<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported): . . . . . . . March 18, 1997
STAFFMARK, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-20971 71-0788538
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation) Identification No.)
302 East Millsap Road
Fayetteville, Arkansas 72703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: . . . . . . (501) 973-6000
<PAGE> 2
Item 2. Acquisition or Disposition of Assets
On March 18, 1997, StaffMark, Inc. (the "Company") completed the
purchase of substantially all of the assets of Flexible Personnel, Inc.
("Flexible"), H.R. America, Inc. ("HR America"), and Great Lakes Search
Associates, Inc. ("Great Lakes"), each an Indiana corporation (collectively, the
"Acquired Businesses"). Flexible and Great Lakes were acquired through the
Company's wholly-owned subsidiary, StaffMark Acquisition Corporation Two, a
Delaware corporation. HR America was acquired through the Company's wholly-owned
subsidiary, StaffMark Acquisition Corporation Three, a Delaware corporation.
Flexible provides temporary and direct placements in the light industrial,
clerical, professional, and technical industries. Great Lakes provides
contingency and retainer search services. HR America is a Professional Employer
Organization. The Acquired Businesses are headquartered in Fort Wayne, Indiana.
The assets purchased primarily consist of cash, accounts receivable,
general corporate assets, trade marks, trade names, customer contracts and
related information, and employee agreements. In addition, the Company assumed
certain liabilities of the Acquired Businesses related to the assets. The total
consideration paid for the assets was approximately $10 million, including
$7.5 million in cash and 183,823 shares of restricted Common Stock of the
Company, plus an additional amount based upon future earnings of the Acquired
Businesses. The purchase price for the Acquired Businesses was determined as a
result of direct negotiations with the Acquired Business, and the funds used
in the acquisition were proceeds from the Company's initial public offering of
Common Stock.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
(b) Pro Forma Financial Information
(c) Exhibits. The following exhibits are filed with this Form
8-K:
2.1 Asset Purchase Agreement, dated March 17, 1997, among
StaffMark, Inc., StaffMark Acquisition Corporation
Two, StaffMark Acquisition Corporation Three, and
Flexible Personnel, Inc, H.R. America, Inc., and
Great Lakes Search Associates, Inc.(1) incorporated by
reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K, filed April, 2, 1997
99.1 Press Release dated March 18, 1997 incorporated by
reference to Exhibit 99.1 to the Company's Current
report on Form 8-K, filed April 2, 1997.
(1) The Company will furnish supplementally a copy of any omitted
schedule to the Securities and Exchange Commission upon request.
<PAGE> 3
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 hereunto duly authorized.
STAFFMARK, INC.
(Registrant)
Date: May 30, 1997 By: /s/ Terry C. Bellora
-----------------------------
Terry C. Bellora Chief
Financial Officer
<PAGE> 4
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
Flexible Personnel Group of Companies:
We have audited the accompanying combined balance sheet of Flexible
Personnel Group of Companies (the Company) as of December 31, 1996 and
the related combined statements of income, changes in stockholders'
equity and cash flows for the year then ended. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial
position of Flexible Personnel Group of Companies as of December 31,
1996 and the combined results of its operations and its cash flows
for the year then ended, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the combined financial statements, the
Company changed the entities included in the combined financial
statements during 1996. Also, as discussed in Note 2 to the combined
financial statements, the Company has recorded a prior period adjustment
relating to liabilities previously not recorded.
/s/ COOPERS & LYBRAND L.L.P.
Fort Wayne, Indiana
February 4, 1997 except
for Note 4 for which the
date is February 24, 1997
except for Note 8 for which
the date is March 17, 1997.
1
<PAGE> 5
FLEXIBLE PERSONNEL GROUP OF COMPANIES
COMBINED BALANCE SHEET
As of December 31, 1996
(All dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 117
Accounts receivable, trade, net of allowance for doubtful
accounts of $69 3,869
Accounts receivable, related parties 26
Notes receivable, related parties 502
Other 403
------
Total current assets 4,917
Property and equipment, at cost:
Leasehold improvements 267
Office equipment 1,252
Automobiles 113
------
1,632
Less accumulated depreciation and amortization 864
------
768
Notes receivable, related parties 47
Other assets 242
------
Total assets $5,974
======
LIABILITIES
Current liabilities:
Accrued expenses $ 1,376
Accounts payable, trade 70
Accounts payable, related parties 1
Notes payable 867
------
Total current liabilities 2,314
Workers compensation payable 520
Notes payable 206
STOCKHOLDERS' EQUITY
Common stock 8
Additional paid-in capital 914
Retained earnings 2,928
------
3,850
Less notes receivable from stockholders 644
Less treasury stock, 71 shares, at cost 272
------
2,934
------
Total liabilities and stockholders' equity $5,974
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 6
FLEXIBLE PERSONNEL GROUP OF COMPANIES
COMBINED STATEMENT OF INCOME
For the year ended December 31, 1996
(All dollar amounts in thousands)
<TABLE>
<CAPTION>
<S> <C>
Sales $49,342
Cost of sales 39,928
-------
Gross profit 9,414
Operating, selling and administrative expenses 8,085
Depreciation and amortization 316
-------
Operating income 1,013
Interest expense 121
-------
Net income $ 892
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 7
FLEXIBLE PERSONNEL GROUP OF COMPANIES
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the year ended December 31, 1996
(All dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Common stock, $0 par
-------------------------- Notes
$10 per $0 per Additional receivable
share share paid-in Retained from Treasury
stated value stated value capital earnings stockholders stock Total
------------ ------------ -------- ---------- ------------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995, as restated $ 7 $ 1 $ 744 $ 2,153 $ (707) $ 2,198
Distributions paid (117) (117)
Acquisition of stock into treasury $ (272) (272)
Shareholder advances foregiven 63 63
Capital contribution 170 170
Net income 892 892
------ ------- ------- ---------- ------- ------- --------
Balance, December 31, 1996 $ 7 $ 1 $ 914 $ 2,928 $ (644) $ (272) $ 2,934
====== ======= ======= ========== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 8
FLEXIBLE PERSONNEL GROUP OF COMPANIES
COMBINED STATEMENT OF CASH FLOWS
For the year ended December 31, 1996
(All dollar amounts in thousands)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 892
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 316
Non-cash write off of notes receivable, stockholder 63
Changes in assets and liabilities:
Accounts receivable, trade (335)
Accounts receivable, related parties (19)
Other assets (395)
Accrued expenses 450
Accounts payable, trade 65
Accounts payable, related parties (43)
--------------
Net cash provided by operating activities 994
--------------
Cash flows from investing activities:
Purchases of property and equipment (204)
Issuance of notes receivable, related parties (28)
Issuance of notes receivable, stockholders (760)
Principal payments received from notes receivable, related party 402
--------------
Net cash used for investing activities (590)
--------------
Cash flows from financing activities:
Principal payments on notes payable (4,034)
Proceeds from notes payable 3,617
Capital contribution 170
Distributions paid (117)
--------------
Net cash used for financing activities (364)
--------------
Net increase in cash 40
Cash, beginning of year 77
--------------
Cash, end of year $ 117
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 9
FLEXIBLE PERSONNEL GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(All dollar amounts in thousands)
1. COMPANY BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. COMBINATION: The combined financial statements of Flexible
Personnel Group of Companies (the Company) contain the accounts
of Flexible Personnel, Inc. (FPI) H.R. America, Inc. (HRA) and
Great Lakes Search Associates, Inc. (GLSA), which are of common
ownership. These Companies offer temporary, direct, and employee
leasing services to customers mainly in the midwestern portion of
the United States. The December 31, 1995 financial statement
information was restated to reflect exclusion of National On-Site
Personnel, Inc. (NOPS), which had previously been combined with
the aforementioned entities. This entity has been excluded as the
nature of its business focus differs from that of the Companies
included. All significant intercompany accounts and transactions
have been eliminated in the combination.
b. DEPRECIATION AND AMORTIZATION: Depreciation of equipment and
amortization of leasehold improvements are determined principally
on accelerated methods used for income tax reporting purposes.
The amount of depreciation and amortization under these methods
is not significantly different than that based on the estimated
economic useful lives for financial reporting purposes. Costs and
related accumulated depreciation are removed from the accounts
for assets retired or disposed of and a gain or loss on
disposition is recorded when realized.
c. CASH FLOWS: Cash paid for interest approximated $130 for 1996.
d. ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
2. PRIOR PERIOD ADJUSTMENT:
During 1996 the Company was notified of and recorded a $797
liability for workers compensation claims related to a plan that
the Company previously participated in. The Company withdrew from
the plan in 1995, and the liability represents prior and future
claims relating to injuries incurred prior to terminating the
Company's participation in the plan.
3. INCOME TAXES:
No provision is made for federal or state income taxes in as much
as the Company's stockholders have consented to have the
Companies' income taxed directly to them as provided by Section
1362(a) of the Internal Revenue Code.
6
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. NOTES PAYABLE:
During 1996, the Company maintained a line of credit with a
commercial bank which aggregated $4,600. The agreement, which
expires May 31, 1997, requires quarterly interest payments
charged at 2.25% above the 30, 60, or 90 day LIBOR for comparable
30, 60, or 90 day periods (effective rate of 7.75%). The total
amount borrowed against the agreement was $1,245. The Company was
contingently liable for $444 at December 31, 1996, which was
borrowed by NOPS. The additional amount available at December 31,
1996 was $2,750. The agreement also provides for an additional
$605 letter of credit.
The agreement is collateralized by substantially all the trade
accounts receivable of FPI and NOPS, which approximated $4,514 at
December 31, 1996. The agreement also contains certain
restrictive covenants common to such agreements related to the
Company's operations, including the maintenance of working
capital, net worth, limitations on capital expenditures,
limitations on stockholder distributions and incurrence of
additional indebtedness. Subsequent to December 31, 1996, the
Company received a waiver for loan covenant violations that
occurred during the year ended December 31, 1996.
During 1996, a key employee and minority shareholder's employment
was terminated with the Company. Under the terms of the
termination agreement, the Company agreed to buy back the
employee's shares of stock and forgive approximately $63 of
shareholder advances that the minority shareholder owed to the
Company. The former shareholder also signed a non-compete
agreement in the amount of $157 that will be paid out over the
term of the agreement (four years). In total, based on the terms
of the termination agreement, including the items discussed
above, the Company is required to pay approximately $293 in
monthly installments of approximately $7 for a period of four
years.
Notes payable at December 31 consisted of the following:
<TABLE>
<S> <C>
Line of credit $801
8.25% note to former shareholder due in
monthly principal and interest payments of
approximately $7 through August 1, 2001 272
----
1073
Less current maturities 867
----
$206
====
</TABLE>
Aggregate maturities of long-term debt in the ensuing four years
are $867, $72, $78, and $56, respectively.
7
<PAGE> 11
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
5. COMMON STOCK:
The components of Common Stock at December 31 are as follows:
<TABLE>
<S> <C>
Common stock, no par value, $10 per share stated value,
1,000 shares authorized; 677.9 shares issued; 623.6
shares outstanding $ 7
Common stock, no par value, no stated value, 2,000 shares
authorized; 49 shares issued and outstanding 1
----
$ 8
====
</TABLE>
6. NOTES RECEIVABLE, RELATED PARTIES:
Notes receivable from related parties consisted of the following at
December 31:
<TABLE>
<S> <C>
9% notes from certain franchises of Flexible Personnel, Inc.,
principal and interest due in 1997 $ 47
8.50% demand notes from shareholders 644
8.50% demand notes from shareholders to be repaid in 1997 502
</TABLE>
7. LEASE COMMITMENTS:
The Company has several noncancelable operating lease agreements for
buildings where their operations are located. Certain of these lease
agreements contain renewal options. Rent expense under these leases
approximated $607 in 1996. Minimum annual rental payments due under these
leases during the remaining lease terms approximate the following:
<TABLE>
<S> <C>
YEAR
1997 $454
1998 282
1999 210
2000 129
2001 81
</TABLE>
8. SUBSEQUENT EVENT:
On March 17, 1997, the Company was sold and these financial statements
reflect the entities which were sold to StaffMark, Inc.
8
<PAGE> 12
SUPPLEMENTARY FINANCIAL DATA
To the Stockholders
Flexible Personnel Group of Companies:
Our report on audit of the combined financial statements of Flexible Personnel
Group of Companies as of December 31, 1996 and for the year then ended appears
on page 1. This audit was conducted for the purpose of forming an opinion on
the combined financial statements taken as a whole. The supplementary combining
information accompanying the combined financial statements is not necessary for
fair presentation of the combined financial position, results of operations,
and cash flows of Flexible Personnel Group of Companies in conformity with
generally accepted accounting principles. The supplementary information is
presented only for purposes of additional analysis and is not a required part
of the basic combined financial statements. The supplementary combining
information has been subjected to the auditing procedures applied in the audit
of the combined financial statements and, in our opinion, is fairly stated, in
all material respects, in relation to the combined financial statements taken
as a whole.
/s/ COOPERS & LYBRAND L.L.P.
Fort Wayne, Indiana
February 4, 1997 except
for Note 4 , for which the
date is February 24, 1997
except for Note 8 for which
the date is March 17, 1997.
9
<PAGE> 13
FLEXIBLE GROUP OF COMPANIES
Supplementary Financial Data
COMBINING BALANCE SHEET
As of December 31, 1996
(All dollar amounts in thousands)
<TABLE>
<CAPTION>
Great Lakes
Flexible H.R. Search
Personnel, America, Associates,
ASSETS Inc. Inc. Inc. Eliminations Combined
---------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Current assets:
Cash $ 92 $ 24 $ 1 $ 117
Accounts receivable, trade, net of allowance for
doubtful accounts of $69 3,714 115 40 3,869
Accounts receivable, related parties 47 170 $ (191) 26
Notes receivable, related party 470 32 502
Other 401 2 403
---------- ---------- ---------- ---------- ----------
Total current assets 4,724 173 211 (191) 4,917
---------- ---------- ---------- ---------- ----------
Property and equipment, at cost:
Leasehold improvements 266 1 267
Office equipment 1,209 33 10 1,252
Automobiles 113 113
---------- ---------- ---------- ---------- ----------
1,588 34 10 1,632
Less accumulated depreciation
and amortization 833 27 4 864
---------- ---------- ---------- ---------- ----------
755 7 6 768
---------- ---------- ---------- ---------- ----------
Note receivable, related party 47 47
Other assets 208 34 242
---------- ---------- ---------- ---------- ----------
Total assets $ 5,734 $ 214 $ 217 $ (191) $ 5,974
========== ========== ========== ========== ==========
</TABLE>
10
<PAGE> 14
FLEXIBLE PERSONNEL GROUP OF COMPANIES
Supplementary Financial Data
COMBINING BALANCE SHEET, CONTINUED
As of December 31, 1996
(All dollar amounts in thousands)
<TABLE>
<CAPTION>
Great Lakes
Flexible H.R. Search
Personnel, America, Associates,
LIABILITIES Inc. Inc. Inc. Eliminations Combined
---------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Current liabilities:
Accrued expenses $ 1,107 $ 266 $ 3 $ 1,376
Accounts payable, trade 70 70
Accounts payable, related parties 171 3 18 $ (191) 1
Notes payable (receivable) 1,030 (265) 102 867
---------- ---------- ---------- ---------- ----------
Total current liabilities 2,378 4 123 (191) 2,314
---------- ---------- ---------- ---------- ----------
Long term liabilities:
Workers compensation payable 520 520
Notes payable, related parties 206 206
---------- ---------- ---------- ---------- ----------
Total liabilities 3,104 4 123 (191) 3,040
---------- ---------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY
Common stock 7 1 8
Additional paid-in capital 493 421 914
Notes receivable from stockholders (644) (644)
Treasury stock (212) (60) (272)
Retained earnings (accumulated deficit) 2,986 269 (327) 2,928
---------- ---------- ---------- ---------- ----------
2,630 210 94 2,934
---------- ---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $ 5,734 $ 214 $ 217 $ (191) $ 5,974
========== ========== ========== ========== ==========
</TABLE>
11
<PAGE> 15
FLEXIBLE PERSONNEL GROUP OF COMPANIES
Supplementary Financial Data
COMBINING STATEMENT OF INCOME
For the year ended December 31, 1996
(All dollar amounts in thousands)
<TABLE>
<CAPTION>
Great Lakes
Flexible H.R. Search
Personnel, America, Associates,
Inc. Inc. Inc. Eliminations Combined
---------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Sales $ 44,847 $ 9,565 $ 427 $ (5,497) $ 49,342
Cost of sales 36,000 9,045 380 (5,497) 39,928
---------- ---------- ---------- ---------- ----------
Gross profit 8,847 520 47 9,414
Operating, selling and administrative expenses 7,612 289 184 8,085
Depreciation and amortization 307 6 3 316
---------- ---------- ---------- ---------- ----------
Operating income (loss) 928 225 (140) 1,013
Interest expense 112 1 8 121
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 816 $ 224 $ (148) $ $ 892
========== ========== ========== ========== ==========
</TABLE>
12
<PAGE> 16
STAFFMARK, INC. - FORM 8-K/A
1996 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
INTRODUCTION
StaffMark, Inc. (the "Company" or "StaffMark") was founded in March 1996
to create a leading provider of diversified staffing services to businesses,
healthcare providers, professional and service organizations and governmental
agencies, primarily in growth markets in the southeastern and southwestern
United States. On October 2, 1996, StaffMark and six staffing service
businesses, Brewer Personnel Services, Inc. ("Brewer"), Prostaff Personnel,
Inc. and its related entities ("Prostaff"), Maxwell Staffing, Inc. and its
related entities ("Maxwell"), HRA, Inc. ("HRA"), First Choice Staffing, Inc.
("First Choice") and Blethen Temporaries, Inc. and its related entities
("Blethen"), (each a "Founding Company" and collectively, the "Founding
Companies"), merged through a series of separate transactions (the "Merger")
simultaneously with the closing of the Company's initial public offering (the
"Offering").
Between March 1996 and the consummation of the Offering, the Company did
not conduct any operations and all activities prior to the Offering related to
the Merger and the Offering. Pursuant to the requirements of the Securities and
Exchange Commission's ("SEC") Staff Accounting Bulletin No. 97 ("SAB 97"),
which was issued and became effective July 31, 1996, Brewer was designated as
the acquirer, for financial reporting purposes, of Prostaff, Maxwell, HRA,
First Choice, and Blethen (collectively, the "Other Founding Companies").
Based upon the applicable provisions of SAB 97, these acquisitions were
accounted for as combinations at historical cost.
Effective March 1, 1997, StaffMark acquired Flexible Personnel, Inc.,
Great Lakes Search Associates, Inc., and HR America, Inc. (collectively,
"Flexible"). Located in Fort Wayne, Indiana, Flexible operates a total of 40
offices throughout Indiana, Michigan and Ohio and provides clerical, light
industrial, professional/information technology, accounting services, and staff
leasing. Flexible had 1996 revenues of approximately $49.3 million and
operates in the Commercial and Professional/Information Technology divisions.
The total consideration paid for Flexible's assets was approximately $10.0
million, including $7.5 million in cash and 183,823 restricted shares of
StaffMark Common Stock.
In addition to the purchase price disclosed above, Flexible's
acquisition agreement includes provisions for the payment of additional
consideration contingent upon the achievement of certain performance measures
during the twelve months immediately following the acquisition. Although the
contingent consideration could be significant to the accompanying unaudited pro
forma combined financial statements, the amounts are not currently determinable
and, accordingly, have not been reflected in the accompanying financial
statements. The obligations for this contingent consideration, which will be
payable in a combination of cash and Common Stock, will be recorded in the
Company's financial statements when they become fixed and determinable.
The following unaudited pro forma combined financial statements
present Brewer and StaffMark and give effect to the following pro forma
adjustments: (i) the acquisition of the Other Founding Companies at historical
cost in accordance with the applicable provisions of SAB 97; (ii) the effect of
Brewer's February 1996 acquisition of On Call Employment Services, Inc. ("On
Call"); (iii) the effect of StaffMark's March 1997 acquisition of Flexible;
(iv) the adjustment to compensation expense for the difference between the
historical compensation paid to certain previous owners of the Founding
Companies and Flexible and the employment contract compensation ("Compensation
Differential"); and (v) the incremental provision for income taxes attributable
to the income of subchapter S Corporations, net of the income tax benefits
related to the Compensation Differential.
The pro forma financial data do not purport to represent what the
Company's financial position or results of operations would actually have been
if such transactions in fact had occurred at the beginning of 1996 or to
project the Company's financial position or results of operations for any
future period.
<PAGE> 17
STAFFMARK, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Pro Forma
Merger
ASSETS StaffMark Flexible (a) Adjustments Pro Forma
- --------------------------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,856 $ 117 $ (7,500)(f) $ 5,774
(699)(g)
Accounts receivable, net of allowance
for doubtful accounts 21,065 3,869 -- 24,934
Accounts receivable, related parties -- 26 (26)(b) --
Notes receivable, related parties -- 502 (502)(b) --
Prepaid expenses and other 1,578 403 (48)(b) 1,933
-------- -------- -------- --------
Total current assets 36,499 4,917 (8,775) 32,641
PROPERTY AND EQUIPMENT, net 4,004 768 (69)(b) 4,703
NOTES RECEIVABLE, RELATED PARTIES -- 47 (47)(b) --
INTANGIBLE ASSETS, net 30,512 -- 6,051 (c) 36,563
OTHER ASSETS 483 242 (206)(b) 519
-------- -------- -------- --------
$ 71,498 $ 5,974 $ (3,046) $ 74,426
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 1,907 $ 1,447 $ (1)(b) $ 3,353
Outstanding checks 176 -- -- 176
Payroll and related liabilities 3,516 -- -- 3,516
Reserve for workers' compensation claims 3,771 520 -- 4,291
Current maturities of debt -- 867 (168)(b) --
(699)(g)
Income taxes payable 2,415 -- -- 2,415
Deferred income taxes 663 -- (663)(d) --
-------- -------- -------- --------
Total current liabilities 12,448 2,834 (1,531) 13,751
LONG-TERM DEBT, less current maturities -- 206 (206)(b) --
OTHER LONG TERM LIABILITIES 519 -- -- 519
DEFERRED INCOME TAXES 421 -- -- 421
-------- -------- -------- --------
Total liabilities 13,388 3,040 (1,737) 14,691
STOCKHOLDERS' EQUITY:
Common stock 134 8 (8)(b) 136
2 (e)
Paid-in capital 55,379 914 (914)(b) 57,002
1,623 (e)
Retained earnings 2,597 2,928 (2,928)(b) 2,597
Notes receivable from stockholders -- (644) 644 (b) --
Treasury stock -- (272) 272 (b) --
-------- -------- -------- --------
Total stockholders' equity 58,110 2,934 (1,309) 59,735
-------- -------- -------- --------
$ 71,498 $ 5,974 $ (3,046) $ 74,426
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
<PAGE> 18
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1996
(a) Records the audited December 31, 1996 balance sheet of Flexible, which
was purchased by StaffMark in March 1997.
(b) Records the adjustment to remove assets and liabilities not assumed by
StaffMark in conjunction with the acquisition of Flexible.
(c) Records the net intangible assets recorded by StaffMark in conjunction
with the acquisition of Flexible.
(d) Records the adjustment to the recorded deferred income tax balances
attributable to the temporary differences between financial reporting
and income tax basis of assets and liabilities held by Flexible.
(e) Records the issuance of 183,823 shares of restricted StaffMark Common
Stock issued to the stockholders of Flexible in connection with the
acquisition of Flexible.
(f) Records the distribution of the cash portion of the consideration due
to the stockholders of Flexible in connection with the acquisition.
(g) Records the repayment of Flexible's debt obligations assumed by
StaffMark in conjunction with the acquisition.
<PAGE> 19
STAFFMARK, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Acquisition Related Adjustments
-------------------------------------------------------------
Other Founding On Call for
Companies from the period from
January 1, 1996 to January 1, 1996 to
StaffMark September 30, 1996 February 2, 1996 (a) Flexible(b)
--------- ------------------- -------------------- --------
<S> <C> <C> <C> <C>
SERVICE REVENUES $104,476 $93,968 $1,127 $49,342
COST OF SERVICES 81,607 73,865 945 39,928
-------- ------- ------ -------
Gross profit 22,869 20,103 182 9,414
OPERATING EXPENSES:
Selling, general and administrative 14,624 15,217 116 8,085
Depreciation and amortization 1,373 537 3 316
-------- ------- ------ -------
Operating income 6,872 4,349 63 1,013
-------- ------- ------ -------
OTHER INCOME (EXPENSE):
Interest expense (1,376) (353) -- (121)
Other, net 301 422 5 --
-------- ------- ------ -------
INCOME BEFORE INCOME TAXES 5,797 4,418 68 892
INCOME TAX PROVISION 1,774 465 -- --
-------- ------- ------ -------
Net income (loss) $ 4,023 $ 3,953 $ 68 $ 892
======== ======= ====== =======
<CAPTION>
Acquisition Related Adjustments
-------------------------------
Pro Forma Total
Adjustments Adjustments Pro Forma
----------- ----------- ---------
<S> <C> <C> <C>
SERVICE REVENUES $ -- $144,437 $248,913
COST OF SERVICES -- 114,738 196,345
------- -------- --------
Gross profit -- 29,699 52,568
OPERATING EXPENSES:
Selling, general and administrative (678) (f) 22,740 37,364
Depreciation and amortization 16 (c) 1,074 2,447
202 (d)
------- -------- --------
Operating income 460 5,885 12,757
------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (27) (e) (501) (1,877)
Other, net -- 427 728
------- -------- --------
INCOME BEFORE INCOME TAXES 433 5,811 11,608
INCOME TAX PROVISION 2,527(g) 2,992 4,766
------- -------- --------
Net income (loss) $(2,094) $ 2,819 $ 6,842
======= ======== ========
PRO FORMA NET INCOME PER
COMMON SHARE $ 0.70
========
WEIGHTED AVERAGE SHARES
OUTSTANDING $ 9,753 (h)
========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 20
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(a) Records the audited financial results of On Call, which was purchased
by Brewer on February 2, 1996, for the period from January 1, 1996
through the date of acquisition.
(b) Records the audited financial results of Flexible, which was purchased
by StaffMark effective March 1, 1997.
(c) Adjustment to reflect the amortization expense relating to the
intangible assets recorded in conjunction with the acquisition of On
Call for the period from January 1, 1996 through the date of
acquisition. Intangible assets recorded in conjunction with this
acquisition include goodwill of approximately $3.1 million which is
being amortized over thirty years, a noncompete agreement of
approximately $360,000 which is being amortized over five years and
deferred financing fees of approximately $56,000 which are being
amortized over five years.
(d) Adjustment to reflect the amortization expense relating to the
intangible assets recorded in conjunction with the acquisition of
Flexible for fiscal year 1996. Intangible assets recorded in
conjunction with this acquisition include goodwill of approximately
$6.1 million which is being amortized over thirty years.
(e) Adjustment to reflect the increase in interest expense relating to
debt incurred in conjunction with the acquisition of On Call for the
period from January 1, 1996 through the date of acquisition. This pro
forma expense calculation is based on the $3.0 million borrowed by
Brewer under a term note in conjunction with this acquisition. Pro
forma interest expense is computed based upon the applicable variable
rate in effect on the term note which, based upon the terms of the
agreement, would have approximated 9.9% during the pro forma period.
(f) Adjusts compensation to the level the owners have agreed to receive
from the Founding Companies and Flexible subsequent to the Merger and
respective acquisition.
(g) Records the incremental provision to reflect federal and state income
taxes as if the Founding Companies, On Call and Flexible had been
subchapter C Corporations. This adjustment records income tax expense
at an effective combined tax rate of 39%, adjusted for nondeductible
goodwill amortization.
(h) Includes: (i) 1,355,000 shares issued by StaffMark prior to the
Offering; (ii) 5,618,249 shares issued to the stockholders of the
Founding Companies in connection with the Merger; (iii) 1,326,459
shares issued in connection with the Offering to pay the cash portion
of the consideration for the Founding Companies for the period from
January 1, 1996 through the date of the Offering; (iv) 6,325,000
shares issued in connection with the Offering; (v) 118,763 shares
issued in conjunction with the November 1996 acquisition of The
Technology Source L.L.C.; and (vi) 183,823 shares issued in
conjunction with the March 1997 acquisition of Flexible.
