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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 quarterly period ended June 30, 1999
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from _______ to ________
COMMISSION FILE NUMBER: 0-20971
STAFFMARK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 71-0788538
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
234 EAST MILLSAP ROAD
FAYETTEVILLE, AR 72703
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (501) 973-6000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock of the Registrant, par value $.01 per
share, outstanding at August 13, 1999 was 29,300,192.
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STAFFMARK, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
INDEX
-----
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
StaffMark, Inc. Consolidated Financial Statements
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction 11
Results for the Three and Six Months Ended June 30, 1999 Compared
to Results for the Three and Six Months Ended June 30, 1998 11
Liquidity and Capital Resources 13
Year 2000 Compliance 14
Foreign Currency Translation 15
Special Note Regarding Forward Looking Statements 15
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
PART II - OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS 16
ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS 17
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K 18
(a) Exhibits
(b) Reports on Form 8-K
SIGNATURES 18
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STAFFMARK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
SERVICE REVENUES $304,272 $243,155 $584,584 $457,706
COST OF SERVICES 226,017 177,875 437,384 337,512
-------- -------- -------- --------
Gross profit 78,255 65,280 147,200 120,194
-------- -------- -------- --------
OPERATING EXPENSES:
Selling, general and administrative 51,742 41,677 102,255 81,073
Depreciation and amortization 5,314 3,169 10,130 5,987
Nonrecurring merger costs -- 1,121 -- 1,121
-------- -------- -------- --------
Operating income 21,199 19,313 34,815 32,013
-------- -------- -------- --------
OTHER EXPENSE:
Interest expense 4,199 1,193 7,503 1,872
Other, net 189 50 237 50
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 16,811 18,070 27,075 30,091
PROVISION FOR INCOME TAXES 6,052 7,049 9,909 11,863
-------- -------- -------- --------
NET INCOME $ 10,759 $ 11,021 $ 17,166 $ 18,228
======== ======== ======== ========
BASIC EARNINGS PER SHARE
$ 0.37 $ 0.39 $ 0.59 $ 0.64
======== ======== ======== ========
DILUTED EARNINGS PER SHARE
$ 0.37 $ 0.37 $ 0.58 $ 0.62
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
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STAFFMARK, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1999 1998
---------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,656 $ 12,812
Accounts receivable, net 185,456 155,796
Prepaid expenses and other 13,308 10,063
Deferred income taxes 3,169 2,569
--------- ---------
Total current assets 211,589 181,240
PROPERTY AND EQUIPMENT, net 27,345 22,450
INTANGIBLE ASSETS, net 434,599 375,682
OTHER ASSETS 2,040 1,573
--------- ---------
$ 675,573 $ 580,945
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 36,656 $ 35,068
Payroll and related liabilities 41,693 40,309
Reserve for workers' compensation claims 8,416 8,087
Income taxes payable 5,599 3,318
--------- ---------
Total current liabilities 92,364 86,782
LONG TERM DEBT 271,030 176,700
OTHER LONG TERM LIABILITIES 22,000 47,737
DEFERRED INCOME TAXES 13,003 9,634
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; no shares issued or outstanding -- --
Common stock, $.01 par value; 29,220,685 and 29,083,379 shares issued
and outstanding as of June 30, 1999 and December 31, 1998 292 291
Paid-in capital 215,894 214,271
Retained earnings 63,438 46,263
Accumulated other comprehensive income (2,448) (733)
--------- ---------
Total stockholders' equity 277,176 260,092
--------- ---------
$ 675,573 $ 580,945
========= =========
The accompanying notes are an integral part of these balance sheets.
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STAFFMARK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,759 $ 11,021 $ 17,166 $ 18,228
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,314 3,169 10,130 5,987
Provision for bad debts 400 889 567 1,254
Deferred income taxes 1,489 (743) 3,137 (1,560)
Effect of compensatory stock options -- (1,211) -- (39)
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable (13,289) (10,527) (24,192) (20,691)
Prepaid expenses and other (2,184) 593 (2,964) 408
Other assets (726) 799 (852) 2,002
Accounts payable and other accrued liabilities 15,831 (4,773) 12,479 (1,352)
Payroll and related liabilities (6,605) 122 616 5,690
Payment of nonrecurring merger expenses (4,575) -- (13,633) --
Reserve for workers' compensation claims (401) 424 40 364
Income taxes payable 1,881 (1,770) 1,919 249
Other long term liabilities (19) 9,013 (566) (1,830)
Other, net 49 (86) (382) 164
--------- --------- --------- ---------
Net cash provided by operating activities 7,924 6,920 3,465 8,874
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired (21,555) (62,771) (93,195) (99,621)
Capital expenditures (3,449) (2,936) (6,444) (6,324)
--------- --------- --------- ---------
Net cash used in investing activities (25,004) (65,707) (99,639) (105,945)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 78,810 95,415 246,990 142,200
Payments on borrowings (61,080) (34,290) (152,660) (41,640)
Proceeds from stock purchase plan and stock option 40 386 988 528
Deferred financing costs (66) (295) (585) (571)
--------- --------- --------- ---------
Net cash provided by financing activities 17,704 61,216 94,733 100,517
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents 624 2,429 (1,441) 3,446
Effect of foreign currency translation on cash and cash equivalents (324) (1,926) (1,715) (657)
CASH AND CASH EQUIVALENTS, beginning of period 9,356 8,941 12,812 6,655
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 9,656 $ 9,444 $ 9,656 $ 9,444
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 3,641 $ 909 $ 6,738 $ 1,344
========= ========= ========= =========
Income taxes paid $ 4,981 $ 8,210 $ 6,337 $ 11,153
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
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STAFFMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION:
We (StaffMark, Inc. and our subsidiaries) are an international provider
of diversified staffing, information technology ("IT"), professional, consulting
and solutions services to businesses, professional and service organizations and
governmental agencies. Revenues are recognized upon the performance of services.
We generally compensate our associates and consultants only for hours actually
worked and, therefore, wages of associates and consultants are a variable cost
that increase or decrease as revenues increase or decrease. However, we do have
associates and consultants that are full-time, salaried employees who are paid
even when not engaged in staffing or consulting. Cost of services primarily
consists of wages paid to associates and consultants, payroll taxes, workers'
compensation, foreign statutory taxes, national insurance and other related
employee benefits. Selling, general and administrative expenses are comprised
primarily of administrative salaries and benefits, marketing, rent, recruitment,
training, IT systems and communications expenses.
As of June 30, 1999, we operated over 320 offices in 32 states and 14
countries and provide staffing in the Commercial and Professional/Information
Technology ("Professional/IT") service lines. We extend trade credit to
customers representing a variety of industries. There are no individual
customers that account for more than 5% of our service revenues in any of the
periods presented.
2. BASIS OF PRESENTATION:
The accompanying interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "Commission"). Certain information and note disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to those rules and regulations,
although we believe that the disclosures made are adequate to ensure the
information presented is not misleading.
The accompanying interim financial statements reflect all adjustments
(which were of a normal, recurring nature) that, in the opinion of management,
are necessary to present fairly our financial position, results of operations
and cash flows as of and for the interim periods presented. All significant
intercompany transactions have been eliminated in the accompanying consolidated
financial statements. Additionally, certain reclassifications have been made to
prior period balances in order to conform with the current period presentation.
These financial statements should be read in conjunction with our audited
financial statements and notes thereto included in our 1998 Annual Report on
Form 10-K as filed with the Commission on March 16, 1999.
3. SEASONALITY:
The timing of certain holidays, weather conditions and seasonal vacation
patterns can cause our results of operations to fluctuate. We generally expect
to realize higher revenues, operating income and net income during the second
and third quarters and relatively lower revenues, operating income and net
income during the first and fourth quarters. Accordingly, the results of
operations for an interim period are not necessarily indicative of the results
of operations for a full fiscal year.
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4. BUSINESS COMBINATIONS:
During the second quarter of 1999, we acquired Edgewater Technology,
Inc., a developer of custom electronic commerce software solutions. The
accompanying balance sheet as of June 30, 1999 includes preliminary allocations
of the respective purchase price and is subject to final adjustment. The excess
of purchase price over net assets acquired has been included in intangible
assets and is being amortized over a period of 30 years.
On November 25, 1998, we completed our acquisition of Robert Walters plc
("Robert Walters"). In connection with the acquisition, each outstanding share
of Robert Walters common stock was converted into the right to receive 0.272
shares of StaffMark's common stock, totaling 6,687,704 common shares in the
aggregate. The merger has been accounted for as a pooling-of-interests.
Accordingly, the accompanying consolidated financial statements have been
restated to include the accounts of Robert Walters for all periods presented.
In addition to Robert Walters, we acquired 17 staffing and professional
service companies during 1998. The 1998 acquisitions of Strategic Legal
Resources, Inc., and Progressive Personnel Resources, Inc. were considered
significant. We have also included certain financial information in the tables
below from our acquisition of the staffing business of WorldTec Group
International, Inc. in the fourth quarter of 1998. These 1998 acquisitions are
referred to as "the Acquisitions." The unaudited consolidated results of
operations on a pro forma basis as though the Acquisitions had been acquired as
of the beginning of 1998 are presented below. Note that the pro forma
information presented below does not reflect the reductions in salaries that
certain owners of the Acquisitions agreed to and does not reflect any
nonrecurring merger costs incurred in connection with several of our
pooling-of-interests transactions. The remaining 1998 acquisitions were not
individually significant and, therefore, have not been included in the following
pro forma presentation. We believe this information reflects all adjustments
necessary for a fair presentation of results for the interim periods. The pro
forma results of operations for the three and six months ended June 30, 1999 and
1998 are not necessarily indicative of the results to be expected for the full
year.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(IN THOUSANDS) 1999 1998 1999 1998
----------- ----------- ----------- -----------
Revenue $ 304,272 $ 264,789 $ 584,584 $ 504,905
=========== =========== =========== ===========
Net income $ 10,759 $ 11,463 $ 17,166 $ 18,327
=========== =========== =========== ===========
Basic earnings per share $ 0.37 $ 0.40 $ 0.59 $ 0.64
=========== =========== =========== ===========
Diluted earnings per share $ 0.37 $ 0.38 $ 0.58 $ 0.61
=========== =========== =========== ===========
Consideration paid with respect to acquisitions during the six months
ended June 30, 1999 includes cash consideration paid for companies acquired in
the current period, as well as contingent consideration paid to the former
owners of companies acquired in previous periods. The aggregate consideration
related to these payments consisted of $93.2 million in cash and 0.2 million
shares of common stock.
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5. MERGER AND INTEGRATION EXPENSES:
During the fourth quarter of 1998, we recorded merger and integration
expenses totaling approximately $24.6 million that relate to the merger with
Robert Walters and other pooling-of-interests transactions completed during
1998. Included in these costs are approximately $13.3 million for professional
and financial advisors' fees, approximately $10.8 million related to integration
expenses and approximately $500,000 for severance and employee-related expenses.
Integration expenses consist primarily of costs related to office closings and
contract terminations pursuant to management's plan of integration, which is
expected to be completed by September 1999. Substantially all costs associated
with severance had been incurred as of December 31, 1998. The following is a
summary of our merger and integration accrual:
(IN THOUSANDS)
Total merger and integration expenses $ 24,626
Cash outlays (22,894)
--------
Accrual at June 30, 1999 $ 1,732
========
6. EARNINGS PER COMMON SHARE:
A reconciliation of net income and weighted average shares used in
computing basic and diluted earnings per share is as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(IN THOUSANDS EXCEPT PER SHARE DATA) 1999 1998 1999 1998
------- ------- ------- -------
BASIC EARNINGS PER SHARE:
Net income applicable to common shares $10,759 $11,021 $17,166 $18,228
======= ======= ======= =======
Weighted average common shares outstanding 29,174 28,579 29,211 28,269
======= ======= ======= =======
Basic earnings per share of common stock $ 0.37 $ 0.39 $ 0.59 $ 0.64
======= ======= ======= =======
DILUTED EARNINGS PER SHARE:
Net income applicable to common shares $10,759 $11,021 $17,166 $18,228
======= ======= ======= =======
Weighted average common shares outstanding 29,174 28,579 29,211 28,269
Dilutive effect of stock options 170 1,322 228 1,232
------- ------- ------- -------
Weighted average common shares including
dilutive effect of stock options 29,344 29,901 29,439 29,501
======= ======= ======= =======
Diluted earnings per share of common stock $ 0.37 $ 0.37 $ 0.58 $ 0.62
======= ======= ======= =======
Excluding the nonrecurring merger costs of approximately $1.1 million
that were expensed during the second quarter of 1998 relating to several of our
pooling-of-interests transactions, basic and diluted earnings per share were
$0.41 and $0.39, respectively, for the three months ended June 30, 1998 and
basic and diluted earnings per share were $0.67 and $0.64, respectively, for the
six months ended June 30, 1998.
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Options to purchase approximately 2.4 million shares of common stock at
prices ranging from $9.94 to $40.75 per share were outstanding during the three
months ended June 30, 1999, but were not included in the computation of diluted
earnings per share because the options' exercise prices were greater than the
average market price of our common shares. These options, which expire ten years
from the date of grant, were still outstanding as of June 30, 1999.
7. COMPREHENSIVE INCOME:
Comprehensive income was as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(IN THOUSANDS) 1999 1998 1999 1998
-------- -------- -------- --------
Net income $ 10,759 $ 11,021 $ 17,166 $ 18,228
Other comprehensive income:
Change in cumulative foreign currency translation
adjustments (324) (1,926) (1,715) (657)
-------- -------- -------- --------
Total comprehensive income $ 10,435 $ 9,095 $ 15,451 $ 17,571
======== ======== ======== ========
8. SEGMENT INFORMATION:
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of
an Enterprise and Related Information," which requires reporting segment
information consistent with the way management internally disaggregates an
entity's operations to assess performance and to allocate resources. As
required, we have adopted the provisions of SFAS No. 131 and have presented
below the required segment information for the three months ended June 30, 1999
and 1998.
We segment our operations based upon differences in services. Our
Commercial segment provides clerical and light industrial staffing services in
the United States. Our Professional/IT segment provides staffing, consulting,
technical and support services primarily in the areas of finance, accounting,
information technology and legal services in the United States, the United
Kingdom, Australia and ten other foreign countries. The "corporate" column
includes general corporate expenses, headquarters facilities and equipment,
internal-use software, and other expenses not allocated to the segments.
The accounting policies used in measuring segment assets and operating
results are the same as those described in Note 2 to our audited financial
statements and notes thereto included in our 1998 Annual Report on Form 10-K as
filed with the Commission on March 16, 1999. We evaluate performance of the
segments based on segment operating income, excluding corporate overhead,
nonrecurring and unusual items. We do not have any significant intersegment
sales or transfers.
The results of the business segments as of and for the three and six
months ended June 30, 1999 and 1998 are as follows:
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PROFESSIONAL/
INFORMATION CONSOLIDATED
(IN THOUSANDS) TECHNOLOGY COMMERCIAL CORPORATE TOTALS
------------- ---------- --------- ------------
THREE MONTHS ENDED JUNE 30, 1999
Total service revenues $154,192 $150,080 $ -- $304,272
Operating income 15,273 10,081 (4,155) 21,199
Depreciation and amortization 3,157 1,741 416 5,314
Capital expenditures 820 644 1,985 3,449
Total assets 408,394 204,513 62,666 675,573
THREE MONTHS ENDED JUNE 30, 1998
Total service revenues $130,665 $112,490 $ -- $243,155
Operating income 13,930 9,236 (3,853) 19,313
Depreciation and amortization 2,102 847 220 3,169
Capital expenditures 644 522 1,770 2,936
Total assets 286,258 137,296 52,687 476,241
SIX MONTHS ENDED JUNE 30, 1999
Total service revenues $299,924 $284,660 $ -- $584,584
Operating income 24,344 17,370 (6,899) 34,815
Depreciation and amortization 6,020 3,354 756 10,130
Capital expenditures 1,355 1,545 3,544 6,444
SIX MONTHS ENDED JUNE 30, 1998
Total service revenues $251,052 $206,654 $ -- $457,706
Operating income 22,511 15,645 (6,143) 32,013
Depreciation and amortization 3,838 1,611 538 5,987
Capital expenditures 2,334 732 3,258 6,324
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
REVENUES BY COUNTRY 1999 1998 1999 1998
-------- -------- -------- --------
United States $235,032 $181,864 $446,745 $339,846
United Kingdom 52,953 48,126 106,849 91,634
Australia 12,591 10,359 24,186 20,940
Other 3,696 2,806 6,804 5,286
-------- -------- -------- --------
Total revenues $304,272 $243,155 $584,584 $457,706
======== ======== ======== ========
AT JUNE 30,
PROPERTY AND EQUIPMENT BY COUNTRY 1999 1998
------- -------
United States $23,218 $14,947
United Kingdom 2,734 3,411
Australia 488 582
Other 904 877
------- -------
Total property and equipment $27,344 $19,817
======= =======
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The information below discusses the results of operations for the three
and six months ended June 30, 1999 as compared to the results of operations for
the three and six months ended June 30, 1998. Our services are provided through
two segments: Professional/IT and Commercial. The Professional/IT segment
provides staffing, consulting, technical support and solutions services
primarily in the areas of finance, accounting, information technology, and legal
services. The Commercial segment provides clerical and light industrial staffing
services. Our services are provided through our network of over 320 offices
located in 32 states and 14 countries including, but not limited to, the United
States, the United Kingdom, Australia, Germany, New Zealand, Belgium, the
Netherlands, Singapore, and South Africa.
Revenues are recognized upon the performance of services. We generally
compensate our associates and consultants only for hours actually worked and,
therefore, wages of associates and consultants are a variable cost that increase
or decrease as revenues increase or decrease. However, we do have associates and
consultants that are full-time, salaried employees who are paid even when not
engaged in staffing or consulting. Cost of services primarily consists of wages
paid to associates and consultants, payroll taxes, workers' compensation,
foreign statutory taxes, national insurance and other related employee benefits.
Selling, general and administrative expenses are comprised primarily of
administrative salaries and benefits, marketing, rent, recruitment, training, IT
systems and communications expenses.
Earnings before interest, taxes, depreciation and amortization
("EBITDA") are included in the following discussion because we believe the
period-to-period change in EBITDA is a meaningful measure due principally to the
role acquisitions have played in our development and because the non-cash
expenses of depreciation and amortization have a significant impact on operating
income and operating margins. EBITDA should not be construed as an alternative
measure to net income or cash flows from operations as determined by generally
accepted accounting principles as EBITDA excludes certain significant costs of
doing business. The EBITDA per share information that follows has been
calculated using diluted shares outstanding for the relevant period.
The financial information provided below has been rounded in order to
simplify its presentation. The percentages and amounts below have been
calculated using the detailed financial information contained in the financial
statements, the notes thereto and the other financial data included in this
Quarterly Report on Form 10-Q.
RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO RESULTS FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 1998
Revenues. Consolidated revenues increased $61.1 million, or 25.1%, to
$304.3 million for the three months ended June 30, 1999 compared to $243.2
million for the three months ended June 30, 1998. Consolidated revenues
increased $126.9 million, or 27.7%, to $584.6 million for the six months ended
June 30, 1999 compared to $457.7 million for the six months ended June 30, 1998.
The purchase acquisitions completed during 1998 in both the Professional/IT and
Commercial segments accounted for approximately $29.9 million and $68.0 million
of the increase for the three and six months ended June 30, 1999, respectively.
The purchase acquisitions completed during the six months ended June 30, 1999
accounted for approximately $9.2 million and $13.4 million of the increase for
the three and six months ended June 30, 1999, respectively.
Revenues for the Professional/IT segment increased $23.5 million, or
18.0%, to $154.2 million for the three months ended June 30, 1999 compared to
$130.7 million for three months ended June 30, 1998. Revenues for the
Professional/IT segment increased $48.9 million, or 19.5%, to $299.9 million for
the six months ended June 30, 1999 compared to $251.1 million for six months
ended June 30, 1998. This increase is primarily the result of acquisitions and
internal growth particularly in the expansion of contracting professional and
information technology consultants in the United Kingdom and other European
locations, as well as in Australia and certain Asian markets.
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Approximately $4.4 million and $11.5 million of the increase for the three and
six months ended June 30, 1999, respectively, results from the full period's
operations of the companies purchased during 1998. The purchase acquisitions
completed during the six months ended June 30, 1999 accounted for approximately
$10.2 million and $15.5 million of the increase for the three and six months
ended June 30, 1999, respectively.
Revenues for the Commercial segment increased $37.6 million, or 33.4%,
to $150.1 million for the three months ended June 30, 1999 compared to $112.5
million for three months ended June 30, 1998. Revenues for the Commercial
segment increased $78.0 million, or 37.7%, to $284.7 million for the six months
ended June 30, 1999 compared to $206.7 million for six months ended June 30,
1998. This revenue growth is the result of acquisitions and internal growth.
Commercial companies purchased during 1998 accounted for $28.1 million and $62.1
million of the change for the three and six months ended June 30, 1999,
respectively. No Commercial acquisitions have been made during the six months
ended June 30, 1999.
Gross Profit and EBITDA. For the three months ended June 30, 1999, gross
profit as a percentage of revenue decreased from 26.8% to 25.7% while selling,
general and administrative expenses ("SG&A") as a percentage of revenue
decreased from 17.1% to 17.0%. Note that SG&A for the three months ended June
30, 1998 were partially reduced by compensatory stock option income that was
recorded for Robert Walters. Excluding these nonrecurring costs, SG&A as a
percentage of revenue was 17.6% for the three months ended June 30, 1998. For
the six months ended June 30, 1999, gross profit as a percentage of revenue
decreased from 26.3% to 25.2% while SG&A as a percentage of revenue decreased
from 17.7% to 17.5%. EBITDA increased $4.0 million, or 17.9%, to $26.5 million
for the three months ended June 30, 1999 as compared to $22.5 million for the
three months ended June 30, 1998. EBITDA increased $6.9 million, or 18.3%, to
$44.9 million for the six months ended June 30, 1999 as compared to $38.0
million for the six months ended June 30, 1998. EBITDA as a percentage of
revenues was 8.7% and 7.7% for the three and six months ended June 30, 1999,
respectively, and 9.2% and 8.3% for the three and six months ended June 30,
1998, respectively. The decrease in gross margin and EBITDA margin is primarily
the result of: (1) a decrease in permanent placements as a percentage of revenue
for the three and six months ended June 30, 1999 as compared to the three and
six months ended June 30, 1998; (2) the higher growth rates in the international
IT staffing sector which have lower margins than the domestic IT staffing
sector; and (3) the growth of our strategic alliance relationships in the
commercial segment which have lower gross margins than traditional temporary
staffing services
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $2.1 million, or 67.7%, to $5.3 million for the three months
ended June 30, 1999 as compared to $3.2 million for the three months ended June
30, 1998. Depreciation and amortization expense increased $4.1 million, or
69.2%, to $10.1 million for the six months ended June 30, 1999 as compared to
$6.0 million for the six months ended June 30, 1998. This increase is primarily
attributable to amortization of goodwill associated with our purchase business
combinations. Depreciation increased as a result of continuing development of
our corporate infrastructure and information systems network, as well as assets
acquired in acquisitions.
Operating Income. Operating income increased $1.9 million, or 9.8%, to
$21.2 million for the three months ended June 30, 1999 compared to $19.3 million
for the same period last year and increased $2.8 million, or 8.8%, to $34.8
million for the six months ended June 30, 1999 compared to $32.0 million for the
six months ended June 30, 1998. Operating margin was 7.0% and 6.0% for the three
and six months ended June 30, 1999, respectively, as compared to 7.9% and 7.0%
for the three and six months ended June 30, 1998, respectively. Operating income
increased as a result of higher revenues while the operating margin declined due
to lower gross profit and higher depreciation and amortization expense as
discussed above.
The following operating income discussion at the Professional/IT and
Commercial segment levels excludes unallocated corporate SG&A of $4.2 million
and $6.9 million for the three and six months ended June 30, 1999, respectively,
and $3.9 million and $6.1 million for the three and six months ended June 30,
1998, respectively.
Operating income for the Professional/IT segment increased $1.3 million,
or 9.6%, to $15.3 million for the three months ended June 30, 1999 as compared
to $13.9 million for the three months ended June 30, 1998.
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Operating income for the Professional/IT segment increased $1.8 million,
or 8.1%, to $24.3 million for the six months ended June 30, 1999 as compared to
$22.5 million for the six months ended June 30, 1998. The operating margin for
the Professional/IT segment decreased from 10.6% for the three months ended
June 30, 1998 to 9.9% for the three months ended June 30, 1999. The operating
margin for the Professional/IT segment was 8.1% and 8.9% for the six months
ended June 30, 1999 and 1998, respectively. Slower growth in domestic IT
staffing along with decreased demand for permanent placements and higher
depreciation and amortization expense were the primary reasons for the operating
margin decreases. The Professional/IT purchase acquisitions completed during
1998 and 1999 were the primary factors contributing to the increase in operating
income for the three and six months ended June 30, 1999.
Operating income for the Commercial segment increased $845,000, or 9.1%,
to $10.1 million for the three months ended June 30, 1999 as compared to $9.2
million in the same period last year. Operating income for the Commercial
segment increased $1.7 million, or 11.0%, to $17.4 million for the six months
ended June 30, 1999 as compared to $15.6 million for the six months ended June
30, 1998. Continued growth in our existing markets and an increase in our
strategic alliance relationships have provided the majority of the increase in
operating income. Commercial purchase acquisitions completed during 1998 were
the primary factors contributing to the increase in operating income for the
three and six months ended June 30, 1999. The activity from our strategic
alliances, which provide customers with dedicated on-site account management,
tend to have lower gross margins than traditional temporary staffing services.
However, the higher volumes relatively long-term contracts associated with these
relationships have resulted in operating profit growth. The operating margin of
the Commercial segment decreased from 8.2% for the three months ended June 30,
1998 to 6.7% for the three months ended June 30, 1999. The operating margin for
the Commercial segment was 6.1% and 7.6% for the six months ended June 30, 1999
and 1998, respectively. The decrease in operating margins resulted from lower
gross margins due to decreased permanent placement fees and higher revenues
from our strategic alliance relationships as well as higher depreciation and
amortization expense.
Interest Expense. We incurred interest expense of $4.2 million for the
three months ended June 30, 1999 as compared to $1.2 million of interest expense
for the three months ended June 30, 1998. Interest expense was $7.5 million and
$1.9 million for the six months ended June 30, 1999 and 1998, respectively.
Interest expense in all periods is primarily related to borrowings on our Credit
Facility (as defined below) to fund the cash portion of several of our
acquisitions.
Net Income. Net income decreased 2.4% to $10.8 million for the three
months ended June 30, 1999 as compared to $11.0 million for the same period last
year. This decrease of $261,000 is a result of the factors described above. Net
margin was 3.5% for the three months ended June 30, 1999 as compared to 4.5% for
the three months ended June 30, 1998. Net income decreased 5.8% to $17.2 million
for the six months ended June 30, 1999 as compared to $18.2 million for the same
period in 1998. This decrease of $1.1 million is a result of the factors
described above. Net margin was 2.9% for the six months ended June 30, 1999 as
compared to 4.0% for the six months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of funds are from operations, the proceeds of common
stock offerings and borrowings under our Credit Facility. Our principal uses of
cash are to fund acquisitions, working capital and capital expenditures. We
generally pay our temporary associates and professionals weekly for their
services, while receiving payments from customers 30 to 60 days from the date of
the invoice. We have increasing requirements for cash resources to fund working
capital increases, new office openings and the expansion of existing offices.
We have a credit facility with a consortium of banks (the "Credit
Facility"). In May 1999, we expanded the Credit Facility from $300 million to
$325 million. On March 31, 2000, the maximum amount of borrowings under the
Credit Facility is scheduled to revert back to $300 million. The $300 million
portion of the Credit Facility matures in August 2003. The Credit Facility is
secured by all of the issued and outstanding capital stock of our domestic
subsidiaries and 65% of the issued and outstanding capital stock of our foreign
subsidiaries. Interest on any borrowings is computed at our option of either the
bank group's prime rate or the London interbank offered rate incrementally
adjusted based on our operating leverage
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ratios. We pay a quarterly facility fee determined by multiplying the total
amount of the Credit Facility by a percentage which varies based on our
operating leverage ratios. During the three and six months ended June 30, 1999,
our net additional borrowings were approximately $17.7 million and $94.3 million
on our Credit Facility, the majority of which was used to pay the cash
consideration for several of our acquisitions and for general corporate
purposes. In 1998, we entered into fixed interest rate swap agreements with a
notional amount of $60.0 million related to borrowings under the Credit Facility
to hedge against increases in interest rates which would increase the cost of
variable rate borrowings under the Credit Facility. As of August 9, 1999, $277.6
million was outstanding on the Credit Facility.
Net cash provided by operating activities was $7.9 million and $6.9
million for the three months ended June 30, 1999 and 1998, respectively, and
$3.5 million and $8.9 million for the six months ended June 30, 1999 and 1998,
respectively. The net cash provided by or used in operating activities for the
periods presented was primarily attributable to net income and changes in
operating assets and liabilities. Excluding approximately $4.6 million and $13.7
million in nonrecurring merger expenses paid during the three and six months
ended June 30, 1999, respectively, net cash provided by operating activities was
$12.5 million and $17.1 million for the three and six months ended June 30,
1999, respectively.
Net cash used in investing activities was $25.0 million and $65.7
million for the three months ended June 30, 1999 and 1998, respectively, and
$99.6 million and $105.9 million for the six months ended June 30, 1999 and
1998, respectively. Cash used in investing activities for all periods was
primarily related to the Company's acquisitions and capital expenditures.
Net cash provided by financing activities was $17.7 million and $61.2
million for the three months ended June 30, 1999 and 1998, respectively, and
$94.7 million and $100.5 million for the six months ended June 30, 1999 and
1998, respectively. Cash provided by financing activities for the periods
presented were primarily attributable to the proceeds from Credit Facility
borrowings used in conjunction with the Company's acquisitions.
As a result of the above and the related foreign currency translations,
combined cash and cash equivalents increased $300,000 and $503,000 in the second
quarter of 1999 and 1998, respectively. Cash and cash equivalents decreased $3.2
million for the six months ended June 30, 1999 and increased $2.8 million for
the six months ended June 30, 1998.
We believe that our cash flows from operations and borrowings available
under the Credit Facility will provide sufficient liquidity for our existing
operations for the foreseeable future. However, if we continue to make
acquisitions or there is a slowdown in the economy or our business is adversely
influenced by other factors, we would need to seek additional financing through
the public or private sale of equity or debt securities, or we will request our
bank group to increase the Credit Facility. See "--Year 2000 Compliance" and
"Special Note Regarding Forward Looking Statements." There can be no assurance
that we could secure such financing, if and when it is needed, or on terms we
deem acceptable. We periodically reassess the adequacy of our liquidity
position, taking into consideration current and anticipated operating cash flow,
anticipated capital expenditures, acquisition plans, public or private offerings
of debt or equity securities and borrowing availability under the Credit
Facility.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs (whether related
to IT systems or non-IT systems) being written using two digits rather than four
digits to define the applicable year. Computer programs that have time sensitive
software may recognize a date using "00" as the Year 1900 rather than the Year
2000. We have assembled a Year 2000 compliance team that is working on these
compliance matters company-wide. As part of this project and consistent with our
operating strategy, we are implementing one primary front office software
package (Caldwell-Spartin) in a majority of our Commercial offices. In a
majority of our Professional/IT offices, we are implementing one primary search
and retrieval software package (EZaccess) and one primary back office software
package (MAS 90). In addition, we have selected and implemented the PeopleSoft
system for our back office, administrative and accounting systems. All of these
software systems have the ability to process transactions with dates for the
Year 2000 and beyond at no incremental cost and, accordingly, we believe that
Year 2000 costs with respect to these software systems are not expected to have
a material impact on our financial condition or results of operations.
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As to non-IT systems and vendor services, other than banking
relationships and utilities (which includes electrical power, water and related
items), we believe there is no single system or vendor service that is material
to our operations. As to banking needs, our banking relationships are primarily
with large national and international financial institutions which are
undertaking their own Year 2000 compliance procedures and certifying their
compliance to us. Certain of our utility vendors are certifying their Year 2000
compliance to us. To the extent that a utility vendor fails to certify its Year
2000 compliance capability, our contingency plan is to identify and install
back-up utility sources necessary to maintain the critical information systems
at our corporate headquarters. Utility failures at our corporate or branch
offices or the inability of our customers to operate could have a material
adverse effect on our revenue sources and could disrupt our customers' payment
cycle. We are working with our customers to address the Year 2000 issues that
will affect our business and our plan is to ensure that our Year 2000 compliance
project is materially complete by September 30, 1999. We believe that the costs
of our Year 2000 compliance project for each matter individually and all matters
in the aggregate will not be material to our financial condition or results of
operations.
As to software systems and applications utilized by entities acquired or
to be acquired by us, we anticipate that upgrades and/or conversions may be
required to ensure that these systems and applications are Year 2000 compliant.
We believe that any such upgrades and/or conversions will be timely made and are
not expected to have a material impact on our financial condition or results of
operations.
We believe that Year 2000 issues could affect our results of operations
during the remainder of 1999 if our customers delay projects or implement hiring
freezes due to their focus on Year 2000 spending and/or delay requests for
services or expenditure decisions with regard to their existing IT systems until
the beginning of the 2000 year. Due to the diverse services we provide and the
unknown effect of Year 2000 issues on customer spending decisions that could
impact our revenues and results, these Year 2000 uncertainties could have a
material adverse impact on our results of operations for the balance of the 1999
fiscal year.
FOREIGN CURRENCY TRANSLATION
Operations outside of the United States expose us to foreign currency
exchange rate changes and could impact translations of foreign denominated
assets and liabilities into U.S. dollars and future earnings and cash flows from
transactions denominated in different currencies. We operate outside the United
States primarily through wholly owned subsidiaries in the United Kingdom and
Australia. These foreign subsidiaries use the local currency as their functional
currency as sales are generated and expenses are incurred in such currencies.
The translation from the applicable foreign currencies to United States dollars
is performed for balance sheet accounts using current exchange rates in effect
at the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. Gains or losses resulting from such
translations are included in stockholders' equity. We continuously monitor our
exposure to changes in foreign currency exchange rates. From time to time, we
may enter into foreign currency forward and option contracts to manage this
exposure.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Some of the statements in this Quarterly Report on Form 10-Q (this
"10-Q") constitute forward-looking statements under Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, including statements made with respect to our future
earnings per share, liquidity, results of operations, revenues, plans to
accelerate IT staffing revenue growth, slow down in acquisition program,
operations and/or future growth opportunities. These statements involve known
and unknown risks, uncertainties and other factors that may cause results,
levels of activity, growth, performance, earnings per share or achievements to
be materially different from any future results, levels of activity, growth,
performance, earnings per share or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, those
listed under "Business - Factors Affecting Finances, Business Prospects and
Stock Volatility" and elsewhere in our 1998 Annual Report on Form 10-K as filed
with the Commission on March 16, 1999 and under "Potential Risks,
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Detriments and Other Considerations Associated with the Transaction," "Forward
Looking Statements" and elsewhere in our proxy statement filed with the
Commission on September 25, 1998.
The forward-looking statements included in this 10-Q relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "believe," "will,"
"provide," "anticipate," "future," "could," "forward," "potential,"
"opportunity," "growth," "leader," "expect," "intend," "plan," "expand,"
"focus," "implement," "increase," or the negative of such terms or comparable
terminology. These forward-looking statements inherently involve certain risks
and uncertainties, although they are based on our current plans or assessments
which are believed to be reasonable as of the date of this 10-Q. Factors that
may cause actual results, goals, targets or objectives to differ materially from
those contemplated, projected, forecast, estimated, anticipated, planned or
budgeted in such forward-looking statements include, among others, the following
possibilities: (1) an inability to successfully implement the executive and
organizational changes previously announced; (2) the continuation or worsening
of declines in demand for placement (permanent or temporary) or staffing
services; (3) changes in industry trends such as changes in the demand for or
supply of commercial or professional/information technology personnel, whether
on a temporary or permanent placement basis and whether arising out of Year 2000
uncertainties and spending delays or otherwise; (4) adverse developments
involving currency exchange rates that have an effect on our operations; (5)
unanticipated problems associated with integrating acquired companies and their
operations; (6) failure to obtain new customers or retain significant existing
customers; (7) inability to carry out marketing and sales plans; (8) inability
to obtain capital or refinance debt for future internal and external growth; (9)
loss of key executives; and (10) general economic and business conditions
(whether foreign, national, state or local) which are less favorable than
expected. Actual events or results may differ materially. These factors may
cause our actual results to differ materially from any forward-looking
statement.
Although we believe that the expectations in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, growth, earnings per share or achievements. However,
neither we nor any other person assumes responsibility for the accuracy and
completeness of such statements. We are under no duty to update any of the
forward-looking statements after the date of this 10-Q to conform such
statements to actual results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the six months ended June 30, 1999, we did not enter into new
arrangements, or modify existing arrangements, concerning market risk. For a
description of such existing arrangements, see Note 8 to our audited financial
statements filed as part of our 1998 Annual Report on Form 10-K as filed with
the Commission on March 16, 1999. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital Resources
- -- Foreign Currency Translation."
PART II
ITEM 1. LEGAL PROCEEDINGS
From March 12, 1999 through April 22, 1999, John A. Jennen, Richard A.
Watson, Rick W. Johnson, Edward D. LaFrance and Trust Equity Advisors Plus, LLC,
each purporting to act on behalf of a class of our stockholders, filed
complaints against us in the United States District Court for the Eastern
District (in the case of each plaintiff except Mr. LaFrance) and Western
District (in the case of Mr. LaFrance) of Arkansas, alleging that the defendants
(which in addition to us includes one of our officer/directors and an officer of
one of our subsidiaries), violated the federal securities laws, and seeks
unspecified compensatory and other damages. By order entered May 6, 1999, the
four cases pending in the Eastern District of Arkansas were consolidated into
one action, and on July 15, 1999, the LaFrance action in the Western District of
Arkansas was transferred to the Eastern District to be consolidated with the
other four cases. Motions for the appointment of lead plaintiff and lead
plaintiff counsel are pending. The defendants believe that these complaints are
without merit and deny all of the allegations of wrongdoing and are vigorously
defending the suits.
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We also are a party to litigation incidental to our business. We believe
that these routine legal proceedings will not have a material adverse effect on
the results of operations or financial condition. We maintain insurance in
amounts, with coverages and deductibles, that we believe are reasonable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Our Board of Directors at a board meeting held on May 7, 1999, approved
amendments to our Amended and Restated By-laws (the "By-laws"). The By-laws and
the amendments described below relate to our common stock, the class of which is
registered under Section 12(g) of the Securities Exchange Act of 1934, as
amended. The amendments to the By-laws consist of the following matters:
(1) Article I, Section 4 which now only enables a majority of the
Board of Directors (or its duly appointed designees) to call a
special meeting of our stockholders;
(2) Article II, Section 9 which now requires notice, record date
and procedural requirements for any proposed action by written
consent of our stockholders;
(3) Article I, Section 10 which now establishes advance notice
requirements for Director nominations and other stockholder
proposals at any meeting of our stockholders; and
(4) Article I, Section 5, Article I, Section 7 and Article II,
Section 2 all of which include conforming changes related to
items (1)-(3) described in this paragraph.
A copy of the By-laws, as amended is filed herewith as Exhibit 3.5 to this Form
10-Q.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our 1999 Annual Meeting of Stockholders on May 7, 1999 (the
"Meeting"). Our stockholders elected ten (10) Directors to serve until the 2000
Annual Meeting or until their successors are duly elected and qualified. Of the
29,310,127 shares of outstanding common stock entitled to vote at the Meeting,
24,634,888 shares were represented either in person or by proxy at the Meeting.
Our stockholders voted on and approved the persons listed below to be our
Directors, with the voting results at the Meeting being provided below:
Authority
Name For Withheld
- ------------------------ ---------- ---------
W. David Bartholomew 23,445,046 1,189,842
Janice Blethen 23,444,046 1,190,842
Clete T. Brewer 23,860,314 774,574
Jerry T. Brewer 23,460,315 1,174,573
William T. Gregory 23,445,046 1,189,842
William J. Lynch 23,848,785 786,103
John H. Maxwell, Jr. 23,444,246 1,190,642
R. Clayton McWhorter 23,843,105 791,783
Charles A. Sanders, M.D. 23,844,885 790,003
Steven E. Schulte 23,444,723 1,190,165
No other matters to be voted upon came before the Meeting.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.5 Amended and Restated Bylaws of the Company, as amended on May
7, 1999.
11.1 Statement re: computation of per share earnings, reference is
made to Note 6 of the StaffMark, Inc. Consolidated Financial
Statements contained in this Form 10-Q.
10.30 First Amendment to Third Amended and Restated Credit Agreement
dated May 6, 1999, by and among StaffMark, Inc., Robert
Walters plc, Robert Walters Tristar pty ltd., the lenders
named therein (the "Lenders"), The First National Bank of
Chicago, as syndication agent on behalf of the Lenders,
Mercantile Bank National Association, as administrative agent
on behalf of the Lenders, and Bank of America National Trust
and Savings Association, Credit Lyonnais New York Branch,
Fleet National Bank and First Union National Bank, as
co-agents on behalf of the Lenders.
10.31 Lease Agreement by and between StaffMark, Inc. and Brewer
Investments II LC dated June 2, 1999 and effective as of July
1, 1999, for StaffMark, Inc.'s corporate headquarters located
at 302 East Millsap and 234 East Millsap in Fayetteville,
Arkansas.
27.1 Financial Data Schedule for the three months ended June 30,
1999, submitted to the SEC in electronic format.
(b) Reports on Form 8-K
1. None.
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.
STAFFMARK, INC.
Date: August 13, 1999 /s/ CLETE T. BREWER
------------------------------
Clete T. Brewer
Chief Executive Officer and President
Date: August 13, 1999 /s/ TERRY C. BELLORA
------------------------------
Terry C. Bellora
Chief Financial Officer
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INDEX TO EXHIBITS
Exhibit
Number Description
------- -----------
3.5 Amended and Restated Bylaws of the Company, as amended on May
7, 1999.
11.1 Statement re: computation of per share earnings, reference is
made to Note 6 of the StaffMark, Inc. Consolidated Financial
Statements contained in this Form 10-Q.
10.30 First Amendment to Third Amended and Restated Credit Agreement
dated May 6, 1999, by and among StaffMark, Inc., Robert
Walters plc, Robert Walters Tristar pty ltd., the lenders
named therein (the "Lenders"), The First National Bank of
Chicago, as syndication agent on behalf of the Lenders,
Mercantile Bank National Association, as administrative agent
on behalf of the Lenders, and Bank of America National Trust
and Savings Association, Credit Lyonnais New York Branch,
Fleet National Bank and First Union National Bank, as
co-agents on behalf of the Lenders.
10.31 Lease Agreement by and between StaffMark, Inc. and Brewer
Investments II LC dated June 2, 1999 and effective as of July
1, 1999, for StaffMark, Inc.'s corporate headquarters located
at 302 East Millsap and 234 East Millsap in Fayetteville,
Arkansas.
27.1 Financial Data Schedule for the three months ended June 30,
1999, submitted to the SEC in electronic format.