TALX Talx (MM)

TALX Corporation (NASDAQ: TALX) today reported that fiscal second-quarter earnings from continuing operations increased 14 percent to $8.1 million, or $0.25 per diluted share, from the year-ago $7.2 million, or $0.21 per diluted share. The increased earnings primarily reflected the contribution from recent acquisitions, revenue gains in The Work Number services, and ongoing emphasis on cost controls. Effective April 1, 2006, the company adopted Statement of Financial Accounting Standards No. 123r, "Share-Based Payment" (SFAS 123r). Included in fiscal 2007 second-quarter results was approximately $666,000, net of taxes, or $0.02 per diluted share, related to share- based compensation expense. Second-quarter revenues increased 36 percent to $65.7 million from $48.3 million the year before. The Work Number services' revenues rose 17 percent, and revenues for the tax management services business increased 24 percent from year-ago levels. The 2007 second quarter also benefited from $7.3 million in revenues from the company's April 6, 2006 acquisition of Performance Assessment Network, Inc., or pan. Gross profit for the second quarter expanded 36 percent to $42.0 million from $30.8 million. Gross margin improved to 64.0 percent from 63.7 percent the year before, despite the impact of expenses related to share-based compensation, which negatively affected gross margin by 25 basis points in the 2007 second quarter. Gross profit for The Work Number services increased 23 percent to $21.1 million from $17.2 million, with gross margin climbing 400 basis points to 82.6 percent from 78.6 percent the year before. Gross profit for the tax management services business rose 28 percent to $16.9 million from $13.3 million, with gross margin improving 120 basis points to 52.2 percent from 51.0 percent the year before. Gross profit for talent management services was $3.6 million, and gross margin was 49.2 percent. William W. Canfield, president and chief executive officer, commented, "As a result of our highly scalable business model in The Work Number business, the higher revenues this quarter resulted in record gross margin. In particular, this quarter we benefited from the consolidation of our shared services group, which led to lower costs. To drive further revenue growth in this segment, we continued to pursue initiatives that expanded its reach. For example, we began recognizing revenues this quarter from our new Confirmation Direct service, which offers a simplified, lower-priced verification that we are marketing primarily to short-term lenders and property managers. In addition, we expect to begin a pilot of our One Stop Verifications call center service in our fiscal fourth quarter. Through a partner relationship, a verifier using this service can satisfy virtually all verification needs through TALX, whether or not the records are on The Work Number database. "In our tax management services businesses, we continued to benefit from our acquisitions in both the unemployment tax services and the tax credits and incentives businesses. Additionally, in the unemployment business, we realized 8 percent organic growth, marking our fourth consecutive quarterly organic gain. As a result of the higher revenues in the unemployment tax business, coupled with continued leveraging of our infrastructure, our gross margin reached a record 52.7 percent this quarter." L. Keith Graves, senior vice president and chief financial officer, pointed out, "As a result of our higher gross profit, as well as continued focus on cost control, operating income increased 35 percent compared to the year-ago quarter. Higher gross profit and strong management of our working capital, particularly our accounts receivable, drove our operating cash flow to almost $23 million this quarter, compared to $7 million a year ago. "We also increased shareholder value this quarter by raising our quarterly dividend by 25 percent, to 5 cents per share. Further, we repurchased almost 1.1 million shares during the second quarter for approximately $23.8 million, bringing the year-to-date total to more than 1.4 million shares, purchased for about $31.9 million. The share repurchases and increased earnings resulted in second-quarter diluted earnings per share being ahead of our expectations." Graves also reported, "Fiscal 2007 second-quarter results reflected costs of approximately $0.01 per share for additional infrastructure costs primarily related to relocating our corporate offices.� He added that these costs will drop significantly in the third quarter as the relocations are substantially completed. The company's effective income tax rate was slightly higher in the fiscal second quarter compared to a year ago, primarily as a result of the implementation of SFAS 123r. The corresponding income tax benefit of certain elements of share-based compensation can be recognized only if, and to the extent that, certain future events occur. The company expects this rate to continue through the 2007 fiscal year. The total number of employment records on The Work Number services database increased 16 percent to 138.3 million at September 30, 2006, from 119.2 million a year ago. The company added 5.2 million employment records during the quarter, representing a 4 percent increase in total records over the previous sequential quarter. Total employment records under contract, including those in the contract backlog to be added to the database, increased 18 percent to 149.0 million at September 30, 2006, from 126.5 million a year earlier and 4 percent over the previous sequential quarter total of 143.0 million. Of the 138.3 million records on the database at September 30, 28 percent represented current employees, while the remainder represented former employees. Canfield noted, "We continue to monitor the status of the Work Opportunity, or WOTC, and Welfare to Work, or WtW, federal tax credits, which have been in hiatus since January 1 and which are not likely to be reinstated during our fiscal third quarter. The absence of these credits adversely affected second-quarter revenues by approximately $2.0 million, and we expect that future quarterly revenues will be similarly adversely impacted unless and until the credits are reinstated. Additionally, within our talent management services segment, the Transportation Security Administration, or TSA, has reduced funding of its contract, which we expect will adversely impact our fiscal third quarter revenues by approximately $2.9 million. We understand that the reduced TSA funding is temporary and that the TSA expects to have funding in place beginning in calendar year 2007 to return to levels consistent with previous quarters in calendar year 2006. "Despite the impact of this reduced revenue, we are pleased that our strong second-quarter financial performance and expected outlook for the rest of the year have allowed us to maintain our full-year financial guidance." TALX is reiterating guidance for the fiscal year ending March 31, 2007, with diluted earnings per share from continuing operations estimated in a range of $1.06 to $1.12 and revenue between $275 million and $280 million. TALX also provided initial guidance for the third fiscal quarter ending December 31, 2006. The company expects revenues ranging from $66 million to $68 million and diluted earnings per share from continuing operations of $0.24 to $0.26. Third-quarter diluted earnings per share from continuing operations in fiscal 2006 were $0.22 and revenues totaled $52.3 million. Results for fiscal year 2006 included no impact from SFAS 123r. A conference call to discuss the company's fiscal 2007 second- quarter performance and its outlook is scheduled for Thursday, October 26, at 9:00 a.m. Central Time. To participate in this call, dial (888) 400-7916. A slide presentation will accompany the call on the Web at www.talx.com/2007. Other information of investor interest can be found at www.talx.com/investor, and the company's corporate governance website is located at www.talx.com/governance. A digitized replay of the call will be available from 2:30 p.m. CDT on Thursday, October 26, through January 25, 2007. The replay number is (800) 475-6701 and the access code is 844370. Statements in this news release expressing or indicating the beliefs and expectations of management regarding future performance are forward-looking statements including, without limitation, favorable operating trends, anticipated revenue and earnings in the third quarter of fiscal 2007 and for the fiscal year ending March 31, 2007, and any other plans, objectives, expectations and intentions contained in this release that are not historical facts. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. These risks and uncertainties include, without limitation, the preliminary nature of our estimates, which are subject to change as we collect additional information and they are reviewed internally and by our external auditors, as well as the risks detailed in the company's Form 10-K for the fiscal year ended March 31, 2006, in "Part I � Item 1A. � Risk Factors" and in the company's Form 10-Q for the quarter ended June 30, 2006, in "Part II. Other Information � Item 1A. Risk Factors," as well as (1) the risk that our revenues from The Work Number may fluctuate in response to changes in certain economic conditions such as interest rates and employment trends; (2) risks associated with our ability to prevent breaches of confidentiality or inappropriate use of data as we perform large-scale processing of verifications; (3) risks associated with our ability to maintain the accuracy, privacy and confidentiality of our clients' employee data; (4) risks related to our ability to increase the size and range of applications for The Work Number database and to successfully market current and future services and related to our dependence on third party providers to do so; (5) proceedings by Federal and state regulators related to our business, including the inquiry by the Federal Trade Commission related to our acquisitions in the unemployment compensation and Work Number businesses; (6) the risk of interruption of our computer network and telephone operations, including potential slow-down or loss of business as potential clients review our operations; (7) risks associated with potential challenges regarding the applicability of the Fair Credit Reporting Act or similar law; (8) risks relating to the dependence of the market for The Work Number on mortgage documentation requirements in the secondary market and the risk that our revenues and profitability would be significantly harmed if those requirements were relaxed or eliminated; (9) risks related to the applicability of any new privacy legislation or interpretation of existing laws; (10) the risk that our revenues from unemployment tax management services may fluctuate in response to changes in economic conditions; (11) risks related to changes in tax laws, including potential continuation of the hiatus or even the nonrenewal or elimination of the work opportunity, or WOTC, and welfare to work, or WtW, tax credits; (12) the risk to our future growth due to our dependence on our ability to effectively integrate acquired companies and capitalize on cross-selling opportunities; and (13) risks relating to doing business with the federal government following our April 2006 acquisition of pan. These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from those expressed or implied by our forward-looking statements. We do not undertake any obligation or plan to update these forward-looking statements, even though our situation may change. TALX Corporation, based in St. Louis, Missouri, is a leading provider of human resource and payroll-related services and holds a leadership position in automated employment and income verification as well as unemployment tax management. TALX provides over 9,000 clients, including three-fourths of Fortune 500 companies, with Web-based services focused in three employment-related areas: hiring, pay reporting, and compliance. Hiring services include assessments and talent management, paperless new hires, and tax credits and incentives. Pay reporting services include electronic time tracking, paperless pay, and W-2 management. Compliance services include employment and income verifications through The Work Number, unemployment tax management, and I-9 management. The company's common stock trades in The NASDAQ Global Select Market under the symbol TALX. For more information about TALX Corporation, call 314-214-7000 or access the company's Web site at www.talx.com. TALX Corporation and Subsidiaries Consolidated Statements of Earnings (dollars in thousands, except per share information) (unaudited) � Three Months Ended Six Months Ended September 30, September 30, 2006� 2005� 2006� 2005� Revenues: The Work Number services $ 25,547� $ 21,857� $ 51,444� $ 42,302� Tax management services 32,419� 26,043� 65,577� 51,968� Talent management services 7,308� -� 14,025� -� Maintenance and support 391� 444� 793� 868� Total revenues 65,665� 48,344� 131,839� 95,138� Cost of revenues: The Work Number services 4,452� 4,679� 10,025� 9,409� Tax management services 15,486� 12,766� 31,751� 25,542� Talent management services 3,714� -� 7,099� -� Maintenance and support 19� 100� 38� 186� Total cost of revenues 23,671� 17,545� 48,913� 35,137� Gross profit 41,994� 30,799� 82,926� 60,001� Operating expenses: Selling and marketing 10,868� 8,073� 21,973� 15,803� General and administrative 14,005� 10,052� 28,424� 20,140� Total operating expenses 24,873� 18,125� 50,397� 35,943� Operating income 17,121� 12,674� 32,529� 24,058� Other income(expense), net: Interest income 190� 154� 350� 311� Interest expense (3,547) (1,008) (6,734) (1,924) Other, net 19� -� 24� (5) Total other income (expense), net (3,338) (854) (6,360) (1,618) Earnings from continuing operations before income tax expense � 13,783� 11,820� 26,169� 22,440� Income tax expense 5,638� 4,669� 10,705� 8,864� Earnings from continuing Operations 8,145� 7,151� 15,464� 13,576� Discontinued operations, net of income taxes: � Earnings from discontinued operations, net -� (4) -� 3� Gain on disposal of discontinued operations, net -� 30� -� 225� Earnings from discontinued operations -� 26� -� 228� Net earnings $ 8,145� $ 7,177� $ 15,464� $ 13,804� Basic earnings per share: Continuing operations $ 0.26� $ 0.23� $ 0.49� $ 0.43� Discontinued operations -� -� -� 0.01� Net earnings $ 0.26� $ 0.23� $ 0.49� $ 0.44� Diluted earnings per share: Continuing operations $ 0.25� $ 0.21� $ 0.46� $ 0.40� Discontinued operations -� -� -� 0.01� Net earnings $ 0.25� $ 0.21� $ 0.46� $ 0.41� � Weighted average number of shares outstanding (basic) � 1,602,206� 31,588,088� 31,852,265� 31,587,219� Weighted average number of shares outstanding (diluted) � 33,076,605� 33,660,792� 33,408,942� 33,529,938� TALX Corporation and Subsidiaries Consolidated Balance Sheets (dollars in thousands, except share information) � Assets September 30,2006 March 31,2006 (unaudited) Current assets: Cash and cash equivalents $ 5,670� $ 5,705� Short-term investments -� 5,850� Accounts receivable, less allowance for doubtful accounts of $3,866 at September 30, 2006, and $3,731 at March 31, 2006 36,168� 31,527� Unbilled receivables 3,556� 5,911� Prepaid expenses and other current assets 8,734� 6,576� Deferred tax assets, net 755� 2,580� Total current assets 54,883� 58,149� Property and equipment, net of accumulated depreciation of $29,529 at September 30, 2006, and $25,227 at March 31, 2006 22,479� 16,037� Capitalized software development costs, Net of amortization of $7,403 at September 30, 2006, and $6,329 at March 31, 2006 5,801� 4,059� Goodwill 231,672� 190,232� Other intangibles, net 132,562� 77,434� Other assets 2,151� 1,634� $ 449,548� $ 347,545� � Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 3,301� $ 2,257� Accrued expenses and other liabilities 18,080� 19,219� Dividends payable 1,567� 1,289� Deferred revenue 7,170� 6,893� Total current liabilities 30,118� 29,658� Deferred tax liabilities, net 42,928� 17,634� Long-term debt 199,877� 110,802� Other liabilities 3,733� 3,153� Total liabilities 276,656� 161,247� Commitments and contingencies Shareholders' equity: Preferred stock, $.01 par value; authorized 5,000,000 shares and no shares issued or outstanding at September 30, 2006, or March 31, 2006 -� -� Common stock, $.01 par value per share; authorized 75,000,000 shares at September 30, 2006 and March 31, 2006; issued 32,417,630 shares at September 30, 2006, and 32,225,321 shares at March 31, 2006 324� 322� Additional paid-in capital 176,825� 177,463� Deferred compensation -� (5,076) Retained earnings 22,349� 13,467� Accumulated other comprehensive income: Unrealized gain on interest rate swap contract, net of tax expense of $56 at September 30, 2006, and $80 at March 31, 2006 81� 122� Treasury stock, at cost, 1,225,562 shares at September 30, 2006 (26,687) -� Total shareholders' equity 172,892� 186,298� $ 449,548� $ 347,545� TALX Corporation and Subsidiaries Consolidated Statements of Cash Flows (dollars in thousands) (unaudited) � Six Months Ended June 30, 2006� 2005� Cash flows from operating activities: Net earnings $ 15,464� $ 13,804� Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 9,962� 6,045� Non-cash compensation 1,758� 43� Deferred taxes 2,264� 1,715� Gain on swap agreement -� (59) Change in assets and liabilities, excluding those acquired: Accounts receivable, net 1,210� (2,794) Unbilled receivables 2,355� 939� Prepaid expenses and other current assets (1,854) (1,771) Other assets (64) (267) Accounts payable 531� 1,062� Accrued expenses and other liabilities (2,707) (2,127) Deferred revenue (35) (1,174) Other liabilities 580� (57) Net cash provided by operating activities 29,464� 15,359� Cash flows from investing activities: Additions to property and equipment, net (10,949) (3,882) Acquisitions, net of cash acquired (80,068) (27,545) Purchases of short-term investments -� (5,120) Proceeds from sale of short-term investments 5,850� 3,785� Capitalized software development costs (2,206) (1,186) Net cash used in investing activities (87,373) (33,948) Cash flows from financing activities: Issuance of common stock 2,983� 3,611� Tax benefit on exercise of stock options 1,195� -� Repurchase of common stock (31,901) (1,287) Borrowings under long-term debt agreements 164,888� 84,850� Repayments under long-term debt agreements (76,705) (75,500) Dividends paid (2,586) (1,678) Net cash provided by financing activities 57,874� 9,996� Net decrease in cash and cash equivalents (35) (8,593) Cash and cash equivalents at beginning of period 5,705� 11,399� Cash and cash equivalents at end of period $ 5,670� $ 2,806� TALX Corporation (NASDAQ: TALX) today reported that fiscal second-quarter earnings from continuing operations increased 14 percent to $8.1 million, or $0.25 per diluted share, from the year-ago $7.2 million, or $0.21 per diluted share. The increased earnings primarily reflected the contribution from recent acquisitions, revenue gains in The Work Number services, and ongoing emphasis on cost controls. Effective April 1, 2006, the company adopted Statement of Financial Accounting Standards No. 123r, "Share-Based Payment" (SFAS 123r). Included in fiscal 2007 second-quarter results was approximately $666,000, net of taxes, or $0.02 per diluted share, related to share- based compensation expense. Second-quarter revenues increased 36 percent to $65.7 million from $48.3 million the year before. The Work Number services' revenues rose 17 percent, and revenues for the tax management services business increased 24 percent from year-ago levels. The 2007 second quarter also benefited from $7.3 million in revenues from the company's April 6, 2006 acquisition of Performance Assessment Network, Inc., or pan. Gross profit for the second quarter expanded 36 percent to $42.0 million from $30.8 million. Gross margin improved to 64.0 percent from 63.7 percent the year before, despite the impact of expenses related to share-based compensation, which negatively affected gross margin by 25 basis points in the 2007 second quarter. Gross profit for The Work Number services increased 23 percent to $21.1 million from $17.2 million, with gross margin climbing 400 basis points to 82.6 percent from 78.6 percent the year before. Gross profit for the tax management services business rose 28 percent to $16.9 million from $13.3 million, with gross margin improving 120 basis points to 52.2 percent from 51.0 percent the year before. Gross profit for talent management services was $3.6 million, and gross margin was 49.2 percent. William W. Canfield, president and chief executive officer, commented, "As a result of our highly scalable business model in The Work Number business, the higher revenues this quarter resulted in record gross margin. In particular, this quarter we benefited from the consolidation of our shared services group, which led to lower costs. To drive further revenue growth in this segment, we continued to pursue initiatives that expanded its reach. For example, we began recognizing revenues this quarter from our new Confirmation Direct service, which offers a simplified, lower-priced verification that we are marketing primarily to short-term lenders and property managers. In addition, we expect to begin a pilot of our One Stop Verifications call center service in our fiscal fourth quarter. Through a partner relationship, a verifier using this service can satisfy virtually all verification needs through TALX, whether or not the records are on The Work Number database. "In our tax management services businesses, we continued to benefit from our acquisitions in both the unemployment tax services and the tax credits and incentives businesses. Additionally, in the unemployment business, we realized 8 percent organic growth, marking our fourth consecutive quarterly organic gain. As a result of the higher revenues in the unemployment tax business, coupled with continued leveraging of our infrastructure, our gross margin reached a record 52.7 percent this quarter." L. Keith Graves, senior vice president and chief financial officer, pointed out, "As a result of our higher gross profit, as well as continued focus on cost control, operating income increased 35 percent compared to the year-ago quarter. Higher gross profit and strong management of our working capital, particularly our accounts receivable, drove our operating cash flow to almost $23 million this quarter, compared to $7 million a year ago. "We also increased shareholder value this quarter by raising our quarterly dividend by 25 percent, to 5 cents per share. Further, we repurchased almost 1.1 million shares during the second quarter for approximately $23.8 million, bringing the year-to-date total to more than 1.4 million shares, purchased for about $31.9 million. The share repurchases and increased earnings resulted in second-quarter diluted earnings per share being ahead of our expectations." Graves also reported, "Fiscal 2007 second-quarter results reflected costs of approximately $0.01 per share for additional infrastructure costs primarily related to relocating our corporate offices." He added that these costs will drop significantly in the third quarter as the relocations are substantially completed. The company's effective income tax rate was slightly higher in the fiscal second quarter compared to a year ago, primarily as a result of the implementation of SFAS 123r. The corresponding income tax benefit of certain elements of share-based compensation can be recognized only if, and to the extent that, certain future events occur. The company expects this rate to continue through the 2007 fiscal year. The total number of employment records on The Work Number services database increased 16 percent to 138.3 million at September 30, 2006, from 119.2 million a year ago. The company added 5.2 million employment records during the quarter, representing a 4 percent increase in total records over the previous sequential quarter. Total employment records under contract, including those in the contract backlog to be added to the database, increased 18 percent to 149.0 million at September 30, 2006, from 126.5 million a year earlier and 4 percent over the previous sequential quarter total of 143.0 million. Of the 138.3 million records on the database at September 30, 28 percent represented current employees, while the remainder represented former employees. Canfield noted, "We continue to monitor the status of the Work Opportunity, or WOTC, and Welfare to Work, or WtW, federal tax credits, which have been in hiatus since January 1 and which are not likely to be reinstated during our fiscal third quarter. The absence of these credits adversely affected second-quarter revenues by approximately $2.0 million, and we expect that future quarterly revenues will be similarly adversely impacted unless and until the credits are reinstated. Additionally, within our talent management services segment, the Transportation Security Administration, or TSA, has reduced funding of its contract, which we expect will adversely impact our fiscal third quarter revenues by approximately $2.9 million. We understand that the reduced TSA funding is temporary and that the TSA expects to have funding in place beginning in calendar year 2007 to return to levels consistent with previous quarters in calendar year 2006. "Despite the impact of this reduced revenue, we are pleased that our strong second-quarter financial performance and expected outlook for the rest of the year have allowed us to maintain our full-year financial guidance." TALX is reiterating guidance for the fiscal year ending March 31, 2007, with diluted earnings per share from continuing operations estimated in a range of $1.06 to $1.12 and revenue between $275 million and $280 million. TALX also provided initial guidance for the third fiscal quarter ending December 31, 2006. The company expects revenues ranging from $66 million to $68 million and diluted earnings per share from continuing operations of $0.24 to $0.26. Third-quarter diluted earnings per share from continuing operations in fiscal 2006 were $0.22 and revenues totaled $52.3 million. Results for fiscal year 2006 included no impact from SFAS 123r. A conference call to discuss the company's fiscal 2007 second- quarter performance and its outlook is scheduled for Thursday, October 26, at 9:00 a.m. Central Time. To participate in this call, dial (888) 400-7916. A slide presentation will accompany the call on the Web at www.talx.com/2007. Other information of investor interest can be found at www.talx.com/investor, and the company's corporate governance website is located at www.talx.com/governance. A digitized replay of the call will be available from 2:30 p.m. CDT on Thursday, October 26, through January 25, 2007. The replay number is (800) 475-6701 and the access code is 844370. Statements in this news release expressing or indicating the beliefs and expectations of management regarding future performance are forward-looking statements including, without limitation, favorable operating trends, anticipated revenue and earnings in the third quarter of fiscal 2007 and for the fiscal year ending March 31, 2007, and any other plans, objectives, expectations and intentions contained in this release that are not historical facts. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. These risks and uncertainties include, without limitation, the preliminary nature of our estimates, which are subject to change as we collect additional information and they are reviewed internally and by our external auditors, as well as the risks detailed in the company's Form 10-K for the fiscal year ended March 31, 2006, in "Part I - Item 1A. - Risk Factors" and in the company's Form 10-Q for the quarter ended June 30, 2006, in "Part II. Other Information - Item 1A. Risk Factors," as well as (1) the risk that our revenues from The Work Number may fluctuate in response to changes in certain economic conditions such as interest rates and employment trends; (2) risks associated with our ability to prevent breaches of confidentiality or inappropriate use of data as we perform large-scale processing of verifications; (3) risks associated with our ability to maintain the accuracy, privacy and confidentiality of our clients' employee data; (4) risks related to our ability to increase the size and range of applications for The Work Number database and to successfully market current and future services and related to our dependence on third party providers to do so; (5) proceedings by Federal and state regulators related to our business, including the inquiry by the Federal Trade Commission related to our acquisitions in the unemployment compensation and Work Number businesses; (6) the risk of interruption of our computer network and telephone operations, including potential slow-down or loss of business as potential clients review our operations; (7) risks associated with potential challenges regarding the applicability of the Fair Credit Reporting Act or similar law; (8) risks relating to the dependence of the market for The Work Number on mortgage documentation requirements in the secondary market and the risk that our revenues and profitability would be significantly harmed if those requirements were relaxed or eliminated; (9) risks related to the applicability of any new privacy legislation or interpretation of existing laws; (10) the risk that our revenues from unemployment tax management services may fluctuate in response to changes in economic conditions; (11) risks related to changes in tax laws, including potential continuation of the hiatus or even the nonrenewal or elimination of the work opportunity, or WOTC, and welfare to work, or WtW, tax credits; (12) the risk to our future growth due to our dependence on our ability to effectively integrate acquired companies and capitalize on cross-selling opportunities; and (13) risks relating to doing business with the federal government following our April 2006 acquisition of pan. These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from those expressed or implied by our forward-looking statements. We do not undertake any obligation or plan to update these forward-looking statements, even though our situation may change. TALX Corporation, based in St. Louis, Missouri, is a leading provider of human resource and payroll-related services and holds a leadership position in automated employment and income verification as well as unemployment tax management. TALX provides over 9,000 clients, including three-fourths of Fortune 500 companies, with Web-based services focused in three employment-related areas: hiring, pay reporting, and compliance. Hiring services include assessments and talent management, paperless new hires, and tax credits and incentives. Pay reporting services include electronic time tracking, paperless pay, and W-2 management. Compliance services include employment and income verifications through The Work Number, unemployment tax management, and I-9 management. The company's common stock trades in The NASDAQ Global Select Market under the symbol TALX. For more information about TALX Corporation, call 314-214-7000 or access the company's Web site at www.talx.com. -0- *T TALX Corporation and Subsidiaries Consolidated Statements of Earnings (dollars in thousands, except per share information) (unaudited) Three Months Ended Six Months Ended September 30, September 30, 2006 2005 2006 2005 Revenues: The Work Number services $ 25,547 $ 21,857 $ 51,444 $ 42,302 Tax management services 32,419 26,043 65,577 51,968 Talent management services 7,308 - 14,025 - Maintenance and support 391 444 793 868 Total revenues 65,665 48,344 131,839 95,138 Cost of revenues: The Work Number services 4,452 4,679 10,025 9,409 Tax management services 15,486 12,766 31,751 25,542 Talent management services 3,714 - 7,099 - Maintenance and support 19 100 38 186 Total cost of revenues 23,671 17,545 48,913 35,137 Gross profit 41,994 30,799 82,926 60,001 Operating expenses: Selling and marketing 10,868 8,073 21,973 15,803 General and administrative 14,005 10,052 28,424 20,140 Total operating expenses 24,873 18,125 50,397 35,943 Operating income 17,121 12,674 32,529 24,058 Other income(expense), net: Interest income 190 154 350 311 Interest expense (3,547) (1,008) (6,734) (1,924) Other, net 19 - 24 (5) Total other income (expense), net (3,338) (854) (6,360) (1,618) Earnings from continuing operations before income tax expense 13,783 11,820 26,169 22,440 Income tax expense 5,638 4,669 10,705 8,864 Earnings from continuing Operations 8,145 7,151 15,464 13,576 Discontinued operations, net of income taxes: Earnings from discontinued operations, net - (4) - 3 Gain on disposal of discontinued operations, net - 30 - 225 Earnings from discontinued operations - 26 - 228 Net earnings $ 8,145 $ 7,177 $ 15,464 $ 13,804 Basic earnings per share: Continuing operations $ 0.26 $ 0.23 $ 0.49 $ 0.43 Discontinued operations - - - 0.01 Net earnings $ 0.26 $ 0.23 $ 0.49 $ 0.44 Diluted earnings per share: Continuing operations $ 0.25 $ 0.21 $ 0.46 $ 0.40 Discontinued operations - - - 0.01 Net earnings $ 0.25 $ 0.21 $ 0.46 $ 0.41 Weighted average number of shares outstanding (basic) 1,602,206 31,588,088 31,852,265 31,587,219 Weighted average number of shares outstanding (diluted) 33,076,605 33,660,792 33,408,942 33,529,938 *T -0- *T TALX Corporation and Subsidiaries Consolidated Balance Sheets (dollars in thousands, except share information) Assets September 30, March 31, 2006 2006 (unaudited) Current assets: Cash and cash equivalents $ 5,670 $ 5,705 Short-term investments - 5,850 Accounts receivable, less allowance for doubtful accounts of $3,866 at September 30, 2006, and $3,731 at March 31, 2006 36,168 31,527 Unbilled receivables 3,556 5,911 Prepaid expenses and other current assets 8,734 6,576 Deferred tax assets, net 755 2,580 Total current assets 54,883 58,149 Property and equipment, net of accumulated depreciation of $29,529 at September 30, 2006, and $25,227 at March 31, 2006 22,479 16,037 Capitalized software development costs, Net of amortization of $7,403 at September 30, 2006, and $6,329 at March 31, 2006 5,801 4,059 Goodwill 231,672 190,232 Other intangibles, net 132,562 77,434 Other assets 2,151 1,634 $449,548 $347,545 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 3,301 $ 2,257 Accrued expenses and other liabilities 18,080 19,219 Dividends payable 1,567 1,289 Deferred revenue 7,170 6,893 Total current liabilities 30,118 29,658 Deferred tax liabilities, net 42,928 17,634 Long-term debt 199,877 110,802 Other liabilities 3,733 3,153 Total liabilities 276,656 161,247 Commitments and contingencies Shareholders' equity: Preferred stock, $.01 par value; authorized 5,000,000 shares and no shares issued or outstanding at September 30, 2006, or March 31, 2006 - - Common stock, $.01 par value per share; authorized 75,000,000 shares at September 30, 2006 and March 31, 2006; issued 32,417,630 shares at September 30, 2006, and 32,225,321 shares at March 31, 2006 324 322 Additional paid-in capital 176,825 177,463 Deferred compensation - (5,076) Retained earnings 22,349 13,467 Accumulated other comprehensive income: Unrealized gain on interest rate swap contract, net of tax expense of $56 at September 30, 2006, and $80 at March 31, 2006 81 122 Treasury stock, at cost, 1,225,562 shares at September 30, 2006 (26,687) - Total shareholders' equity 172,892 186,298 $449,548 $347,545 *T -0- *T TALX Corporation and Subsidiaries Consolidated Statements of Cash Flows (dollars in thousands) (unaudited) Six Months Ended June 30, 2006 2005 Cash flows from operating activities: Net earnings $ 15,464 $ 13,804 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 9,962 6,045 Non-cash compensation 1,758 43 Deferred taxes 2,264 1,715 Gain on swap agreement - (59) Change in assets and liabilities, excluding those acquired: Accounts receivable, net 1,210 (2,794) Unbilled receivables 2,355 939 Prepaid expenses and other current assets (1,854) (1,771) Other assets (64) (267) Accounts payable 531 1,062 Accrued expenses and other liabilities (2,707) (2,127) Deferred revenue (35) (1,174) Other liabilities 580 (57) Net cash provided by operating activities 29,464 15,359 Cash flows from investing activities: Additions to property and equipment, net (10,949) (3,882) Acquisitions, net of cash acquired (80,068) (27,545) Purchases of short-term investments - (5,120) Proceeds from sale of short-term investments 5,850 3,785 Capitalized software development costs (2,206) (1,186) Net cash used in investing activities (87,373) (33,948) Cash flows from financing activities: Issuance of common stock 2,983 3,611 Tax benefit on exercise of stock options 1,195 - Repurchase of common stock (31,901) (1,287) Borrowings under long-term debt agreements 164,888 84,850 Repayments under long-term debt agreements (76,705) (75,500) Dividends paid (2,586) (1,678) Net cash provided by financing activities 57,874 9,996 Net decrease in cash and cash equivalents (35) (8,593) Cash and cash equivalents at beginning of period 5,705 11,399 Cash and cash equivalents at end of period $ 5,670 $ 2,806 *T