0.20 $ 0.02
============ ============
We have historically accounted for stock-based compensation using the intrinsic
value method in accordance with Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations, as
permitted by Financial Accounting Standards Board Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation."
Since all of our options are granted with an option price equal to the market
price at the time of grant, we have not recognized any stock-based employee
compensation cost under our stock option plans. SFAS No. 123 requires pro forma
disclosure of the impact on earnings as if the compensation expense for these
plans had been determined using the fair value method. Compensation cost is
calculated on a straight line basis. The following table presents our net
earnings and earnings per share as reported and the pro forma amounts that would
have been reported using the fair value method under SFAS 123 for the periods
presented:
THREE MONTHS ENDED JUNE 30,
-------------------------------------
2003 2004
--------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net earnings, as reported ............................................ $ 2,811 $ 356
Stock-based employee compensation cost, net of taxes ................. 408 444
--------------- ---------------
Net earnings, pro forma ........................................... $ 2,403 $ (88)
=============== ===============
Basic earnings per share:
As reported ....................................................... $ 0.21 $ 0.03
=============== ===============
Pro forma ......................................................... $ 0.18 $ (0.01)
=============== ===============
Diluted earnings per share:
As reported ....................................................... $ 0.20 $ 0.02
=============== ===============
Pro forma ......................................................... $ 0.17 $ (0.01)
=============== ===============
The full impact of calculating compensation cost for stock options under SFAS
No. 123 was not reflected in the determination of the impact, because
compensation cost is reflected over the options' vesting period of six to ten
years and compensation cost for options granted prior to April 1, 1995 is not
considered. The fair value of option grants for the three month period ended
June 30, 2003 and June 30, 2004 is estimated on the date of the grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: expected volatility of 80% and 65% for the three month periods
ended June 30, 2003 and June 30, 2004, respectively; risk-free interest rate of
3.25% and 3.75% for the three month period ended June 30, 2003 and June 30,
2004, respectively; expected
7
life of 7.5 years and 7.0 years for the three month periods ended June 30, 2003
and June 30, 2004, respectively; and an expected dividend yield of 0.90% for the
three month periods ended June 30, 2003 and June 30, 2004
NOTE 3 - RECLASSIFICATIONS
Certain balances as of March 31, 2004 have been reclassified to conform with the
current period presentation.
NOTE 4 - COMPREHENSIVE INCOME
Comprehensive income for the three months ended June 30, 2003 and 2004 was $2.8
million and $292,000, respectively. The difference between comprehensive income
and net income arose from unrealized holding gains (losses) on our interest rate
swap contract.
NOTE 5 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income taxes totaled $796,000 and $940,000 for the three months
ended June 30, 2003 and 2004, respectively. Cash paid for interest totaled
$271,000 and $520,000 for the three months ended June 30, 2003 and 2004,
respectively.
We declared a $0.05 per share cash dividend, totaling $685,000, on May 27, 2004.
The dividend was payable July 16, 2004 to shareholders of record on June 18,
2004.
NOTE 6 - ACQUISITION
Effective April 1, 2004, we acquired substantially all of the assets and assumed
certain liabilities of the unemployment compensation, employment verification
and applicant screening businesses (collectively, the "Sheakley Business") of
Sheakley-Uniservice, Inc. and its wholly owned subsidiary, Sheakley Interactive
Services, LLC, for approximately $40 million, including transaction costs,
subject to certain post-closing adjustments. The purchase price was determined
based on arms'-length negotiations and was paid in cash. In order to finance the
acquisition, we borrowed approximately $40 million under our Term Loan A, as
further discussed in Note 8 below. As a result of this transaction, the Sheakley
Business was consolidated with TALX effective April 1, 2004.
The following table summarizes the estimated fair value of the assets acquired
and liabilities assumed for the acquired Sheakley Business as of April 1, 2004,
the effective date of the acquisition.
(IN THOUSANDS)
Accounts receivable, net.............................. $ 1,304
Other current assets.................................. 17
Property and equipment, net........................... 665
Goodwill and intangible assets........................ 40,193
Other non-current assets.............................. 75
--------------
Total assets acquired.............................. 42,254
--------------
Deferred revenue...................................... 1,920
Current liabilities................................... 393
Other non-current liabilities......................... 53
--------------
Total liabilities assumed.......................... 2,366
--------------
Net assets acquired................................ $ 39,888
==============
8
The table below reflects unaudited pro forma combined results of TALX and the
Business as if the acquisition had occurred on April 1, 2003:
THREE MONTHS ENDED JUNE 30,
---------------------------------
2003 2004
---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
Revenues................................. $ 35,393 $ 36,061
Net earnings............................. 3,371 356
Basic earnings per share................. 0.25 0.03
Diluted earnings per share............... 0.24 0.02
These unaudited pro forma amounts are not necessarily indicative of what the
actual combined results of operations might have been if the acquisition had
been effective at the beginning of fiscal year 2004.
NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS
In connection with the acquisitions of the Sheakley Business, as discussed in
Note 6 above; Ti3, Inc.; the unemployment cost management services business (the
"GM Unemployment Compensation Business") of Gates, McDonald & Company, a
subsidiary of Nationwide Mutual Insurance Company; and James E. Frick, Inc.,
d/b/a The Frick Company, TALX acquired certain identifiable intangible assets.
These assets were recorded in accordance with the Financial Accounting Standards
Board Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations."
Effective April 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses the initial recognition and measurement of
intangible assets acquired outside of a business combination and the accounting
for goodwill and other intangible assets subsequent to their acquisition. SFAS
No. 142 provides that intangible assets with finite useful lives be amortized
and that goodwill and intangible assets with indefinite lives will not be
amortized, but will rather be tested at least annually for impairment. Through
the use of an independent business appraiser, we reviewed our goodwill and
intangible assets as of December 31, 2003 and determined that no impairment
existed.
The following table summarizes goodwill and other intangible asset activity for
the three months ended June 30, 2004 (dollars in thousands).
OTHER INTANGIBLE ASSETS
----------------------------------------------------------
CUSTOMER CUSTOMER
GOODWILL RELATIONSHIPS RECORDS NON-COMPETE TOTAL
------------ ------------- ------------ ------------ ------------
GROSS CARRYING VALUES:
March 31, 2004 ............................... $ 106,739 $ 17,838 $ 2,184 $ 212 $ 20,234
Acquisition of the Business ................ 17,393 22,100 -- 700 22,800
Adjustment of prior acquisition costs ...... (14) -- -- -- --
------------ ------------- ------------ ------------ ------------
June 30, 2004 ................................ $ 124,118 $ 39,938 $ 2,184 $ 912 $ 43,034
============ ============= ============ ============ ============
ACCUMULATED AMORTIZATION:
March 31, 2004 ............................... $ -- $ 2,415 $ 293 $ 139 $ 2,847
Amortization ............................... -- 627 36 39 702
------------ ------------- ------------ ------------ ------------
June 30, 2004 ................................ $ -- $ 3,042 $ 329 $ 178 $ 3,549
============ ============= ============ ============ ============
Weighted average lives (in years) ................ 16.04 15.00 8.26 15.82
============= ============ ============ ============
Amortization of other intangible assets was $702,000 for the three months ended
June 30, 2004 and is projected to be $2.8 million for the fiscal year ended
March 31, 2005 and $2.7 million for each of the fiscal years ended March 31,
2006 through 2009.
9
NOTE 8 - LONG-TERM DEBT
In connection with the acquisitions of The Frick Company and the GM Unemployment
Compensation Business, on March 27, 2002, pursuant to a loan agreement dated as
of March 27, 2002, we obtained secured financing consisting of a $30.0 million
term loan (the "2002 Term Loan") and a $10.0 million revolving credit facility
(the "2002 Revolving Credit Facility") from LaSalle Bank National Association,
as administrative agent and lender, and Southwest Bank of St. Louis, as lender
(collectively, the "2002 Lenders"). We used the proceeds of the 2002 Term Loan
to pay a portion of the purchase price for the acquisitions; however, we did not
borrow under the 2002 Revolving Credit Facility. This facility was repaid on
March 31, 2004 with proceeds from our amended and restated loan agreement, as
described below.
In connection with the acquisition of certain businesses of Sheakley-Uniservice,
Inc., we entered into an amended and restated loan agreement dated as of March
31, 2004, (the "Loan Agreement"). Pursuant to the Loan Agreement, we obtained
secured financing consisting of a $58.0 million term loan (the "Term Loan A"), a
$10.0 million term loan (the "Term Loan B") and a $15.0 million revolving credit
facility (the "Revolving Credit Facility") from LaSalle Bank National
Association, as administrative agent and lender, and Southwest Bank of St.
Louis, National City Bank of Michigan/Illinois, Fifth Third Bank and Merrill
Lynch Business Financial Services, Inc., as lenders, and any other lenders that
may become party to the Loan Agreement (collectively, the "Lenders"). We
borrowed $50.0 million of Term Loan A and utilized the proceeds of such
borrowing to pay the purchase price for the acquisition and to refinance the
outstanding balance of our previous credit facility. We have not borrowed under
the Revolving Credit Facility or under Term Loan B.
Under the terms of the Loan Agreement, we were permitted to use the proceeds of
the initial advance under Term Loan A solely to pay the purchase price for the
acquisition of certain businesses of Sheakley-Uniservice, Inc., and are
permitted to use the remaining amount of Term Loan A and up to two advances
under Term Loan B on or before September 30, 2004 solely to pay for certain
approved acquisitions, which have not yet been negotiated. The proceeds of loans
made under the Revolving Credit Facility may be used solely for working capital,
permitted capital expenditures, as the source for payment of our obligations
with respect to letters of credit, to pay the transaction cost of the Loan
Agreement, to finance such approved acquisitions and permitted acquisitions and
to finance certain repurchases of our capital stock subject to limitations and
restrictions set forth in the Loan Agreement.
Principal of the Term Loan A must be repaid by us in quarterly installments
commencing June 30, 2004, with the final installment due on March 31, 2009.
Scheduled minimum long-term debt repayments are $10.0 million in fiscal years
2005 through 2009, respectively. Principal of the Term Loan B must be repaid by
us in quarterly installments commencing December 31, 2004, with the final
balloon payment due on March 31, 2009. In addition, under certain circumstances
principal payments are required out of excess cash flow as well as from the
proceeds of certain asset dispositions and from the proceeds of the issuance of
equity and of debt by us. The Revolving Credit Facility also matures on March
31, 2009.
The Term Loans and advances under the Revolving Credit Facility bear interest at
rates we select under the terms of the Loan Agreement, including a base rate or
eurodollar rate, plus an applicable margin. The applicable margin for eurodollar
rate loans under the Revolving Credit Facility and Term Loan A will vary from
1.75% to 3.25%, and the applicable margin for base rate loans under the
Revolving Credit Facility and Term Loan A will be either 0.00% or 0.25% in each
case based upon our ratio of total indebtedness to EBITDA (earnings before
interest, taxes, depreciation and amortization). The applicable margin for
Eurodollar rate loans under Term Loan B will vary from 2.25% to 3.75%, and the
applicable margin for base rate loans under Term Loan B will be either 0.50% or
0.75%, in each case based upon our ratio of total indebtedness to EBITDA. We may
make prepayments under the Term Loans and the Revolving Credit Facility without
penalty.
The Loan Agreement is secured by pledges of our stock and membership interests
in, and guarantees of, our subsidiaries and security interests in substantially
all the assets of us and of our subsidiaries.
The Loan Agreement includes certain covenants, including, without limitation,
restrictions on the use of proceeds of the loans made under the Loan Agreement,
as described above. The Loan Agreement also requires compliance with certain
financial covenants based on our minimum net worth, minimum EBITDA, our ratio of
total indebtedness to
10
EBITDA and our ratio of EBITDA to fixed charges. The Loan Agreement further
requires compliance with certain operating and other covenants which limit,
among other things, the incurrence of additional indebtedness by us and our
subsidiaries, the amount of capital expenditures to be made by us and our
subsidiaries, sales of assets and mergers and dissolutions, and impose
restrictions on distributions to shareholders, change of control of us,
investments, acquisitions and liens, and which require compliance, in all
material respects, with material laws. The Loan Agreement generally prohibits
the payment of cash dividends, except for cash dividends not in excess of five
cents per share per calendar quarter, up to a maximum of $3.5 million per fiscal
year so long as we are not in default at the time of the declaration. The Loan
Agreement also contains various representations and warranties, including, among
others, representations regarding the accuracy of financial statements and other
information delivered to the Lenders and the absence of changes which would have
or would reasonably be likely to have a material adverse effect (as customarily
included in secured credit facilities of this nature).
As discussed in Note 10 below, the SEC is investigating certain of our prior
financial statements, which have previously been restated. We have been in
discussions with the SEC regarding a potential settlement. Current discussions
with the staff have resulted in a range of potential settlement for up to $3.0
million. We have recorded a reserve of $3.0 million in the first quarter of
fiscal year 2005, which represents the maximum of the estimated range. This
charge has been included in "other income (expense), net" in the consolidated
statement of earnings for the quarter ended June 30, 2004. Due to the inherent
uncertainties of matters of this nature, we cannot accurately predict the
ultimate outcome of the SEC investigation. If we are not able to reach a
settlement, the SEC could initiate regulatory proceedings or an enforcement
action against us. An unfavorable outcome could trigger an event of default
under our Loan Agreement and could have a material adverse impact on our
business, consolidated financial condition, liquidity and results of operations.
NOTE 9 - DERIVATIVE FINANCIAL INSTRUMENT
We have entered into two interest rate swap agreements designed to effectively
fix the interest rate on $23.5 million of borrowings under our $47.5 million
borrowed under Term Loan A. Under these agreements, we pay a fixed rate of 3.45%
as to $4.5 million of borrowings and 3.72% as to $19.0 million of borrowings and
receive a variable rate of LIBOR, which is equal to the LIBOR rate utilized on
Term Loan A. All payment dates and maturity dates are the same as our term loan.
The interest rate swaps and related gains and losses arising on the contracts
are accounted for as cash flow hedges in accordance with SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Specifically,
changes in the fair value of derivative instruments designated as cash flow
hedges are deferred and recorded in other comprehensive income. These deferred
gains or losses are recognized in income when the transactions being hedged are
completed.
As of June 30, 2004, the fair value of the interest rate swaps in the amount of
$190,000 is included in accrued expenses and other liabilities.
We do not use financial instruments for trading or speculative purposes.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
We are a defendant from time to time in lawsuits. Except to the extent described
below, based on information currently available, we believe that no current
proceedings, individually or in the aggregate, will have a material adverse
effect upon us.
On December 26, 2001, a purported class action lawsuit was filed in the United
States District Court for the Eastern District of Missouri (Civil Action No.
4:01CV02014DJS) by Matt L. Brody, an alleged shareholder of the Company, against
the Company, certain of its executive officers and directors (William W.
Canfield, Craig N. Cohen and Richard F. Ford) (collectively, the "Individual
Defendants"), and two underwriters (Stifel, Nicolaus & Company, Incorporated and
A.G. Edwards & Sons, Inc.) in our August 2001 secondary common stock offering
("Secondary Offering"). The case purportedly is brought on behalf of all persons
who purchased or otherwise acquired shares of our common stock between July 18,
2001 and October 1, 2001 ("Putative Class Period"),
11
including as part of the Secondary Offering. The complaint alleges, among other
things, that certain statements in the registration statement and prospectus for
the Secondary Offering, as well as other statements made by the Company and/or
the Individual Defendants during the Putative Class Period, were materially
false and misleading because they allegedly did not properly account for certain
software and inventory, did not reflect certain write-offs, and did not
accurately disclose certain business prospects. The complaint alleges violations
of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder against the Company and the Individual Defendants,
violations of Section 11 of the Securities Act of 1933 against the Company, the
Individual Defendants and the underwriters, and violation of Section 15 of the
Securities Act of 1933 against Mr. Canfield.
Three additional purported class action lawsuits were filed in the same court,
against the same defendants and making substantially the same allegations: on
January 8, 2002 by Donald Metzger (Civil Action No. 4:02CV00031DJS); on January
9, 2002 by Anna Goodman (Civil Action No. 4:02CV00033DJS); and on January 30,
2002 by Al Hinton (Civil Action No. 4:02CV00168DJS) each of whom allegedly were
shareholders of the Company during the Putative Class Period. On February 15,
2002, these three lawsuits were consolidated with and into the Brody lawsuit
(Civil Action No. 4:01CV02014DJS) for all purposes. On or about April 14, 2002,
a Consolidated Complaint was filed. In October 2002, the case was transferred
from the Honorable Donald J. Stohr, United States District Judge, to the
Honorable Henry E. Audrey, United States District Judge.
The Consolidated Complaint seeks, among other things, an award of unspecified
money damages, including interest, for all losses and injuries allegedly
suffered by the putative class members as a result of the defendants' alleged
conduct and unspecified equitable/injunctive relief as the Court deems proper.
On May 20, 2002, we and the Individual Defendants filed a motion to dismiss the
lawsuits, and the underwriter defendants filed a separate motion to dismiss. The
plaintiffs filed their opposition to the motions to dismiss on June 19, 2002.
The defendants' reply memoranda in support of the motions to dismiss were filed
on July 9, 2002. The District Court issued a Memorandum and Order on March 31,
2003 granting in part and denying in part the motion to dismiss. The Court's
Order dismissed the plaintiffs' claims under Section 10(b) and 20(a) of the
Exchange Act of 1934. The plaintiffs were granted leave to file an amended
Consolidated Complaint on or before May 30, 2003.
On May 29, 2003, plaintiffs in the several pending securities lawsuits filed an
Amended Consolidated Complaint ("Amended Complaint"). The Amended Complaint
amends the original Complaint by adding allegations pertaining to our December
2002 restatement of financials and expanding the Putative Class Period to
include all persons who purchased or otherwise acquired shares of our common
stock between April 25, 2001 and November 14, 2002 ("Amended Putative Class
Period"). The Amended Complaint alleges, among other things, that certain
statements in the registration statement and prospectus for our August 2001
secondary common stock offering, as well as other statements made by us and/or
the Individual Defendants during the Amended Putative Class Period, were
materially false and misleading because we capitalized instead of expensed $1.6
million related to a patent technology license agreement executed in March 2001;
expensed approximately $158,000 in bonus payments to executive officers in the
first quarter of fiscal 2002 instead of the fourth fiscal quarter of 2001;
improperly recognized revenue and expenses during the Amended Putative Class
Period; and miscalculated diluted earnings per share during the Amended Putative
Class Period. All of these matters were the subject of our 2002 restatement of
financials described in our Form 10-K/A for the year ended March 31, 2002. The
Amended Complaint also alleges, as did the original Complaint, that we did not
properly account for certain software and inventory, did not reflect certain
write-offs, and did not accurately disclose certain business prospects. The
Amended Complaint seeks, among other things, an award of unspecified money
damages, including interest, for all losses and injuries allegedly suffered by
the putative class members as a result of the defendants' alleged conduct and
unspecified equitable/injunctive relief as the Court deems proper. On July 30,
2003, the defendants filed a motion to dismiss the Amended Complaint. On
September 26, 2003, plaintiffs filed their opposition to the motion to dismiss.
On October 29, 2003, defendants filed their reply in support of the motion to
dismiss. The Court has not ruled on the motion.
On May 5, 2004 we reached an agreement with the plaintiffs to settle all pending
class action lawsuits. The settlement called for payment of $5.75 million, which
was made by our insurance carriers and did not impact earnings. As of the year
ended March 31, 2004 we recorded a liability for $5.75 million in accrued
expenses and other liabilities representing the amount we owed under the
settlement agreement. Additionally, we recorded $5.75 million in prepaid
expenses and other current assets representing the amount we expected to receive
from our
12
insurance companies. On May 28, 2004, we received $5.75 from our insurance
companies, and on June 1, 2004, we paid the $5.75 million settlement. The
agreement is subject to certain conditions, including judicial approval, and a
potential additional payment depending on the amount of certain claims. We
believe that any additional payment, if required, would not be material.
However, our expectations are subject to the risks that the court will not
approve our class action settlement, that claimants request exclusion from the
settlement that hold a larger than anticipated number of shares, or that the
claims analysis on which we relied is inaccurate, and a larger than expected
number of claims is submitted which could require us to make an additional
payment. On May 24, 2004, the court entered an order preliminarily approving the
settlement and setting October 6, 2004 as the date for a hearing on final
approval of the settlement. Notice of the settlement has been given to class
members, and they have an opportunity to opt out or to file objections to the
settlement. Due to the inherent uncertainties of litigation, we cannot
accurately predict the ultimate outcome of the litigation if the settlement is
not approved by the court. An unfavorable outcome could have a material adverse
impact on our business, financial condition and results of operations.
As previously disclosed, the Securities and Exchange Commission initially
commenced an investigation into our second fiscal quarter 2001 financial
results. We are cooperating fully with the investigation. On November 12, 2002,
the staff of the Central Regional Office of the Commission sent us a "Wells
letter" indicating the staff's plans to recommend to the Commission that it
institute an enforcement action against us and two of our executive officers,
William Canfield and Craig Cohen (who has resigned from the Company) related to
two matters, and requesting that we and such executive officers submit responses
to the letter. The Wells letter states that the SEC staff will allege, among
other things, that our financial statements were misleading as a result of
capitalizing instead of expensing $1.6 million related to a patent technology
license agreement executed in March 2001 and expensing approximately $158,000 in
bonus payments to executive officers in the first quarter of fiscal 2002 instead
of the fourth fiscal quarter of 2001. Those items are among those that are the
subject of our prior restatement, as disclosed in our Annual Report on Form
10-K/A for the year ended March 31, 2002. We and the individuals have filed
separate responses to the Wells letter. Since the time of the Wells submissions,
the Commission is continuing its investigation of our accounting for certain
items, including those which were the subject of the restatements discussed in
our Annual Report on Form 10-K for the year ended March 31, 2004. The remedies
the Commission may consider, if appropriate, include an injunction against us
and the individuals and an officer and director bar and disgorgement and civil
money penalties against us and/or the individuals.
We have been in discussions with the SEC regarding a potential settlement.
Current discussions with the staff have resulted in a range of potential
settlement for up to $3.0 million. We have recorded a reserve of $3.0 million in
the first quarter of fiscal year 2005, which represents the maximum of the
estimated range. This charge has been included in "other income (expense), net"
in the consolidated statement of earnings for the quarter ended June 30, 2004.
Due to the inherent uncertainties of matters of this nature, we cannot
accurately predict the ultimate outcome of the SEC investigation. If we are not
able to reach a settlement, the SEC could initiate regulatory proceedings or an
enforcement action against us. An unfavorable outcome could trigger an event of
default under our Loan Agreement and could have a material adverse impact on our
business, consolidated financial condition, liquidity and results of operations.
In the settlement of the civil suit referred to above, we released our insurance
providers from related claims against our applicable insurance policies. Any
fines or penalties assessed by the SEC against us, along with any further
defense costs incurred by us in connection with the SEC investigation, either on
our own behalf or as indemnification on behalf of William W. Canfield or Craig
N. Cohen, and any future related litigation will be borne by us and will not be
covered by insurance. In addition, to the extent that we are required to
indemnify Messrs. Canfield or Cohen against any fines or penalties assessed
against either of them, those amounts will be borne by us and not be covered by
insurance. The application of any of the foregoing remedies, or the commencement
of any regulatory proceeding or enforcement action, could harm our business and
financial condition.
As previously disclosed, we have filed restated financial statements for the
fiscal years ended March 31, 1999 through March 31, 2003 and for each of the
first two quarters of fiscal 2004. In December 2002, we filed restated financial
statements for each of the quarters ended June 30, 2000 through June 30, 2002
and for the fiscal years ended March 31, 2001 and 2002.
As required under our articles of incorporation, we are obligated to indemnify
and advance expenses of each of the Individual Defendants, as current or former
officers and/or directors of the Company to the fullest extent permitted
13
by Missouri law, in connection with the above matters, subject to their
obligations to repay amounts advanced under certain circumstances. Stifel,
Nicolaus & Company and A.G. Edwards & Sons, Inc. have made demands on the
Company to indemnify and advance expenses to them in connection with these
matters.
Regardless of the outcome of any litigation or regulatory proceeding, litigation
and regulatory proceedings of these types are expensive and, until settled or
otherwise resolved, will require that we devote substantial resources and
executive time to defend these proceedings.
In addition to matters set forth above, we are also party to other lawsuits and
claims that arise in the ordinary course of conducting our business. In the
opinion of management, after taking into account recorded liabilities, the
outcome of these other lawsuits and claims will not have a material adverse
effect on our consolidated financial position or results of operations.
NOTE 11 - DISCONTINUED OPERATIONS
On April 21, 2003, the Board of Directors granted management the authority to
dispose of the human resources and benefits application services business.
Accordingly, it was determined that this business met the requirements to be
presented as a discontinued operation.
On April 22, 2003 we transferred substantially all of the assets of our human
resources and benefits application services business to Workscape, Inc., a
Framingham, Massachusetts-based provider of benefits and workforce management
solutions. The primary product of this line of services, the benefits enrollment
business, provides a customized solution for clients' employees to enroll in an
employer's benefits programs and make changes to their personal information and
benefits elections, all by means of the Internet or by telephone. Workscape,
Inc. hired all of the employees directly related to the benefits enrollment
business.
The transaction was structured as a transfer of assets under contract for sale
with no initial down-payment and the purchase price to be paid over a three-year
period, based on a client retention formula. Proceeds are anticipated to be
between $2.0 million and $6.0 million. While the contract did not specify a
minimum guaranteed amount, we secured a $2.0 million note from Workscape, Inc.
and as of July 21, 2004 we had received $1.3 million of principal and $113,000
of interest payments in connection with the note.
All assets and liabilities of this business, both the portion of the business
transferred under contract to Workscape, Inc. (approximately 90% of the assets)
and the portion that has not yet been sold, along with related transaction
costs, were recorded on our consolidated balance sheet as net assets of business
held for sale. We first recorded cash received under the asset purchase
agreement to reduce the recorded value of net assets of business held for sale.
All future cash received under the asset purchase agreement will be recorded as
a gain on the sale of the business.
In connection with the transfer, we are providing Workscape, Inc., for
agreed-upon fees, with various transition services related to the operation of
the benefits enrollment business until December 31, 2005, or until certain
transferred client contracts have expired or been terminated. These fees, offset
by costs to deliver the service, were recorded first to reduce the recorded
value of net assets of business held for sale and then to reflect gain on the
sale of the business.
The historical results of operations for this business have been reclassified to
earnings from discontinued operations on our consolidated statement of earnings.
14
The results of operations for this business for the three months ended June 30,
2003 and 2004 were as follows:
THREE MONTHS ENDED JUNE 30,
---------------------------
2003 2004
------------ ------------
(IN THOUSANDS)
Revenues ......................................... $ -- $ --
============ ============
Earnings from discontinued operations ............ 130 (27)
Gain on disposal of discontinued operations ...... -- 288
------------ ------------
Earnings from discontinued operations ......... 130 261
Income tax expense ............................... 50 103
------------ ------------
Net earnings from discontinued operations ..... $ 80 $ 158
============ ============
15
TALX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion together with the financial statements and other
financial information included in this Quarterly Report on Form 10-Q and in our
Annual Report on Form 10-K for the year ended March 31, 2004.
OVERVIEW
We are the leading provider of automated employment and income verification and
unemployment cost management services and a leader in providing human
resources/payroll business process outsourcing. Our services use web access,
interactive voice response, fax and other technologies to enable mortgage
lenders, pre-employment screening companies, employees, employers and other
authorized users to obtain employee human resources and payroll information and
allow employees and their managers to review and modify information in the human
resources and payroll management information systems on a self-service basis.
Further, we provide unemployment insurance claims processing and unemployment
tax planning and management services to a broad range of employers. We typically
serve large organizations, including approximately two-thirds of Fortune 500
companies and a number of federal, state and local government agencies. Our
strategy is to position TALX with a suite of services that either deliver or use
payroll data. We describe these services as payroll-data-centric, and we believe
that we are well-positioned in the market with those capabilities. We interact
with various payroll systems and payroll services, but are virtually independent
of the payroll solutions our clients select.
As discussed in Note 6 to Notes to Unaudited Consolidated Financial Statements,
effective April 1, 2004, we acquired substantially all of the assets and assumed
certain liabilities of the unemployment compensation, employment verification
and applicant screening businesses of Sheakley-Uniservice, Inc. and its wholly
owned subsidiary, Sheakley Interactive Services, LLC.
We recognized first quarter fiscal 2005 revenues of $36.1 million, a 19.6%
increase over the $30.1 million in revenue reported in the comparable period in
fiscal 2004. The Work Number services revenue increased 31.7% as compared to the
comparable period in fiscal 2004, while revenues in our unemployment cost
management services business increased 14.9% compared to the comparable period.
Our gross margin grew to $20.5 million, or 56.9% of revenues, compared to $16.8
million, or 55.6% of revenues, in the comparable period in fiscal 2004. Earnings
from continuing operations were $198,000, or 1 cent per diluted share, including
a $3.0 million non-operating charge related to a potential SEC settlement.
Excluding this non-operating charge, earnings from continuing operations would
have been $3.2 million, or 22 cents per diluted share, compared to $2.7 million,
or 19 cents per diluted share in the first quarter of fiscal 2004. See "Non-GAAP
Financial Measures" below for a reconciliation of differences from the
comparable GAAP measure.
Our financial results as presented in this Quarterly Report on Form 10-Q differ
from those presented in our press release dated July 28, 2004. Revenues
attributable to The Work Number services and to unemployment cost management
services, as reported herein, are $600,000 higher and $600,000 lower,
respectively, than those reported in our July 28, 2004 press release. In our
consolidated balance sheet, work in progress and deferred revenue as reported
herein are each $600,000 higher than in our press release dated July 28, 2004.
This change had no impact on our total revenues, our overall gross margin or
our earnings from continuing operations.
SERVICES AND PRODUCTS
Our services and products fall within three general categories: The Work Number
services, unemployment cost management services and maintenance and support
related to our former customer premises systems business. We discontinued the
operation of our human resources and benefits application services business in
the first fiscal quarter of 2004, retaining certain contracts to administer
other human resources services for three clients, which we expect will either
terminate or be assigned within the next 6 months. See Note 11 in our Notes to
Unaudited Consolidated Financial Statements for more information regarding this
business.
THE WORK NUMBER SERVICES
The Work Number. Mortgage lenders, pre-employment screeners, credit issuers,
collection agencies, social service agencies and other information verifiers
often request organizations to verify employment and income information that has
been provided by employees or former employees. For example, the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation,
leading purchasers of residential mortgages in the United States, usually
require independent verification of employment and income data for the past two
calendar
16
years and a current payroll period in connection with mortgages they will
purchase. The Work Number is an outsourced service that enables employers to
direct the third-party verifier to our website or to a toll free telephone
number to confirm the employee's employment status and income for the past three
years. Prior to February 2004, verifiers could also access this information
through a 1-900 telephone number through AT&T. AT&T discontinued providing 1-900
services during February 2004. Prior to this discontinuation, we moved the
majority of 1-900 users to alternative methods of accessing the service.
Subsequent to February, we established a new 1-900 service with MCI for the
small customer base that prefers the 1-900 number method of access.
We generate substantially all of The Work Number revenues from transaction-based
fees charged to mortgage lenders, pre-employment screeners, credit issuers,
collection agencies, social service agencies and other information verifiers for
verification of income and employment information. Revenue is recognized on
these transaction-based fees in the period that the transactions occur and are
billed. We also generate revenues from employer data conversion, employer
transaction fees and ongoing maintenance fees, and record this revenue on a
monthly basis as billed. Lastly, we derive revenues from one-time up-front
set-up fees. These fees are recognized as revenue on a straight-line basis over
the initial contract period, beginning on the date the client is live on our
system.
W-2 eXpress. W-2 eXpress is a suite of services relating to the initial
distribution (either printed or electronic), reissue and correction of W-2 wage
and tax statement forms that we offer to existing clients of The Work Number and
other large employers. Using data provided by employers, we distribute original
W-2 forms (both electronically and in paper form through a business alliance) to
employees and provide an automated process to enable employees to request
corrections to their W-2 forms and obtain additional copies via the web,
telephone or direct download into their tax software. The majority of W-2
eXpress clients are billed based upon either the number of unique W-2s or the
number of employees, generally pursuant to multi-year contracts. Revenue is
recognized on a straight-line basis from the time the service is available for
use by TALX clients through the end of the service period. Additionally, we have
some clients that are billed on a transactional basis. For these clients, we
recognize revenue on a monthly basis, as transactions occur.
ePayroll. ePayroll is another outsourcing service we offer to existing clients
of The Work Number and other large employers. ePayroll is a suite of payroll
self-service applications that enables employees, via the Internet or by
telephone, to receive pay statement information, to access current and
historical payroll information, to review and change direct deposit account
information, and to review and change W-4 information. Additionally, during
fiscal year 2004, ePayroll was expanded to allow employees to enroll in selected
paycard services chosen by their employer, which allows employers to eliminate
paper checks and employees to receive their payroll through direct deposits to
their paycard.
We charge ePayroll clients on a per-employee per-month basis, plus an initial
set-up fee, generally pursuant to multi-year contracts. Revenue for the initial
setup fees is recognized on a straight-line basis over the initial contract
period, beginning with the date the client is live on our system. Per-employee,
per-month fees are recognized as revenue in the months billed.
FasTime. FasTime services are integrated time capture and reporting solutions
that work from any phone or the web and are used by large employers and the
temporary staffing industry. FasTime clients are billed for initial set-up fees,
monthly maintenance fees and per transaction fees, generally pursuant to
multi-year contracts. Revenue is recognized on a straight-line basis from the
time the service is available for use by our clients through the end of the
service period for set-up and maintenance fees and as services are performed for
transaction-based fees.
HireXpress. The HireXpress product was added to our portfolio through our
acquisition of the businesses from Sheakley-Uniservice, Inc., as noted above.
HireXpress is a service that is designed to electronically provide clients a
steady stream of job candidates believed to be qualified who provide their
responses to job requirements over the web or telephone. Using HireXpress,
employers can specify job requirements, screen potential workers, schedule
candidate interviews, capture candidate responses, and maintain all required
documentation. We believe this service is particularly valuable to our clients
in high turnover industries. HireXpress clients are billed for initial set-up
fees and per transaction fees. Revenue is recognized on a straight-line basis
from the time the service is available for use by our clients through the end of
the service period for set-up fees and as services are performed for
transaction-based fees.
17
UNEMPLOYMENT COST MANAGEMENT
We also provide unemployment cost management services under the name UC eXpress,
through our wholly-owned subsidiary TALX UCM Services, Inc. UC eXpress is a
comprehensive suite of services designed to reduce the cost of processing
unemployment claims by human resource departments and to better manage the tax
rate that employers are assessed for unemployment taxes. UC eXpress utilizes
document imaging, web access, fax and interactive voice response to speed the
processing of unemployment claims with the goal of resisting claims for
unemployment compensation which are not meritorious that have been filed with
state agencies by separated employees. UC eXpress services are aimed at
relieving human resource departments of the administrative burden of managing
unemployment claims. Following an employee separation, UC eXpress services
respond on behalf of our client to an unemployment claim filed by the separated
employee.
UC eXpress also offers comprehensive employer tax services. Clients who choose
UC eXpress for tax services collaborate with a UC eXpress tax analyst to monitor
the clients' unemployment tax accounts, verify tax rates and contribution
reports and identify voluntary contribution opportunities. Following the
acquisition of Johnson and Associates, which was effective July 1, 2003, our UC
eXpress tax services offerings were expanded to include processing of the work
opportunity ("WOTC") and welfare to work ("WtW") tax credits, which are designed
to provide incentives to employers for hiring individuals who have traditionally
faced difficulties in securing employment. Our services include assisting
employers with integrating WOTC/WtW processing into the current hiring process
as well as processing all necessary forms to identify all potential qualifiers
for hiring tax credits.
We charge clients fees pursuant to multi-year contracts, generally billed
monthly or quarterly. Many contracts allow for additional charges if transaction
activity exceeds a certain threshold. Some unemployment tax planning contracts
call for contingent fees based upon actual tax savings realized. Revenues from
UC eXpress are recognized in the period that they are earned, evenly over the
life of the contract. Transaction fees are recorded as the services are
provided. Revenue which is contingent upon achieving certain performance
criteria, including our hiring tax credit consulting and administration
business, is recognized when those criteria are met.
MAINTENANCE AND SUPPORT SERVICES RELATED TO OUR FORMER CUSTOMER PREMISES
SYSTEMS BUSINESS
We previously offered our products and services exclusively through licensed
software specifically developed for each customer, and installed these systems
at the customer's site. In 2000 we discontinued sales to new customers. Today,
we provide system enhancements to existing customers and customer support 7-days
per week, 24-hours per day, through a toll-free hotline, email and our website.
We sold these systems under licenses and generate additional revenues by
providing ongoing maintenance and support. During 2003, we notified our
maintenance clients of our intention to discontinue all support services
effective June 2005.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses, and related disclosure of contingent assets and
liabilities. See Item 7 of our Annual Report on Form 10-K for the year ended
March 31, 2004 for a discussion of these estimates and judgments.
FORWARD-LOOKING STATEMENTS
This report 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. These statements relate to, among other things,
business trends and prospects, potential future profitability, revenue growth
and cash flows. All statements other than statements of historical facts
included in this Quarterly Report on Form 10-Q are forward-looking statements.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we 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 us. Such risks
include, but are not limited to:
18
(1) the risks associated with pending litigation, investigations, and
possible future proceedings as a result of matters related to our
recent financial statement restatements;
(2) the risk to our future growth due to our dependence on our ability
to effectively integrate acquired companies and capitalize on
cross-selling opportunities;
(3) risks related to our ability to increase the size and range of
applications for The Work Number database and successfully market
current and future services and our dependence on third party
providers to do so;
(4) the risk that our revenues from The Work Number may fluctuate in
response to changes in certain economic conditions such as
residential mortgage activity and employment trends;
(5) risks relating to the dependence of the market for The Work Number
on mortgage documentation requirements in the secondary market and
the risk that our revenues and profitability could be significantly
harmed if those requirements were relaxed or eliminated;
(6) risks associated with our ability to prevent breaches of
confidentiality as we perform large-scale processing of
verifications;
(7) risks associated with our ability to maintain the accuracy, privacy
and confidentiality of our clients' employee data;
(8) risks associated with future challenges regarding applicability of
the Fair Credit Reporting Act or any new privacy legislation or
interpretation of existing laws;
(9) risks associated with changes in economic conditions or unemployment
compensation laws; and
(10) the risk of interruption of our computer network and telephone
operations, including potential slow-down or loss of business as
potential clients review our operations.
See Item 1 "Business-Risk Factors" in our Annual Report on Form 10-K for the
year ended March 31, 2004, for a more detailed description of many of these and
other risk factors. You should read this report and the risk factors in our
Annual Report on Form 10-K completely and with the understanding that our actual
results may be materially different from what we expect. We do not undertake any
obligation to update these forward-looking statements, even though our situation
may change in the future. We qualify all of our forward-looking statements by
these cautionary statements.
19
RESULTS OF OPERATIONS
The following tables set forth (1) revenues and gross margin, (2) the gross
margin percentage by revenue category, and (3) certain items from our
consolidated statements of operations as a percentage of revenues for the
periods indicated:
PERCENTAGE CHANGE
THREE MONTHS ENDED JUNE 30, THREE MONTHS ENDED
------------------------------ JUNE 30,
2003 2004 2004 OVER 2003
------------ ------------ ------------------
(IN THOUSANDS)
(UNAUDITED)
REVENUES AND GROSS MARGIN:
Revenues:
The Work Number services ...................... $ 10,943 $ 14,417 31.7%
Unemployment cost management services ......... 18,183 20,900 14.9
Maintenance and support ....................... 1,015 744 (26.7)
------------ ------------
Total revenues ............................. $ 30,141 $ 36,061 19.6
============ ============
Gross margin:
The Work Number services ...................... $ 7,610 $ 10,225 34.4%
Unemployment cost management services ......... 8,460 9,766 15.4
Maintenance and support ....................... 683 512 (25.0)
------------ ------------
Total gross margin ......................... $ 16,753 $ 20,503 22.4
============ ============
GROSS MARGIN PERCENTAGE BY REVENUE CATEGORY:
The Work Number services ......................... 69.5% 70.9%
Unemployment cost management services ............ 46.5 46.7
Maintenance and support .......................... 67.3 68.8
PERCENTAGE OF TOTAL REVENUES:
Revenues:
The Work Number services ...................... 36.3% 40.0% 31.7%
Unemployment cost management services ......... 60.3 58.0 14.9
Maintenance and support ....................... 3.4 2.0 (26.7)
------------ ------------
Total revenues ............................. 100.0 100.0 19.6
Cost of revenues ................................. 44.4 43.1 16.2
------------ ------------
Gross margin ..................................... 55.6 56.9 22.4
------------ ------------
Operating expenses:
Selling and marketing ......................... 20.0 19.5 16.5
General and administrative .................... 20.0 21.3 27.5
------------ ------------
Total operating expenses ................... 40.0 40.8 22.0
------------ ------------
Operating income ................................. 15.6 16.1 23.4
Other income (expense), net ...................... (0.9) (9.7) *
------------ ------------
Earnings from continuing operations before
income tax ................................. 14.7 6.4 *
Income tax expense ............................... 5.7 5.8 22.2
------------ ------------
Earnings from continuing operations ........... 9.0 0.6 *
Earnings from discontinued operations,
net of tax ................................ 0.3 0.4 97.5
------------ ------------
Net earnings ..................................... 9.3% 1.0% *
============ ============
* - not meaningful
20
THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003
Revenues. Total revenues increased 19.6% to $36.1 million in the first quarter
of fiscal 2005 from $30.1 million in the first quarter of fiscal 2004.
Revenues from The Work Number services increased 31.7% to $14.4 million in the
first quarter of fiscal 2005 from $10.9 million in the first quarter of fiscal
2004. The increase was due primarily to an increase in transaction volume
resulting from marketing efforts directed to verifiers and employers, partially
offset by lower average transaction fees due to the increase in transactions
from users with volume pricing discounts and the impact of former 1-900 users
moving to other means of access. Additionally, the current quarter includes
revenues related to the acquisition of the employment verification and applicant
screening - which we call "HireXpress" - businesses acquired from
Sheakley-Uniservice, Inc., as described in Note 6 to our Notes to Unaudited
Consolidated Financial Statements. We also experienced increased transaction
volumes due to an increase in the number of employers and related employment
records in the database. While we would normally expect to see pre-employment
screening transactions increase during an economic recovery, this particular
recovery continues to experience a lag in employment.
The mortgage industry and pre-employment screeners are the two primary revenue
generators for The Work Number. The balance between mortgage-related and
pre-employment-related verification revenues began to shift back from its widest
spread in the first quarter of fiscal 2004 toward a more traditional balance
towards the end of fiscal 2004 and the beginning of fiscal 2005. Additionally,
beginning in fiscal 2004, we gradually increased revenues from collection
companies and social services agencies. The table below indicates the percentage
of The Work Number revenues contributed by pre-employment screeners, mortgage
businesses, consumer finance businesses, social services, other businesses, and
other Work Number services during the last eight fiscal quarters.
FISCAL
FISCAL 2003 FISCAL 2004 2005
------------------------- ---------------------------------- -------
REVENUE SOURCE 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR
-------------- ------- ------- ------- ------- ------- ------- ------- -------
Pre-Employment.................. 33% 27% 19% 20% 21% 22% 17% 18%
Mortgage........................ 35 38 33 41 40 34 29 35
Consumer Finance................ 14 16 16 15 16 16 17 16
Social Services................. 5 5 5 6 7 10 8 13
Other........................... 4 3 3 5 5 5 4 5
Other Work Number Services...... 9 11 24 13 11 13 25 13
As of the end of the first fiscal quarter of 2005, we had 97.7 million records
live on The Work Number service, a 22.1% increase from the first quarter of
fiscal 2004. Our live and backlog accounts total 102.6 million records as of
June 30, 2004. This marks the first time our live and backlog accounts have
totaled greater than 100 million records.
Revenue from the ePayroll service increased 50% in the first quarter of fiscal
2005 compared to the first quarter of fiscal 2004, as several large clients have
begun using this service. Both contracted business and the sales pipeline have
gained momentum. We believe that the revenue run-rate will continue to increase
over the next six to nine months. Surveys of major employers indicate that they
are focused on eliminating pay-stubs and paper checks and replacing them with
web-based pay-statements and paycards. We believe we are well-positioned to play
a key role in that trend.
Revenues from unemployment cost management services increased 14.9% to $20.9
million in the first quarter of fiscal 2005 from $18.2 million in the first
quarter of fiscal 2004, due primarily to the acquisition of the unemployment
compensation business of Sheakley-Uniservice, Inc. effective April 1, 2004, as
described in Note 6 of Notes to Unaudited Consolidated Financial Statements.
As expected, revenues from maintenance and support decreased 26.7% to $744,000
in the first quarter of 2005 from $1.0 million in the first quarter of fiscal
2004. The decrease was primarily a result of lower standard maintenance revenues
caused by a shrinking client base as supported systems approach the end of their
life cycles. Additionally, during 2003, we notified our maintenance clients of
our intention to discontinue all support services effective June
21
2005. As a result, we anticipate revenues from maintenance and support will
continue to decrease over time from current quarter levels.
Gross Margin. Total gross margin increased 22.4% to $20.5 million in the first
quarter of fiscal 2005 from $16.8 million in the first quarter of fiscal 2004.
As a percentage of total revenues, gross margin increased to 56.9% in the first
quarter of fiscal 2005 from 55.6% in the first quarter of fiscal 2004.
The Work Number services gross margin increased 34.4% to $10.2 million, or 70.9%
of corresponding revenue, in the first quarter of fiscal 2005 from $7.6 million,
or 69.5% of corresponding revenue, in the first quarter of fiscal 2004. The
increase in gross margin and gross margin percentage was due primarily to
revenue increases and improved leveraging of our operational infrastructure.
Additionally, more transactions were performed over the web, which has a lower
average transaction cost compared to transactions performed through either our
900 or 800 telephone services.
Unemployment cost management services gross margin increased 15.4% to $9.8
million, or 46.7% of corresponding revenue, in the first quarter of fiscal 2005
from $8.5 million, or 46.5% of corresponding revenue, in the first quarter of
fiscal 2004. The increase in gross margin was due primarily to higher revenues,
partially offset by a lower gross margin percentage in the business acquired
from Sheakley-Uniservice, as described in Note 6 of Notes to Unaudited
Consolidated Financial Statements. The increase in gross margin percentage was
due to cost savings realized through our consolidation of the operational
infrastructure. We expect to continue to realize improvements in the gross
margin percentage of this line of business as we continue to identify and
implement process improvement initiatives.
Maintenance and support gross margin decreased 25.0% to $512,000, or 68.8% of
corresponding revenue, in the first quarter of fiscal 2005, from $683,000, or
67.3% of corresponding revenue, in the first quarter of fiscal 2004. The
decrease in gross margin was due to the decline in revenues.
Selling and Marketing Expenses. Selling and marketing expenses increased 16.5%
to $7.0 million in the first quarter of fiscal 2005 from $6.0 million in the
first quarter of fiscal 2004. As a percentage of revenues, such expenses
declined to 19.5% in the first quarter of fiscal 2005 from 20.0% in the first
quarter of fiscal 2004. The increase in expenses was primarily a result of
increased commissions from our higher revenues. Selling and marketing expenses
as a percentage of revenues improved as a result of the higher revenue levels as
discussed above and improved leveraging of our selling and marketing
infrastructure.
General and Administrative Expenses. General and administrative expenses
increased 27.5% to $7.7 million in the first quarter of fiscal 2005 from $6.0
million in the first quarter of fiscal 2004. As a percentage of revenues, such
expenses increased to 21.3% in the first quarter of fiscal 2005 compared to
20.0% in the first quarter of fiscal 2004. The increased expenses and higher
expenses as a percentage of revenues resulted primarily from expanding our
infrastructure to accommodate our growing business; the financial consolidation
of the unemployment compensation, employment verification and applicant
screening businesses of Sheakley-Uniservice, Inc., as discussed in Note 6 of
Notes to Unaudited Consolidated Financial Statements; and our ongoing SEC
investigation and shareholder litigation as discussed in Note 10 of Notes to
Unaudited Consolidated Financial Statements.
Other Income (Expense), Net. Other income (expense), net decreased to $3.5
million of net other expense in the first quarter of fiscal 2005 from $269,000
in the first quarter of fiscal 2004. In the first quarter of fiscal 2005, we
recorded a $3.0 million charge related to a potential SEC settlement, as
discussed in Note 10 of Notes to Unaudited Consolidated Financial Statements.
Additionally, interest expense increased in the fiscal 2005 first quarter due to
higher outstanding borrowings to fund the Sheakley-Uniservice, Inc. acquisition,
as discussed in Note 6 of Notes to Unaudited Consolidated Financial Statements.
Income Tax Expense. The $3.0 million charge related to a potential SEC
settlement, as discussed in other income (expense), net above, is not tax
deductible.
22
LIQUIDITY AND CAPITAL RESOURCES
In recent years, we have financed our operations through cash flows from
operating activities, except as described below. In addition to cash provided by
operating activities, we have access to a revolving credit facility.
Net cash provided by operating activities increased to $3.2 million in the first
quarter of fiscal 2005 compared to $3.0 million in the first quarter of fiscal
2004. The increase in cash provided by operating activities was primarily due to
improved operating results, as well as changes in working capital.
Net cash used in investing activities decreased to $3.7 million in the first
quarter of fiscal 2005 from $5.2 million in the first quarter of fiscal 2004. In
the first quarter of fiscal 2005, our restricted cash balance of $38.6 million
was used to fund the approximately $40 million Sheakley-Uniservice, Inc.
acquisition, as discussed in Note 6 of Notes to Unaudited Consolidated Financial
Statements. In the first quarter of fiscal 2005, capital expenditures totaled
$2.4 million, compared to $1.3 million in the first quarter of fiscal 2004.
These capital expenditures were principally for computer equipment and software.
At June 30, 2004, we had no significant capital spending or purchase commitments
other than normal purchase commitments and commitments under facilities and
operating leases.
Net cash used in financing activities decreased to $2.4 million in the first
quarter of fiscal 2005 compared to $4.3 million in the first quarter of fiscal
2004. The decrease in fiscal 2005 is primarily due to the fact that we did not
repurchase any of our common stock, while in the first quarter of fiscal 2004 we
used $1.8 million of cash to repurchase our common stock.
Our working capital was $2.3 million at June 30, 2004 compared to $6.0 million
at March 31, 2004. Working capital decreased in the fiscal 2005 first quarter
primarily due to the accrual for the potential SEC settlement, as described in
Note 10 of Notes to Unaudited Consolidated Financial Statements.
As discussed above, the SEC is investigating certain of our prior financial
statements, which have previously been restated. We have been in discussions
with the SEC regarding a potential settlement. Current discussions with the
staff have resulted in a range of potential settlement for up to $3.0 million.
We have recorded a reserve of $3.0 million in the first quarter of fiscal year
2005, which represents the maximum of the estimated range. Due to the inherent
uncertainties of matters of this nature, we cannot accurately predict the
ultimate outcome of the SEC investigation. If we are not able to reach a
settlement, the SEC could initiate regulatory proceedings or an enforcement
action against us. An unfavorable outcome could trigger an event of default
under our Loan Agreement and could have a material adverse impact on our
business, consolidated financial condition, liquidity and results of operations.
Currently, based on cash and cash equivalents on hand, together with anticipated
cash flows from operating activities, we believe we have sufficient liquidity to
pay our obligations as they become due, for at least the next 12 months. As
noted above, however, an unfavorable outcome in the potential settlement with
the SEC could trigger an event of default under our Loan Agreement and could
have a material adverse impact on our business, consolidated financial position,
liquidity and results of operations. Our strategy contemplates that we will
consider acquisitions from time to time. We expect that such acquisitions may
require that we access additional credit. As discussed above, our Loan Agreement
will provide funding for certain possible future acquisitions subject to certain
conditions. Except in these circumstances, we cannot assure that additional
credit would be available on acceptable terms. Any such additional credit would
increase the risks associated with leverage, including our ability to service
indebtedness and volatility of interest rates.
Our accounts receivable increased to $17.9 million at June 30, 2004 from $15.5
million at March 31, 2004 due primarily to a higher level of billings during the
first quarter of fiscal 2005 compared to the fourth quarter of fiscal 2004.
On September 5, 2002, our board of directors authorized us to repurchase up to
one million shares of our stock in the open market, or through privately
negotiated transactions, during the 36 month period ending September 30, 2005,
subject to market conditions and other factors. Under this plan, we have
repurchased a cumulative total of 306,211 shares of our common stock. Except for
the 244,172 shares remaining in the treasury at June 30, 2004, all shares
23
repurchased have been reissued in connection with employee stock option
exercises and employee stock purchase plan purchases.
During the quarter ended June 30, 2004, we continued our quarterly dividend
program, declaring a $0.05 per share cash dividend, totaling $685,000, on May
27, 2004. The dividend was paid on July 16, 2004 to shareholders of record on
June 18, 2004.
We are a party to a Loan Agreement, described more fully in Note 8 to our Notes
to Unaudited Consolidated Financial Statements. We have entered into two
interest rate swap agreements totaling $23.5 million of the $47.5 million
outstanding under our Term Loan as a means of reducing our interest rate
exposure. As of June 30, 2004, the fair value of the interest rate swaps in the
amount of $190,000 is included in accrued expenses and other liabilities. The
interest rate swaps are described more fully in Note 9 to Notes to Unaudited
Consolidated Financial Statements.
We do not use financial instruments for trading or speculative purposes.
OTHER MATTERS
We are cooperating with a pending SEC investigation and are a defendant in
pending lawsuits which are described in Note 10 of Notes to Unaudited
Consolidated Financial Statements.
As previously reported, we announced on January 5, 2004 that we were restating
financial statements for the fiscal years ended March 31, 1999 through March 31,
2003 and for the first two quarters of fiscal 2004. As a result of this
restatement, we could become subject to additional litigation. As of the date
hereof, we are not aware of any litigation having been commenced against us
related to this new restatement. However, such litigation could be commenced
against us in the future and the plaintiffs who have filed lawsuits against us
previously could amend their complaints to include claims related to this new
restatement. We cannot predict the outcome of any such litigation at this time.
If an unfavorable result occurred in any such action, our business and financial
condition could be materially harmed.
Regardless of the outcome of any litigation, litigation matters of this type are
expensive and, until settled or otherwise resolved, will require that we devote
substantial resources and executive time to defend these proceedings.
24
NON-GAAP FINANCIAL MEASURES
We sometimes use information derived from consolidated financial information but
not presented in our financial statements prepared in accordance with generally
accepted accounting principles ("GAAP"). Specifically, in this Quarterly Report
on Form 10-Q we have used non-GAAP financial measures to eliminate the effect on
earnings from continuing operations and diluted earnings per share of a $3.0
million charge we recorded in connection with the ongoing SEC investigation
described above.
The following table presents a reconciliation of earnings from continuing
operations and diluted earnings per share, which exclude a non-operating charge
related to our ongoing SEC investigation, to the comparable GAAP measures:
Reconciliation of Adjusted Earnings from Continuing Operations to GAAP Earnings
from Continuing Operations:
Adjusted earnings from continuing operations $ 3.2 million
Less: Reserve for contingent claim 3.0 million
------
GAAP earnings from continuing operations $ 0.2 million
======
Reconciliation of Adjusted Diluted Earnings Per Share to GAAP Diluted Earnings
Per Share:
Adjusted diluted EPS from continuing operations $ 0.22
Less: Reserve for contingent claim 0.21
------
GAAP diluted EPS from continuing operations $ 0.01
======
Non-GAAP financial measures should not be considered as a substitute for, or
superior to, measures of financial performance prepared in accordance with GAAP.
We use these non-GAAP measures internally to evaluate the performance of the
business, including to allocate resources and to evaluate results relative to
incentive compensation targets. We believe that presentation of these non-GAAP
financial measures provides useful information to investors because these
measures exclude elements that we do not consider to be indicative of our
results from operations and allow for an equivalent comparison to prior period
results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As discussed in Note 8 of Notes to Unaudited Consolidated Financial Statements,
our Term Loan A bears interest at rates we select under the terms of the Loan
Agreement, including a base rate or eurodollar rate, plus an applicable margin.
The applicable margin for eurodollar rate loans under Term Loan A varies from
1.75% to 3.25%, and the applicable margin for base rate loans under Term Loan A
will be either 0.00% or 0.25%, in each case based upon our ratio of total
indebtedness to EBITDA (earnings before interest, taxes, depreciation and
amortization).
As of June 30, 2004, we had $47.5 million principal outstanding on Term Loan A,
of which $23.5 million was hedged with interest rate swap contracts. On an
annual basis, a 100 basis point change in interest rates would result in an
approximate $240,000 change to our annual interest expense, based on net
variable borrowings of $24.0 million.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, management, including our
Chairman, President and Chief Executive Officer and our Chief Financial Officer
and Assistant Secretary, evaluated the effectiveness of the design and operation
of our disclosure controls and procedures with respect to the information
generated for use in this Quarterly Report. Based upon, and as of the date of
that evaluation, the Chairman, President and Chief Executive Officer and the
Chief Financial Officer and Assistant Secretary concluded that the disclosure
controls and procedures were effective to provide reasonable assurance that
information required to be disclosed in the reports we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Commission's rules and forms.
25
There was no change in our internal control over financial reporting during the
quarter ended June 30, 2004 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
It should be noted that while our management, including the Chairman, President
and Chief Executive Officer and the Chief Financial Officer and Assistant
Secretary, believes our disclosure controls and procedures provide a reasonable
level of assurance, they do not expect that our disclosure controls and
procedures or internal controls will prevent all error and all fraud. A control
system, no matter how well conceived or operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
controls. The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
26
TALX CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information contained in Note 10 of our Notes to Unaudited Consolidated
Financial Statements is incorporated by reference herein.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
The following table provides information about our purchases during the quarter
ended June 30, 2004 of equity securities that are registered by us pursuant to
Section 12 of the Exchange Act:
ISSUER PURCHASES OF EQUITY SECURITIES
TOTAL NUMBER OF MAXIMUM NUMBER
SHARES PURCHASED OF SHARES THAT MAY
TOTAL NUMBER AS PART OF PUBLICLY YET BE PURCHASED
OF SHARES AVERAGE PRICE ANNOUNCED PLANS UNDER THE PLANS OR
PERIOD PURCHASED (1) PAID PER SHARE OR PROGRAMS (1) PROGRAMS
------ ------------- -------------- ------------------- ------------------
April 1, 2004 to April 30, 2004....... -- -- -- 693,789
May 1, 2004 to May 31, 2004........... -- -- -- 693,789
June 1, 2004 to June 30, 2004......... -- -- -- 693,789
------- ------- -------
Total............................ -- -- -- 693,789
======= ======= =======
(1) On September 5, 2002, our Board of Directors authorized us to repurchase up
to one million shares of our common stock in the open market or through
privately negotiated transactions during the 36 month period ending September
30, 2005, subject to market conditions and other factors. Under this plan, no
shares were repurchased during the quarter ended June 30, 2004. Cumulative
shares repurchased under this plan amount to 306,211.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index.
(b) Reports on Form 8-K
(i) On April 1, 2004, we filed a Current Report on Form 8-K,
furnishing under Item 9 a Regulation FD Disclosure regarding
the completion of the previously announced acquisition of
substantially all of the assets of the unemployment cost
management and employment verification businesses of
Sheakley-Uniservice, Inc. and Sheakley Interactive Services,
LLC.
(ii) On April 15, 2004, we filed a Current Report on Form 8-K,
under Item 2, disclosing the terms of the Company's
acquisition of substantially all of the assets of the
unemployment cost management and employment verification
businesses of Sheakley-Uniservice, Inc. and Sheakley
Interactive Services, LLC and the amended and restated loan
agreement.
(iii) On May 13, 2004, we filed a Current Report on Form 8-K,
furnishing under Item 12 a press release issued by the Company
to announce the Company's financial results for the three
months and fiscal year ending March 31, 2004.
(iv) On June 10, 2004, we filed an amended Current Report on Form
8-K/A, under Item 7, disclosing that, based on the Company's
fiscal 2004 consolidated financial statements included in its
2004 Annual Report on Form 10-K and based on financial
statements of the business purchased by the Company from
Sheakley-Uniservice Inc., the Company concluded that the
acquisition of the business was not significant pursuant to
Rule 11.01(b) of Regulation S-X. As a result, financial
statements and pro forma financial information were not
required.
27
TALX CORPORATION AND SUBSIDIARIES
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
Date: August 9, 2004 By: /s/ WILLIAM W. CANFIELD
--------------------------------------------
William W. Canfield
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 9, 2004 By: /s/ L. KEITH GRAVES
--------------------------------------------
L. Keith Graves
Chief Financial Officer and
Assistant Secretary
(Principal Financial and Accounting Officer)
28
TALX CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 Asset Purchase Agreement by and among TALX Corporation and
Sheakley-Uniservice, Inc., Sheakley Interactive Services, LLC and
Larry Sheakley incorporated by reference to Exhibit 2.1 to our
Current Report on Form 8-K filed April 15, 2004+
2.2 Escrow Agreement by and among TALX Employer Services, LLC, TALX
Corporation, Sheakley-Uniservice, Inc., Sheakley Interactive
Services, LLC and LaSalle Bank National Association dated as of
March 31, 2004 incorporated by reference to Exhibit 2.2 to our
Current Report on Form 8-K filed April 15, 2004
2.3 Transition Services Agreement by and between TALX Employer Services,
LLC, TALX Corporation, Sheakley-Uniservice, Inc., Sheakley
Interactive Services, LLC dated as of March 31, 2004 incorporated by
reference to Exhibit 2.3 to our Current Report on Form 8-K filed
April 15, 2004+
3.1 Restated Articles of Incorporation, as amended, incorporated by
reference from Exhibit 3.1 to our Form 10-K for the fiscal year
ended March 31, 1997 (File No. 000-21465)
3.2 Bylaws, as amended and restated, incorporated by reference to
Exhibit 3.2 to our Quarterly Report on Form 10-Q for the period
ended December 31, 2001 (File No. 000-21465)
11 Computation of Earnings Per Share
31.1 Chief Executive Officer Certification pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934.
31.2 Chief Financial Officer Certification pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934.
32.1 Chief Executive Officer Certification pursuant to Rule 13a-14(b)
under the Exchange Act and 18 U.S.C. Section 1350.
32.2 Chief Financial Officer Certification pursuant to Rule 13a-14(b)
under the Exchange Act and 18 U.S.C. Section 1350.
- ---------------------
+ TALX Corporation undertakes to furnish supplementally a copy of any
schedule to the Securities Exchange Commission upon request.
29