UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-16025
HEADWAY CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2134871
(State of other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
317 Madison Avenue, New York, New York 10017
(Address of principal executive offices)
(212) 672-6501
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed sine last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
issuer was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by the court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, $0.0001 Par
Value - 10,914,627 shares as of November 13, 2001.
FORM 10-Q
HEADWAY CORPORATE RESOURCES, INC. AND SUBSIDIARIES
INDEX
Page
PART I. Financial Information 3
Item 1. Financial Statements 3
Consolidated Balance Sheets
September 30, 2001 (Unaudited) and December 31, 2000 3
Unaudited Consolidated Statements of Income
Three and Nine Months Ended September 30, 2001 and 2000 4
Unaudited Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 2001 5
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2001 and 2000 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II. Other Information 17
Item 1. Legal Proceedings 17
Item 3. Defaults Upon Senior Securities 17
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands, except per share data)
September 30, December 31,
2001 2000
(Unaudited) (Restated-see
Note 7)
Assets
Current assets:
Cash and cash equivalents $ 12,022 $ 1,549
Accounts receivable, trade, net 43,542 53,714
Prepaid expenses and other current assets 3,342 1,151
Prepaid income taxes 1,178 900
------ ------
Total current assets 60,084 57,314
Property and equipment, net 5,847 6,016
Intangibles, net 90,048 88,374
Deferred financing costs 797 1,308
Other assets 1,146 1,174
------- -------
Total assets $ 157,922 $ 154,186
======= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,529 $ 3,576
Accrued expenses 4,737 4,853
Accrued payroll 11,883 17,248
Capital lease obligations, current portion 293 377
Loans payable in default 82,000 -
Earnouts payable 4,018 3,803
-------- --------
Total current liabilities 104,460 29,857
Capital lease obligations, less current portion 144 291
Long-term debt - 69,700
Deferred rent 1,059 1,143
Deferred income taxes 456 456
Other liabilities 416 -
Preferred stock---$.0001 par value, 5,000,000
shares authorized:
Series F, convertible preferred stock-$.0001 par
value, 1,000 shares authorized, 0 and 1,000
shares issued and outstanding [aggregate
liquidation value $20,000] as of September 30,
2001 and December 31, 2000, respectively - 20,000
Series G, convertible preferred stock-$.0001 par
value, 1,000 shares authorized, 1,000 and 0
shares issued and outstanding [aggregate
liquidation value $20,000] as of September 30,
2001 and December 31, 2001,
respectively-Currently redeemable by its terms 20,000 -
Stockholders' equity:
Common stock-$.0001 par value, 20,000,000 shares
authorized; 10,914,627 shares issued and outstanding 1 1
Additional paid-in capital 18,268 20,379
Treasury stock, at cost - (3,211)
Notes receivable (71) (84)
Deferred compensation
(411) (497)
Retained earnings 14,335 16,399
Other comprehensive (loss) (735) (248)
------- -------
Total stockholders' equity 31,387 32,739
------- -------
Total liabilities and stockholders' equity $ 157,922 $ 154,186
======== ========
See accompanying notes.
3
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
(Dollars in Thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
Revenues $ 76,140 $ 91,678 $ 249,034 $ 284,648
Operating expenses:
Direct costs 61,349 67,948 190,801 208,322
Selling, general and administrative 13,833 18,689 48,339 58,528
Depreciation and amortization 1,515 1,367 4,326 3,939
------ ------ ------ ------
76,697 88,004 243,466 270,789
Operating (loss) income (557) 3,674 5,568 13,859
Other (income) expenses:
Interest expense 2,926 2,010 7,162 5,908
Interest income (44) (28) (72) (83)
------ ------ ------ ------
2,882 1,982 7,090 5,825
(Loss) income before income (3,439) 1,692 (1,522) 8,034
tax (benefit) expense
Income tax (benefit) expense (1,422) 822 (583) 3,543
------- ------ ------ -------
Net (loss) income (2,017) 870 (939) 4,491
Preferred dividend requirements (375) (375) (1,125) (1,039)
----- ------ ------ -------
Net (loss) income available
for common stockholders $ (2,392) $ 495 $ (2,064) $ 3,452
======== ======= ======== =========
Basic (loss) earnings per
common share: $ (.22) $ .05 $ (.19) $ .33
======== ======= ======= =========
Diluted (loss) earnings per
common share: $ (.22) $ .05 $ (.19) $ .32
======== ======= ======= =========
See accompanying notes.
4
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 2001
(Unaudited)
(Dollars in thousands, except per share data)
Additional
Common Stock Paid-in Treasury Stock
Shares Amount Capital Shares Amount
Balance at December 31, 2000 (Restated-see Note 7) 11,589,727 $ 1 $ 20,379 $ (675,100) $ (3,211)
Retirement of treasury stock (675,100) - (3,211) 675,100 3,211
Repayment of notes receivable - - - - -
Amortization of stock-based compensation - - - - -
Preferred stock dividends - - - - -
Issuance of warrants - - 1,100 - -
Translation adjustment - - - - -
Cumulative effect of change in accounting for
derivative financial instrument, net of applicable
income taxes of $187 - - - - -
Change in fair value of derivative, net of applicable
income taxes of $127 - - - - -
Net (loss) income - - - - -
Comprehensive (loss) - - - - -
--------- ------ ------ ------- -----
Balance at September 30, 2001 10,914,627 $ 1 $ 18,268 - $ -
========== ====== ====== ======= =====
5
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity, Continued
Nine Months Ended September 30, 2001
(Unaudited)
(Dollars in thousands, except per share data)
Accumulated
Other Total
Notes Deferred Retained Comprehensive Stockholders'
Receivable Compensation Earnings (loss) Equity
Balance at December 31, 2000 $ (84) $ (497) $ 16,399 $ (248) $ 32,739
(Restated-see Note 7)
Retirement of treasury stock - - - - -
Repayment of notes receivable 13 - - - 13
Amortization of stock-based
compensation - 86 - - 86
Preferred stock dividends - - (1,125) - (1,125)
Issuance of warrants - - - 1,100
Translation adjustment - - - (71) (71)
Cumulative effect of change in
accounting for derivative
financial instrument, net of
applicable income taxes of $187 - - - (248) (248)
Change in fair value of derivative,
net of applicable income taxes
of $127 - - - (168) (168)
Net (loss) income - - (939) - (939)
Comprehensive (loss) - - - - (1,426)
Balance at September 30, 2001 $ (71) $ (411) $ 14,335 $ (735) $ 31,387
See accompanying notes.
6
Headway Corporate Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Thousands)
Nine months ended
September 30,
2001 2000
Operating activities:
Net (loss) income $ (939) $ 4,491
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 4,326 3,939
Amortization of deferred financing costs 913 360
Provision for bad debt 293 254
Amortization of deferred compensation 86 57
Changes in assets and liabilities net of
effect of acquisitions:
Accounts receivable 9,746 (10,088)
Prepaid expenses and other assets (1,264) (423)
Other assets 47 -
Accounts payable and accrued expenses (2,294) 2,062
Accrued payroll (5,101) 3,623
Income taxes payable (408) 539
Deferred rent (84) (77)
----- -----
Net cash provided by operating activities 5,321 4,737
----- -----
Investing activities:
Expenditures for property and equipment (1,149) (1,323)
Repayment from notes receivable 13 43
Cash paid for acquisitions (4,623) (5,287)
----- -----
Net cash (used in) investing activities (5,759) (6,567)
----- -----
Financing activities:
Net proceeds from debt 12,300 3,250
Repayment of debt - (152)
Payment of capital lease obligations (231) (339)
Payments of loan acquisition fees (325) (419)
Payments of other loans - (1,020)
Purchase of treasury stock - (20)
Cash dividends paid (750) (1,039)
------ -----
Net cash provided by financing activities 10,994 261
------ -----
Effect of exchange rate changes on cash and cash
equivalents (83) (179)
------ ------
Increase (decrease) in cash and cash 10,473 (1,748)
equivalents
Cash and cash equivalents at beginning of period 1,549 1,867
------ ------
Cash and cash equivalents at end of period $ 12,022 $ 119
====== ======
See accompanying notes.
7
HEADWAY CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
September 30, 2001
(1) BASIS OF PRESENTATION
Headway Corporate Resources, Inc. and its wholly owned subsidiaries
(collectively referred to as 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, Massachusetts, the United Kingdom, Japan, Hong Kong, Singapore and
Australia. These unaudited consolidated financial statements include the
accounts of Headway Corporate Resources, Inc. and its subsidiaries.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine-month periods ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2001.
The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the
United States for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company's annual report on Form
10-K for the year ended December 31, 2000.
(2) DERIVATIVE FINANCIAL INSTRUMENTS
As of January 1, 2001, the Company adopted Financial Accounting Standards
Board Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, (Statement 133) which was issued in June, 1998 and its amendments
Statement 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133 and 138,
Accounting for Derivative Instruments and Certain Hedging Activities issued
in June 1999 and June 2000, respectively, (collectively referred to as
Statement 133).
The Company accounted for the accounting change as a cumulative effect of a
change in an accounting principle. The adoption of Statement 133 resulted in
a cumulative effect of an accounting change of $248,000, net of an applicable
income tax benefit of $187,000, which was recognized as a charge to other
comprehensive income.
The Company uses interest rate swap contracts for hedging purposes. The
Company had entered into interest rate swap agreements that effectively
convert a portion of its floating-rate debt to a fixed-rate basis through
April 18, 2002, thus reducing the impact of interest-rate changes on future
interest expense. Approximately $30,000,000 of the Company's outstanding
debt was designated as the hedged item to an interest rate swap agreement at
September 30, 2001. At September 30, 2001, the fair value of the interest
rate swap contract amounted to approximately $730,000. The Company is
exposed to credit loss in the event of non-performance by the counter party,
a large financial institution. However, the Company does not anticipate non-
performance by the counter party. For interest rate swaps, the net amounts
paid or received and net amounts accrued through the end of the accounting
period were included in interest expense. Unrealized gains or losses on
8
interest rate swap contracts were not recognized in income. During the nine
months ended September 30, 2001, the Company recognized a change in fair
value of the derivative of $168,000 related to the change in fair value of
the interest rate swap contract net of applicable income taxes of $127,000 as
a component of other comprehensive income.
(3) INTANGIBLES
During the nine months ended September 30, 2001, additional purchase price of
$4,837,000 was recorded as goodwill upon the determination that the earnouts
had been met on certain acquisitions made in 1997, 1998 and 1999.
(4) (LOSS) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted (loss)
earnings per share:
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
Numerator:
Net (loss) income $ (2,017,000) $ 870,000 $ (939,000) $ 4,491,000
Preferred dividend requirement (375,000) (375,000) (1,125,000) (1,039,000)
Numerator for basic (loss)
earnings per share-net (loss)
income availabale for common
stockholders (2,392,000) 495,000 (2,064,000) 3,452,000
Effect of dilutive securities:
Preferred dividend requirements - - - 1,039,000
Numerator for diluted (loss)
earnings per share-net (loss)
income available for common
stockholders after assumed
conversions $ (2,392,000) $ 495,000 $ (2,064,000) $ 4,491,000
========= ======== ========== =========
Denominator:
Denominator for basic (loss)
earnings per share--
weighted average shares 10,729,627 10,603,113 10,729,627 10,582,715
Effect of dilutive secuurities
Stock options, warrants and
restrictive shares - 7,246 - 88,202
Convertible preferred stock - - - 3,584,299
---------- ---------- ---------- -----------
Dilutive potential common stock - 7,246 - 3,672,501
Denominator for diluted
(loss) earnings per share
-adjusted weighted-average shares
and assumed conversions 10,729,627 10,610,359 10,729,627 14,255,216
=========== ========== ========== ==========
Basic (loss) earnings per share $ (.22) $ .05 $ (.19) $ .33
=========== ========== =========== ==========
Diluted (loss) earnings per share $ (.22) $ .05 $ (.19) $ .32
=========== ======= ========== ==========
The calculation of diluted (loss) earnings per share excludes potential
common shares. During the three and nine months ended September 30, 2001 and
the three months ended September 30, 2000, Series F and Series G preferred
stock, restricted common stock and stock options were outstanding that would
be dilutive (aggregating 3,584,299 shares), but were excluded because to
include them would be antidilutive.
(5) BUSINESS SEGMENTS
The Company classifies its business into two fundamental areas, staffing and
executive search. Staffing consists of the placement and payrolling of
temporary and permanent office, clerical and information technology
professional personnel.
Executive search focuses on placing middle to upper level management
positions. The Company evaluates performance based on the segments' (loss)
profit from operations before unallocated corporate overhead.
9
Three months ended Three months ended
September 30, 2001 September 30, 2000
Staffing Executive Staffing Executive
Search Search
Revenues $ 71,970,000 $4,170,000 $ 83,315,000 $ 8,363,000
Segment (loss) profit (1,130,000) (263,000) 1,038,000 522,000
Nine months ended Nine months ended
September 30, 2001 September 30, 2000
Staffing Executive Staffing Executive
Search Search
Revenues $ 224,723,000 $ 24,311,000 $ 255,601,000 $29,047,000
Segment (loss) profit (2,406,000) 2,973,000 2,552,000 3,643,000
A reconciliation of combined segment (loss) profit to consolidated net
(loss) income is as follows:
Three months ended Nine months ended
September 30 September 30
2001 2000 2001 2000
Total (loss) profit for
reportable segments $ (1,393,000) $ 1,560,000 $ 567,000 $ 6,195,000
Unallocated amounts:
Interest expense (466,000) (396,000) (1,017,000) (589,000)
Corporate overhead (386,000) (879,000) (1,411,000) (2,460,000)
Income tax benefit 230,000 586,000 922,000 1,345,000
--------- ----------- --------- -----------
Net (loss) income $ (2,017,000) $ 871,000 $ (939,000) $ 4,491,000
(6) LONG-TERM DEBT AND CREDIT FACILITIES
As of September 30, 2001, $72,000,000 in aggregate principal amount was
outstanding under the Senior Credit Facility, $10,000,000 in aggregate
principal amount was outstanding under the Senior Subordinated Notes and
$20,000,000 in face amount of Series G Convertible Preferred Stock of the
Company (the "Preferred Stock") was outstanding. The Senior Credit Facility
expires in April 2002 with all outstanding amounts then due. The Senior
Subordinated Notes are due in March 2006.
As of June 30, 2001, the Company failed to comply with certain financial
ratios in the Senior Credit Facility and Senior Subordinated Notes. On July
2, 2001, Bank of America N.A., as Agent under the Senior Credit Facility
issued a Notice of Payment Blockage to prevent the Company from making any
interest payments on the Senior Subordinated Notes. As of September 30,
2001, the unpaid accrued interest on the Senior Subordinated Notes was
approximately $750,000. The Senior Subordinated Note holders are entitled to
receive an interest rate increase from 15% to 20% during the payment blockage
period. All amounts under the Senior Credit Facility have been classified as
current obligations on the balance sheet at September 30, 2001 as the
facility expires in April 2002.
The Board of Directors, at a June 21, 2001 meeting, determined not to declare
a dividend on the Preferred Stock for the calendar quarter ending June 30,
2001, concluding that it was not in the best interests of the Company to
declare a dividend until such time as the events of default under the Senior
Credit Facility issue are resolved. As of September 30, 2001, the unpaid
aggregate dividend for the second and third quarter of 2001 was $750,000.
On August 23, 2001, the Company amended the Senior Credit Facility and
obtained a waiver regarding compliance with certain financial ratios, which
the Company had failed as of June 30, 2001. The amended credit facility
provides and requires the following:
(i) An increase in the applicable margin for base rate loans and the letter
of credit fee.
(ii) A default interest rate to be payable on the loan upon the occurrence of
an event of default.
10
(iii) The required pay down of the loan balance of the excess in the
Company's cash balance above $8 million, as defined.
(iv) The revolving credit commitment is terminated and the Senior Lenders
will not make any additional advances and any and all amounts repaid shall
not be reborrowed.
(v) Maintenance of a certain amount of EBITDA, as defined, and maximum
amounts of capital expenditures. As of September 30, 2001, the Company was
in compliance with these covenants.
(vi) That the Company negotiate an extended payment schedule in connection
with an earnout payment of approximately $2.3 million related to a prior
acquisition, by October 31, 2001. The Company has yet to complete this
negotiation, and therefore, is in default of its Senior Credit Facility.
On August 23, 2001, the Company entered into a Limited Waiver and Amendment
with the Senior Subordinated Notes holders and the Preferred Stockholders
which provided the following:
(i) A waiver of the events of default on the Senior Subordinated Notes from
April 1, 2001 through the "Bank Maturity Date", defined as the earliest of
(1) April 18, 2002, (2) the termination or expiration of the amendment to the
Senior Credit Facility dated August 23, 2001, (3) the date on which all
indebtedness under the Senior Credit Facility is repaid or refinanced, or (4)
the acceleration of any indebtedness under the Senior Credit Facility.
(ii) A waiver of the payment of interest (but not the accrual of interest)
under the Senior Subordinated Notes from April 1, 2001 through the Bank
Maturity Date.
(iii) A waiver of the Preferred Stock events of default and a waiver of
the payment of dividends (but not the accrual of dividends) on the Preferred
Stock from April 1, 2001 through the Bank Maturity Date.
(iv) If all interest accrued on and prior to April 1, 2002 is not paid in
full in cash by such date, then the interest rate on the Senior Subordinated
Notes will be increased to 20% per annum commencing on July 1, 2001.
(v) If all dividends on the Preferred Stock accrued on or before January 2,
2002 are not paid in full in cash by such date then the annual dividend rate
will be increased to 9% commencing at such time and further increased to 10%
by April 1, 2002 if payment is not made.
(vi) If all interest on the Senior Subordinated Notes and dividends on the
Preferred Stock accrued on and prior to (a) January 2, 2002 have not been
paid in full in cash by such date, then the conversion price of the Preferred
Stock shall be reduced to $2.75 per share at such time and prior to (b) April
1, 2002 have not been paid in full in cash by such date, then the conversion
price of the Preferred Stock shall be further reduced at such time to $1.00
per share. Such reductions in the conversion price will require an increase
in the Company's authorized number of shares of Common Stock. Common
Stockholders' approval is required in order to increase the Company's
authorized number of shares.
(vii) The issuance of (1) warrants in the aggregate, immediately
exercisable into 1 million shares of the Company's common stock at an
exercise price of $1.10 per share the "Initial Warrants" and (2) warrants in
the aggregate exercisable into 1,150,000 and 850,000 shares of the Company's
common stock at exercise prices of $.01 and $3.05 per share, respectively.
The warrants to acquire the 1,150,000 and 850,000 shares collectively the
"Additional Warrants" are exercisable beginning on January 2, 2002 if all
payments accrued on and prior to such date relating to the Senior
Subordinated Notes and the Preferred Stock have not been paid in full in cash
by such date and if the Common Stockholders approval was not obtained
regarding the proposed amendment to the Preferred Stock Certificate of
Designations. The Additional Warrants will be canceled if the Common
Stockholders' approval is obtained, and all above-referenced payments have
been made. The issuance of the Initial Warrants and Additional Warrants
resulted in estimated deferred financing costs based on the fair value of the
warrants of $1,100,000, which is being amortized through April 2002.
(viii) Required maintenance of a certain amount of EBITDA, as defined, and
maximum amounts of capital expenditures.
(ix) In the event that as of April 1, 2002, (i) all payments accrued on and
prior to such date have not been paid in full in cash by such date and (ii)
the requisite common stockholder approval has not been obtained and the
amendments to the Preferred Stock Certificate of Designations have not been
filed, the Preferred Stockholders and Senior Subordinated Note holders will
receive alternative consideration to be negotiated with the Company, provided
unless otherwise agreed, such compensation shall include a decrease of the
exercise price of all Initial Warrants and Additional Warrants to $.01 per
share.
(x) The exchange of the Series F Preferred Stock into an equal number of
shares of a newly created Series G Convertible Preferred Stock. Such
exchange took place as of September 7, 2001. The Series G Preferred Stock
has the same features as the Series F Preferred Stock, other than the
proposed reduction in the conversion price under the conditions described
above.
11
On October 31, 2001, the Company failed to comply with the requirement that
it negotiate an amended earnout payment schedule with one of its prior
acquisitions by that date, and therefore is in default of the Senior Credit
Facility. The existence of events of default under the Senior Credit Facility
creates cross-defaults under the Indenture and the Certificate of
Designations. Upon the occurrence and during the continuation of an event of
default under the Certificate of Designations, holders of the Preferred Stock
may require redemption of the Preferred Stock by the Company.
The Company is currently negotiating with its Senior Lenders and the holders
of its Senior Subordinated Notes and Preferred Stock for a waiver or
amendment of the Senior Credit Facility, Indenture and Certificate of
Designations, respectively. The Company believes that it has sufficient
liquidity to operate its business through April 2002, the expiration date of
the Senior Credit Facility, assuming that the Senior Lenders, the holders of
the Senior Subordinated Notes and the holders of the Preferred Stock
(collectively "the Senior Creditors") do not exercise their rights of
acceleration or redemption, as the case may be. The Senior Creditors have
not, as of the date hereof, given any indication to the Company that they
wish to accelerate or redeem, as the case may be. Although there can be no
assurance, the Company believes that it is in the best interests of the
Company and each of the Senior Creditors to negotiate amendments or waivers
under their respective documents. If the Company is unable to obtain the
necessary amendments or waivers, and the Senior Creditors elect to accelerate
or redeem, or the Company is unable to adequately refinance the Senior Credit
Facility by April 2002, the Company may not have adequate liquidity to
operate its business.
(7) RECLASSIFICATION OF PREFERRED STOCK
During July 2001, guidance was issued in EITF Topic No. D-98, Classification
and Measurement of Redeemable Securities, which requires preferred securities
that are redeemable for cash or other assets to be classified outside of
permanent equity if they are redeemable (1) at a fixed or determinable price
on a fixed or determinable date; (2) at the option of the holder; or (3) upon
the occurrence of an event that is not solely within the control of the
issuer. The Company adopted this announcement during the quarter ended
September 30, 2001. The Series F and Series G Convertible Preferred Stock
requires redemption for cash upon the occurrence of a change of control, as
defined. The change of control event which triggers redemption at the option
of the holder is not deemed solely within the control of the Company.
Accordingly, the Company has classified the Series F and Series G Convertible
Preferred Stock outside of permanent stockholders' equity on the September
30, 2001 balance sheet. The change in classification has been applied
retroactively and the December 31, 2000 balance sheet was restated.
(8) COMPREHENSIVE INCOME
During the nine months ended September 30, 2001 and 2000, total comprehensive
(loss) income amounted to $(1,426,000) and $4,312,000, respectively, and
during the three months ended September 30, 2001 and 2000, total
comprehensive (loss) income amounted to $(2,029,000) and $711,000,
respectively.
(9) 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.
In February 1999, a lawsuit was filed in the Superior Court of California
alleging breach of contract, interference with prospective business
relations, misappropriation of trade secrets and unfair competition. The
plaintiffs are competitors of Headway and seek an unspecified amount of
monetary damages. Headway believes these claims are unfounded and intends to
defend itself vigorously. Mediation was held between the two parties in June
2001 to no avail. The lawsuit is scheduled to go to trial during the first
quarter of 2002. The Company believes that this claim is without merit and
would not have a material effect on the financial position, results of
operations or cash flows of the Company.
(10) IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued Statements of Financial Accounting Standards
No. 141, Business Combinations, effective for all combinations initiated
after June 30, 2001, and No. 142, Goodwill and Other Intangible Assets ("SFAS
142"), effective for fiscal years beginning after December 15, 2001. Under
the new rules, goodwill and intangible assets deemed to have
12
indefinite lives
will no longer be amortized but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will continue to be
amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of SFAS 142 is expected to result in a decrease
in amortization expense of approximately $4,000,000 ($0.38 per share) per
year. During 2002, the Company will perform the first of the required
impairment tests of goodwill and indefinite lived intangible assets as of
January 1, 2002 and has not yet determined what the effect of these test will
be on the earnings and financial position of the Company.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
("SFAS 144"). SFAS 144 establishes a single accounting model, based upon the
framework established in SFAS No. 121, Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to be Disposed of, for long-lived assets
to be disposed of by sale and to address significant implementation issues.
The Company is required to adopt SFAS 144 in the first quarter of 2002. The
Company is in the process of assessing the impact of the adoption of this
statement on its financial position, results of operations, and cash flows.
13
PART 1. FINANCIAL INFORMATION
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
The results for the third quarter reflect a significant reduction in the
demand for the Company's staffing and executive search services. This trend
is a direct result of the soft economy and is consistent with the performance
of the other staffing and executive search companies in the sector. Many
companies have instituted hiring freezes for both temporary and permanent
positions. The financial services industry has reduced its demand for the
Company's executive search services as a direct result of the poor financial
performance across the financial services industry. The poor performance in
the financial services industry generally follows the performance in the
overall economy.
The events of September 11, 2001 have had a significant negative impact on
the Company's business. The economy in the New York area, where the Company
derives a significant percentage of its revenues, has slowed considerably
since the attack on the World Trade Center. The Company believes that its
performance for the balance of the year will continue to be impacted by the
performance in the general economy, particularly in the New York area. The
Company has taken steps to reduce costs and is constantly looking at
alternative sources of income.
Consolidated
Revenues decreased $15,538,000 or 17% to $76,140,000 for the three months
ended September 30, 2001, from $91,678,000 for the same period in 2000. For
the nine months ended September 30, 2001, revenues were $249,034,000, a
decrease of 13% from $284,648,000 a year earlier. The decrease was
attributable to an overall decline in the demand for the Company's staffing
and executive search services as a direct result of weakness in the economy.
The executive search subsidiary, Whitney Partners, LLC (Whitney), contributed
$4,170,000 to consolidated revenues in the third quarter of 2001, a decrease
of $4,193,000 from $8,363,000 for the same period in 2000. The reduction
reflects a sharp decline in the demand for new hires in the financial
services industry. For the nine months ended September 30, 2001, Whitney
revenues were $24,311,000, a decrease of 16% from $29,047,000 a year earlier.
The staffing subsidiary, Headway Corporate Staffing Services, Inc. (HCSS)
contributed $71,970,000 to consolidated revenues in the third quarter of
2001, a decrease of $11,345,000 from $83,315,000 for third quarter of 2000.
For the nine months ended September 30, 2001, HCSS revenues were
$224,723,000, a decrease of 12% from $255,601,000 a year earlier. Revenues
were behind 2000 as the information technology and clerical staffing business
have been impacted by a slowdown in the overall economy.
Total operating expenses decreased $11,307,000 to $76,697,000 for the three
months ended September 30, 2001, from $88,004,000 for the same period in
2000. Direct costs increased as a percentage of revenues to 80.6% in 2001
from 74.1% in 2000. For the nine months, operating expenses decreased
$27,323,000 to $243,466,000 from $270,789,000 for the same period in 2000.
For the nine months, direct costs increased as a percentage of revenues to
76.6% in 2001 from 73.2% in 2000. The increase in direct costs as a
percentage of revenues is a result of a reduction in the Company's high
margin permanent placement business as well as pricing pressures from the
Company's temporary staffing business.
Direct costs for HCSS increased as a percentage of HCSS revenues to 85.2% for
the three months ended September 30, 2001, from 81.6% for the same period in
2000. For the nine months, direct costs for HCSS increased as a percentage
of HCSS revenue to 84.9% from 81.5% last year. The increase in direct costs
as a percentage of revenues is a result of the Company's mix of business,
reflecting a reduction in the demand for the Company's higher margin
permanent placement services. Selling, general and administrative expenses
for HCSS decreased as a percentage of revenues from 13.3% in the third
quarter 2000 to 11.7% in the third quarter 2001. For the nine months,
selling, general and administrative expenses for
14
HCSS decreased as a
percentage of revenues from 13.6% in 2000 to 12.4% in 2001. The decrease in
selling, general and administrative expenses is attributable to the lower
commission expense associated with lower revenues and a reduction in the
Company's overhead expenses.
Whitney's operating expenses decreased $1,715,000 to $5,041,000 in the third
quarter of 2001, from $6,756,000 for the same period last year. For the nine
months of 2001, Whitney's operating expenses decreased $2,431,000 to
$18,988,000 in 2001 as compared to $21,419,000 in 2000. This decrease is
primarily a result of lower compensation expense directly related to the
decrease in revenue.
Operating income decreased $4,231,000 to a loss of $557,000 for the three
months ended September 30, 2001, compared to income of $3,674,000 for the
three months ended September 30, 2000. For the nine month period ended
September 30, 2001 operating income decreased 60% or $8,291,000 to $5,568,000
compared to $13,859,000 for the comparable period in 2000.
The Company recorded a net loss of $2,017,000 for the three months ended
September 30, 2001, a decrease of $2,888,000 from the net income of $870,000
for the same period in 2000. Net income decreased $5,430,000 to a loss of
$939,000 for the nine months ended September 30, 2001, compared to income of
$4,491,000 for the same period in 2000.
Liquidity and Capital Resources
Cash provided by operations during the nine months ended September 30, 2001
was $5,321,000 compared with cash provided by operations of $4,737,000 for
the same period in 2000. The cash provided by operations in 2001 was
attributable to a decrease in accounts receivable as a result of an increase
in the Company's collection efforts, offset by a decrease in accounts
payable, accrued expenses and accrued payroll, and an increase in prepaid
expenses and other assets.
For the nine months ended September 30, 2001, the Company used $5,759,000 in
investing activities compared to $6,567,000 for the same period in 2000. The
cash used for investing activities in 2001 and in 2000 related primarily to
payments for acquisitions completed during 1997, 1998 and 1999 as well as
capital expenditures.
Total net cash provided from financing activities was $10,994,000 for the
nine months ended September 30, 2001, compared to net cash provided by
financing activities of $261,000 for the same period in 2000. The cash
generated in 2001 and 2000 was primarily a result of additional borrowings
under the Company's senior credit facility.
As of September 30, 2001, $72,000,000 in aggregate principal amount was
outstanding under the Senior Credit Facility, $10,000,000 in aggregate
principle amount was outstanding under the Senior Subordinated Notes due 2006
and $20,000,000 in face amount of Series G Convertible Preferred Stock of the
Company (the "Preferred Stock") was outstanding. The Company's Senior Credit
Facility matures on April 18, 2002 resulting in the reclassification of the
obligation from a long-term liability at December 31, 2000 to a current
liability as of September 30, 2001.
On August 23, 2001, the Company amended the Senior Credit Facility and
obtained a waiver regarding compliance with certain financial ratios, which
the Company had failed as of June 30, 2001. The Company also entered into a
Limited Waiver and Amendment with the Senior Subordinated Notes holders and
the Preferred Stockholders. The Senior Subordinated Notes due in 2006 have
been classified on the balance sheet as current because the Limited Waiver
and Amendment is through April 2002.
In connection with an acquisition previously completed by the Company, the
Company has an earnout payment of approximately $2.3 million, of which $1.7
million was due and payable on October 31, 2001. As part of the amendments
to the Senior Credit Facility, the Senior Subordinated Notes and Preferred
Stock, the Company agreed to negotiate an extended payment schedule in
connection with this acquisition, by October 31, 2001. The parties are
currently negotiating to amend the payment schedule, however these
negotiations were not completed within the required time frame, creating an
event of default under the Senior Credit Facility. The existence of events
of default under the Senior Credit Facility creates cross-defaults under the
Indenture and the Certificate of Designations. Upon the occurrence and
during the continuation of an event of default under the Certificate of
Designations, holders of the Preferred Stock may require redemption of the
Preferred Stock by the Company. As a result of the negotiations in progress,
on October 31, 2001, the Company did not make its scheduled earnout payment.
Therefore, the Company is also in breach of the purchase agreement with the
former stockholders of this acquisition. In the event that the parties are
not able to reach a mutually agreeable payment schedule,
15
the stockholders may
upon notice, terminate their employment agreements and will no longer be
subject to the non-competition provisions set forth in the purchase agreement
and their respective employment agreements. Management believes that an
agreement as to the timing of the payments will be reached. However no
assurance can be made that management will be successful in this regard.
The Company is currently negotiating with its Senior Lenders and the holders
of its Senior Subordinated Notes and Preferred Stock for a waiver or
amendment of the Senior Credit Facility and Indenture, respectively. As of
September 30, 2001, the Company had $12.0 million in cash and cash
equivalents. Management estimates that it needs approximately $6.0 million
in cash and cash equivalents to operate its business in the ordinary course.
Therefore, the Company believes that it has sufficient liquidity to operate its
business through April 2002, the expiration date of the Senior Credit Facility,
assuming that the Senior Lenders, the holders of the Senior Subordinated
Notes and the holders of the Preferred Stock (collectively "the Senior
Creditors") do not exercise their rights of acceleration or redemption, as
the case may be. The Senior Creditors have not, as of the date hereof, given
any indication to the Company that they wish to accelerate or redeem, as the
case may be. Although there can be no assurance, the Company believes that it
is in the best interests of the Company and each of the Senior Creditors to
negotiate amendments or waivers under their respective documents. If the
Company is unable to obtain the necessary amendments or waivers, and the
Senior Creditors elect to accelerate or redeem, or the Company is unable to
adequately refinance the Senior Credit Facility by April 2002, the Company
may not have adequate liquidity to operate its business.
The Company's working capital was $27,457,000 at December 31, 2000. As a
direct result of the foregoing reclassifications, the Company had a working
capital deficiency of $44,376,000 at September 30, 2001. Notwithstanding
this deficiency, the Company believes it has sufficient liquidity to fund its
operations through April 2002. The Company has engaged C. E. Unterberg
Towbin to assist us in establishing a new credit facility as well as to
explore all strategic options. Unterberg Towbin's long history of highly
successful capital transactions and senior level attention is well suited to
our needs. If the Company is unable to adequately refinance the Senior
Credit Facility by April 2002, the Company may not have adequate liquidity to
operate its business.
FORWARD-LOOKING STATEMENT NOTICE
When used in this report, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27a of the Securities Act of 1933 and Section 21e of the
Securities Exchange Act of 1934 regarding events, conditions, and financial
trends that may affect the Company's future plans of operations, business
strategy, operating results, and financial position. Persons reviewing this
report are cautioned that any forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties and that
actual results may differ materially from those included within the forward-
looking statements as a result of various factors. Such factors are
discussed under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and also include general
economic factors and conditions that may directly or indirectly impact the
Company's financial condition or results of operations.
16
PART II. OTHER INFORMATION
ITEM 1. 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.
In February 1999, a lawsuit was filed in the Superior Court of California
alleging breach of contract, interference with prospective business
relations, misappropriation of trade secrets and unfair competition. The
plaintiffs are competitors of Headway and seek an unspecified amount of
monetary damages. Headway believes these claims are unfounded and intends to
defend itself vigorously. Mediation was held between the two parties in June
2001 to no avail. The lawsuit is scheduled to go to trial during the first
quarter of 2002.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of September 30, 2001, $72,000,000 in aggregate principal amount was
outstanding under the Senior Credit Facility, dated March 19, 1998,
$10,000,000 in aggregate principal amount was outstanding under the Senior
Subordinated Notes due 2006 issued pursuant to the Indenture, dated March 19,
1998 and $20,000,000 in face amount of Series F Convertible Preferred Stock
of the Company (the "Preferred Stock") was outstanding under the Certificate
of Designations of Preferred Stock, dated March 19, 1998. The Senior Credit
Facility expires in April 2002 with all outstanding amounts then due. The
Senior Subordinated Notes are due March 2006.
As of June 30, 2001, the Company failed to comply with certain financial
ratios in the Senior Credit Facility and Senior Subordinated Notes. On July
2, 2001, Bank of America N.A., as Agent under the Senior Credit Facility
issued a Notice of Payment Blockage to prevent the Company from making any
interest payments on the Senior Subordinated Notes. As of September 30,
2001, the unpaid accrued interest on the Senior Subordinated Notes was
approximately $750,000. The Senior Subordinated Note holders are entitled to
receive an interest rate increase from 15% to 20% during the payment blockage
period. All amounts under the Senior Credit Facility have been classified as
current obligations on the balance sheet at September 30, 2001 as the
facility expires in April 2002.
The Board of Directors, at a June 21, 2001 meeting, determined not to declare
a dividend on the Preferred Stock for the calendar quarter ending June 30,
2001, concluding that it was not in the best interests of the Company to
declare a dividend until such time as the events of default under the Senior
Credit Facility issue are resolved. As of September 30, 2001, the unpaid
dividend for the second and third quarter of 2001 was $750,000.
On August 23, 2001, the Company amended the Senior Credit Facility and
obtained a waiver regarding compliance with certain financial ratios, which
the Company had failed as of June 30, 2001. The amended credit facility
provides and requires the following:
(i) An increase in the applicable margin for base rate loans and the letter
of credit fee.
(ii) A default interest rate to be payable on the loan upon the occurrence of
an event of default.
(iii) The required pay down of the loan balance of the excess in the
Company's cash balance above $8 million, as defined.
(iv) The revolving credit commitment is terminated and the Senior Lenders
will not make any additional advances and any and all amounts repaid shall
not be reborrowed.
(v) Maintenance of a certain amount of EBITDA, as defined, and maximum
amounts of capital expenditures.
(vi) That the Company negotiate an extended payment schedule in connection
with an earnout payment of approximately $2.3 million related to a prior
acquisition, by October 31, 2001. The Company has yet to complete this
negotiation, and is therefore in default of its Senior Credit Facility.
17
On August 23, 2001, the Company entered into a Limited Waiver and Amendment
with the Senior Subordinated Notes holders and the Preferred Stockholders,
which provided the following:
(i) A waiver of the events of default on the Senior Subordinated Notes from
April 1, 2001 through the "Bank Maturity Date", defined as the earliest of
(1) April 18, 2002, (2) the termination or expiration of the amendment to the
Senior Credit Facility dated August 23, 2001, (3) the date on which all
indebtedness under the Senior Credit Facility is repaid or refinanced, or (4)
the acceleration of any indebtedness under the Senior Credit Facility.
(ii) A waiver of the payment of interest (but not the accrual of interest)
under the Senior Subordinated Notes from April 1, 2001 through the Bank
Maturity Date.
(iii) A waiver of the Preferred Stock events of default and a waiver of
the payment of dividends (but not the accrual of dividends) on the Preferred
Stock from April 1, 2001 through the Bank Maturity Date.
(iv) If all interest accrued on and prior to April 1, 2002 is not paid in
full in cash by such date, then the interest rate on the Senior Subordinated
Notes will be increased to 20% per annum commencing on July 1, 2001.
(v) If all dividends on the Preferred Stock accrued on or before January 2,
2002 are not paid in full in cash by such date then the annual dividend rate
will be increased to 9%, commencing at such time and further increased to 10%
by April 1, 2002 if payment is not made.
(vi) If all interest on the Senior Subordinated Notes and dividends on the
Preferred Stock accrued on and prior to (a) January 2, 2002 have not been
paid in full in cash by such date, then the conversion price of the Preferred
Stock shall be reduced to $2.75 per share at such time and prior to (b) April
1, 2002 have not been paid in full in cash by such date, then the conversion
price of the Preferred Stock shall be further reduced at such time to $1.00
per share. Such reductions in the conversion price will require an increase
in the Company's authorized number of shares of Common Stock. Common
Stockholders' approval ("Common Stockholders' Approval) is required in order
to increase the Company's authorized number of shares.
(vii) The issuance of (1) warrants in the aggregate, immediately
exercisable into 1 million shares of the Company's common stock at an
exercise price of $1.10 per share the "Initial Warrants" and (2) warrants in
the aggregate exercisable into 1,150,000 and 850,000 shares of the Company's
common stock at exercise prices of $.01 and $3.05 per share, respectively.
The warrants to acquire the 1,150,000 and 850,000 shares collectively the
"Additional Warrants" are exercisable beginning on January 2, 2002 if all
payments accrued on and prior to such date relating to the Senior
Subordinated Notes and the Preferred Stock have not been paid in full in cash
by such date and if the Common Stockholders Approval was not obtained. The
Additional Warrants will be canceled if the Common Stockholders' Approval is
obtained, and all above-referenced payments have been made. The issuance of
the Initial Warrants and Additional Warrants resulted in estimated deferred
financing costs based on the fair value of the warrants of $1,100,000, which
is being amortized through April 2002.
(viii) Required maintenance of a certain amount of EBITDA, as defined, and
maximum amounts of capital expenditures.
(ix) In the event that as of April 1, 2002, (i) all payments accrued on and
prior to such date have not been paid in full in cash by such date and (ii)
the requisite common stockholder approval has not been obtained and the
amendments to the Preferred Stock Certificate of Designations have not been
filed, the Preferred Stockholders and Senior Subordinated Note holders will
receive alternative consideration to be negotiated with the Company, provided
unless otherwise agreed, such compensation shall include a decrease of the
exercise price of all Initial Warrants and Additional Warrants to $.01 per
share.
(x) The exchange of the Series F Preferred Stock into an equal number of
shares of a newly created Series G Convertible Preferred Stock. Such
exchange took place as of September 7, 2001. The Series G Preferred Stock has
the same features as the Series F Preferred Stock, other than the proposed
reduction in the conversion price under the conditions described above.
On October 31, 2001, the Company failed to comply with the requirement that
it negotiate an amended earnout payment schedule with one of its prior
acquisitions by that date, and therefore is in default of the Senior Credit
Facility. The existence of events of default under the Senior Credit Facility
creates cross-defaults under the Indenture and the Certificate of
Designations. Upon the occurrence and during the continuation of an event of
default under the Certificate of Designations, holders of the Preferred Stock
may require redemption of the Preferred Stock by the Company.
The Company is currently negotiating with its Senior Lenders and the holders
of its Senior Subordinated Notes and Preferred Stock for a waiver or
amendment of the Senior Credit Facility and Indenture, respectively. The
Company believes that it has sufficient liquidity to operate its business
through April 2002, the expiration date of the Senior Credit Facility,
assuming that the Senior Lenders, the holders of the Senior Subordinated
Notes and the holders of the Preferred Stock (collectively "the Senior
Creditors") do not exercise their rights of acceleration or redemption, as
the case may be. The
18
Senior Creditors have not, as of the date hereof, given
any indication to the Company that they wish to accelerate or redeem, as the
case may be. Although there can be no assurance, the Company believes that it
is in the best interests of the Company and each of the Senior Creditors to
negotiate amendments or waivers under their respective documents. If the
Company is unable to obtain the necessary amendments or waivers, and the
Senior Creditors elect to accelerate or redeem, or the Company is unable to
adequately refinance the Senior Credit Facility by April 2002, the Company
may not have adequate liquidity to operate its business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS:
Copies of the following documents are included as exhibits to this
report pursuant to Item 601 of Regulation S-K.
Exhibit Title of Document Location
No.
4.1 Seventh Amendment and Limited Waiver to Credit Page E-1
Agreement dated as of August
24, 2001, to the Credit Agreement dated as of
March 19, 1998
4.2 Fourth Supplemental Indenture, dated as of August Page E-30
24, 2001
4.3 Limited Waiver and Amendment dated August 24, 2001 Page E-36
REPORTS ON FORM 8-K: None
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEADWAY CORPORATE RESOURCES, INC.
Date: November 14, 2001 By: /s/ Barry S. Roseman,
President and Chief Operating Officer
(Duly Authorized and Principal Financial Officer)
20