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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934: For the fiscal year ended December 31, 2000
[ ] 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 1-16025
HEADWAY CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2134871
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
317 Madison Avenue New York, NY 10017
(Address of Principal Executive Offices and Zip Code)
Registrant's Telephone Number: (212) 672-6501
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, Par Value $0.0001 American Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
Common Stock, Par Value $0.0001
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. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (229.405 of this chapter)
is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. [ X ]
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the registrant. The
aggregate market value computed on the basis of the last sale
price on March 27, 2001, is $14,250,408
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date. 11,589,727
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated by reference in Part III of this report is the
definitive proxy statement of Headway for the 2001 annual meeting
of stockholders, which Headway proposes to file with the
Securities and Exchange Commission on or before April 30, 2001.
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION Page
Part I
1. Business 3
2. Properties 13
3. Legal Proceedings 13
4. Submission of Matters to a Vote of Security Holders 13
Part II
5. Market for Registrant's Common Equity and Related 13
Stockholder Matters
6. Selected Financial Data 15
7. Management's Discussion and Analysis of Financial 16
Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures About Market 21
Risk
8. Financial Statements and Supplementary Data 22
9. Changes in and Disagreements with Accountants 22
on Accounting and Financial Disclosure
Part III
10. Directors and Executive Officers of the Registrant *
11. Executive Compensation *
12. Security Ownership of Certain Beneficial Owners and *
Management
13. Certain Relationships and Related Transactions *
Part IV
14. Exhibits, Financial Statement Schedule, and Reports 22
on Form 8-K
* These items are incorporated by reference from the
definitive proxy statement of Headway for the 2001 annual meeting
of stockholders to be filed with the Securities and Exchange
Commission on or before April 30, 2001.
2
PART I
Item 1. Business
General
Headway Corporate Resources, Inc. ("Headway") is a leading
provider of human resource and staffing services to the financial
services industry. In 2000, Headway continued its program of
integration and diversification outside its specialization in the
financial services industry and currently provides services to
other industries such as e-commerce, media, entertainment,
information technology and telecommunication.
The financial services industry consists of investment
banking firms, banking institutions, insurance companies, credit
card service companies, and other finance companies, and extends
by association to real estate companies, appraisal firms, law
firms, accounting firms, and other service companies that
participate in the financial services industry. Headway's
history of service in the industry, which began in 1984 with
executive search services, enables it to understand the
complexity of the products and services offered by the financial
services industry, assist the client in identifying the human
resources required to support those products and services, and
develop industry specific solutions for the human resources needs
of the client. The industries that Headway expanded into are a
natural progression, as many of these industries are looking to
financial service companies to staff senior positions. Headway
established its staffing service business through 18 acquisitions
of staffing and professional services companies since 1996.
Headway's acquisitions and internal business development over the
past three years have resulted in substantial growth. Total
revenues in 2000 were $371.1 million as compared to $360.7
million in 1999 and $291.3 million in 1998.
The human resource management services offered by Headway
consist of:
* temporary staffing and value added services,
* information technology ("IT") and professional staff services,
* executive search and permanent placement services, and
* human resource administration services.
In temporary staffing and value added services, Headway
provides employees to clients for periods ranging from one day to
several months. These employees satisfy a specific job skill
need arising from absenteeism, special projects, fluctuations in
the client's volume of business inherent in the business cycle,
technology and business system changes, and other causes. The
thrust of Headway's marketing approach is "SmartSizing", which is
a human resource management policy of controlling and minimizing
the fixed cost of employees by expanding and contracting the
client's workforce as needed to meet its specific business needs
as they change. The job skills required by clients and offered
by Headway consist of "office/clerical" personnel, including
secretaries, office workers, and, administrative staff. Value
added services include payroll services and more involved
arrangements where Headway assumes some or all of the
administrative functions of employment on-site at the client's
business, which is commonly referred to as "vendor-on-premises".
Headway offers IT/professional staff services in which
accountants, computer programmers and technicians, desktop
publishing operators, network administrators, and computer
graphic specialists are placed on a temporary, contract, or
permanent basis.
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Executive search services focuses on placing middle to upper
level management positions in the financial services industry and
permanent placement involves placement of office/clerical and
IT/professional personnel.
Headway offers human resource administration services where
it assumes the position of employer for long-term contingent
workers used frequently by clients and manages the scheduling of
these contingent workers to make them available to service
clients' needs.
Headway's goal has been to build a national staffing
business focused on providing these services with an emphasis in
the financial services industry as well as other identified
industries. Headway's strategy for achieving this goal has been
to make acquisitions, to emphasize programs that generate
internal growth and to continue to conduct operations through a
decentralized "Hub-Spoke" management model. Headway will seek
strategic acquisitions specifically looking for fold-ins to
existing hub operations in order to strengthen and add to
existing business lines as well as continue the diversification
program started in 1999.
Industry Overview
The temporary employment service industry has experienced
significant growth in response to the changing work environment
in the United States. Fundamental changes in the employer-
employee relationship continue to occur, with employers
developing increasingly stringent criteria for permanent
employees, while moving toward project-oriented temporary and
contract hiring. These changes are a result of increasing
automation that has resulted in shorter technological cycles, and
global competitive pressures. Many employers responded to these
challenges by turning to temporary and contract personnel to keep
personnel costs variable, achieve maximum flexibility, outsource
highly specialized skills, and avoid the negative effects of
layoffs.
Changes in employment practices are especially evident in
the financial services industry. Changes in the regulation of
banking institutions, securities firms, and insurance companies
allow them to go beyond their traditional activities into new
lines of business. These changes in the industry, together with
peaks and valleys in business activity within the financial
services industry, result in a substantial demand for more
flexible and efficient workforce resources, management expertise,
and improvements in IT resources.
Rapidly changing regulations concerning employee benefits,
health insurance, retirement plans, and the highly competitive
business climate have also prompted many employers to take
advantage of the flexibility offered through temporary and human
resource staffing. Additionally, Internal Revenue Service and
Department of Labor regulations concerning the classification of
employees and independent contractors have significantly
increased demand by prompting many independent contractors to
affiliate with employers like Headway.
The temporary staffing industry grew rapidly in recent years
as companies used temporary employees to manage personnel costs,
while meeting specialized or fluctuating staffing requirements.
According to the most recent available information in the
Staffing Industry Report, the United States temporary staffing
industry grew from approximately $28.9 billion in revenue in 1993
to approximately $76.8 billion in revenue in 1999, a compound
annual growth rate of approximately 17.7%. Headway believes the
staffing services industry is highly fragmented with over 8,000
staffing companies and 2,500 information technology and
professional staffing companies. The National Association of
Temporary and Staffing Services has estimated that more than 90%
of all U.S. businesses utilize temporary staffing services.
4
Growth Strategy
Headway's strategy for growth in existing and new markets is to:
* increase focus on professional staffing services
* emphasize programs to generate internal growth
* enhance and expand offices
Increase Focus on Professional Staffing Services. Headway
intends to grow its pool of skilled professionals, hire
additional sales consultants, target mid-size and large
companies, and leverage client relationships. Headway believes
that providing professional staffing services to its clients
offers attractive opportunities for growth in sales and profits.
Emphasize programs to generate internal growth. Headway
plans to take advantage of a softening employment market to
upgrade all levels of the company's internal staff. We have
begun to introduce several new product lines to our existing
offices including accounting and finance staffing, boot camps and
aggressive marketing of our China joint venture. Both the Boot
Camp and China joint venture programs are unique products, which
assist Headway in meeting the information technology needs of our
clients. These two programs require the client to hire multiple
consultants in order to have access to these products. We are
marketing our human resource staffing business with a new
emphasis including a white paper discussing potential contingency
workers liabilities to employers and the services we provide to
minimize client exposure in this area.
Enhance and Expand Offices. Headway plans to develop its
current Hubs by expanding the services offered, adding temporary
staffing and permanent placement consultants, pursuing new
clients, expanding current client relationships, cross-marketing
services, and assisting Hubs in developing successful marketing
and internal business growth techniques. Increased service
offerings enables Headway to expand existing client relationships
through cross selling, and to approach new clients with a variety
of staffing needs. Headway relies on its regional managers, in
consultation with corporate staff, to drive this internal growth
and to determine which service, marketing, and business
techniques are most appropriate for their local markets. Headway
is opening a new office in southern California in 2001. As part
of our integration strategy, we are combining back office
operations where feasible in order to achieve greater operating
and sales synergies.
Operating Strategy
The key elements of Headway's operating strategy include
* diversify into new industries, while still emphasizing the
financial services industry
* foster an entrepreneurial environment with Hub-Spoke
management model
* provide corporate level support
* deliver high, value-added quality service
* Complete the implementation of new back office operating systems
5
* Continue to strengthen the balance sheet
Diversify Into New Industries. In 2000, Headway continued
its program to diversify its specialization outside of financial
services and currently provides services to other industries such
as e-commerce, media, entertainment, information technology and
telecommunication. Headway has a strong presence in the
financial services industry. Headway will continue to focus on
this industry, because Headway believes there is a substantial
untapped market for its services in this industry and because its
core strengths of industry experience and human resources
expertise enable it to develop unique, value-added staffing
solutions for the financial services industry. Headway will work
to maintain its relationships with existing clients in the
industry, expand service offerings in existing and future Hub
locations, cross-sell services to existing clients, and seek
acquisitions with an existing client base in the financial
services industry. Although Headway expects to focus on this
industry, it expects that it will continue to have a diversified
client base, with no more than 50% of its annual revenues being
derived from financial services clients.
Foster Entrepreneurial Environment With Hub-Spoke Management
Model. Headway employs a decentralized, Hub-Spoke management
model. Local regional managers manage Headway's operations in
each market, including any satellite offices in that market.
Headway believes it has a strong market presence in each of its
major markets largely due to the commitment, ability, and
creativity of its regional managers who drive each local
business. Headway fosters this entrepreneurial environment by
giving its regional managers the authority to respond quickly and
creatively to client needs. Regional managers are responsible
for achieving operational and financial objectives, including
revenues and earnings growth, and have authority over hiring,
recruiting, compensation, pricing, and sales management. Headway
believes that accountability and authority, combined with the
support of Headway's corporate level support services, enables
its regional managers to compete successfully in the local
marketplace. Headway also believes this entrepreneurial
environment allows Headway to attract talented managers and
successfully serve its clients' needs.
Provide Corporate Level Support. Headway's philosophy is
that the central function of corporate management is to support
the staffing consultants who directly interact with clients.
Headway provides regional managers corporate level support to
lessen their administrative burden and allow them to focus on
servicing clients and growing the business. Corporate management
has developed certain financial, risk management, and
administrative control procedures, which are applied to each Hub.
These control procedures include the preparation of annual
business plans and budgets and the submission of detailed monthly
financial reports. This information is reviewed at the end of
each fiscal quarter by Headway's management together with
regional managers. Additional support functions include
marketing, management information system support, training, human
resources, accounting, and other back office functions. Headway
believes its Hub-Spoke management model is readily adaptable and
scaleable as Headway continues to grow.
Deliver High, Value-Added Quality Service. Headway
emphasizes recruiting, training, and retaining experienced sales
consultants and providing highly qualified temporary employees.
Headway trains its sales consultants to operate as partners with
their clients in evaluating and meeting the client's staffing
requirements. Headway promotes and monitors quality of service
in a number of ways. It seeks highly qualified temporary
employees through referrals from existing temporary employees and
conducts in-depth interviews by Company personnel experienced in
the temporary employees' field. Headway performs skill
evaluations and offers programs to its temporary employees to
improve their skills. Headway contacts clients within hours of
the beginning of a project to receive a preliminary determination
of satisfaction, and obtains client satisfaction reports upon the
completion of projects. Headway seeks to understand and
proactively assess clients' needs, respond promptly to clients'
requests, and continually monitor job performance and client
satisfaction. Headway believes that its commitment to providing
quality service has enabled it to establish and maintain long-
term relationships with clients.
6
Complete the implementation of new back office operating
systems. Headway has been developing and implementing new client
server and web based operating systems over the past two years.
We believe that these new systems will improve the operating
efficiency of the company and will give us an additional
advantage over our competitors.
Continue to strengthen the balance sheet. Headway plans to
continue its deleveraging program by improving accounts
receivable collections thereby reducing our dependency on our
credit facility and correspondingly lower our interest expense,
restructuring client relationships and cutting costs, which are
not absolutely essential.
Services
The human resource management services offered by Headway
include
* temporary staffing and value added services
* IT/professional staff services
* executive search and permanent placement services, and
* human resource administration services.
Temporary Staffing and Value Added Services. Headway
provides employees to clients for periods ranging from one day to
several months to satisfy a specific job skill need arising from
absenteeism, special projects, fluctuations in the client's
volume of business inherent in the business cycle, technology and
business system changes, and other causes. The job skills
required by clients and offered by Headway range from entry-level
clerks and secretaries to master administrative assistants.
Under vendor-on-premise programs, Headway assumes
administrative responsibility for coordinating some or all
staffing services at a client's location or organization,
including recruiting activities, skills testing and training.
Headway also provides payroll services to its clients for its
permanent employees, thereby mitigating the administrative burden
of employment. By using Headway's services, clients can make
changes in workforce quickly without the administrative burden
and cost of hiring and firing.
IT/Professional Staff Services. Rapid changes in technology
and competitive pressures in the financial services industry
create demand by employers for computer programmers and
technicians, desktop publishing operators, network
administrators, and computer graphic specialists to help
implement the systems required to meet these challenges. Headway
offers to its clients IT/professional staff services in which
persons with these special skills are placed on a temporary,
contract, or permanent basis.
Executive Search and Permanent Placement. Headway, through
its Whitney subsidiary, is one of the leading executive search
firms in the financial services industry. With the acquisition
of Carlyle in 1998 and Tyzack in 1999, Headway has expanded its
industry focus to include management consulting, e-commerce,
media, entertainment, information technology and
telecommunication businesses. Headway uses a complete
consultative approach with its clients, including, market
analysis, product recommendations, and staffing new and existing
business divisions of its clients. Headway conducts executive
searches in a broad range of product areas in the financial
services industry, including, investment banking, capital
markets, leveraged finance, research, emerging markets,
investment management, financial administration, and risk
management. Executive search services are provided in major
7
financial markets, including, New York, Chicago, Boston, London,
Tokyo, Hong Kong, and Singapore.
Headway also provides permanent placement services to its
clients for office/clerical positions and IT/professional
personnel. Clients use Headway's temporary staffing services as
a means for locating and evaluating new personnel with a view to
permanent employment. Clients are able to evaluate the abilities
and productivity of workers during temporary employment through
Headway and make informed decisions on whether to retain the
workers on a permanent basis, all without the administrative
burden associated with adding the workers to their workforce from
the outset.
Human Resource Administration Services. Many of Headway's
clients use long-term contingent workers on a regular basis to
satisfy recurring needs for highly skilled workers in the areas
of accounting, finance, business administration, marketing,
computer programming, computer graphics, and other areas
requiring a high level of business or technical expertise. The
use of contingent workers on a regular basis can create a number
of problems for clients. The possibility always exists that
these workers will accept employment elsewhere that prevents them
from being available to the client when needed. Furthermore,
there is always a risk contingent workers will be viewed by
federal and state taxing authorities as employees rather than
contingent workers for income tax withholding and benefits
purposes. To mitigate these potential problems, Headway offers a
service where it assumes the position of employer for the
independent contractors. As an employer, Headway manages the
scheduling of these people to make them available to service the
needs of the clients, and implements income tax withholding and
other employee benefit programs to ensure compliance with the
legal requirements of employment under applicable federal and
state laws.
Client Relationships
Headway has a broad client base. Headway's largest client
accounted for less than 10% of the company's revenues and its top
five clients accounted for less than 30%.
Human Resources
Employees. As of December 31, 2000, Headway had
approximately 500 full-time employees. By the fourth quarter of
2000, Headway employed approximately 9,000 temporary employees in
a typical week. None of Headway's employees, including its
temporary employees, is represented by a collective bargaining
agreement. Headway believes its employee relations to be strong.
Hourly wages for Headway's temporary employees are determined
according to local market conditions. Headway pays mandated
costs of employment, including the employer's share of social
security taxes, federal and state unemployment taxes,
unemployment compensation insurance, general payroll expenses and
workers' compensation insurance. Headway offers access to
various insurance programs and other benefits, such as vacations,
holidays and 401(k) programs to qualified temporary employees and
professionals.
Recruiting. Headway's recruiting process is influenced by
its clients' changing demands and recognizes that the competition
for quality is high. In order to ensure that Headway attracts
high caliber candidates, it maintains ongoing exposure and
communication with recruiting sources. Recruiting sources
include, newspaper advertisement, internet sourcing, referrals
from our employees and clients, and outreach to various
educational institutions, community groups, job fairs, and other
sources. Every internal and temporary employee is empowered to
recruit new temporary workers. Their positive experience with
Headway is a motivating factor, as well as a number of special
bonuses and incentives that are offered.
Assessment, Training and Quality Control. Headway's process
begins with the applicant completing an application for
employment followed by an interview with an experienced
recruiter. The
8
interview seeks to determine the level of
responsibility the applicant is capable of handling in addition
to assessing the motivation, enthusiasm, and energy level of the
candidate. Headway uses a variety of job skill evaluating
methods. For example, basic software skills are evaluated by the
applicant's use of the QWIZ product, a comprehensive office skill
evaluation program, helping Headway efficiently screen large
numbers of applicants each week in basic word processing,
spreadsheet, and business graphics functionality. The QWIZ
system analyzes the range and depth of an individual's skill in
each area tested. Automated scoring supplies consistent and
standard methods of assessing skill levels. Computerized
tutorials are generally available for temporary employees who
seek to upgrade their typing, data entry, office automation, or
word processing skills. Each Hub carefully monitors client
satisfaction with the performance of employees provided by
Headway to assess and control quality of service.
Operations
Sales and Marketing. Headway's services are marketed
through its network of Hubs whose managers and placement
coordinators make regular personal sales visits to clients and
prospective clients. Headway emphasizes long-term personal
relationships with clients who are developed through regular
assessment of client requirements and constant monitoring of
temporary staff performance. New clients are obtained through
sales calls, consultation meetings with target companies, and
client referrals. Headway's management and regional managers
participate in national and regional trade associations, local
chambers of commerce, and other civic associations. Headway
monitors sales, marketing, and recruiting functions to identify
opportunities to deliver high value-added quality services.
Headway believes that its client's select service providers
principally on the basis of quality of service, range of services
offered, specialized expertise, and ability to service multiple
locations, and Headway is striving to satisfy these criteria in
its marketing efforts.
Hubs. Headway's decentralized operating strategy uses a Hub-
Spoke management model in which regional managers manage
Headway's operations in each market. Headway's current hubs are
located in New York, California and North Carolina, with spoke
offices in Connecticut, Florida, New Jersey, Virginia and Texas.
Whitney, Headway's executive search division, has offices in New
York, Illinois, Massachusetts, the United Kingdom, Japan, Hong
Kong and Singapore.
Regional managers operate their Hubs with a significant
degree of autonomy and specific areas of accountability to
Headway. Headway has developed programs designed to motivate the
regional managers and former owners to maximize the growth and
profitability of their branches while securing long-term client
relationships. Regional managers report directly to corporate
management. Operating within the guidelines set by Headway, the
regional managers are responsible for pursuing new business
opportunities and focusing on sales and marketing, account
development and retention, and employee recruitment, development
and retention.
Management Information Systems. Headway licenses StaffCord
software from Concord Technologies. StaffCord is an integrated
front/back office operating platform for temporary services and
permanent employment agencies. The software runs in a Novell LAN
environment throughout most of Headway's branches. In 1998,
Headway entered into a licensing agreement with Great Plains
Software to install Great Plains Dynamics C/S+, an enterprise-
wide client/server based accounting software product. The
accounting program became operational in January 2000. In
addition, Headway has purchased the underlying code of the
Dynamics product and is producing a derivative work for the
exclusive use of Headway, pursuant to a special addendum to the
licensing agreement. Headway StaffServ, a client/server
application, shall act as the core of Headway's enterprise wide
business system. The new product will run on a SQL server
platform with high-speed data communication being provided
through a Frame Relay connection. Headway maintains a state of
the art software development lab in Knoxville, TN staffed with
professional programmers and system analysts who support the
applications of the firm
9
nationally. Headway believes that its
systems are readily expandable and scaleable to support a rapidly
growing infrastructure.
Competition
The staffing industry is intensely competitive and
fragmented and has limited barriers to entry. Headway competes
for employees and clients in national, regional, and local
markets with full-service and specialized temporary staffing
service businesses. A significant number of Headway's
competitors have greater marketing, financial, and other
resources and more established operations than Headway. Price
competition in the staffing industry is intense and pricing
pressures from competitors and customers are increasing. Many of
Headway's clients have relationships with more than one staffing
service company. However, in recent years, an increasing number
of companies have consolidated their staffing services purchases
and entered into exclusive contracts with a single temporary
staffing company or small number of temporary staffing companies.
If current or potential clients enter into exclusive contracts
with competitors of Headway, it will be difficult or impossible
for Headway to obtain business from such clients. Headway
expects that the level of competition will remain high in the
future, which could limit Headway's ability to maintain or
increase its market share or maintain or increase gross margins.
However, Headway believes that its strategy of becoming a
dominant provider in each of its markets will allow it to remain
competitive in this environment
Regulation
Generally, Headway's operations are not subject to state or
local licensing requirements or other regulations specifically
governing the provision of commercial and professional staffing
services. There can be no assurance, however, that states in
which Headway operates or may operate in the future will not
adopt such licensing or other regulations affecting Headway.
The laws of various states require Headway to maintain
workers' compensation and unemployment insurance coverage for its
temporary employees. Headway maintains state mandated workers'
compensation and unemployment insurance coverage. The extent and
type of health insurance benefits that employers are required to
provide employees has been the subject of intense scrutiny and
debate in recent years at both the national and state levels.
Proposals have been made to mandate that
employers provide health insurance benefits to staffing
employees. In addition, some states could impose sales taxes, or
raise sales tax rates, on staffing services. Further increases in
such premiums or rates, or the introduction of new regulatory
provisions, could substantially raise the costs associated with
hiring and employing staffing employees.
Intellectual Property
Headway maintains a number of trademarks, tradenames,
service marks and other intangible rights. Headway believes that
it has all rights to trademarks and trade names necessary for the
conduct of its business and is not currently aware of any
infringing uses or other conditions that would materially and
adversely affect its use of proprietary rights.
Acquisition History
In 1996, Headway acquired Irene Cohen Temps, Inc., Corporate
Staffing Alternatives, Inc., Certified Technical Staffing, Inc.,
and the operating assets of Irene Cohen Personnel, Inc.
(collectively the "Irene Cohen Group"), all of which are based in
New York City, and the assets of Vogue Personnel Services, Inc.,
of New York City, which were incorporated into the operations of
the Irene Cohen Group.
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In 1997, Headway acquired Advanced Staffing Solutions, Inc.,
based in Raleigh-Durham, North Carolina; Administrative Sales
Associates Temporaries, Inc., and Administrative Sales
Associates, Inc., both operating in New York City; Quality
OutSourcing, Inc., based in New York; and E.D.R. Associates,
Inc., and Electronic Data Resources, L.L.C., both based in
Windsor, Connecticut.
In 1998, Headway acquired Cheney Associates and Cheney
Consulting Group of Hamden, Connecticut; Shore Resources, Inc.,
of Los Angeles, California; substantially all of the assets of
the Southern Virginia offices of Select Staffing Services, Inc.,
based in McLean, Virginia; Staffing Solutions, Inc., and
Intelligent Staffing, Inc., of Miami Lakes, Florida; Phoenix
Communication Group, Inc. of N.J., based in Woodbridge, New
Jersey; Carlyle Group Ltd. of Chicago, Illinois and Staffing
Alternatives International, Inc. and VSG Consulting, Inc. based
in Dallas, Texas.
In 1999, Headway acquired the Resource Management Division
of Nine Rivers Technology Corporation with offices in Raleigh,
North Carolina, Boca Raton, Florida, and Dallas, Texas. In
addition, we acquired the capital stock of Tyzack Holdings
Limited with offices in London and Leeds, United Kingdom. The
Company did not complete any acquisitions in 2000.
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The following table sets forth information on our
acquisitions from 1996 through 2000.
Date Year
Company Acquired Location Founded Services
Irene Cohen Group May 1996 New York City 1977 Temporary,
IT, Contract,
Permanent
Vogue Personnel Services Oct. 1996 New York City 1974 Temporary , IT
Advanced Staffing Solutions, Inc. Mar. 1997 Raleigh-Durham, NC 1965 Temporary,IT,
Contract
Administrative Sales Associates July 1997 New York City 1976 Temporary, IT
Temporaries, Inc., and Permanent
Administrative Sales Associates, Inc.
Quality OutSourcing, Inc. Sept. 1997 New York City 1989 Temporary,
Permanent
E.D.R. Associates, Inc., and Sept. 1997 Windsor, CT 1984 IT
Electronic Data Resources, L.L.C.
Cheney Associates and Mar. 1998 Hamden, CT 1987 IT
Cheney Consulting Group
Shore Resources, Inc. Mar. 1998 Los Angeles, CA 1976 Temporary, IT
Permanent
Select Staffing Services, Inc. Mar. 1998 Southern, VA 1960 Temporary,
Payrolling
Staffing Solutions, Inc., and June 1998 Southern, FL 1989 Temporary,
Intelligent Staffing, Inc. Permanent
Phoenix Communication Group, Inc. June 1998 Woodbridge, NJ 1987 IT
Carlyle Group, Ltd. July 1998 Chicago, IL 1982 Search
Staffing Alternatives International Inc. Nov. 1998 Dallas, TX 1995 IT
VSG Consulting, Inc.
Resource Management Division of June 1999 Raleigh, NC 1994 IT
Nine Rivers Technology Corporation Boca Raton, FL
Dallas, TX
Tyzack Holding Limited November 1999 London, UK 1959 Search
Leeds, UK
Headway's acquisitions and internal business development
since May 1996, have resulted in substantial growth. Total
revenues in 2000 were $371.1 million as compared to $360.7
million in 1999 and $291.3 million in 1998.
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Item 2. Properties
Headway's corporate headquarters are currently located at
317 Madison Avenue, New York, NY 10017. Headway believes that
space at its corporate headquarters will be adequate for its
needs.
Headway leases space for all of its Hub-Centers and does not
own any real property. Headway believes that its facilities are
adequate for its needs and does not anticipate inordinate
difficulty in replacing such facilities or opening additional
facilities, if needed.
Item 3. Legal Proceedings
In the ordinary course of its business, Headway is
periodically threatened with or named as a defendant in various
lawsuits, including discrimination, harassment, and other similar
claims. Headway maintains insurance in such amounts and with
such coverage and deductibles as management believes are
reasonable.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders in the
fourth quarter of 2000.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Since August 3, 2000, Headway's Common Stock has traded on
the American Stock Exchange under the symbol "HEA." Previously,
quotations for Headway's Common Stock were reported on the Nasdaq
National Market.
13
The following table sets forth the high and low closing sale
prices for the Common Stock as reported on the American Stock
Exchange and Nasdaq National Market for 2000 and the Nasdaq
National Market for all of 1999.
Calendar Quarter Ended High ($) Low ($)
March 31, 1999 6.063 3.625
June 30, 1999 5.375 3.938
September 30, 1999 6.500 4.500
December 31, 1999 5.125 3.188
March 31, 2000 5.060 3.380
June 30, 2000 3.750 2.940
September 30, 2000 3.380 2.190
December 31, 2000 3.130 1.130
Headway has authorized and outstanding 1,000 shares of
Series F Convertible Preferred Stock ("Series F Stock"). The
Series F Stock is convertible to Common Stock of Headway on the
basis of the liquidation preference of the Series F Stock at a
conversion price of $5.58 per share. The Series F Stock is
senior to the Common Stock with respect to payment of dividends
and distributions in liquidation. Holders of the Series F Stock
are entitled to receive dividends payable quarterly equal to 7.5%
of the liquidation preference value of the Series F Stock, which
is $20,000 per share or a total of $20.0 million. No dividends
or distributions may be made with respect to the Common Stock
unless all dividend payments on the Series F Stock are current.
Holders of Headway's Series F Convertible Preferred Stock have
the right to elect one member of the Board of Directors, elect
one-third of the Board of Directors so long as a default in
dividend payments exists and is continuing, and approve certain
corporate transactions and activities, including, acquisitions in
excess of specified limits, sales of substantial assets or
subsidiaries, implementing additional debt facilities in excess
of specified limits, sales of Company securities in certain
circumstances, amending Headway's charter documents, effecting or
permitting a sale of Headway, issuing stock options and similar
incentive arrangements involving Headway's securities, and other
matters. The existence of these rights could inhibit the ability
of Headway to effect or participate in transactions acceptable to
Headway but not the holders of the Series F Convertible Preferred
Stock, or the ability of stockholders to participate in a
transaction in which they might otherwise receive a premium for
their shares over the then-current market price.
In January 2001, the senior subordinated debt holders
amended their agreement with Headway. The amendment includes,
among other changes, changes to the prevailing interest rate as
well as changes to certain financial covenants.
Since its inception, no dividends have been paid on
Headway's Common Stock. Headway intends to retain any earnings
for use in its business activities, so it is not expected that
any dividends on the Common Stock will be declared and paid in
the foreseeable future.
As of March 24, 2001, Headway had approximately 237
stockholders of record.
14
Item 6. Selected Financial Data
The selected consolidated financial data set forth below as
of and for the years ended December 31, 2000, 1999, 1998, 1997,
and 1996, were derived from audited consolidated financial
statements of Headway.
Statement of Income Data
In Thousands, Except Per Share Data
For Year Ended December 31
1996 1997 1998 1999 2000
Revenues $ 53,389 $ 142,842 $ 291,303 $ 360,742 $ 371,115
Direct costs 29,703 104,396 224,993 274,360 272,872
Selling, general and administrative expenses 19,535 29,588 48,638 63,349 74,690
Termination of employment contract - - - 2,329 -
Depreciation and amortization 514 1,453 2,952 4,411 5,337
------------ ----------- ----------- ----------- -----------
Total operating expenses 20,049 31,041 51,590 70,089 80,027
Operating income from continuing operations 3,637 7,405 14,720 16,293 18,216
Other (income) expenses:
Interest expenses 1,088 2,662 4,515 6,331 8,049
Interest income (91) (104) (152) (122) (105)
(Gain) on sale of investment - (4,272) (901) - -
Other expenses, net (51) (750) - - -
946 (2,464) 3,462 6,209 7,944
------------ ----------- ----------- ----------- -----------
Income from continuing operations before income
tax expense 2,691 9,869 11,258 10,084 10,272
Income tax expense 945 4,064 4,639 4,299 4,388
------------ ----------- ----------- ----------- -----------
Income from continuing operations 1,746 5,805 6,619 5,785 5,884
(Loss) from discontinued operations (564) (2,999) - - -
------------ ----------- ----------- -----------
Net income before extraordinary item 1,182 2,806 6,619 5,785 5,884
Extraordinary (loss) - - (1,557) - -
------------ ----------- ----------- ----------- -----------
Net income $ 1,182 $ 2,806 $ 5,062 $ 5,785 $ 5,884
============ =========== =========== =========== ===========
Deemed dividend on preferred stock (1,470) - - - -
Preferred dividend requirements (276) (137) (866) (1,100) (1,414)
------------ ----------- ----------- ----------- -----------
Net income (loss) available for
common stockholders $ (564) $ 2,669 $ 4,196 $ 4,685 $ 4,470
============ =========== =========== =========== ===========
Basic earnings(loss) per common share:
Continuing operations $ - $ 0.79 $ 0.58 $ 0.46 $ 0.42
Discontinued operations (0.11) (0.42) - - -
Extraordinary item - - (0.15) - -
------------ ----------- ----------- ----------- -----------
Net income (loss) $ (0.11) $ 0.37 $ 0.43 $ 0.46 $ 0.42
============ =========== =========== =========== ===========
Diluted earnings (loss) per common share:
Continuing operations $ - $ 0.58 $ 0.47 $ 0.40 $ 0.41
Discontinued operations (0.11) (0.30) - - -
Extraordinary item - - (0.11) - -
------------ ----------- ----------- ----------- -----------
Net income (loss) $ (0.11) $ 0.28 $ 0.36 $ 0.40 $ 0.41
============ =========== =========== =========== ===========
Average shares outstanding
Basic 4,995,523 7,223,462 9,853,354 10,287,978 10,590,461
Diluted 4,995,523 10,012,198 14,157,012 14,328,754 14,248,902
15
Balance Sheet Data
In Thousands
As of December 31
1996 1997 1998 1999 2000
Working capital $ 1,648 $ 450 $ 32,139 $ 30,566 $ 27,457
Total assets 34,669 67,336 126,946 148,419 154,186
Long term debt, excluding current portions 7,250 19,059 60,959 72,750 69,700
Stockholders' equity 13,424 16,452 42,571 48,001 52,739
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
Headway is a worldwide leader in delivering strategic, value-
added staffing solutions for financial services and related
industries. In 2000, Headway continued its program of
integration and diversification outside its specialization in the
financial services industry and currently provides services to
other industries such as e-commerce, media, entertainment,
information technology and telecommunication. The financial
services industry as broadly defined includes; investment banking
firms, banking institutions, insurance companies, credit card
service companies, and other finance companies, and extends to
real estate companies, appraisal firms, law firms, accounting
firms, and other service companies that participate in the
financial services industry. Headway has established its
staffing service business through 18 acquisitions of staffing and
professional services companies since 1996. Total revenues in
2000 were $371.1 million as compared to $360.7 million in 1999
and $291.3 million in 1998.
The human resource management services offered by Headway
consist primarily of temporary staffing and value-added services,
IT/professional staff services, executive search and permanent
placement services and human resource administration services.
In temporary staffing and value added services, Headway provides
employees to clients for periods ranging from one day to several
months to satisfy a specific job skill need arising from
absenteeism, special projects, fluctuations in the client's
volume of business inherent in the business cycle, technology and
business system changes, and other causes. The thrust of
Headway's marketing approach for its temporary staffing and value
added services is "Smart Sizing", which is a human resource
management policy of controlling and minimizing the fixed cost of
employees by expanding and contracting the client's workforce as
needed to meet its specific business needs as they change. The
job skills required by clients and offered by Headway consist
primarily of "office/clerical" personnel, including, secretaries,
office workers and administrative staff. Value added services
include payroll services and more involved arrangements where
Headway assumes some or all of the administrative functions of
employment on-site at the client's business, which is commonly
referred to as "vendor-on-premises". Headway offers
IT/professional staff services in which accountants, computer
programmers and technicians, desktop publishing operators,
network administrators and computer graphic specialists are
placed on a temporary, contract or permanent basis. Executive
search services focuses on placing middle to upper level
management positions and permanent placement involves placement
of office/clerical and IT/professional personnel. Headway offers
human resource administration services where it assumes the
position of employer for long-term contingent workers used
frequently by clients and manages the scheduling of these
contingent workers to make them available to service clients'
needs.
Headway's goal is to continue to build a national staffing
business focused on providing these services with an emphasis in
the financial services industry as well as other identified
industries. Headway's strategy for achieving this goal is to
emphasize programs that generate internal growth, make
16
acquisitions where feasible and to continue to conduct operations
through a decentralized "Hub-Spoke" management model.
2000
In 2000, Headway continued its program of integration of the
acquisitions completed over the past four years. The Company
currently provides services to industries outside of financial
services such as e-commerce, media, entertainment, information
technology and telecommunication.
In July 2000, the Company signed a contract with Shanghai
Foreign Service Company Ltd., ("SFSC") to be the exclusive agent
representing IT consultants from China to work in the U.S. With
the demand for IT professionals in this country greater than the
supply, the Company believes that this agreement could give it a
competitive advantage over other IT staffing companies.
In August 2000, the Company completed the transition from
the Nasdaq National Market to the American Stock Exchange. The
Company believes that the move to the American Stock Exchange
specialist system will better serve its investors.
In August 2000, the Company's lenders amended its Senior
Credit Facility. The amendment includes, among other changes,
changes to certain financial covenants, a reduction of the
facility size from $100 million to $85 million and a change in
the maturity date from March 18, 2003 to April 18, 2002.
1999
In 1999, Headway focused its attention on the integration of
acquisitions completed over the past three years, internal growth
and improving operating efficiencies as well as beginning a
diversification program outside of the financial services
industry. Headway slowed down the pace of new acquisitions,
completing two during the year. In 1999, Headway experienced
internal growth of 10% while achieving record revenues, net
income and earnings per share before non-recurring items.
In March 1999, Headway bought out the employment agreement
of the vice chairman and executive vice president of Headway
Corporate Staffing Services, a wholly owned subsidiary. In
connection with this termination, Headway incurred a non-
recurring pre-tax charge of $2.3 million or $1.4 million after
tax in the first quarter of 1999. Headway has and expects to
realize cost savings in the future as a result of this
transaction.
In June 1999, Headway acquired substantially all of the
assets of the Resource Management division of Nine Rivers
Technology Corporation, with offices in Florida, Texas and North
Carolina. The acquired offices were folded into existing Headway
locations in North Carolina, Florida and Texas. The acquired
division of Nine Rivers is engaged in the business of offering
temporary information technology staffing services.
In November 1999, Headway acquired all of the outstanding
capital stock of Tyzack, the oldest established executive search
firm in the UK with offices in London and Leeds. While Tyzack
performs executive search for financial services companies, it
also provides search services in other industries such as; e-
commerce, media and entertainment, consumer goods, information
technology and telecommunications. The addition of Tyzack is
expected to provide Headway with a platform to continue to
diversify revenues outside of financial services.
17
1998
In 1998 Headway continued to execute its strategy of
becoming a full service provider of human resource management and
staffing services. Headway completed seven acquisitions and
expanded into four new markets during the year. In 1998, Headway
experienced internal growth of 38% while achieving record
revenues, net income and earnings per share.
In March 1998, Headway acquired substantially all of the
assets of the Southern Virginia offices of Select Staffing
Services Inc., a provider of temporary services. The offices are
located in Richmond, Virginia Beach and Hampton, Virginia.
In March 1998, Headway acquired substantially all of the
assets of Cheney Associates and Cheney Consulting Group of New
Haven, Connecticut engaged in the business of offering permanent
and temporary information technology staffing services primarily
in Connecticut.
In March 1998, Headway acquired all of the outstanding
capital stock of Shore Resources, Incorporated of Los Angeles,
California. With offices in Newport Beach and Lake Forest, Shore
is engaged in the business of offering temporary and permanent
staffing, primarily in Southern California.
In June 1998, Headway acquired substantially all of the
assets of Staffing Solutions, Inc. and Intelligent Staffing,
Inc., both Florida corporations in a single transaction. SSI is
engaged in the business of providing clerical temporary and
permanent staffing principally in Southern Florida.
In June 1998, Headway acquired substantially all of the
assets of Phoenix Communication Group, Inc. of N.J. Phoenix is
engaged in the business of offering information technology
temporary and permanent staffing services. The principal offices
of Phoenix are located in Woodbridge, New Jersey.
In July 1998, Headway acquired all of the outstanding
capital stock of Carlyle Group, Ltd. With principal offices in
Chicago, Illinois, Carlyle is an executive search firm
specializing in real estate and management consulting search
assignments.
In November 1998, Headway acquired substantially all of the
assets of Staffing Alternatives International, Inc. and VSG
Consulting, Inc. in a single transaction. The two companies
provide information technology staffing services in the Dallas,
Texas area.
During 1998, Headway realized an after tax gain of $595,000
on the sale of its remaining investment in Incepta.
Results of Operations
Years Ended December 31, 2000 and 1999
Revenue increased $10.4 million to $371.1 million for the
year ended December 31, 2000, from $360.7 million for the year
ended December 31, 1999. The increase in revenue for 2000 is
attributable to a full year of results from the executive search
acquisition completed in the latter part of 1999. The relatively
modest growth in revenue is misleading and will continue to be a
less significant measurement criterion as Headway focuses its
growth strategy on higher margin business and reduces the
emphasis on high revenue low margin human resource staffing
business. This is evident in the decrease in direct costs as a
percentage of revenues to 73.5% for the year ended December 31,
2000 from 76.1% for the same period in 1999. During 2000 Headway
experienced strong performance in the executive search and
permanent placement business offset by a continued decline in the
information technology staffing business.
18
Whitney, the executive search segment contributed $37.7
million to consolidate revenues in 2000, an increase of $11.7
million from $26.0 million in 1999. This increase is due to the
continued strong demand for new hires in the financial services
industry and the full year results from the Tyzack acquisition
made in November 1999.
The staffing subsidiary, Headway Corporate Staffing
Services, Inc. (HCSS) contributed revenues of $333.4 million, a
decrease of $1.3 million from $334.7 million in 1999. Revenues
were slightly behind 1999, as Headway focused on reducing it's
lower margin human resource staffing business, as well as the
very low supply of information technology staffing candidates
which has resulted in slightly lower revenue for information
technology staffing.
Total operating expenses (excluding the $2.3 million
termination payment in 1999) increased $10.8 million to $352.9
million for 2000 from $342.1 million for 1999. The increase is
the result of a $11.4 million increase in selling, general and
administrative expenses, a $900,000 increase in depreciation and
amortization, offset slightly by a $1.5 million decrease in
direct costs. Direct costs decreased as a percentage of revenues
to 73.5% in 2000 from 76.1% in 1999. This decrease in direct
costs as a percentage of revenues is a result of Headway's
changing business mix. Specifically, the executive search
business that has no direct cost is becoming a larger percentage
of our total revenues and the human resource staffing business
which traditionally has a high direct cost has decreased. The
increase in selling, general and administrative expenses is
primarily attributed to the higher commission expenses associated
with a larger portion of revenues being generated from executive
search and permanent placements.
Whitney's operating expenses increased $9.5 million to $28.4
million for the year ended December 31, 2000 as compared to $18.9
million for the same period last year. The increase relates
primarily to the increased commissions related to the higher
executive search revenues as well as a full year of operating
expenses of Tyzack.
HCSS operating expenses increased $900,000 to $42.9 million
for the year ended December 31, 2000 as compared to $42.0 million
for the same period last year. The increase in selling, general
and administrative expenses is primarily attributable to the
higher commission expense associated with higher revenues
generated from permanent placements.
Net income increased $99,000 to $5.9 million for the year
ended December 31, 2000 compared to $5.8 million for the year
ended December 31, 1999.
Years Ended December 31, 1999 and 1998
Revenue increased $69.4 million to $360.7 million for the
year ended December 31, 1999, from $291.3 million for the year
ended December 31, 1998. The increase in revenue for 1999 is
attributable to a full year of results from the acquisitions
completed during 1998 as well as the results from the two
acquisitions completed during 1999. Headway experienced internal
growth in 1999 of 10%, as a result of a very strong performance
in the executive search business offset by a severe but short-
lived decline in the information technology staffing business due
to Year 2000 concerns.
Whitney, the executive search segment contributed $26
million to consolidated revenues in 1999, an increase of $6.2
million from $19.8 million in 1998. This increase is due to the
continued strong demand for new hires in the financial services
industry, the full year results from Carlyle, and the
contribution that Tyzack made since its acquisition in November
1999.
19
Total operating expenses increased $67.8 million to $344.4
million for 1999 from $276.6 million for 1998. Of the increase,
$49.4 million relates to the increase in direct costs that are
the wages, taxes and benefits of work-site employees of the
staffing companies. Direct costs decreased as a percentage of
revenues to 76.1% in 1999 from 77.2% in 1998. This decrease is
the result of increased revenue from the executive search
business that has no direct costs. Of the increase in operating
expenses, $2.3 million relates to the termination payment made to
the former vice chairman and executive vice president of our
subsidiary, Headway Corporate Staffing Services. The balance of
the increase in operating expenses relates to the increased
commissions due to higher revenues and the full year of expenses
of the companies acquired in 1998 as well as the partial year
expenses of the 1999 acquisitions.
Whitney's operating expenses increased $3.8 million to $18.9
million for the year ended December 31, 1999 as compared to $15.1
million for the same period the prior year. The increase relates
primarily to the increased commissions related to the higher
executive revenues as well as the full year of operating expenses
of Carlyle and the two months of expenses for Tyzack.
Net income before extraordinary item decreased $834,000 to
$5.8 million for the year ended December 31, 1999 compared to
$6.6 million for the year ended December 31, 1998. Included in
the results for 1999 is an after tax charge of $1.4 million
related to the termination payment made to the former vice
chairman and executive vice president of our subsidiary.
Included in the results for 1998 is an after tax gain of $595,000
on the sale of Headway's investment in Incepta. Net income was
$5.1 million for the year ended December 31, 1998 after an
extraordinary loss after tax of $1.6 million on early retirement
of debt.
Headway's operations were not significantly impacted by
inflation during the years ended December 31, 2000, 1999 and
1998, and it is not anticipated that inflation will have any
significant impact on our results of operations for at least the
next year.
Liquidity and Capital Resources
Net cash provided by operating activities was $15.3 million
in 2000. This is primarily due to net income of $5.9 million,
depreciation and amortization expenses of $5.9 million, a $2.2
million increase in accounts payable and accrued expenses and a
$3.1 million increase in accrued payroll. This was partially
offset by a $1.4 million decrease in income taxes payable. In
1999 cash provided by operating activities of $7.7 million was
primarily due to net income of $5.8 million and depreciation and
amortization expenses of $4.8 million offset by an increase in
accounts receivable of $4.6 million
Total cash used in investing activities of $9.5 million in
2000 and $19.0 million in 1999 was primarily the result of the
earn-outs paid related to the acquisitions completed during 1999,
1998 and 1997, and to a lesser extent purchases of property and
equipment.
Total cash used in financing activities was $6.0 million for
2000, compared to total cash generated from financing activities
of $9.0 million in fiscal 1999. Cash used in financing
activities in 2000 related to payments made on Headway's
revolving credit facility, payments of other loans and dividend
payments. Cash from financing activities in 1999 was due to
increases in borrowings on and proceeds from the exercise of
stock options offset in part by purchases of treasury stock and
preferred stock dividends paid.
In September 1998, Headway announced that its Board of
Directors had authorized a stock repurchase program of up to 1.0
million shares. In 2000, Headway spent $20,000 to repurchase
approximately 5,000 shares. In 1999, Headway spent $2.9 million
to repurchase approximately 612,900 shares.
20
In March 1998, Headway completed a financing for $105
million a portion of which was used to refinance existing debt,
for acquisitions completed during 1998 and for general working
capital. In August 2000, as part of an amendment, the credit
facility was reduced to $85 million and the maturity was changed
to April 2002 from March 2003.
At December 31, 2000, Headway had working capital of $27.5
million compared to working capital of $30.6 million at December
31, 1999. Estimated cash earnout payments to be made in 2001 are
$9.4 million of which approximately $3.8 million was earned in
2000 and is included in current liabilities at December 31, 2000.
Management estimates that cash flow from operations in 2001 as
well as the availability under the existing credit facility will
be sufficient for meeting payment obligations and working capital
needs as they arise for at least the next 12 months. The
executive search revenue is dependent on the successful closing
of search transactions and accordingly results can fluctuate
during the year. In the current economy, the Company has begun
to experience a reduction in the demand for its staffing services
and as a result cash flow may be subject to greater fluctuation
than in past periods.
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. In
June 1999, the FASB issued Statement No. 137, which delayed the
adoption date by one year to June 15, 2000. The Statement
permits early adoption as of the beginning of any fiscal quarter
after its issuance. Headway expects to adopt the new Statement
effective January 1, 2001. The Statement will require Headway to
recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value
through income. If a derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of the derivative
will either be offset against the change in fair value of the
hedged asset, liability, or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized
in earnings. Headway does not anticipate that the adoption of
this Statement will have a significant effect on its results of
operations or financial position.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1985
provides a safe harbor for forward-looking statements made by
Headway. All statements, other than statements of historical
fact, which address activities, actions, goals, prospects, or new
developments that Headway expects or anticipates will or may
occur in the future, including such things as expansion and
growth of Headway's operations and other such matters are forward-
looking statements. Any one or a combination of factors could
materially affect Headway's operations and financial condition.
These factors include competitive pressures, the availability of
new acquisitions on terms acceptable to Headway, changes in the
performance of the financial services industry or the economy,
legal and regulatory initiatives affecting temporary employment,
and conditions in the capital markets. Forward-looking
statements made by Headway are based on knowledge of its business
and the environment in which it operates as of the date of this
report. Because of the factors listed above, as well as other
factors beyond its control, actual results may differ from those
in the forward-looking statement
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Headway is exposed to changes in interest rates primarily
from its long-term debt arrangements. Under its current
policies, Headway uses interest rate derivative instruments to
manage exposure to interest rate changes. As of December 31,
2000, Headway had one interest rate exchange agreement
21
converting
$30 million of variable rate borrowings under the senior credit
agreement to a fixed rate of 6.868% per annum plus the applicable
margin, expiring in 2002.
Headway is exposed to credit loss in the event of
nonperformance by the counterparty, a large financial
institution. However, Headway does not anticipate nonperformance
by the counterparty.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and supplementary data
of Headway appear at the end of this report beginning with the
Index to Consolidated Financial Statements on page F-1.
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
There were no changes in or disagreements with Headway's
independent auditors during the preceding two calendar years.
PART III
The information required by each of the Items listed below
is incorporated herein by reference to the definitive proxy
statement of Headway for the 2001 annual meeting of stockholders,
which Headway proposes to file with the Securities and Exchange
Commission on or before April 30, 2001:
Information required by "Item 10. Directors and Executive
Officers of the Registrant," is incorporated by reference to the
proposed caption "Directors and Executive Officers" in the proxy
statement;
Information required by "Item 11. Executive Compensation,"
is incorporated by reference to the proposed caption "Executive
Compensation" in the proxy statement;
Information required by "Item 12. Security Ownership of
Certain Beneficial Owners and Management," is incorporated by
reference to the proposed caption "Security Ownership of
Management and Principal Stockholders" in the proxy statement;
and
Information required by "Item 13. Certain Relationships and
Related Transactions," is incorporated by reference to the
proposed caption "Certain Relationships and Related Transactions"
in the proxy statement.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
Financial Statements and Financial Statement Schedules
The information required by this subsection of this item is
presented in the index to the financial statements on page F-1.
Reports on Form 8-K
No reports on Form 8-K were filed by Headway during the last
calendar quarter of 2000.
22
Exhibits
Copies of the following documents are included as exhibits
to this report pursuant to Item 601 of Regulation S-K.
Exhibit No. SEC Ref. No. Title of Document Location
1 (3)(I) Certificate of Incorporation (2) 1996 Fm10-K
Ex. No. 1
2 (3)(ii) By-Laws (2) 1996 Fm10-K
Ex. No. 2
3 (3)(ii) By-Law Amendments (1) Apr/Fm8-K
Ex. No. 5
4 (4) Series F Preferred Stock Apr/Fm8-K
Designation (1) Ex. No. 4
5 (4) Securities Purchase Agreement Apr/Fm8-K
dated March 19, 1998 (1) Ex. No. 6
6 (4) Registration Rights Agreement Apr/Fm8-K
dated March 19, 1998 (1) Ex. No. 7
7 (4) Indenture dated March 19, 1998(1) Apr/Fm8-K
Ex. No. 8
7.1 (4.7.1) Third Supplemental Indenture This Filing
dated January 8, Page E-1
2001 to Indenture dated March 19, 1998
8 (4) Form of Senior Subordinated Apr/Fm8-K
Note (1) Ex. No. 9
9 (4) Guaranty Agreement dated March Apr/Fm8-K
19, 1998 (1) Ex. No.10
10 (4) Credit Agreement dated March Apr/Fm8-K
19, 1998 including Exhibit A Ex. No. 11
Commitment Percentage, and
Exhibit F - Form of Revolving Note (1)
10.1 (4.10.1) Amendment No. 6 dated August This filing
25, 2000 To Credit Agreement
dated Page E-5 March 19, 1998
11 (4) Guaranty Agreement dated March Apr/Fm8-K
19, 1998 (1) Ex. No. 12
12 (4) Security Agreement dated March Apr/Fm8-K
19, 1998 (1) Ex. No.13
23
13 (4) Pledge Agreement dated March Apr/Fm8-K
19, 1998 (1) Ex. No. 14
14 (4) LC Account Agreement dated Apr/Fm8-K
March 19, 1998 (1) Ex. No. 15
15 (4) Intellectual Property Security Apr/Fm8-K
Agreement dated March 19, 1998 Ex. No. 16
16 (21) Subsidiaries of Headway (3) 2000 Fm10-K
Ex. No. 16
(1) These exhibits are included in Headway's current report on
Form 8-K, dated March 19, 1998, and filed with the Commission on
April 3, 1998, and are incorporated herein by this reference.
The reference under the column "Location" is to the exhibit
number in the report on Form 8-K.
(2) These exhibits are included in Headway's annual report on
Form 10-KSB, for the fiscal year ended December 31, 1996, and
filed with the Securities and Exchange Commission on March 27,
1997, and are incorporated herein by this reference. The
reference under the column "Location" is to the exhibit number in
the report on Form 10-KSB.
(3) This exhibit is included in Headway's annual report on Form
10-K for the fiscal year ended December 31, 2000, and filed with
the Securities and Exchange Commission on March 30, 2001, and is
incorporated herein by this reference. The reference under the
column "Location" is to the exhibit number in the report on Form
10-K.
24
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Exchange Act, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
Headway Corporate Resources, Inc.
Date: March 29, 2001 By: /s/ Barry S. Roseman, President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Dated: March 29, 2001 /s/ Gary S. Goldstein, Principal
Executive Officer and Director
Dated: March 29, 2001 /s/ Barry S. Roseman Principal
Financial and Accounting Officer and
Director
Dated: March 29, 2001 /s/ G. Chris Andersen, Director
Dated: March 29, 2001 /s/ E. Garrett Bewkes, III, Director
Dated: March 29, 2001 /s/ Ehud D. Laska, Director
Dated: March 29, 2001 /s/ Richard B. Salomon, Director
25
Form 10-K Item 14 (a) (1) and (2)
Headway Corporate Resources, Inc. and Subsidiaries
List of Financial Statements and Financial Statement
Schedules
The following consolidated financial statements of Headway
Corporate Resources, Inc. and Subsidiaries are included in
Item 8:
Report of Independent Auditors F- 2
Consolidated Balance Sheets as of December 31, 2000 and 1999 F- 3
Consolidated Statements of Income for the years ended
December 31, 2000, 1999 and 1998 F- 4
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 2000, 1999 and 1998 F- 5
Consolidated Statements of Cash Flows for the years ended
December 2000, 1999 and 1998 F- 8
Notes to Consolidated Financial Statements F- 9
The following consolidated financial statement schedule of
Headway Corporate Resources, Inc. and Subsidiaries is
included in Item 14 (a) (2):
Schedule II - Valuation and Qualifying Accounts F-26
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been
omitted.
F-1
Report of Independent Auditors
To the Board of Directors and Stockholders
Headway Corporate Resources, Inc.
We have audited the accompanying consolidated balance sheets
of Headway Corporate Resources, Inc. and Subsidiaries (the
"Company") as of December 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended
December 31, 2000. Our audits also included the financial
statement schedule listed in the Index at Item 14 (a). These
financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based
on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States. Those
standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of Headway Corporate
Resources, Inc. and Subsidiaries at December 31, 2000 and
1999, and the consolidated results of their operations and
their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States. Also, in
our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects,
the information set forth therein.
ERNST & YOUNG LLP
New York, New York
March 2, 2001
F-2
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)
December 31
2000 1999
----------------------
Assets
Current assets:
Cash and cash equivalents $ 1,549 $ 1,867
Accounts receivable, trade, net of allowance
for doubtful accounts of
$1,156 (2000) and $958 (1999) 53,714 53,555
Prepaid expenses and other current assets 1,151 990
Prepaid income taxes 900 -
----------------------
Total current assets 57,314 56,412
Property and equipment, net 6,016 5,601
Intangibles, net of accumulated amortization
of $10,825 (2000) and $6,908 (1999) 88,374 83,872
Deferred financing costs 1,308 1,546
Other assets 1,174 988
----------------------
Total assets $ 154,186 $ 148,419
======================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,576 $ 2,389
Accrued expenses 4,853 3,215
Accrued payroll 17,248 14,241
Capital lease obligations, current portion 377 435
Long-term debt, current portion - 152
Income taxes payable - 533
Earnouts payable 3,803 3,861
Other current liabilities - 1,020
----------------------
Total current liabilities 29,857 25,846
Capital lease obligations, less current portion 291 523
Long-term debt, less current portion 69,700 72,750
Deferred rent 1,143 1,246
Deferred income taxes 456 53
Commitments and contingencies
Stockholders' equity:
Preferred stock-$.0001 par value, 5,000,000
shares authorized:
Series F, convertible preferred stock-$.0001
par value, 1,000 shares authorized, issued and
outstanding (aggregate liquidation
value $20,000) 20,000 20,000
Common stock-$.0001 par value, 20,000,000
shares authorized, 11,589,727 shares and
10,914,627 shares issued and outstanding,
respectively, at December 31, 2000;
11,372,561 shares and 10,702,461 shares issued
and outstanding, respectively, at December
31, 1999 1 1
Additional paid-in capital 20,379 19,820
Treasury stock, at cost (3,211) (3,191)
Notes receivable (84) (126)
Deferred compensation (497) (440)
Retained earnings 16,399 11,929
Other comprehensive (loss) income (248) 8
----------------------
Total stockholders' equity 52,739 48,001
----------------------
Total liabilities and stockholders' equity $ 154,186 $ 148,419
======================
See accompanying notes.
F-3
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in Thousands)
Year ended December 31
2000 1999 1998
-------------------------------
Revenues $ 371,115 $ 360,742 $ 291,303
Operating expenses:
Direct costs 272,872 274,360 224,993
Selling, general and administrative 74,690 63,349 48,638
Termination of employment contract - 2,329 -
Depreciation and amortization 5,337 4,411 2,952
--------- --------- ---------
352,899 344,449 276,583
--------- --------- ---------
Operating income 18,216 16,293 14,720
Other (income) expenses:
Interest expense 8,049 6,331 4,515
Interest income (105) (122) (152)
Gain on sale of investment - - (901)
--------- --------- ---------
7,944 6,209 3,462
--------- --------- ---------
Income before income tax expense 10,272 10,084 11,258
Income tax expense 4,388 4,299 4,639
--------- --------- ---------
Net income before extraordinary item 5,884 5,785 6,619
Extraordinary loss on early extinguishment of debt
(net of income tax benefit of $1,141) - - (1,557)
--------- --------- ---------
Net income 5,884 5,785 5,062
Preferred dividend requirements (1,414) (1,100) (866)
--------- --------- ---------
Net income available for common stockholders $ 4,470 $ 4,685 $ 4,196
========= ========= =========
Basic earnings (loss) per common share:
Net income before extraordinary item $ .42 $ .46 $ .58
Extraordinary item - - (.15)
--------- --------- ---------
Net income $ .42 $ .46 $ .43
========= ========= =========
Diluted earnings (loss) per common share:
Net income before extraordinary item $ .41 $ .40 $ .47
Extraordinary item - - (.11)
--------- --------- ---------
Net income $ .41 $ .40 $ .36
========= ========= =========
See accompanying notes.
F-4
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Dollars in Thousands, except share data)
Series A, B, C and D Series F
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
------------------- --------------- ------------------
Shares Amount Shares Amount Shares Amount
------------------------------------------------------
Balance at December 31, 1997 576 $ 400 - $ - 8,907,110 $ 1
Issuance of preferred stock - - 1,000 20,000 - -
Conversion of preferred stock (576) (400) - - 114,540 -
Repayment of notes receivable - - - - - -
Issuance of stock foracquisitions - - - - 175,488 -
Exercise of options and warrants - - - - 1,222,082 -
Preferred stock dividends - - - - - -
Treasury stock - - - - - -
Translation adjustment - - - - - -
Net income - - - - - -
Comprehensive income - - - - - -
______ _____ _____ ________ ___________ _______
Balance at December 31, 1998 - - 1,000 20,000 10,419,220 1
Repayment of notes receivable - - - - - -
Issuance of stock for acquisitions - - - - 425,110 -
Exercise of options - - - - 403,231 -
Issuance of common stock to an
officer for services - - - - 125,000 -
Amortization of stock-based
compensation - - - - - -
Preferred stock dividends - - - - - -
Treasury stock - - - - - -
Translation adjustment - - - - - -
Net income - - - - - -
Comprehensive income - - - - - -
______ _____ _____ ________ ___________ _______
Balance at December 31, 1999 - - 1,000 20,000 11,372,561 1
Repayment of notes receivable - - - - - -
Issuance of stock for acquisitions - - - - 157,166 -
Issuance of common stock to an
employee for service - - - - 60,000 -
Amortization of stock-based
compensation - - - - - -
Preferred stock dividends - - - - - -
Treasury stock - - - - - -
Translation adjustment - - - - - -
Net income - - - - - -
Comprehensive income - - - - - -
______ _____ _____ ________ ___________ _______
Balance at December 31, 2000 - - 1,000 $ 20,000 11,589,727 $ 1
====== ===== ===== ======== =========== =======
See accompanying notes.
F-5
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Dollars in Thousands, except share data)
Additional
Paid-in Treasury Stock Notes Deferred
----------------------------
Capital Shares Amount Receivabe Compensation
----------------------------------------------------
Balance at December 31,1997 $ 13,247 - $ - $ (285) $ -
Issuance of preferred stock (1,367) - - - -
Conversion of preferred stock 400 - - - -
Repayment of notes receivable - - - 113 -
Issuance of stock for acquisitions 1,233 - - - -
Exercise of options and warrants 2,266 - - - -
Preferred stock dividends - - - - -
Treasury stock - (57,200) (290) - -
Translation adjustment - - - - -
Net income - - - - -
Comprehensive income - - - - -
-------- -------- --------- ------- ---------
Balance at December 31, 1998 15,779 (57,200) (290) (172) -
Repayment of notes receivable - - - 46 -
Issuance of stock for acquisitions 1,969 - - - -
Exercise of options 1,597 - - - -
Issuance of common stock to an
officer for services 475 - - - (475)
Amortization of stock-based
compensation - - - - 35
Preferred stock dividends - - - - -
Treasury stock - (612,900) (2,901) - -
Translation adjustment - - - - -
Net income - - - - -
Comprehensive income - - - - -
-------- --------- --------- ------ --------
Balance at December 31, 1999 19,820 (670,100) (3,191) (126) (440)
Repayment of notes receivable - - - 42 -
Issuance of stock for acquisitions 416 - - - -
Issuance of common stock to an
employee for services 143 - - - (143)
Amortization of stock-based
compensation - - - - 86
Preferred stock dividends - - - - -
Treasury stock - (5,000) (20) - -
Translation adjustment - - - - -
Net income - - - - -
Comprehensive income - - - - -
-------- --------- --------- ------ --------
Balance at December 31, 2000 $ 20,379 (675,100) $ (3,211) $ (84) $ (497)
======== ========= ========= ====== ========
See accompanying notes.
F-6
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (continued)
(Dollars in Thousands)
Other Total
Retained Comprehensive Stockholder's
Earnings Income Equity
--------------------------------------
Balance at December 31, 1997 $ 3,048 $ 41 $ 16,452
Issuance of preferred stock - - 18,633
Conversion of preferred stock - - -
Repayment of notes receivable - - 113
Issuance of stock for acquisitions - - 1,233
Exercise of options and warrants - - 2,266
Preferred stock dividends (866) - (866)
Treasury stock - - (290)
Translation adjustment - (32) (32)
Net income 5,062 - 5,062
-----------
Comprehensive income - - 5,030
-------------------------------------
Balance at December 31, 1998 7,244 9 42,571
Repayment of notes receivable - - 46
Issuance of stock for acquisitions - - 1,969
Exercise of options - - 1,597
Issuance of common stock to an
officer for services - - -
Amortization of stock-based
compensation - - 35
Preferred stock dividends (1,100) - (1,100)
Treasury stock - - (2,901)
Translation adjustment - (1) (1)
Net income 5,785 - 5,785
-----------
Comprehensive income - - 5,784
-------------------------------------
Balance at December 31, 1999 11,929 8 48,001
Repayment of notes receivable - - 42
Issuance of stock for acquisitions - - 416
Issuance of common stock to an
employee for services - - -
Amortization of stock-based
compensation - - 86
Preferred stock dividends (1,414) - (1,414)
Treasury stock - - (20)
Translation adjustment - (256) (256)
Net income 5,884 - 5,884
-----------
Comprehensive income - - 5,628
-------------------------------------
Balance at December 31, 2000 $ 16,399 $ (248) $ 52,739
=====================================
See accompanying notes.
F-7
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in Thousands)
Year ended December 31
2000 1999 1998
-----------------------------
Operating activities
Net income $ 5,884 $ 5,785 $ 5,062
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of investment - - (901)
Depreciation and amortization,
including deferred financing costs 5,864 4,798 3,354
Amortization of deferred compensation 86 35 -
Provision for bad debt 297 504 427
Deferred income taxes 403 513 379
Loss on early extinguishment of debt - - 1,557
Changes in assets and liabilities, net
of effects of acquisitions:
Accounts receivable (732) (4,584) (13,853)
Prepaid expenses and other current assets (181) (36) (548)
Other assets (199) (98) (148)
Accounts payable and accrued expenses 2,224 (425) 752
Accrued payroll 3,102 749 4,657
Income taxes payable (1,378) 500 (718)
Deferred rent (103) (5) 104
-------- -------- -------
Net cash provided by operating activities 15,267 7,736 124
-------- -------- -------
Investing activities
Expenditures for property and equipment (1,750) (1,919) (1,759)
Repayment from notes receivable 42 46 113
Repayment of related party note - - 638
Proceeds from sale of investment - - 3,178
Cash paid for acquisitions (7,787) (17,164) (44,863)
-------- -------- -------
Net cash used in investing activities (9,495) (19,037) (42,693)
Financing activities
Net change in revolving credit line (3,050) 11,950 (13,404)
Proceeds from long-term debt - - 60,800
Repayment of long-term debt (152) (157) (20,605)
Payment of capital lease obligations (426) (213) (246)
Payments of loan acquisition fees (289) (176) (2,003)
Payment of other loans (1,020) - -
Sale of preferred stock, net - - 18,633
Proceeds from exercise of options - 1,597 2,266
Purchase of treasury stock (20) (2,901) (290)
Cash dividends paid (1,039) (1,100) (866)
-------- ------- --------
Net cash (used in) provided by financing activities (5,996) 9,000 44,285
Effect of exchange rate changes on cash
and cash equivalents (94) 11 (31)
-------- -------- --------
(Decrease) increase in cash and cash equivalents (318) (2,290) 1,685
Cash and cash equivalents at beginning of year 1,867 4,157 2,472
-------- -------- --------
Cash and cash equivalents at end of year $ 1,549 $ 1,867 $ 4,157
======== ======== ========
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 8,511 $ 5,901 $ 3,736
======== ======== ========
Income taxes $ 5,388 $ 3,176 $ 5,129
==============================
Supplemental disclosure of noncash investing and financing activities
In 1999, the Company issued common stock valued at $475,000
for services. In 2000 and 1999 the Company issued 157,166
and 425,110 shares of its common stock valued at $416,000
and $1,969,000 respectively, for acquisitions.
In 2000, 1999 and 1998, the Company purchased property and
equipment under capital leases amounting to approximately
$136,000, $198,000 and $900,000, respectively.
See accompanying notes.
F-8
December 31, 2000
1. Organization
Headway Corporate Resources, Inc. and its wholly owned
subsidiaries (the "Company") provide strategic staffing
solutions and personnel worldwide. Its operations include
information technology staffing, temporary staffing, human
resource staffing, permanent placement and executive search.
Headquartered in New York, the Company has temporary
staffing offices in California, Connecticut, Florida, New
Jersey, North Carolina, Virginia, and Texas and executive
search offices in New York, Illinois, the United Kingdom,
Japan, Hong Kong and Singapore.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts
of Headway Corporate Resources, Inc. and its subsidiaries
after elimination of all intercompany accounts and
transactions.
Revenue Recognition
Information technology staffing, temporary staffing and
human resource staffing revenue is recognized when the
temporary personnel perform the related services. Permanent
placement revenue is recognized when the placement is
employed. Provisions are made for estimated losses in
realization (principally due to applicants not remaining in
employment for the guaranteed period, usually 90 days).
Executive search services are primarily engaged on a
retainer basis. Income from retainer contracts which provide
for periodic billings over periods of up to one year, is
recognized as earned based on the terms of the contract.
Cash Equivalents
Cash equivalents are comprised of certain highly liquid
investments with a maturity of three months or less when
purchased.
Property and Equipment
Property and equipment are stated at cost. Depreciation is
computed utilizing the straight-line method over the
estimated useful lives of the assets which range from three
to seven years. Leasehold improvements are amortized
utilizing the straight-line method over the lesser of the
useful life of the leasehold or the term of the lease.
F-9
2. Summary of Significant Accounting Policies (continued)
Deferred Rent
The Company leases premises under leases which provide for
periodic increases over the lease term. Pursuant to
Statement of Financial Accounting Standards No. 13,
"Accounting for Leases," the Company records rent expense on
a straight-line basis. The effect of these differences is
recorded as deferred rent.
Deferred Taxes
The Company provides for deferred taxes pursuant to
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the
recognition of deferred taxes utilizing the liability
method.
Foreign Currency Translation
Balance sheet accounts of the Company's United Kingdom and
Asian subsidiaries are translated using year-end exchange
rates. Statement of operations accounts are translated at
monthly average exchange rates. The resulting translation
adjustment is reported as other comprehensive income in
stockholders' equity.
Goodwill
Goodwill is amortized utilizing the straight-line method
over a period of 20 to 30 years. The Company periodically
evaluates the carrying value and the periods of amortization
of goodwill based on the current and expected future non-
discounted income from operations of the entities giving
rise to the goodwill to determine whether events and
circumstances warrant revised estimates of carrying value or
useful lives. No such write-downs have been necessary
because the acquired entities have been profitable and have
generally met all performance expectations.
Deferred Financing Costs
Deferred financing costs are amortized utilizing the
straight-line method over the term of the related debt.
Concentration of Credit Risk
Financial instruments that potentially subject the Company
to concentration of credit risk include cash and cash
equivalents and accounts receivable arising from its normal
business activities. The Company places its cash and cash
equivalents with high credit quality financial institutions.
F-10
2. Summary of Significant Accounting Policies (continued)
The Company believes that its credit risk regarding accounts
receivable is limited due to the large number of entities
comprising the Company's customer base. In addition, the
Company routinely assesses the financial strength of its
customers and, based upon factors surrounding the credit
risk of its customers, establishes an allowance for
uncollectible accounts, where appropriate and, as a
consequence, believes that its accounts receivable credit
risk exposure is limited.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States requires management to make estimates and assumptions
that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from
those estimates.
Segment Information
The Company reports segment information in accordance with
Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" ("Statement 131"). Statement 131 establishes
standards for the way companies report information about
operating segments in annual financial statements. Statement
131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers
(see Note 14).
Stock-Based Compensation
The Company grants stock options for a fixed number of
shares to employees with an exercise price equal to the fair
value of the shares at the date of grant. The Company
accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations because the Company
believes the alternative fair value accounting provided for
under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), requires the use of option
valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant,
no compensation expense is recognized on the date of grant.
Recent Pronouncements
Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging
Activities", establishes accounting and reporting standards
for derivative instruments, including derivative instruments
embedded in other contracts and for hedging activities. This
statement is effective for all fiscal quarters of fiscal
years
F-11
2. Summary of Significant Accounting Policies (continued)
beginning 2001 and is not expected to have a significant
impact on the Company's financial position or results of
operations.
3. Property and Equipment
Property and equipment consists of the following:
December 31
2000 1999
-----------------------
Leasehold improvements $ 1,667,000 $1,425,000
Furniture and fixtures 1,844,000 1,692,000
Office and computer equipment 6,890,000 5,578,000
-----------------------
10,401,000 8,695,000
Less accumulated depreciation and amortization 4,385,000 3,094,000
-----------------------
$ 6,016,000 $5,601,000
=======================
4. Due from Related Parties and Related Party Transactions
In August 2000, the Company issued 60,000 shares of common
stock to an employee for services. These shares vest in
August 2003. Such shares were valued at $143,000, the then
current market value. Deferred compensation is being
amortized on a straight-line basis through August 2003.
In July 1999, the Company granted 125,000 shares of common
stock to the Company's Chairman. These shares vest at the
earlier of i) the Company's common stock price reaching a
certain level, as defined, or ii) on July 1, 2006. Such
shares were valued at $475,000 and the related deferred
compensation is being amortized on a straight-line basis
through July 1, 2006.
In March 1998, the Chairman repaid the Company $638,000,
representing the then outstanding balance due to the
Company.
In 1998, financial advisory services were provided to the
Company by entities in which a director of the Company was a
principal. Amounts paid for such services amounted to
$147,000 and was related to an acquisition made by the
Company.
During the years ended December 31, 2000, 1999 and 1998, the
Company incurred fees of approximately $204,000, $304,000
and $615,000, respectively, for legal services to an entity,
whose partner is a member of the Board of Directors.
F-12
5. Long-Term Debt and Credit Facilities
In 1998, the Company retired the balance outstanding under
the then existing credit facility with the proceeds of a new
financing (see below) and incurred an extraordinary loss on
the early retirement of this credit facility of $1,557,000.
In March 1998, the Company completed a financing totaling
$105,000,000 consisting of a $75,000,000 senior credit
facility, $10,000,000 of senior subordinated notes, and
$20,000,000 of Series F Convertible Preferred Stock (see
Note 7).
In August 2000, the credit facility was amended and the
amount that can be borrowed was reduced from $100,000,000 to
$85,000,000. This credit facility expires in 2002, all
amounts outstanding are due in 2002, and bears interest at
varying rates based on LIBOR which ranged from 5.81% to
6.72% per annum at December 31, 2000. As of December 31,
2000, $59,700,000 was outstanding under the senior credit
facility. Substantially all assets of the Company have been
pledged as collateral for the senior credit facility. In
addition, the Company is required to meet certain financial
ratios, as defined.
The senior subordinated notes are payable in March 2006 and
bear interest at 12% per annum until March 2001, increasing
to 14% per annum thereafter. In January 2001, the terms of
the senior subordinated notes were amended, including
increasing the effective interest rate to 13% until March
2001 and 15% thereafter.
The carrying amount of the borrowings under the senior
credit facility and senior subordinated notes approximates
fair value.
In connection with an acquisition made in July 1997, the
Company entered into a $451,000 note payable to the seller.
This note was payable in six equal semi-annual installments
commencing in January 1998 with interest at 6% per annum.
The note was repaid during 2000.
As of December 31, 1999, the Company had two interest rate
exchange agreements converting $40,000,000 (notional amount)
of variable rate borrowings under the senior credit
agreement to a fixed rate. At December 31, 1999, each
contracted fixed interest rate was 5.20% per annum plus the
applicable margin, and provided an option to the counter
party to extend the term of the exchange agreements to 2001.
The notional amount does not represent amounts exchanged by
the parties and is not a measure of the exposure to the
Company through its use of derivatives. The term of the
exchange agreements expired in September and October 2000.
As of December 31, 2000, the Company had one interest rate
exchange agreement converting $30,000,000 (notional amount)
of variable rate borrowings under the senior credit
agreement to a fixed rate. At December 31, 2000, such
contract fixed rate was 6.868% per annum. At December 31,
2000 and 1999, the fair value of the interest rate exchange
agreements based on notional
F-13
5. Long-Term Debt and Credit Facilities (continued)
amounts and other terms of the agreements, was calculated
based on the buyback value of such exchange agreements and
amounted to approximately $435,000 and $323,000,
respectively. The Company is exposed to credit loss in the
event of nonperformance by the counter-party, a large
financial institution. However, the Company does not
anticipate nonperformance by the counter-party.
6. Acquisitions
In March and July 1997, the Company acquired certain assets
of a North Carolina corporation and two New York
corporations, respectively. In September 1997, the Company
acquired (i) substantially all of the assets of a New Jersey
corporation and (ii) all of the outstanding stock and
substantially all of the assets of a Connecticut corporation
and related limited liability company, respectively. In
addition to the purchase price paid at closing, the sellers
are entitled to earn-outs based on future earnings. The
purchase price for these acquisitions amounted to
approximately $35,294,000, including earn-outs recorded in
2000, 1999, 1998 and 1997 of $4,562,000, $5,534,000,
$5,640,000 and $2,200,000, respectively, and exceeded the
fair value of the net assets acquired resulting in goodwill
of approximately $34,188,000. As consideration for the
portion of the earnouts, in 2000, 1999, 1998 and 1997, the
Company issued 80,710, 80,710, 80,710 and 121,066 shares of
the Company's common stock, valued at $333,000, $333,000,
$333,000 and $500,000, respectively.
In March 1998, the Company acquired substantially all of the
assets of two related Connecticut entities, three Southern
Virginia Offices of a Virginia corporation, and the stock of
a California corporation in three separate transactions; in
June 1998, the Company acquired substantially all of the
assets of two Florida corporations and a New Jersey
corporation in two separate transactions; in July 1998, the
Company acquired all of the outstanding stock of an Illinois
corporation; and, in November 1998, the Company acquired
substantially all of the assets of two Texas corporations.
In addition, to the purchase price paid at closing, the
sellers are entitled to earnouts based on future earnings.
The purchase price for these acquisitions amounted to
approximately $50,499,000, including earnouts recorded in
2000, 1999 and 1998 of $3,285,000, $6,829,000 and $640,000,
respectively, and exceeded the fair value of the net assets
acquired resulting in goodwill of approximately $45,175,000.
A portion of the purchase price for two acquisitions
consisted of 94,778 shares of the Company's common stock
valued at $900,000.
In June 1999, the Company acquired substantially all of the
assets of a division of a North Carolina corporation and, in
November 1999, the Company acquired all of the outstanding
stock of a United Kingdom executive placement and management
advisory company. The purchase price for these acquisitions
of approximately $8,941,000,
F-14
6. Acquisitions (continued)
including earn-outs recorded in 2000 of $215,000, and
exceeded the fair value of the net assets acquired resulting
in goodwill of approximately $8,551,000. A portion of the
purchase price for the United Kingdom acquisition consisted
of 344,400 shares of the Company's common stock valued at
$1,691,000, which were issued at the time of the
acquisition. In December 2000, the Company issued Tyzack an
additional 76,456 shares valued at $83,000.
The aforementioned acquisitions have been accounted for as
purchases and have been included in the Company's operations
from the dates of the respective purchases. Any additional
purchase price based on future earnings related to the
aforementioned acquisitions will be recorded as additional
goodwill upon the determination that the earnouts have been
met. The amortization of goodwill for the years ended
December 31, 2000, 1999 and 1998 was approximately
$3,917,000, $3,280,000 and $2,191,000, respectively.
The pro forma unaudited consolidated results of operations
of the 1999 acquisitions on the results of operations for
1999 and 1998 and the 1998 acquisitions on the results of
operations for 1998, assuming consummation of the
aforementioned transactions as of the beginning of the
respective periods, are as follows:
Year ended December 31,
1999 1998
-------------------------
(Unaudited)
Total revenue $ 370,038 $ 339,406
Net income before extraordinary item 6,493 8,189
Net income 6,493 6,632
Net income available for common
stockholders 5,393 5,766
Earnings per share:
Basic 0.52 0.59
Diluted 0.45 0.47
7. Stockholders' Equity
In 1998, 572 shares of Series B preferred stock were
converted into 55,585 shares of common stock and 4 shares of
Series D preferred stock were converted into 12,937 shares
of common stock.
In March 1998, the Company authorized and issued 1,000
shares of Series F Convertible Preferred Stock for
$20,000,000. The Series F Convertible Preferred Stock is non-
voting, accrues dividends at the rate of 5.5% (increased to
7.5% in March 19, 2000) per annum and is convertible into
common stock at an initial conversion price of $5.58 per
share (the
F-15
7. Stockholders' Equity (continued)
market value of the Company's common stock at
closing). Expenses in connection with the issuance of the
preferred stock amounted to $1,367,000 and were accounted
for as share issuance expenses.
In May 1996, the Company loaned a total of $507,000 to ten
employees of the Company at an interest rate of 8% per
annum, payable quarterly over a term of five years. The
funds were used by the employees to purchase a total of
2,170 shares of the Company's Series A Convertible Preferred
Stock from the then current Series A Convertible Preferred
Stock stockholder. The loans outstanding ($84,000 at
December 31, 2000) are collateralized by common stock and
assets with a value in excess of the principal amount of
each loan.
In September 1998, the Company authorized a stock repurchase
program of up to 1,000,000 shares of the Company's common
stock. In 2000, 1999 and 1998, the Company repurchased
5,000, 612,900 and 57,200 shares of the Company's common
stock for approximately $20,000, $2,901,000 and $290,000,
respectively.
At December 31, 2000, approximately 7,095,000 shares of
common stock have been reserved for future issuance as
follows:
Convertible Preferred Stock 3,584,000
Warrants 270,000
Stock Incentive Plan (see Note 10) 3,241,000
---------
7,095,000
=========
At December 31, 2000, all warrants issued by the Company are
fully vested and have exercise prices ranging from $3.50 to
$5.25. During 2000, no warrants were exercised and
approximately 102,000 warrants that were issued upon the
conversion of Series D convertible preferred stock were
cancelled. During 1998, 1,097,970 warrants were exercised.
The outstanding warrants expire in 2001.
F-16
8. Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share pursuant to FASB Statement No.
128, "Earnings per Share", for the years ended December 31,
2000, 1999 and 1998:
2000 1999 1998
------------------------------------------
Numerator:
Income before extraordinary $ 5,884,000 $ 5,785,000 $ 6,619,000
Extraordinary loss - - (1,557,000)
Preferred stock dividend requirements (1,414,000) (1,100,000) (866,000)
------------- ------------- ------------
Numerator for basic earnings per
share - net income availabel for
common shareholders 4,470,000 4,685,000 4,196,000
Effect of dilutive securities:
Preferred dividend requirements 1,414,000 1,100,000 866,000
------------ ------------- -------------
Numerator for diluted earnings per
share - net income available for common
stockholders after assumed conversion $ 5,884,000 $ 5,785,000 $ 5,062,000
============ ============= =============
Denominator:
Denominator for basic earnings per
share- weighted average shares 10,590,461 10,287,978 9,853,354
Effect of dilutive securities:
Stock options, warrants and restricted
shares 74,142 456,477 1,615,486
Convertible preferred stock 3,584,299 3,584,299 2,688,172
------------ ------------- -------------
Dilutive potential common stock 3,658,441 4,040,776 4,303,658
------------ ------------- -------------
Denominator for diluted earnings per
share - adjusted weighted- average shares
and assumed conversions 14,248,902 14,328,754 14,157,012
=========== ============= =============
Basic earnings per share $ .42 $ .46 $ .43
=========== ============= =============
Diluted earnings per share $ .41 $ .40 $ .36
=========== ============= =============
F-17
9. Income Taxes
Income tax expense from continuing operations consists of
the following:
Year ended December 31
2000 1999 1998
--------------------------------------
Current:
Domestic $ 3,368,000 $ 3,771,000 $ 4,241,000
Foreign 443,000 15,000 19,000
--------------------------------------
3,811,000 3,786,000 4,260,000
--------------------------------------
Deferred expense:
Domestic 577,000 513,000 379,000
--------------------------------------
Total deferred expense 577,000 513,000 379,000
-------------------------------------
$ 4,388,000 $ 4,299,000 $ 4,639,000
======================================
The components of deferred tax assets and liabilities are as
follows:
December 31
2000 1999
-------------------------
Deferred tax assets:
Deferred rent $ 486,000 $ 539,000
Allowances for doubtful accounts 438,000 376,000
Other 34,000 -
-------------------------
958,000 915,000
Deferred tax liabilities:
Depreciation (123,000) (70,000)
Intangibles (1,228,000) (677,000)
Cash to accrual adjustments (63,000) (206,000)
Other - (15,000)
-------------------------
(1,414,000) (968,000)
-------------------------
$ (456,000) $ (53,000)
=========================
A reconciliation of the statutory Federal income tax rate to
the effective rates is as follows:
Year ended December 31
2000 1999 1998
-----------------------
Statutory rate 34% 34% 34%
State and local income taxes
(net of federal tax benefit) 7 7 7
Other 2 2 -
-----------------------
Effective tax rate 43% 43% 41%
=======================
F-18
10. Stock Incentive Plan
Pursuant to the Company's Stock Incentive Plan (the "Plan"),
up to 3,771,567 options to purchase common stock were
reserved for grant. The Plan provides for the granting of
stock options, stock appreciation rights and stock awards.
Stock options intended to be incentive stock options will be
granted at prices equal to at least market price on the date
of the grant. A summary of the activity in the Plan is as
follows:
Number of Weighted Average
Shares Exercise Price
------------------------------
Outstanding at December 31, 1997 1,729,912 3.52
Granted 403,000 6.53
Canceled (40,671) 2.79
Exercised (124,112) 3.10
---------
Outstanding at December 31, 1998 1,968,129 4.16
Granted 560,000 4.76
Canceled (139,667) 4.14
Exercised (403,231) 3.47
---------
Outstanding at December 31, 1999 1,985,231 4.47
Granted 282,500 3.34
Canceled (345,000) 4.59
---------
Outstanding at December 31, 2000 1,922,731 4.27
=========
Exercisable at December 31, 1998 1,061,680 3.57
=========
Exercisable at December 31, 1999 1,111,620 3.98
=========
Exercisable at December 31, 2000 1,276,896 4.13
=========
Options granted vest equally over three years or cliff vest
at the end of a three-year term and are exercisable for a
period not to exceed ten years from the date of grant.
Information regarding options outstanding under the Plan at
December 31, 2000 is as follows:
Weighted-
Weighted- Average Weighted-
Exercise Number of Average Remaining Number of Average
Price Options Exercise Contractual Options Exercise
Range Outstanding Price Life Exerciseable Price
- ----------------------------------------------------------------------------
$2.38 - $3.50 $ 563,000 $ 2.80 5.4 years 483,000 $ 2.84
3.62 - 5.38 1,174,731 4.36 7.7 years 662,230 4.29
5.50 - 8.00 85,000 6.23 7.8 years 65,000 6.16
9.88 100,000 9.88 7.6 years 66,666 9.88
---------- ---------
1,922,731 1,276,896
========== =========
F-19
11. Stock-Based Compensation
Pro forma information regarding net income and earnings per
share is required by SFAS 123 and has been determined as if
the Company had accounted for its employee stock options
under the fair value method of SFAS 123. The fair value for
these options was estimated at the date of grant using a
Black-Scholes option-pricing model with the following
weighted-average assumptions:
Year ended December 31
2000 1999 1998
----------------------------
Assumptions
Risk-free rate 6.72% 5.83% 5.30%
Dividend yield 0% 0% 0%
Volatility factor of the expected
market price of the Company's
common stock .70 .68 .76
Average life 5 years 5 years 5 years
The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options which
have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of
highly subjective assumptions, including the expected stock
price volatility. Because the Company's employee stock
options have characteristics significantly different from
those of traded options, and because changes in the
subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the existing models
do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the
vesting period of the options. The Company's pro forma
information is as follows:
Year ended December 31
2000 1999 1998
-------------------------------------
Pro forma net income available
for common stockholders $4,901,000 $5,243,000 $3,694,000
Pro forma earnings per share:
Basic .38 .40 .37
Diluted .38 .36 .32
The weighted average fair value of options granted during
the years ended December 31, 2000, 1999 and 1998 was $2.12,
$2.93 and $4.26 respectively. The weighted average remaining
contractual life of options exercisable at December 31, 2000
is 5.12 years.
F-20
12. Commitments and Contingencies
The Company leases office space under operating leases which
have various expiration dates through October 2009. The
leases provide for additional rent based on increases in
operating costs and real estate taxes. The Company also
leases equipment under capital leases expiring at various
times through December 2003.
Future minimum lease payments at December 31, 2000 under
capital leases and noncancelable operating leases (shown net
of $563,000 of sublease income per annum through 2005) with
remaining terms of one year or more are as follows:
Capital Operating
Leases Leases
------------------------
2001 $ 399,000 $2,245,000
2002 233,000 2,082,000
2003 106,000 1,546,000
2004 - 1,111,000
2005 - 1,032,000
Thereafter - 4,347,000
------------------------
Total minimum lease payments 738,000 $12,363,000
Less amounts representing interest 70,000 ===========
---------
Present value of net minimum
lease payments 668,000
Less current portion 377,000
---------
Long-term portion $ 291,000
=========
Included in property and equipment at December 31, 2000 and
1999 are equipment recorded under capital leases with a cost
of $1,635,000 and $1,683,000, respectively, and accumulated
depreciation and amortization of $692,000 and $514,000,
respectively. Amortization of equipment recorded under
capital leases is included with depreciation expense.
Rent expense, including escalation charges, and net of
sublease income of $514,000, $498,000 and $538,000 for the
years ended December 31, 2000, 1999 and 1998 were
$2,976,000, $2,634,000 and $1,912,000, respectively.
The Company has letters of credit outstanding aggregating
$1,150,000 in connection with various guarantees.
The Company is party to litigation arising out of the normal
course of its business. In the opinion of management, all
matters are without merit or are of such kind or involve
such amounts, as would not have a material adverse effect on
the financial position, results of operations or cash flows
of the Company.
F-21
13. Retirement Plan
The Company has a 401(k) plan covering substantially all its
domestic employees. The plan does not require a matching
contribution by the Company.
14. Segment Information
Major Customers
For the year ended December 31, 2000, no customer accounted
for more than 10% of the Company's revenues. For the years
ended December 31, 1999 and 1998, one staffing services
customer accounted for 11% and 14% of revenues,
respectively.
Geographic Information
For the years ended December 31, 2000, 1999 and 1998, the
Company derived substantially all of its revenues from
businesses located in the United States, and no other
country accounted for more than 10% of the Company's
revenues.
Business Segments
The Company classifies its business into two fundamental
areas, staffing and executive search. Staffing consists of
the placement and payrolling of temporary and permanent
office, clerical and information technology professional
personnel. Executive search focuses on placing middle to
upper level management positions.
The Company evaluates performance based on the segments'
profit or loss from operations before unallocated corporate
overhead. The accounting policies of the reportable segments
are the same as those described in the summary of
significant accounting policies (see Note 2).
F-22
14. Segment Information (continued)
Year ended December 31, 2000
Executive
Staffing Search
Services Services Total
------------------------------
(Dollars in Thousands)
Revenues $333,465 $ 37,650 $371,115
Depreciation and amortization 4,479 858 5,337
Interest expense 6,818 253 7,071
Interest income (98) - (98)
Segment income before
income tax expense 6,141 8,127 14,268
Income tax expense 2,641 3,413 6,054
Segment profit 3,500 4,714 8,214
Segment assets 128,478 23,356 151,834
Expenditures for long lived assets 1,435 315 1,750
Year ended December 31, 1999
Executive
Staffing Search
Services Services Total
---------------------------
(Dollars in Thousands)
Revenues $334,743 $25,999 $360,742
Depreciation and amortization 3,930 481 4,411
Termination of employment contract 2,329 - 2,329
Interest expense 5,801 8 5,809
Interest income (89) (18) (107)
Segment income before income tax
expense 6,371 6,616 12,987
Income tax expense 2,785 2,748 5,533
Segment profit 3,586 3,868 7,454
Segment assets 127,518 19,392 146,910
Expenditures for long lived assets 1,538 381 1,919
F-23
14. Segment Information (continued)
Year ended December 31, 1998
Executive
Staffing Search
Services Services Total
------------------------------
(Dollars in Thousands)
Revenues $271,518 $19,785 $291,303
Depreciation and amortization 2,694 258 2,952
Interest expense 4,107 6 4,113
Interest income (26) (43) (69)
Segment income before income tax
expense 8,654 4,509 13,163
Income tax expense 3,609 1,880 5,489
Segment income before extraordinary item 5,045 2,629 7,674
Extraordinary loss (1,557) - (1,557)
Segment profit 3,488 2,629 6,117
Segment assets 106,636 19,602 126,238
Expenditures for long lived assets 1,493 266 1,759
Year ended December 31
2000 1999 1998
-------------------------------
(Dollars in Thousands)
Reconciliation to net income
Total profit for reportable segments $ 8,214 $ 7,454 $ 6,117
Unallocated amounts:
Gain on sale of investment - - 901
Interest expense (978) (522) (402)
Interest income 7 15 83
Corporate overhead (3,025) (2,396) (2,487)
Income tax benefit 1,666 1,234 850
-------------------------------
Net income $ 5,884 $ 5,785 $ 5,062
===============================
December 31
2000 1999 1998
------------------------------
(Dollars in Thousands)
Reconciliation to total assets
Total assets for reportable segments $151,834 $146,910 $126,238
Other assets 2,352 1,509 708
------------------------------
Total assets $154,186 $148,419 $126,946
==============================
F-24
15. Termination of Employment Contract
In March 1999, the Company incurred costs of $2,329,000
associated with the termination of an employment contract.
16. Gain on Sale of Investment
In March 1997, Citigate, an entity in which the Company had
an 18.3% interest, was acquired by Incepta Group, plc.
("Incepta"), a United Kingdom public company. The Company
received 13,805,406 shares of Incepta in exchange for its
investment in Citigate. The Company sold these shares in
March and October 1997 for $4,363,000 and recognized a gain
of approximately $1,719,000. The Company was also entitled
to an additional 7,072,307 shares of Incepta if Incepta met
certain earnings targets for the year ended September 30,
1997. In October 1997, the Company was advised that such
targets had been met and, accordingly, an additional gain of
approximately $2,553,000 was recognized in 1997. In May
1998, the Company sold its remaining investment in Incepta
and recognized a gain of approximately $901,000.
17. Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results for the
years ended December 31, 2000 and 1999.
2000 Quarter Ended
-------------------------------------------
March June September December
-------------------------------------------
(Dollars in Thousands)
Revenues $96,315 $96,655 $91,678 $86,467
Operating Income 4,998 5,187 3,674 4,357
Net Income 1,819 1,802 870 1,393
Net Income:
-Basic .14 .14 .05 .10
-Diluted .13 .13 .05 .10
1999 Quarter Ended
-------------------------------------------
March June September December
-------------------------------------------
(Dollars in Thousands)
Revenues $92,653 $92,172 $90,229 $85,688
Operating Income 2,600 5,199 4,653 3,841
Net Income 649 2,083 1,777 1,276
Net Income:
-Basic .04 .18 .15 .09
-Diluted .04 .15 .13 .09
F-25
Schedule II - Valuation And Qualifying Accounts
Headway Corporate Resources, Inc. and Subsidiaries
December 31, 2000
COL. A COL. B COL. C COL. D COL. E
_______________________________ __________ ___________________ __________ __________
Additions
-------------------
Balance at Charged to Charged Balance at
Beginning Costs and to Other End of
Description of Period Expense Accounts Deductions Period
- ------------------------------- ---------- ---------- -------- ---------- ----------
Year Ended December 31, 2000
Deducted from asset account
Allowance for doubtful accounts $958,000 $297,000 $ - $ 99,000 $1,156,000
Year Ended December 31, 1999
Deducted from asset account
Allowance for doubtful accounts $593,000 $504,000 $ - $139,000 $ 958,000
Year Ended December 31, 1998
Deducted from asset account
Allowance for doubtful accounts $371,000 $427,000 $ - $205,000 $ 593,000
F-26