<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 4, 1997
STAFFMARK, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-20971 71-0788538
(State of 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 August 4, 1997, StaffMark, Inc. (the "Company") completed the purchase
of substantially all of the assets of Expert Business Systems, Incorporated, a
Texas corporation ("EBS"), through the Company's wholly-owned subsidiary,
StaffMark Acquisition Corporation Ten, a Delaware corporation. EBS provides
information technology outsourcing services and is headquartered in the
Dallas/Ft. Worth area.
The assets purchased primarily consist of cash, accounts receivable,
general corporate assets, trademarks, trade names, customer contracts and
certain liabilities of EBS related to the assets. The total consideration paid
for the assets was approximately $5.4 million in cash and 123,500 shares of the
Company's Common Stock, plus a contingent earnout based upon the future
performance of EBS. The purchase price was determined as a result of direct
negotiations with EBS.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
(b) Pro Forma Financial Information
(c) Exhibits. The following exhibit is filed with this Form 8-K/A
2.1 Asset Purchase Agreement, dated August 4, 1997, by and
among StaffMark, Inc., StaffMark Acquisition
Corporation Ten, and Expert Business Systems,
Incorporated incorporated by reference to Exhibit
2.1 to the Company's Current Report on Form 8-K, filed
with the Commission on August 15, 1997 to which this
amendment relates.
<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)
Dated: September 19, 1997 By: /s/ Terry C. Bellora
----------------------------
Terry C. Bellora
Chief Financial Officer
EXHIBIT INDEX
(a) Financial Statements of Business Acquired
(b) Pro Forma Financial Information
(c) Exhibits
2.1 Asset Purchase Agreement, dated August 4, 1997, by and among StaffMark,
Inc., StaffMark Acquisition Corporation Ten, and Expert Business
Systems, Incorporated incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K, filed with the Commission on
August 15, 1997 to which this amendment relates.
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Expert Business Systems, Incorporated:
We have audited the accompanying balance sheet of Expert Business
Systems, Incorporated (the "Company"), as of December 31, 1996, and the related
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 financial statements referred to above present
fairly, in all material respects, the financial position of Expert Business
Systems, Incorporated as of December 31, 1996, and the results of its operations
and its cash flows for the year ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
July 30, 1997.
<PAGE> 5
EXPERT BUSINESS SYSTEMS, INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
---------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 254,469 $ 233,338
Accounts receivable 894,197 1,023,913
Other current assets -- 13,415
---------- ----------
Total current assets 1,148,666 1,270,666
PROPERTY AND EQUIPMENT, net 16,708 47,514
---------- ----------
$1,165,374 $1,318,180
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 54,632 $ 6,397
Payroll and related liabilities 158,796 145,136
Accrued franchise taxes 40,640 38,800
Other current liabilities 27,128 --
---------- ----------
Total current liabilities 281,196 190,333
Notes payable to stockholders 9,653 --
---------- ----------
Total liabilities 290,849 190,333
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Common stock, no par value,
authorized shares of 1,000 at December 31, 1996,
authorized shares of 20,000,000 at June 30, 1997;
shares issued and outstanding of 1,000 at
December 31, 1996, shares issued and
outstanding of 10,000,000 at June 30, 1997 1,000 1,000
Retained earnings 873,525 1,126,847
---------- ----------
Total stockholders' equity 874,525 1,127,847
---------- ----------
$1,165,374 $1,318,180
========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
<PAGE> 6
EXPERT BUSINESS SYSTEMS, INCORPORATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1996 1996 1997
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
SERVICE REVENUES $ 3,298,251 $1,045,272 $ 3,408,957
COST OF SERVICES 1,986,145 658,501 1,957,640
----------- ---------- -----------
Gross profit 1,312,106 386,771 1,451,317
OPERATING EXPENSES:
Selling, general and administrative 603,973 223,166 488,567
Depreciation 21,678 2,534 7,014
----------- ---------- -----------
Operating income 686,455 161,071 955,736
OTHER INCOME (EXPENSE):
Interest expense (1,710) -- (1,033)
Other income (expense), net 69,001 34,194 (764)
----------- ---------- -----------
Income before taxes 753,746 195,265 953,939
PROVISION FOR TAXES 40,640 20,320 38,800
----------- ---------- -----------
Net income $ 713,106 $ 174,945 $ 915,139
=========== ========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE> 7
EXPERT BUSINESS SYSTEMS, INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
---------- ------ ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1996 1,000 $1,000 $ 603,308 $ 604,308
Net income -- -- 713,106 713,106
Distributions -- -- (442,889) (442,889)
---------- ------ ----------- -----------
BALANCE, December 31, 1996 1,000 1,000 873,525 874,525
Net income (Unaudited) -- -- 915,139 915,139
Distributions(Unaudited) -- -- (661,817) (661,817)
Split of common stock (Unaudited) 9,999,000 -- -- --
---------- ------ ----------- -----------
BALANCE, June 30, 1997 (Unaudited) 10,000,000 $1,000 $ 1,126,847 $ 1,127,847
========== ====== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE> 8
EXPERT BUSINESS SYSTEMS, INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1996 1996 1997
--------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 713,106 $ 174,945 $ 915,139
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 21,678 2,534 7,014
Changes in operating assets and liabilities:
Accounts receivable (743,536) (159,810) (129,716)
Other current assets -- -- (13,415)
Accounts payable 35,364 (3,285) (48,235)
Payroll and related liabilities 145,186 10,182 (13,660)
Accrued franchise taxes 29,850 9,530 (1,840)
Other current liabilities 10,603 (1,964) (27,128)
--------- --------- ---------
Net cash provided by
operating activities 212,251 32,132 688,159
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (38,386) (5,068) (37,820)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable to stockholders -- -- (9,653)
Distributions to stockholders (442,889) (394,863) (661,817)
--------- --------- ---------
Net cash used in financing activities (442,889) (394,863) (671,470)
--------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (269,024) (367,799) (21,131)
CASH AND CASH EQUIVALENTS, beginning of period 523,493 523,493 254,469
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 254,469 $ 155,694 $ 233,338
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid $ 1,710 $ -- $ 1,033
========= ========= =========
Taxes paid $ 10,790 $ 10,790 $ 40,640
========= ========= =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE> 9
EXPERT BUSINESS SYSTEMS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization--
Expert Business Systems, Incorporated (the "Company") was incorporated
in the state of Texas on November 12, 1992. The Company provides information
technology outsourcing services throughout the Dallas/Fort Worth metropolitan
area.
Interim Financial Statements--
The accompanying interim financial statements for the six months ended
June 30, 1996 and 1997 and related disclosures have not been audited by
independent public accountants. However, they have been prepared in conformity
with the accounting principles stated in the audited financial statements for
the year ended December 31, 1996, and include all adjustments (which were of a
normal, recurring nature) which, in the opinion of management, are necessary to
present fairly the results of operations and cash flows for each of the periods
presented. The operating results for the interim periods presented are not
necessarily indicative of results for the full year.
Use of 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, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. The estimates
and assumptions used in preparing the accompanying financial statements are
based upon management's evaluation of the relevant facts and circumstances as
of the date of the financial statements. However, actual results may differ
from the estimates and assumptions used in preparing the accompanying financial
statements.
Cash and Cash Equivalents--
The Company considers cash on deposit with financial institutions and
all highly liquid investments with original maturities of three months or less
to be cash and cash equivalents.
Property and Equipment--
Property and equipment are recorded at cost. Depreciation is provided
on a tax basis using statutory rates and does not materially differ from
depreciation methods acceptable for financial reporting purposes. The estimated
useful lives of the Company's assets were as follows:
<TABLE>
<S> <C>
Office equipment 5 years
Computer equipment and software 5 years
Furniture and fixtures 7 years
</TABLE>
Additions that extend the lives of the assets are capitalized while
repairs and maintenance costs are expensed as incurred. When property and
equipment are retired, the cost and related accumulated depreciation are
removed from the balance sheet and any resulting gain or loss is recorded.
Revenue Recognition--
Service revenues are recognized as income in the period services are
provided.
<PAGE> 10
-2-
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Other Income (Expense), Net--
Other income (expense), net primarily represents product sales,
including the sale of computer hardware, net of the related cost. Total product
sales, net of related cost for the year ended December 31, 1996 were $60,539.
Total product sales, net of related cost for the six months ended June 30, 1996
and 1997 were $22,010 (unaudited) and $665 (unaudited), respectively.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------- -------
(UNAUDITED)
<S> <C> <C>
Office equipment $16,532 $20,318
Computer equipment and software 5,309 35,475
Furniture and fixtures 16,545 20,413
------- -------
38,386 76,206
Less accumulated depreciation 21,678 28,692
------- -------
$16,708 $47,514
======= =======
</TABLE>
3. LINE OF CREDIT:
During 1996, the Company maintained a line of credit with NationsBank
of Texas, N.A. ("NationsBank"). Borrowings under this line of credit were
limited to $150,000. This line of credit was discontinued in October 1996.
In October 1996, the Company replaced the NationsBank line of credit
with a revolving line of credit with Liberty Bank ("Liberty") whereby the
Company may borrow an amount equal to 80% of its outstanding Eligible Accounts
Receivable, as defined, not to exceed an aggregate borrowing of $350,000. In
1997, the line of credit was amended whereby the maximum amount of aggregate
borrowings was increased to $750,000. Maximum borrowings on the line of credit
were $93,508 and $150,000 (unaudited) during 1996 and the six months ended June
30, 1997, respectively. Average borrowings and related interest expense for
1996 and the six months ended June 30, 1997 (unaudited) were not significant
to the Company's results of operations.
Borrowings under the line of credit with Liberty are collateralized by
the Company's accounts receivable and are guaranteed by the Company's
stockholders. Interest is payable monthly on outstanding borrowings at the Wall
Street Journal Prime Rate plus 1%. Under the terms of the line of credit
agreement, the Company is required to maintain certain financial ratios. The
Company was in compliance with all covenants of this line of credit as of
December 31, 1996.
As of December 31, 1996 and June 30, 1997 (unaudited), no borrowings
were outstanding on the line of credit with Liberty.
4. TAXES:
The Company has elected S Corporation status for federal and state
income tax reporting purposes. Accordingly, no provision for income taxes has
been recorded in the accompanying financial statements as such taxes are
liabilities of the individual stockholders. The Company is subject to the Texas
state franchise tax. Expense related to this tax is reflected as provision for
taxes in the accompanying statements of income.
The Company's tax returns are subject to examination by federal and
state taxing authorities. If such examinations result in a change to the
Company's reported taxable income or loss, the taxable income or loss reported
by the individual stockholders could also change.
<PAGE> 11
-3-
5. EMPLOYEE BENEFITS:
The Company sponsors a defined contribution benefit plan for its
eligible employees, as defined in the plan document and matches a portion of
participants' contributions to the plan. Total matching contributions made by
the Company to the plan for the year ended December 31, 1996 were $7,918. Total
matching contributions for the six months ended June 30, 1996 and 1997 were
$3,395 (unaudited) and $3,636 (unaudited), respectively.
The Company also sponsors a health care plan for eligible employees, as
defined, and their dependents, for which the cost of coverage is shared by the
Company and its employees. Total plan expense for the year ended December 31,
1996 was $51,155. Total plan expense for the six months ended June 30, 1996 and
1997 was $17,054 (unaudited) and $42,063 (unaudited), respectively.
The Company's employees are also eligible to receive benefits under the
Company's workers' compensation policy. The Company is fully insured for costs
related to workers' compensation claims.
6. COMMON STOCK:
On June 23, 1997, the Company amended and restated its Articles of
Incorporation to increase the number of authorized shares of common stock from
1,000 to 20,000,000. In conjunction with this action, the Company effected a
10,000 to 1 split of its common stock.
7. COMMITMENTS AND CONTINGENCIES:
The Company has an agreement with Sonlight Enterprises ("Sonlight")
whereby the Company agrees to pay Sonlight a minimum of $75,000 by January 31,
1998 for marketing and business consulting services. As of December 31, 1996
and June 30, 1997, the Company had paid Sonlight $13,445 and $57,172
(unaudited), respectively, under the terms of the agreement.
The Company also leases office space under a noncancellable operating
lease. Future minimum annual payments required during each of the next five
years under this lease are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
-----------------------
DECEMBER 31, JUNE 30,
----------- --------
(UNAUDITED)
<S> <C> <C>
1997 $35,144 $ --
1998 26,640 35,144
1999 -- 9,066
------- -------
$61,784 $44,210
======= =======
</TABLE>
Rent expense totaled $18,280 for fiscal 1996. Rent expense totaled
$2,850 (unaudited) and $19,840 (unaudited) for the six months ended June 30,
1996 and 1997, respectively
The Company has received a demand letter from a former employee
alleging wrongful dismissal and defamation. Total damages sought by the former
employee are $4,080,000. Management has engaged legal counsel and intends to
vigorously defend this matter, however, the eventual outcome cannot be
determined at this time. Management is of the opinion that the ultimate
resolution of this matter will not have a material adverse effect on the
Company's financial condition, and accordingly, no provisions have been made in
the accompanying financial statements related to the outcome of this matter.
<PAGE> 12
-4-
8. SIGNIFICANT CUSTOMERS:
Revenues--
The Company's sales to customers which individually account for 10% or
more of service revenues were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1996 1996 1997
----------- -------- ------
(UNAUDITED)
<C> <C> <C> <C>
Customer 1 33% 40% 35%
Customer 2 22% - 28%
Customer 3 28% 28% 22%
Customer 4 - - 12%
Customer 5 - 15% -
</TABLE>
Accounts Receivable--
The Company's accounts receivable balances which individually account
for 10% or more of accounts receivable were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ---------
(UNAUDITED)
<C> <C> <C>
Customer 1 16% 28%
Customer 2 39% 39%
Customer 3 25% 22%
Customer 4 10% -
</TABLE>
9. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
On August 4, 1997, substantially all of the Company's assets were
purchased by StaffMark, Inc. In conjunction with this acquisition, the Company
made a cash distribution of $1,192,765 (unaudited), which represented an
estimate of the Company's S Corporation Accumulated Adjustment Account at June
30, 1997.
<PAGE> 13
STAFFMARK, INC. - FORM 8-K/A
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
INTRODUCTION
StaffMark, Inc. (the "Company" or "StaffMark") was founded in March 1996
to create a leading provider of diversified staffing and professional and
consulting services to businesses, professional and service organizations,
medical niches and governmental agencies. 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 in Indiana, Michigan and Ohio and provides clerical, light industrial,
professional/information technology, accounting and staff leasing services.
Flexible had 1996 revenues of approximately $49.3 million and operates in the
Commercial and Professional/Information Technology divisions.
Effective April 1, 1997, StaffMark acquired Global Dynamics, Inc.
("Global"). Global, located in Walnut Creek, California, provides information
technology staffing services to several Fortune 500 companies. Global had 1996
revenues of approximately $17.2 million and operates in the
Professional/Information Technology division.
Effective July 1, 1997, StaffMark acquired Expert Business Systems,
Inc. ("EBS"). EBS, located in Hurst, Texas, provides information technology
services, specialized help desk support, distributed services and application
developments. EBS had 1996 revenues of approximately $3.3 million and operates
in the Professional/Information Technology division. The total consideration
paid for EBS was approximately $8.0 million, consisting of approximately $5.4
million in cash and 123,500 restricted shares of StaffMark Common Stock, plus a
contingent earnout based upon the future performance of EBS. The purchase price
was determined as a result of direct negotiations with EBS.
The following unaudited pro forma financial statements present the
historical results of 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 effect of StaffMark's April 1997 acquisition
of Global; (v) the effect of StaffMark's July 1997 acquisition of EBS; (vi) the
adjustment to compensation expense for the difference between the historical
compensation paid to certain previous owners of the Founding Companies,
Flexible, Global and EBS and the employment contract compensation negotiated in
conjunction with the Merger and respective acquisitions ("Compensation
Differential"); and (vii) the incremental provision for income taxes
attributable to the income of subchapter S Corporations, net of the income tax
provision related to the Compensation Differential and adjusted for
nondeductible goodwill amortization.
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> 14
STAFFMARK, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Acquisition Related Adjustments
-------------------------------
Pro Forma
Merger
StaffMark EBS (a) Adjustments Pro Forma
--------- ------- ----------- ---------
ASSETS
------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,640 $ 233 $ 5,300 (b) $ 2,809
(5,364)(c)
Accounts receivable, net of allowance
for doubtful accounts 41,060 1,024 -- 42,084
Advances to stockholders 176 -- -- 176
Prepaid expenses and other 1,930 13 -- 1,943
Deferred income taxes 753 -- -- 753
-------- ------ --------- ---------
Total current assets 46,559 1,270 (64) 47,765
PROPERTY AND EQUIPMENT, net 6,664 48 -- 6,712
INTANGIBLE ASSETS, net 86,734 -- 6,248 (d) 92,982
ADVANCES TO SHAREHOLDERS 984 -- -- 984
OTHER ASSETS 967 -- -- 967
-------- ------ --------- ---------
$141,908 $1,318 $ 6,184 $ 149,410
======== ====== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 3,128 $ 45 $ -- $ 3,173
Payroll and related liabilities 11,649 145 -- 11,794
Reserve for workers' compensation claims 6,557 -- -- 6,557
Accrued interest 460 -- -- 460
Income taxes payable 677 -- -- 677
Deferred income taxes -- -- -- --
-------- ------ --------- ---------
Total current liabilities 22,471 190 -- 22,661
LONG-TERM DEBT 43,430 -- 5,300 (b) 48,730
OTHER LONG TERM LIABILITIES 136 -- -- 136
DEFERRED INCOME TAXES 396 -- -- 396
-------- ------ --------- ---------
Total liabilities 66,433 190 5,300 71,923
STOCKHOLDERS' EQUITY:
Common stock 145 1 1 (e) 146
(1)(f)
Paid-in capital 67,150 -- 2,011 (e) 69,161
Retained earnings 8,180 1,127 (1,127)(f) 8,180
-------- ------ --------- ---------
Total stockholders' equity 75,475 1,128 884 77,487
-------- ------ --------- ---------
$141,908 $1,318 $ 6,184 $ 149,410
======== ====== ========= =========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
<PAGE> 15
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1997
(a) Represents the unaudited June 30, 1997 balance sheet of EBS, which was
purchased by StaffMark effective July 1, 1997.
(b) Records the cash borrowed from Mercantile Bank of St. Louis to fund
the cash portion of the consideration due to the stockholders of EBS in
connection with the acquisition.
(c) Records the distribution of the cash portion of the consideration due
to the stockholders of EBS in connection with the acquisition.
(d) Records the net intangible assets recorded by StaffMark in conjunction
with its acquisition of EBS.
(e) Records the issuance 123,500 shares of restricted StaffMark Common Stock
to the stockholders of EBS in connection with the acquisition.
(f) Records the adjustment to remove the equity of EBS in conjunction with the
acquisition by StaffMark.
<PAGE> 16
STAFFMARK, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Acquisition Related Adjustments
--------------------------------------------------------
Other
Significant Pro Forma Total
StaffMark Acquisitions(a) EBS (b) Adjustments Adjustments Pro Forma
-------- --------------- ------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES $159,987 $ 13,311 $ 3,409 $ -- $ 16,720 $176,707
COST OF SERVICES 124,515 10,450 1,958 -- 12,408 136,923
-------- -------- -------- ---------- -------- --------
Gross profit 35,472 2,861 1,451 -- 4,312 39,784
OPERATING EXPENSES:
Selling, general and administrative 24,006 2,113 488 (117)(c) 2,484 26,490
Depreciation and amortization 1,749 255 7 104 (d) 366 2,115
-------- -------- -------- ---------- -------- --------
Operating income 9,717 493 956 13 1,462 11,179
-------- -------- -------- ---------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (507) (275) (1) (186)(e) (462) (969)
Other, net 253 1 (1) -- -- 253
-------- -------- -------- ---------- -------- --------
INCOME BEFORE INCOME TAXES 9,463 219 954 (173) 1,000 10,463
INCOME TAX PROVISION 3,880 134 39 266 (f) 439 4,319
-------- -------- -------- ---------- -------- --------
Net income (loss) $ 5,583 $ 85 $ 915 $ (439) $ 561 $ 6,144
======== ======== ======== ========== ======== ========
PRO FORMA NET INCOME PER COMMON SHARE
PRIMARY $ 0.42
========
FULLY DILUTED $ 0.41
========
WEIGHTED AVERAGE SHARES OUTSTANDING
PRIMARY 14,686 (g)
========
FULLY DILUTED 14,939 (h)
========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 17
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(a) Represents the unaudited financial results and pro forma effects related
to the acquisitions of: (i) Flexible, which was purchased by StaffMark
effective March 1, 1997; and (ii) Global, which was purchased by StaffMark
effective April 1, 1997.
(b) Records the unaudited financial results of EBS, which was purchased by
StaffMark effective July 1, 1997.
(c) Adjusts compensation to the level the owners have agreed to receive from
StaffMark subsequent to the acquisition.
(d) Adjustment to reflect the amortization expense relating to the intangible
assets recorded in conjunction with the acquisition of EBS for the six
months ended June 30, 1997. Intangible assets recorded in conjunction with
this acquisition include goodwill of approximately $6.2 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 EBS. This pro forma
expense calculation is based on approximately $5.3 million borrowed by
StaffMark under its credit facility with Mercantile Bank of St. Louis. Pro
forma interest expense is computed based upon the applicable rate in
effect on the credit facility which, based upon the terms of the
agreement, would have approximated 7.0% during the pro forma period.
(f) Records the incremental provision to reflect federal and state income
taxes as if EBS had been a subchapter C Corporation. This adjustment
records income tax expense at an effective combined tax rate of 39%,
adjusted for nondeductible goodwill amortization.
(g) Represents the actual weighted average primary shares outstanding for the
six months ended June 30, 1997 of 14,158,260 adjusted to reflect the
issuance as of January 1, 1997 of: (i) the 183,823 shares issued in
conjunction with the March 1997 acquisition of Flexible; (ii) 690,855
shares issued in conjunction with the April 1997 acquisition of Global;
and (iii) 123,500 shares issued in conjunction with the July 1997
acquisition of EBS.
(h) Pro forma fully diluted weighted average shares outstanding for the six
months ended June 30, 1997 include the shares discussed in Note (g) above
and 253,837 shares representing the incremental fully dilutive effect of
the Company's outstanding stock options.
<PAGE> 18
STAFFMARK, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Acquisition Related Adjustments
------------------------------------------------------------
Other
Significant Pro Forma Total
StaffMark Acquisitions (a) EBS (b) Adjustments Adjustments Pro Forma
--------- ---------------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES $ 104,476 $ 161,598 $ 3,298 $ -- $ 164,896 $ 269,372
COST OF SERVICES 81,607 126,848 1,986 -- 128,834 210,441
--------- --------- --------- --------- --------- ---------
Gross profit 22,869 34,750 1,312 -- 36,062 58,931
OPERATING EXPENSES:
Selling, general and administrative 14,623 26,007 604 (3)(c) 26,608 41,231
Depreciation and amortization 1,374 1,728 22 208 (d) 1,958 3,332
--------- --------- --------- --------- --------- ---------
Operating income 6,872 7,015 686 (205) 7,496 14,368
--------- --------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (1,376) (1,533) (2) (371)(e) (1,906) (3,282)
Other, net 301 428 69 -- 497 798
--------- --------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 5,797 5,910 753 (576) 6,087 11,884
INCOME TAX PROVISION 1,774 3,269 40 20 (f) 3,329 5,103
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 4,023 $ 2,641 $ 713 $ (596) $ 2,758 $ 6,781
========= ========= ========= ========= ========= =========
PRO FORMA NET INCOME PER COMMON SHARE
PRIMARY $ 0.64
=========
FULLY DILUTED $ 0.64
=========
WEIGHTED AVERAGE SHARES OUTSTANDING
PRIMARY 10,568 (g)
=========
FULLY DILUTED 10,568
=========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 19
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(a) Represents the audited financial results and pro forma effects related to
the acquisitions of: (i) the Other Founding Companies, which were acquired
by Brewer on October 2, 1996; (ii) On Call, which was purchased by Brewer
on February 2, 1996; (iii) Flexible, which was purchased by StaffMark
effective March 1, 1997; and (iv) Global, which was purchased by StaffMark
effective April 1, 1997.
(b) Records the audited financial results of EBS, which was purchased by
StaffMark effective July 1, 1997.
(c) Adjusts compensation to the level the owners have agreed to receive from
StaffMark subsequent to the acquisition.
(d) Adjustment to reflect the amortization expense relating to the intangible
assets recorded in conjunction with the acquisition of EBS for fiscal year
1996. Intangible assets recorded in conjunction with this acquisition
include goodwill of approximately $6.2 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 EBS. This pro forma
expense calculation is based on approximately $5.3 million borrowed by
StaffMark under its credit facility with Mercantile Bank of St. Louis. Pro
forma interest expense is computed based upon the applicable rate in
effect on the credit facility which, based upon the terms of the
agreement, would have approximated 7.0% during the pro forma period.
(f) Records the incremental provision to reflect federal and state income
taxes as if EBS had been a subchapter C Corporation. This adjustment
records income tax expense at an effective combined tax rate of 39%,
adjusted for nondeductible goodwill amortization.
(g) 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) the weighted average of 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 and 6,325,000 shares issued in
connection with the Offering for the period from October 2, 1996 through
December 31, 1996; (iv) 19,794 shares representing the weighted average
shares issued in conjunction with the November 1996 acquisition of The
Technology Source L.L.C.; (v) 183,823 shares issued in conjunction with
the March 1997 acquisition of Flexible; (vi) 690,855 shares issued in
conjunction with the April 1997 acquisition of Global; and (vii) 123,500
shares issued in conjunction with the July 1997 acquisition of EBS.
