1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
Quarterly report pursuant to Section 13 or 15(d) of the
[X] Securities Exchange Act of 1934 for the quarterly period ended
September 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 November 10, 1999 was 29,391,041.
1
2
STAFFMARK, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 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 Nine Months Ended September 30, 1999
Compared to Results for the Three and Nine Months Ended September 30, 1998 11
Liquidity and Capital Resources 14
Year 2000 Compliance 15
Foreign Currency Translation 16
Special Note Regarding Forward Looking Statements 16
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 17
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS 17
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 19
2
3
STAFFMARK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
SERVICE REVENUES $319,155 $264,341 $903,739 $722,047
COST OF SERVICES 239,065 194,252 676,449 531,764
-------- -------- -------- --------
Gross profit 80,090 70,089 227,290 190,283
-------- -------- -------- --------
OPERATING EXPENSES:
Selling, general and administrative 56,316 43,685 158,570 124,767
Depreciation and amortization 5,510 3,822 15,641 9,802
Nonrecurring costs 2,153 536 2,153 1,656
-------- -------- -------- --------
Operating income 16,111 22,046 50,926 54,058
-------- -------- -------- --------
OTHER EXPENSE:
Interest expense 4,708 2,121 12,209 3,993
Other, net -- 201 239 251
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 11,403 19,724 38,478 49,814
PROVISION FOR INCOME TAXES 3,581 7,487 13,490 19,350
-------- -------- -------- --------
NET INCOME $ 7,822 $ 12,237 $ 24,988 $ 30,464
======== ======== ======== ========
BASIC EARNINGS PER SHARE $ 0.27 $ 0.42 $ 0.85 $ 1.07
======== ======== ======== ========
DILUTED EARNINGS PER SHARE $ 0.27 $ 0.41 $ 0.85 $ 1.03
======== ======== ======== ========
BASIC EARNINGS PER SHARE EXCLUDING
NONRECURRING COSTS $ 0.32 $ 0.44 $ 0.90 $ 1.10
======== ======== ======== ========
DILUTED EARNINGS PER SHARE EXCLUDING
NONRECURRING COSTS $ 0.32 $ 0.42 $ 0.90 $ 1.06
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
3
4
STAFFMARK, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 779 $ 12,812
Accounts receivable, net 196,364 155,796
Prepaid expenses and other 14,515 10,063
Deferred income taxes 3,172 2,569
---------- ----------
Total current assets 214,830 181,240
PROPERTY AND EQUIPMENT, net 28,730 22,450
INTANGIBLE ASSETS, net 436,539 375,682
OTHER ASSETS 2,736 1,573
---------- ----------
$ 682,835 $ 580,945
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 33,407 $ 35,068
Payroll and related liabilities 41,180 40,309
Reserve for workers' compensation claims 9,091 8,087
Income taxes payable 1,854 3,318
---------- ----------
Total current liabilities 85,532 86,782
LONG TERM DEBT 298,150 176,700
OTHER LONG TERM LIABILITIES 18 47,737
DEFERRED INCOME TAXES 13,422 9,634
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; no shares issued or outstanding -- --
Common stock, $.01 par value; 29,316,594 and 29,083,379 shares issued
and outstanding as of September 30, 1999 and December 31, 1998 293 291
Paid-in capital 215,336 214,271
Retained 71,260 46,263
earnings
Accumulated other comprehensive income (1,176) (733)
---------- ----------
Total stockholders' equity 285,713 260,092
---------- ----------
$ 682,835 $ 580,945
========== ==========
The accompanying notes are an integral part of these balance sheets.
4
5
STAFFMARK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,822 $ 12,237 $ 24,988 $ 30,464
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,510 3,822 15,641 9,802
Provision for bad debts 1,303 69 1,870 1,323
Deferred income taxes 398 357 3,535 (1,203)
Effect of compensatory stock options -- (1,390) -- (1,429)
Change in operating assets and liabilities, net of
acquisitions:
Accounts receivable (9,901) (11,778) (34,093) (32,469)
Prepaid expenses and other (971) (23) (3,935) 385
Other assets (693) 663 (1,545) 2,666
Accounts payable and other accrued liabilities (3,287) 2,786 9,191 1,435
Payroll and related liabilities (712) 10,441 (96) 16,131
Payment of nonrecurring merger expenses (904) -- (14,537) --
Reserve for workers' compensation claims 675 472 714 836
Income taxes payable (4,062) (3,080) (2,143) (2,831)
Other long term liabilities 18 (899) (548) (2,729)
Other, net (729) (510) (1,112) (338)
---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities (5,533) 13,167 (2,070) 22,043
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired (27,323) (35,416) (120,518) (135,037)
Capital expenditures (2,875) (2,019) (9,318) (8,344)
---------- ---------- ---------- ----------
Net cash used in investing activities (30,198) (37,435) (129,836) (143,381)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 69,284 60,918 316,274 203,118
Payments on borrowings (42,662) (34,670) (195,321) (76,310)
Proceeds from stock purchase plan and stock option
exercises 34 275 1,023 803
Deferred financing costs -- (269) (585) (839)
---------- ---------- ---------- ----------
Net cash provided by financing
activities 26,656 26,254 121,391 126,772
---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (9,075) 1,986 (10,515) 5,434
Effect of foreign currency translation on cash and cash
equivalents 198 188 (1,518) (471)
CASH AND CASH EQUIVALENTS, beginning of period 9,656 9,444 12,812 6,655
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 779 $ 11,618 $ 779 $ 11,618
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 4,181 $ 2,384 $ 10,919 $ 3,956
========== ========== ========== ==========
Income taxes paid $ 7,815 $ 8,770 $ 14,152 $ 20,359
========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
5
6
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 September 30, 1999, we operated over 310 offices in 32 states and
15 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.
4. BUSINESS COMBINATIONS:
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.
6
7
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. at the time were
considered significant. We have also included certain financial information in
the tables below from our acquisition of the staffing services division of
WorldTec Group International, Inc. ("WGI") during the fourth quarter of 1998.
These three 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.
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 costs incurred in connection with several of our 1998
pooling-of-interests transactions and the 1999 restructure of IntelliMark, our
IT platform in the Professional/IT segment. The remaining 1998 and 1999
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 nine
months ended September 30, 1999 and 1998 are not necessarily indicative of the
results to be expected for the full year.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS) 1999 1998 1999 1998
-------------- ------------- ------------- -------------
Revenue $ 319,154 $ 286,208 $ 903,739 $ 791,112
============ ============ ============ ============
Net income $ 9,299 $ 12,504 $ 26,465 $ 30,832
============ ============ ============ ============
Basic earnings per share $ 0.32 $ 0.43 $ 0.90 $ 1.07
============ ============ ============ ============
Diluted earnings per share $ 0.32 $ 0.42 $ 0.90 $ 1.03
============ ============ ============ ============
Consideration paid with respect to acquisitions during the three and
nine months ended September 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 paid consisted of $27.3 million in cash for the three
months ended September 30, 1999 and $120.5 million in cash and approximately
200,000 shares of common stock for the nine months ended September 30, 1999.
5. NONRECURRING COSTS:
During the fourth quarter of 1998, we recorded merger and integration
expenses totaling approximately $24.6 million related to the merger with Robert
Walters and other pooling-of-interests transactions completed during 1998.
Included in these costs were 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 consisted primarily of costs related to office closings and
contract terminations pursuant to management's plan of integration, which was
completed by September 30, 1999. Substantially all costs associated with
severance had been incurred as of December 31, 1998. As the remaining balance of
approximately $828,000 represented an overaccrual of merger and integration
expenses relating to the merger with Robert Walters, this amount was reversed
into income during September 1999. The following is a summary of our merger and
integration accrual:
(IN THOUSANDS)
Total merger and integration expenses $ 24,626
Cash outlays (23,798)
Reversal of excess accrual (828)
---------
Accrual at September 30, 1999 $ --
=========
7
8
During the third quarter of 1999, we recorded restructure expenses totaling
approximately $3.0 million relating to the restructure of IntelliMark. Included
in these costs are approximately $2.2 million for severance costs, approximately
$280,000 for office closing costs, and approximately $457,000 for other costs
including legal and travel expenses. These restructure expenses of approximately
$3.0 million were offset by the reversal of the Robert Walters merger and
integration accrual of approximately $828,000. Our IT platform in the
Professional/IT segment closed 12 offices and is implementing a "hub-and-spoke"
branch structure to serve certain markets where a full branch office may not be
required. The implementation of a new front-end system throughout our domestic
IT offices altered branch staff requirements and reduced the need for certain
positions. As part of the IT restructuring, we are in the process of separating
sales and certain management functions between our IT staffing, e-solutions, and
end-user solutions deliveries. Approximately 80 employees were let go or
reassigned in the restructuring process, which also involved the hiring of about
25 new IT salespeople, service specialists and managers. In addition to costs
that have been incurred, the restructure expense also includes future
obligations to severed employees which extend through September 2001. The
following is a summary of our restructure accrual:
(IN THOUSANDS)
Total restructure expenses $ 2,980
Cash outlays (904)
-----------
Accrual at September 30, 1999 $ 2,076
===========
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS EXCEPT PER SHARE DATA) 1999 1998 1999 1998
-------- -------- -------- --------
BASIC EARNINGS PER SHARE:
Net income applicable to common shares $ 7,822 $ 12,237 $ 24,988 $ 30,464
======== ======== ======== ========
Weighted average common shares outstanding 29,301 28,841 29,266 28,497
======== ======== ======== ========
Basic earnings per share of common stock $ 0.27 $ 0.42 $ 0.85 $ 1.07
======== ======== ======== ========
DILUTED EARNINGS PER SHARE:
Net income applicable to common shares $ 7,822 $ 12,237 $ 24,988 $ 30,464
======== ======== ======== ========
Weighted average common shares outstanding 29,301 28,841 29,266 28,497
Dilutive effect of stock options 214 780 229 1,124
-------- -------- -------- --------
Weighted average common shares including
dilutive effect of stock options 29,515 29,621 29,495 29,621
======== ======== ======== ========
Diluted earnings per share of common stock $ 0.27 $ 0.41 $ 0.85 $ 1.03
======== ======== ======== ========
Excluding the restructure expenses of approximately $2.2 million that
were incurred during the third quarter of 1999 relating to the restructure of
IntelliMark, basic and diluted earnings per share were both $0.32 for the three
months ended September 30, 1999 and basic and diluted earnings per share were
both $0.90 for the nine months ended September 30, 1999.
8
9
Excluding the nonrecurring merger costs related to 1998
pooling-of-interests transactions, basic and diluted earnings per share were
$0.44 and $0.42 for the three months ended September 30, 1998 and were $1.10 and
$1.06 for the nine months ended September 30, 1998.
Options to purchase approximately 2.4 million shares of common stock at
prices ranging from $10.06 to $40.75 per share were outstanding during the three
months ended September 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 September 30,
1999.
7. 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 and nine months ended
September 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,
solutions, 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 twelve 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. We do
not have any significant intersegment sales or transfers.
The results of the business segments as of and for the three and nine
months ended September 30, 1999 and 1998 are as follows:
PROFESSIONAL/
INFORMATION CONSOLIDATED
(IN THOUSANDS) TECHNOLOGY COMMERCIAL CORPORATE TOTALS
------------- ---------- --------- ------------
THREE MONTHS ENDED SEPTEMBER 30, 1999
Total service revenues $154,691 $164,464 $ -- $319,155
Operating income 11,164 10,226 (5,279) 16,111
Depreciation and amortization 3,275 1,769 466 5,510
Capital expenditures 869 272 1,734 2,875
Total assets 433,358 215,384 34,093 682,835
THREE MONTHS ENDED SEPTEMBER 30, 1998
Total service revenues $144,459 $119,882 $ -- $264,341
Operating income 15,453 9,253 (2,660) 22,046
Depreciation and amortization 2,389 1,048 385 3,822
Capital expenditures 433 527 1,059 2,019
Total assets 306,947 143,835 57,039 507,821
NINE MONTHS ENDED SEPTEMBER 30, 1999
Total service revenues $454,615 $449,124 $ -- $903,739
Operating income 35,510 27,596 (12,180) 50,926
Depreciation and amortization 9,295 5,123 1,223 15,641
Capital expenditures 2,224 1,817 5,277 9,318
NINE MONTHS ENDED SEPTEMBER 30, 1998
Total service revenues $395,513 $326,534 $ -- $722,047
Operating income 37,371 24,739 (8,052) 54,058
Depreciation and amortization 6,239 2,659 904 9,802
Capital expenditures 2,767 1,259 4,318 8,344
9
10
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
REVENUES BY COUNTRY 1999 1998 1999 1998
---------- ---------- ---------- ----------
United States $ 245,016 $ 196,387 $ 691,762 $ 536,234
United Kingdom 56,134 52,695 162,983 144,330
Australia 13,857 12,647 38,042 33,587
Other 4,148 2,612 10,952 7,896
---------- ---------- ---------- ----------
Total revenues $ 319,155 $ 264,341 $ 903,739 $ 722,047
========== ========== ========== ==========
AT SEPTEMBER 30,
PROPERTY AND EQUIPMENT BY COUNTRY 1999 1998
------- -------
United States $24,520 $15,957
United Kingdom 2,712 3,445
Australia 509 523
Other 989 905
------- -------
Total property and equipment $28,730 $20,830
======= =======
8. COMPREHENSIVE INCOME:
Comprehensive income was as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS) 1999 1998 1999 1998
-------- -------- -------- --------
Net income $ 7,822 $ 12,237 $ 24,988 $ 30,464
Other comprehensive income:
Change in cumulative foreign currency
translation adjustments 198 188 (1,518) (471)
-------- -------- -------- --------
Total comprehensive income $ 8,020 $ 12,425 $ 23,470 $ 29,993
======== ======== ======== ========
10
11
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 nine months ended September 30, 1999 as compared to the results of
operations for the three and nine months ended September 30, 1998. Our services
are provided through two segments: Professional/IT and Commercial. The
Professional/IT segment provides staffing, consulting, solutions, technical and
support 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 310 offices located in 32 states and 15 countries including, but
not limited to, the United States, the United Kingdom, Australia, Germany, New
Zealand, Belgium, the Netherlands, Singapore and Japan.
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 financial information provided below has been rounded in order to
simplify its presentation. The amounts and percentages 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 NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
Revenues. Consolidated revenues increased $54.8 million, or 20.7%, to
$319.2 million for the three months ended September 30, 1999 compared to $264.3
million for the three months ended September 30, 1998. Consolidated revenues
increased $181.7 million, or 25.2%, to $903.7 million for the nine months ended
September 30, 1999 compared to $722.0 million for the nine months ended
September 30, 1998. The purchase acquisitions completed during 1998 and 1999 in
both the Professional/IT and Commercial segments accounted for approximately
$32.9 million and $115.0 million of the increase for the three and nine months
ended September 30, 1999, respectively.
Revenues for the Professional/IT segment increased $10.2 million, or
7.1%, to $154.7 million for the three months ended September 30, 1999 compared
to $144.5 million for three months ended September 30, 1998. Revenues for the
Professional/IT segment increased $59.1 million, or 14.9%, to $454.6 million for
the nine months ended September 30, 1999 compared to $395.5 million for nine
months ended September 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. The
purchase acquisitions completed during 1998 and 1999 in the Professional/IT
segment accounted for approximately $9.6 million and $31.1 million of the
increase for the three and nine months ended September 30, 1999, respectively.
For the three months ended September 30, 1999, the Professional/IT segment had
internal growth of approximately 1%. Domestic IntelliMark revenues decreased 6%
on an internal basis compared with the third quarter of 1998, while the rest of
the
11
12
Professional/IT segment recorded an internal growth rate of approximately 10%.
For the nine months ended September 30, 1999, the Professional/IT segment had
internal growth of approximately 8%. We believe the domestic IT staffing
business was affected adversely by industry trends, including customers' focus
on Year 2000 compliance spending and anticipated deferrals of other IT spending
and staffing requirements until calendar year 2000.
Revenues for the Commercial segment increased $44.6 million, or 37.2%,
to $164.5 million for the three months ended September 30, 1999 compared to
$119.9 million for three months ended September 30, 1998. Revenues for the
Commercial segment increased $122.6 million, or 37.5%, to $449.1 million for the
nine months ended September 30, 1999 compared to $326.5 million for nine months
ended September 30, 1998. This revenue growth is the result of internal growth
and acquisitions completed during 1998, particularly the fourth quarter
acquisition of WGI. Commercial companies purchased during 1998 accounted for
$23.0 million and $83.9 million of the change for the three and nine months
ended September 30, 1999, respectively. For the three months ended September 30,
1999, the Commercial segment had internal growth of approximately 12%. For the
nine months ended September 30, 1999, the Commercial segment had internal growth
of approximately 8%. No Commercial acquisitions have been made during the nine
months ended September 30, 1999.
Gross Profit, SG&A and EBITDA. For the three months ended September 30, 1999,
gross profit as a percentage of revenue decreased from 26.5% to 25.1%, while
SG&A as a percentage of revenue increased from 16.5% to 17.7%; however, SG&A for
the three months ended September 30, 1998 was partially reduced by compensatory
stock option income that was recorded for Robert Walters. Excluding these
nonrecurring stock option amounts, SG&A as a percentage of revenue was 17.1% for
the three months ended September 30, 1998. For the nine months ended September
30, 1999, gross profit as a percentage of revenue decreased from 26.4% to 25.2%
while SG&A as a percentage of revenue increased from 17.3% to 17.6%. Excluding
the compensatory stock option income that was recorded for Robert Walters, SG&A
as a percentage of revenue was 17.5% for the nine months ended September 30,
1998. EBITDA decreased $4.2 million, or 16.4%, to $21.6 million for the three
months ended September 30, 1999 as compared to $25.9 million for the three
months ended September 30, 1998. EBITDA increased $2.7 million, or 4.2%, to
$66.6 million for the nine months ended September 30, 1999 as compared to $63.9
million for the nine months ended September 30, 1998. EBITDA as a percentage of
revenues was 6.8% and 7.4% for the three and nine months ended September 30,
1999, respectively, and 9.8% and 8.8% for the three and nine months ended
September 30, 1998, respectively. Excluding the compensatory stock option income
that was recorded for Robert Walters, EBITDA as a percentage of revenues was
9.3% and 8.6% for the three and nine months ended September 30, 1998,
respectively. The decrease in gross margin and EBITDA is primarily the result of
the faster growth of our commercial staffing segment, which has grown to 52% of
total revenues up from 45% in this quarter last year. Our commercial staffing
growth was related primarily to the Strategic Resource Group, which targets
large accounts that typically bill at lower gross margins than our retail
business in exchange for higher volume, and the acquisition of WGI, which also
has lower margins. The decline in our higher margin Professional/IT revenues as
a percentage of our total consolidated revenues further contributes to the
decline in consolidated margins. We are modifying our IT business model and are
reacting to the Year 2000 issues affecting our revenue and margins as described
below. Exclusive of the 1999 restructure expenses and the 1998 nonrecurring
merger costs as discussed below, EBITDA was $23.8 million and $68.7 million for
the three and nine months ended September 30, 1999 and $26.4 million and $65.5
million for the three and nine months ended September 30, 1998, respectively,
and EBITDA margins were 7.5% and 7.6% for the three and nine months ended
September 30, 1999, respectively, and 10.0% and 9.1% for the three and nine
months ended September 30, 1998, respectively.
Nonrecurring Charges. For the three and nine months ended September 30,
1999, the charge for restructuring our IT platform in the Professional/IT
segment of approximately $3.0 million is comprised primarily of severance,
office closing costs related to management changes, and the redesign of key
business processes in our domestic and international IT operations. Our IT
platform in the Professional/IT segment closed 12 offices and is implementing a
"hub-and-spoke" branch structure to serve certain markets where a full branch
office may not be required. The implementation of a new front-end system
throughout our domestic IT offices altered branch staff requirements and reduced
the need for certain positions. As part of the IT restructuring, we are in the
process of separating sales and certain management functions between our IT
staffing, e-solutions, and end-user solutions deliveries. Approximately 80
employees were let go or reassigned in the restructuring process, which also
involved the hiring of about 25 new IT salespeople, service specialists and
managers. These restructure expenses of approximately $3.0 million were offset
by the reversal of the Robert Walters merger and integration accrual of
approximately $828,000. For the three and nine months ended September 30, 1998,
we incurred nonrecurring merger costs of $536,000 and $1.7 million,
respectively, associated with pooling-of-interests business combinations.
12
13
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $1.7 million, or 44.2%, to $5.5 million for the three months
ended September 30, 1999 as compared to $3.8 million for the three months ended
September 30, 1998. Depreciation and amortization expense increased $5.8
million, or 59.6%, to $15.6 million for the nine months ended September 30, 1999
as compared to $9.8 million for the nine months ended September 30, 1998. This
increase is primarily attributable to amortization of goodwill associated with
our purchase business combinations. Depreciation expense also 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 decreased $5.9 million, or 26.9%, to
$16.1 million for the three months ended September 30, 1999 compared to $22.0
million for the same period last year and decreased $3.1 million, or 5.8%, to
$50.9 million for the nine months ended September 30, 1999 compared to $54.0
million for the nine months ended September 30, 1998. Operating margin was 5.1%
and 5.6% for the three and nine months ended September 30, 1999, respectively,
as compared to 8.3% and 7.5% for the three and nine months ended September 30,
1998, respectively. Although operating income increased as a result of higher
revenues, the operating margin declined due to lower gross profit and higher
depreciation and amortization expense as discussed above. Exclusive of the 1999
restructure expenses and the 1998 nonrecurring merger costs, operating income
was $18.3 million and $53.1 million for the three and nine months ended
September 30, 1999 and $22.6 million and $55.7 million for the three and nine
months ended September 30, 1998, respectively. Operating margin excluding these
costs were 5.7% and 5.9% for the three and nine months ended September 30, 1999,
respectively, and 8.5% and 7.7% for the three and nine months ended September
30, 1998, respectively.
The following operating income discussion at the Professional/IT and
Commercial segment levels excludes unallocated corporate SG&A of $5.3 million
and $12.2 million for the three and nine months ended September 30, 1999,
respectively, and $2.7 million and $8.0 million for the three and nine months
ended September 30, 1998, respectively. The increase in unallocated corporate
SG&A was primarily a result of increased staff health costs associated with
our self-insurance plan, increased rent, utilities and telephone and equipment
lease costs associated with our new corporate headquarters and increased
professional fees primarily associated with international and domestic tax
restructuring, state unemployment tax planning and work opportunity tax credit
consultation.
Operating income for the Professional/IT segment decreased $4.3 million,
or 27.8%, to $11.2 million for the three months ended September 30, 1999 as
compared to $15.5 million for the three months ended September 30, 1998.
Operating income for the Professional/IT segment decreased $1.9 million, or
5.0%, to $35.5 million for the nine months ended September 30, 1999 as compared
to $37.4 million for the nine months ended September 30, 1998. The operating
margin for the Professional/IT segment decreased from 10.7% for the three months
ended September 30, 1998 to 7.2% for the three months ended September 30, 1999
and decreased from 9.4% for the nine months ended September 30, 1998 to 7.8% for
the nine months ended September 30, 1999. Negative growth in domestic IT
staffing, which we believe is associated with Year 2000 spending, deferral of
non-Year 2000 related developments projects, and higher depreciation and
amortization expenses were the primary reasons for the decreases in operating
income and operating margin.
Operating income for the Commercial segment increased $1.0 million, or
10.5%, to $10.2 million for the three months ended September 30, 1999 as
compared to $9.2 million in the same period last year. Operating income for the
Commercial segment increased $2.9 million, or 11.5%, to $27.6 million for the
nine months ended September 30, 1999 as compared to $24.7 million for the nine
months ended September 30, 1998. Continued growth from our Strategic Resource
Group and purchase acquisitions completed during 1998 were the primary factors
contributing to the increase in operating income for the three and nine months
ended September 30, 1999. The activity from our Strategic Resource Group, which
provides customers with dedicated on-site account management, tend to have lower
gross margins than traditional temporary staffing services. However, the higher
volumes and relatively long-term contracts associated with these relationships
have resulted in operating profit growth. The operating margin of the Commercial
segment decreased from 7.7% for the three months ended September 30, 1998 to
6.2% for the three months ended September 30, 1999. The operating margin for the
Commercial segment was 6.1% and 7.6% for the nine months ended September 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 Resource Group, as well as higher depreciation and
amortization expense. Operating margins have also been affected by the movement
of certain support functions from corporate in 1998 to the Commercial segment in
1999.
13
14
Interest Expense. We incurred interest expense of $4.7 million for the
three months ended September 30, 1999 as compared to $2.1 million of interest
expense for the three months ended September 30, 1998. Interest expense was
$12.2 million and $4.0 million for the nine months ended September 30, 1999 and
1998, respectively. Interest expense in all periods is primarily related to
borrowings on our Credit Facility (as defined below) to fund working capital
requirements, the cash portion of our acquisitions and additions to property and
equipment.
Net Income. Net income decreased $4.4 million, or 36.1%, to $7.8 million
for the three months ended September 30, 1999 as compared to $12.2 million for
the same period last year. Net margin was 2.5% for the three months ended
September 30, 1999 as compared to 4.6% for the three months ended September 30,
1998. Net income decreased $5.5 million, or 18.0%, to $25.0 million for the nine
months ended September 30, 1999 as compared to $30.5 million for the same period
in 1998. Net margin was 2.8% for the nine months ended September 30, 1999 as
compared to 4.2% for the nine months ended September 30, 1998. Exclusive of the
1999 restructure expenses and the 1998 nonrecurring merger costs, net income was
$9.3 million and $26.5 million for the three and nine months ended September 30,
1999 and $12.6 million and $31.5 million for the three and nine months ended
September 30, 1998, respectively. Net margin excluding these costs was 2.9% for
both the three and nine months ended September 30, 1999 and was 4.8% and 4.4%
for the three and nine months ended September 30, 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Our primary historical sources of funds are from operations, the
proceeds from securities offerings, if any, and borrowings under our credit
facility with a consortium of banks (the "Credit Facility"). Our principal
historical uses of cash have been to fund acquisitions, working capital
requirements 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.
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 first tier 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 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 nine months ended September 30, 1999, our net additional borrowings on the
Credit Facility were approximately $26.6 million and $121.0 million, the
majority of which was used to pay the cash consideration for several of our
acquisitions and for general corporate purposes. As of November 9, 1999,
$300.7 million was outstanding on the Credit Facility.
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. These swaps did not have a
material impact on recorded interest expense during the periods presented.
Net cash (used in) provided by operating activities was ($5.5) million
and $13.1 million for the three months ended September 30, 1999 and 1998,
respectively, and ($2.1) million and $22.0 million for the nine months ended
September 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
$904,000 and $14.5 million in nonrecurring merger expenses paid during the three
and nine months ended September 30, 1999, respectively, net cash provided by
(used in) operating activities was ($4.6) million and $12.5 million for the
three and nine months ended September 30, 1999, respectively.
Net cash used in investing activities was $30.2 million and $37.4
million for the three months ended September 30, 1999 and 1998, respectively,
and $129.8 million and $143.4 million for the nine months ended September 30,
1999 and 1998, respectively. Cash used in investing activities for all periods
was primarily related to our acquisitions and capital expenditures.
14
15
Net cash provided by financing activities was $26.7 million and $26.3
million for the three months ended September 30, 1999 and 1998, respectively,
and $121.4 million and $126.8 million for the nine months ended September 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 our acquisitions.
As a result of the above and the related foreign currency translations,
combined cash and cash equivalents decreased $8.9 million and $12.0 million for
the three and nine months ended September 30, 1999, respectively. Cash and cash
equivalents increased $2.2 million and $5.0 million for the three and nine
months ended September 30, 1998, respectively.
We believe that our cash flows from operations and borrowings available
under the Credit Facility will provide sufficient liquidity for our existing
operations. However, if we make any acquisitions or there is a slowdown in the
economy or our business is adversely influenced by other factors, we may need to
seek additional financing through the public or private sale of equity or debt
securities or 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 have implemented 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.
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 have
undertaken their own Year 2000 compliance procedures and certified their
compliance to us. Certain of our utility vendors have certified and 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 believe our Year 2000 compliance project will be
materially complete by December 15, 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.
15
16
We believe that Year 2000 related issues will affect our results of
operations during the remainder of 1999 as 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 after the beginning of the 2000 year. Additionally, we could be
adversely affected by delayed payments from customers because of uncertainty
relating to their Year 2000 compliance matters. 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 will 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
liquidity, our IT business model and organization, Year 2000 compliance matters,
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 below, as well as 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 the headings "Potential Risks, Detriments and Other Considerations
Associated with the Transaction," and "Forward Looking Statements" 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," "growth," "increase," "modifying,"
"reacting" 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 business model 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 or timely carry out marketing and sales
plans, including Web-based services; (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
16
17
are less favorable than expected, including but not limited to adverse changes
in interest rates. 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 nine months ended September 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.
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
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
17
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.32 Employment Agreement between StaffMark, Inc. (the
"Company") and Stephen R. Bova dated as of August
18, 1999.
10.33 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
Clete T. Brewer, amending that certain Employment
Agreement dated as of October 1, 1996, by and
among the Company, Brewer Personnel Services, Inc.
and Clete T. Brewer, which original agreement is
incorporated by reference from Exhibit 10.4 to the
Company's Registration Statement on Form S-1 (File
No. 333-15059).
10.34 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
Terry C. Bellora, amending that certain Employment
Agreement dated as of August 20, 1996, by and
among the Company and Terry C. Bellora, which
original agreement is incorporated by reference
from Exhibit 10.3 to the Company's Registration
Statement on Form S-1 (File No. 333-15059).
10.35 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
David Bartholomew, amending that certain
Employment Agreement dated as of October 1, 1996,
by and among the Company, HRA, Inc. n/k/a
StaffMark, Inc. - Nashville and David Bartholomew,
which original agreement is incorporated by
reference from Exhibit 10.8 to the Company's
Registration Statement on Form S-1 (File No.
333-15059).
10.36 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
Gordon Y. Allison, amending that certain
Employment Agreement dated as of June 23, 1997, by
and among the Company and Gordon Y. Allison, which
original agreement is incorporated by reference
from Exhibit 10.1 to the Company's Form 10-Q for
the quarter ended June 30, 1997, filed with the
Commission on July 28, 1997.
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.
27.1 Financial Data Schedule for the three months ended
September 30, 1999, submitted to the Commission in
electronic format.
(b) Reports on Form 8-K
1. A Form 8-K was filed with the Commission on August 31, 1999
relating to the Company's press release which was disseminated
publicly on August 29, 1999.
18
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STAFFMARK, INC.
Date: November 10, 1999 /s/ CLETE T. BREWER
-------------------------------------
Clete T. Brewer
Chief Executive Officer and Chairman
Date: November 10, 1999 /s/ TERRY C. BELLORA
-------------------------------------
Terry C. Bellora
Chief Financial Officer
19
20
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.32 Employment Agreement between StaffMark, Inc. (the
"Company") and Stephen R. Bova dated as of August
18, 1999.
10.33 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
Clete T. Brewer, amending that certain Employment
Agreement dated as of October 1, 1996, by and
among the Company, Brewer Personnel Services, Inc.
and Clete T. Brewer, which original agreement is
incorporated by reference from Exhibit 10.4 to the
Company's Registration Statement on Form S-1 (File
No. 333-15059).
10.34 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
Terry C. Bellora, amending that certain Employment
Agreement dated as of August 20, 1996, by and
among the Company and Terry C. Bellora, which
original agreement is incorporated by reference
from Exhibit 10.3 to the Company's Registration
Statement on Form S-1 (File No. 333-15059).
10.35 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
David Bartholomew, amending that certain
Employment Agreement dated as of October 1, 1996,
by and among the Company, HRA, Inc. n/k/a
StaffMark, Inc. - Nashville and David Bartholomew,
which original agreement is incorporated by
reference from Exhibit 10.8 to the Company's
Registration Statement on Form S-1 (File No.
333-15059).
10.36 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
Gordon Y. Allison, amending that certain
Employment Agreement dated as of June 23, 1997, by
and among the Company and Gordon Y. Allison, which
original agreement is incorporated by reference
from Exhibit 10.1 to the Company's Form 10-Q for
the quarter ended June 30, 1997, filed with the
Commission on July 28, 1997.
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.
27.1 Financial Data Schedule for the three months ended
September 30, 1999, submitted to the Commission in
electronic format.