<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
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 3, 1998
STAFFMARK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
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)
</TABLE>
Registrant's telephone number, including area code: (501) 973-6000
<PAGE> 2
Item 5. Other Information
On August 3, 1998, StaffMark, Inc. (the "Company") completed the
acquisition of Enterprise Systems Associates, Inc., a Nevada corporation
("ESA"). Headquartered in the Kansas City metropolitan area, ESA provides
information technology staffing and solution services to businesses throughout
the Midwest and in Northern California. The transaction has been accounted for
as a pooling-of-interests. Total consideration paid for the outstanding stock of
ESA was 961,554 shares of the Company's common stock. The purchase price was
determined as a result of direct negotiations with ESA and its stockholders.
Although StaffMark's acquisition of ESA was considered to be
individually insignificant based on the significant subsidiary test provisions
of Regulation S-X, the aggregate consideration of StaffMark's individually
insignificant 1998 acquisitions has now exceeded 50% of StaffMark's 1997 total
assets. As a result, financial statements covering at least the substantial
majority of the businesses acquired must be furnished pursuant to Rule 3-05 of
Regulation S-X. The information included in this filing on Form 8-K, together
with the financial information previously filed on Form 8-K on August 18, 1998,
meets the substantial majority threshold identified in the preceding sentence.
Item 7. Financial Statements and Exhibits
(a) Enterprise Systems Associates, Inc. and Subsidiary Audited
Financial Statements as of and for the Year Ended December 31,
1997 together with the Auditors' Report and Unaudited
Financial Statements as of June 30, 1998 and for the Six Month
Periods Ended June 30, 1998 and 1997
(b) Pro Forma Financial Information
(c) Exhibits. The following exhibit is filed with this Form 8-K:
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants
<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: October 14, 1998 By: /s/ Terry C. Bellora
----------------------------------
Terry C. Bellora
Chief Financial Officer
<PAGE> 4
ITEM 7(a) - HISTORICAL FINANCIAL STATEMENTS OF ESA
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Enterprise Systems Associates, Inc.:
We have audited the accompanying consolidated balance sheet of
Enterprise Systems Associates, Inc. and Subsidiary (the "Company", a Nevada
corporation), as of December 31, 1997, and the related consolidated 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 Enterprise Systems
Associates, Inc. and Subsidiary as of December 31, 1997, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
October 8, 1998.
<PAGE> 6
ENTERPRISE SYSTEMS ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ --------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 195,994 $ 81,447
Accounts receivable 1,739,898 2,150,272
Income taxes receivable 92,511 --
Other current assets 37,977 63,777
----------- -----------
Total current assets 2,066,380 2,295,496
PROPERTY AND EQUIPMENT, net 451,996 494,459
OTHER ASSETS 54,600 138,745
----------- -----------
$ 2,572,976 $ 2,928,700
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable $ 1,719,517 $ 1,151,979
Accounts payable and accrued liabilities 411,225 530,973
Income taxes payable -- 184,050
Deferred income taxes 469,318 592,230
----------- -----------
Total current liabilities 2,600,060 2,459,232
MINORITY INTERESTS 85,527 195,841
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value, 2,500 shares authorized;
641 shares issued and outstanding at
December 31, 1997 and June 30, 1998 257,799 257,799
Treasury stock (410,000) (410,000)
Retained earnings 39,590 425,828
----------- -----------
Total stockholders' equity (deficit) (112,611) 273,627
----------- -----------
$ 2,572,976 $ 2,928,700
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
<PAGE> 7
ENTERPRISE SYSTEMS ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ----------------------------
1997 1998 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
SERVICE REVENUES $ 9,964,354 $ 7,850,218 $ 4,229,213
COST OF SERVICES 6,817,137 5,325,025 3,603,662
----------- ----------- -----------
Gross profit 3,147,217 2,525,193 625,551
OPERATING EXPENSES:
Selling, general and administrative 2,616,036 1,558,718 253,357
Depreciation and amortization 42,481 28,477 24,035
----------- ----------- -----------
Operating income 488,700 937,998 348,159
OTHER INCOME (EXPENSE):
Interest expense (109,272) (64,718) (43,675)
Minority interests (30,051) (65,314) --
Other expense, net (64,044) (69,411) (22,211)
----------- ----------- -----------
Income before income taxes 285,333 738,555 282,273
PROVISION FOR INCOME TAXES 71,332 352,317 112,556
----------- ----------- -----------
Net income $ 214,001 $ 386,238 $ 169,717
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE> 8
ENTERPRISE SYSTEMS ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- TREASURY RETAINED
SHARES AMOUNT STOCK EARNINGS(DEFICIT) TOTAL
------ ------ ----- ----------------- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 641 $ 360,299 $(410,000) $ (84,411) $(134,112)
Distributions -- (102,500) -- (90,000) (192,500)
Net income -- -- -- 214,001 214,001
----- --------- --------- --------- ---------
Balance at December 31, 1997 641 257,799 (410,000) 39,590 (112,611)
Net income (Unaudited) -- -- -- 386,238 386,238
----- --------- --------- --------- ---------
Balance at June 30, 1998 (Unaudited) 641 $ 257,799 $(410,000) $ 425,828 $ 273,627
===== ========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE> 9
ENTERPRISE SYSTEMS ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ----------------------------
1997 1998 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 214,001 $ 386,238 $ 169,717
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 42,481 28,477 24,035
(Gain)Loss on disposal of property and equipment 20,773 (890) 3,147
Deferred income taxes 163,843 122,912 76,565
Employee stock award 46,500 45,000 --
Minority interests 30,051 65,314 --
Other (2,444) -- (64,244)
Changes in operating assets and liabilities:
Accounts receivable (816,335) (410,374) (414,918)
Other assets (88,878) (17,434) (9,072)
Accounts payable and accrued liabilities 200,342 119,748 167,755
Income taxes payable (105,406) 184,050 124,288
--------- --------- ---------
Net cash provided by (used in)
operating activities (295,072) 523,041 77,273
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (389,464) (70,050) (220,957)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on line of credit 757,000 (391,550) 145,700
Proceeds from notes payable 330,000 386,429 110,000
Payments on notes payable (88,531) (562,417) (40,403)
Distributions to stockholders (192,500) -- (137,500)
--------- --------- ---------
Net cash provided by (used in)
financing activities 805,969 (567,538) 77,797
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 121,433 (114,547) (65,887)
CASH, beginning of period 74,561 195,994 74,561
--------- --------- ---------
CASH, end of period $ 195,994 $ 81,447 $ 8,674
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid $ 107,459 $ 67,977 $ 39,079
========= ========= =========
Taxes paid $ 28,808 $ 45,087 $ 20,131
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE> 10
ENTERPRISE SYSTEMS ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization--
Enterprise Systems Associates, Inc. ("ESA"), a Nevada corporation, and
its majority-owned subsidiary, Computer Staffing Group, Inc. ("CSG"), a Kansas
corporation, (collectively, the "Company") provide information technology
staffing and solutions services in the Kansas City metropolitan and surrounding
area and in Northern California.
In June 1997, ESA acquired its majority stake in the shares of CSG from
the spouses of ESA's stockholders for $120,000. Although cash payments were made
by ESA in exchange for the shares, effectively no change in control of CSG
occurred, given the affiliation of ESA's controlling stockholders and CSG's
selling stockholders. Therefore, this transaction has been accounted for at cost
basis, recording the payments totaling $120,000 as distributions to ESA's
stockholders.
ESA's investment in CSG and all other significant intercompany balances
and transactions have been eliminated in consolidation. Also, the minority
interests in CSG have been recognized in consolidation.
Interim Financial Statements--
The accompanying interim financial statements for the six months ended
June 30, 1998 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, 1997, 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 consolidated financial
statements are based upon management's evaluation of the relevant facts and
circumstances as of the date of the consolidated financial statements. However,
actual results may differ from the estimates and assumptions used in preparing
the accompanying financial statements.
Cash--
Cash consists solely of amounts on deposit with financial institutions.
Property and Equipment--
Property and equipment are recorded at cost. Depreciation has been
provided using the straight-line method over the following estimated useful
lives:
Furniture, fixtures and office equipment 3-5 years
Computer hardware and software 5 years
Depreciation has not been provided for certain non-operating assets,
including a building and certain equipment with recorded costs of $217,892 at
December 31, 1997 and $292,680 (unaudited) at June 30, 1998.
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.
<PAGE> 11
-2-
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Revenue Recognition--
Service revenues are recognized as income in the period services are
provided.
Income Taxes--
Prior to the business combination transaction discussed above, CSG had
elected Subchapter S status as permitted by the Internal Revenue Code.
Accordingly, no tax liabilities were recorded related to CSG prior to this date.
The Company has provided income taxes using the liability method. Under
this method, deferred taxes are determined by applying statutory tax rates in
effect at the financial statement date to differences between the book basis and
the tax basis of assets and liabilities.
Fair Value of Financial Instruments--
The Company's financial instruments include cash and its debt
obligations. Management believes that these financial instruments bear interest
at rates which approximate prevailing market rates for instruments with similar
characteristics and, accordingly, that the carrying values for these instruments
are reasonable estimates of fair value.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ ----------
(UNAUDITED)
<S> <C> <C>
Furniture, fixtures and office equipment $ 159,633 $ 141,725
Computer hardware and software 142,234 143,930
--------- ---------
301,867 285,655
Less accumulated depreciation 67,763 83,876
--------- ---------
234,104 201,779
Non-operating assets 217,892 292,680
--------- ---------
$ 451,996 $ 494,459
========= =========
</TABLE>
<PAGE> 12
-3-
3. LOANS PAYABLE:
Loans payable included:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Line of credit with a bank, secured by accounts receivable, interest
only payable monthly at a fixed rate of 9.5% at December 31, 1997 and
8.5% at June 30, 1998. The weighted-average interest rate approximated
9.5% during 1997 and 9.0% during 1998. $ 1,157,100 $ 765,550
Note payable to a bank secured by all assets of the Company, bearing
interest at a fixed rate of 9.5% at December 31, 1997 and 8.5% at June
30, 1998. The weighted-average interest rate approximated 9.5% during
1997 and 9.0% during 1998. Payable in monthly installments through
maturity in December 1998. Guaranteed by certain stockholders of the
Company. -- 386,429
Mortgage note secured by non-operating assets, bearing interest at a
fixed rate of 9.5% at December 31, 1997 and 8.5% at June 30, 1998. The
weighted-average interest rate approximated 9.5% during 1997 and 9.0%
during 1998. Payable in monthly installments through maturity in June 2000. 101,084 --
Notes payable pursuant to stock repurchase agreements, bearing interest
at a fixed rate of 9%, payable in equal monthly installments through
maturity in September 2000. 241,333 --
Notes payable to stockholders, bearing interest at a fixed rate of 9.5%,
payable in equal monthly installments through maturity in December 1998. 220,000 --
----------- -----------
$ 1,719,517 $ 1,151,979
=========== ===========
</TABLE>
Although certain of the loans outstanding at December 31, 1997 had
contractual maturities extending beyond one year from the balance sheet date,
all amounts have been classified as current liabilities due to management's
intentions to refinance these obligations with short-term borrowings during
1998.
4. INCOME TAXES:
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ---------------------------
1997 1998 1997
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Current:
Federal $ (76,807) $ 190,462 $ 29,881
State (15,704) 38,943 6,110
--------- --------- ---------
(92,511) 229,405 35,991
--------- --------- ---------
Deferred:
Federal 136,029 102,047 63,568
State 27,814 20,865 12,997
--------- --------- ---------
163,843 122,912 76,565
--------- --------- ---------
$ 71,332 $ 352,317 $ 112,556
========= ========= =========
</TABLE>
The deferred tax liabilities reported in the accompanying consolidated
balance sheets result from differences between the cash basis of accounting
applied in filing the Company's tax returns and the accrual basis of accounting
applied for financial reporting purposes.
<PAGE> 13
-4-
4. INCOME TAXES (CONTINUED):
As of December 31, 1997, the Company had recorded the expected future
benefit of a net operating loss carryforward of approximately $92,511. As of
June 30, 1998, the net operating loss carryforward was applied to current period
earnings in computing income taxes payable; accordingly, the benefit is
reflected as a reduction of income taxes payable.
The differences in income taxes determined by applying the statutory
federal tax rate of 34% to income before income taxes and the amounts recorded
in the accompanying consolidated statements of income for the year ended
December 31, 1997 and the period ended June 30, 1998 resulted from state income
taxes and certain nondeductible expenses.
5. SIGNIFICANT CUSTOMERS:
Revenues--
The Company's sales to customers, which individually account for 10% or
more of service revenues, were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ---------------------
1997 1998 1997
------------ ------- ------
(UNAUDITED)
<S> <C> <C> <C>
Customer 1 16% 12% 16%
Customer 2 -- 12% --
Customer 3 -- 14% --
</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,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Customer 1 -- 12%
Customer 2 13% --
Customer 3 -- 12%
</TABLE>
6. COMMITMENTS:
The Company leases office space under noncancellable operating leases.
Future minimum annual payments required under this lease are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
1998 $ 153,951 $ --
1999 150,672 156,610
2000 144,735 144,735
2001 144,735 144,735
2002 135,190 144,735
Thereafter 5,033 67,856
</TABLE>
Rent expense totaled $74,573 for the year ending December 31, 1997. Rent
expense totaled $84,258 (unaudited) and $32,221 (unaudited) for the six months
ended June 30, 1998 and 1997, respectively.
7. SUBSEQUENT EVENTS:
On August 3, 1998, the Company merged with StaffMark, Inc. in a business
combination accounted for as a pooling-of-interests.
<PAGE> 14
ITEM 7(b) - PRO FORMA FINANCIAL INFORMATION
<PAGE> 15
STAFFMARK, INC. - FORM 8-K/A
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
INTRODUCTION
StaffMark, Inc. ("StaffMark" or the "Company") provides diversified
staffing, information technology, professional and consulting services to
businesses, professional and service organizations, governmental agencies and
medical niches. The Company recognizes revenues upon the performance of
services. The Company generally compensates its temporary associates and
consultants only for hours actually worked; therefore, wages of the temporary
associates and consultants are a variable cost that increase or decrease as
revenues increase or decrease. However, certain of the Company's professional
and information technology consultants are full-time, salaried employees. Cost
of services primarily consists of wages paid to temporary associates, payroll
taxes, workers' compensation and other related employee benefits. Selling,
general and administrative expenses are comprised primarily of administrative
salaries, benefits, marketing, rent and recruitment expenses.
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.
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. 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. Effective October 1, 1997,
StaffMark acquired Structured Logic Company, Inc. ("SLC"). Headquartered in New
York, New York, SLC is a full-service information technology recruiting firm
providing services for client/server, mainframe programming and development, web
site development, Internet consultation, network implementation, and SAP
development and implementation. Effective January 1, 1998, StaffMark acquired
Strategic Legal Resources, LLC ("SLR"). Located in New York City, New York, SLR
provides legal professionals to law firms, corporations and financial
institutions. Effective May 1, 1998, StaffMark acquired Progressive Resources,
Inc., Progressive Personnel Resources, Inc., Progressive Personnel Resources of
New Jersey, Inc., and Strategic Computer Resources, LLC (collectively
"Progressive"). Progressive, located in the New York City metropolitan area,
provides commercial staffing services. These acquisitions are collectively
referred to as the "Other Significant Acquisitions."
On August 3, 1998, StaffMark completed the acquisition of Enterprise
Systems Associates, Inc., a Nevada corporation ("ESA"). Headquartered in the
Kansas City metropolitan area, ESA provides information technology staffing and
solution services to businesses throughout the Midwest and in Northern
California. The transaction has been accounted for as a pooling-of-interests.
Total consideration paid for the outstanding stock of ESA was 961,554 shares of
the Company's common stock. The purchase price was determined as a result of
direct negotiations with ESA and its stockholders.
The following unaudited pro forma financial statements present the
historical results of StaffMark and give effect to the following pro forma
adjustments: (i) the effect of the Other Significant Acquisitions; (ii) the
effect of the August 1998 pooling-of-interests with ESA; (iii) the adjustment to
compensation expense for the difference between the historical compensation paid
to certain previous owners of the Other Significant Acquisitions and ESA and the
employment contract compensation negotiated in conjunction with the respective
mergers and acquisitions ("Compensation Differential"); and (iv) 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. Note that no
pro forma income statement amounts are included for SLR for the six months ended
June 30, 1998 as the SLR acquisition was effective January 1, 1998 and therefore
is already included in StaffMark's results for the six months ended June 30,
1998.
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 1997 or to project
the Company's financial position or results of operations for any future period.
<PAGE> 16
STAFFMARK, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Acquisition Related Adjustments
---------------------------------------------------
Pro Forma
Merger
StaffMark ESA (a) Adjustments Pro Forma
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
- -------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 4,410 $ 82 $ 4,492
Accounts receivable, net of allowance
for doubtful accounts 81,086 2,150 83,236
Prepaid expenses and other 4,701 64 4,765
Deferred income taxes 1,610 -- 1,610
--------- --------- --------- ---------
Total current assets 91,807 2,296 -- 94,103
PROPERTY AND EQUIPMENT, net 14,357 494 14,851
INTANGIBLE ASSETS, net 304,574 -- 304,574
OTHER ASSETS 1,452 139 1,591
--------- --------- --------- ---------
$ 412,190 $ 2,929 $ -- $ 415,119
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 5,990 $ 531 $ 6,521
Loans payable -- 1,152 1,152
Deferred income taxes -- 592 592
Payroll and related liabilities 19,245 -- 19,245
Reserve for workers' compensation claims 6,526 -- 6,526
Income taxes payable 2,322 184 2,506
--------- --------- --------- ---------
Total current liabilities 34,083 2,459 -- 36,542
LONG-TERM DEBT 112,560 -- 112,560
MINORITY INTERESTS -- 196 196
OTHER LONG TERM LIABILITIES 36,314 -- 36,314
DEFERRED INCOME TAXES 1,969 -- 1,969
--------- --------- --------- ---------
Total liabilities 184,926 2,655 -- 187,581
STOCKHOLDERS' EQUITY:
Common stock 208 258 (258)(b) 217
Paid-in capital 191,915 -- 258 (b) 192,164
Treasury stock -- (410) 410 (b) --
Retained earnings 35,141 426 (410)(b) 35,157
--------- --------- --------- ---------
Total stockholders' equity 227,264 274 -- 227,538
--------- --------- --------- ---------
$ 412,190 $ 2,929 $ -- $ 415,119
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
<PAGE> 17
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1998
(a) Represents the unaudited June 30, 1998 balance sheet of ESA, which was
acquired in a pooling-of-interests transaction by StaffMark on August 3,
1998.
(b) Records the necessary reclassifications to the equity of ESA to account
for the issuance of 961,554 shares of restricted StaffMark Common Stock
to the stockholders of ESA in connection with the pooling-of-interests.
<PAGE> 18
STAFFMARK, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Acquisition Related Adjustments
------------------------------------------------------------
Other
Significant Pro Forma Total
StaffMark Acquisitions(a) ESA (b) Adjustments Adjustments Pro Forma
---------- --------------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES $ 325,860 $ 11,284 $ 7,850 $ 19,134 $ 344,994
COST OF SERVICES 244,116 7,932 5,325 13,257 257,373
---------- ---------- ---------- ---------- ---------- ----------
Gross profit 81,744 3,352 2,525 5,877 87,621
OPERATING EXPENSES:
Selling, general and administrative 52,751 1,904 1,559 (146)(c) 3,317 56,068
Depreciation and amortization 5,032 202 28 230 5,262
---------- ---------- ---------- ---------- ---------- ----------
Operating income 23,961 1,246 938 146 2,330 26,291
---------- ---------- ---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (1,777) (429) (65) (494) (2,271)
Minority interest -- -- (65) (65) (65)
Other, net (49) -- (69) (69) (118)
---------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 22,135 817 739 146 1,702 23,837
INCOME TAX PROVISION 9,075 335 353 (65)(d) 623 9,698
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) $ 13,060 $ 482 $ 386 $ 211 $ 1,079 $ 14,139
========== ========== ========== ========== ========== ==========
NET INCOME PER COMMON SHARE
BASIC $ 0.64 $ 0.66
========== ==========
DILUTED $ 0.62 $ 0.63
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 20,275 21,377(e)
========== ==========
DILUTED 21,224 22,326(f)
========== ==========
</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 SIX MONTHS ENDED JUNE 30, 1998
(a) Represents the unaudited financial results and pro forma effects
related to the acquisition of Progressive, which was purchased by
StaffMark effective May 1, 1998.
(b) Records the unaudited financial results of ESA, which was acquired in a
pooling-of-interests transaction by StaffMark on August 3, 1998
(c) Adjusts compensation to the level the owners have agreed to receive
from StaffMark subsequent to the acquisition.
(d) Records the incremental provision to reflect federal and state income
taxes at an effective combined tax rate of 39%.
(e) Represents the actual weighted average basic shares outstanding for the
six months ended June 30, 1998 of 20,275,185 adjusted to reflect the
issuance as of January 1, 1998 of: (i) the 211,496 shares issued in
conjunction with the May 1998 acquisition of Progressive; and (ii) the
961,554 shares issued in conjunction with the August 1998 acquisition
of ESA.
(f) Pro forma diluted weighted average shares outstanding for the six
months ended June 30, 1998 include the shares discussed in Note (e)
above and 949,189 shares representing the incremental dilutive effect
of the Company's outstanding stock options.
<PAGE> 20
STAFFMARK, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Acquisition Related Adjustments
-------------------------------------------------------------
Other
Significant Pro Forma Total
StaffMark Acquisitions(a) ESA (b) Adjustments Adjustments Pro Forma
---------- --------------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES $ 426,496 $ 82,487 $ 9,964 $ $ 92,451 $ 518,947
COST OF SERVICES 329,728 58,568 6,817 65,385 395,113
---------- ---------- ---------- ---------- ---------- ----------
Gross profit 96,768 23,919 3,147 27,066 123,834
OPERATING EXPENSES:
Selling, general and administrative 63,013 16,365 2,616 (522)(c) 18,459 81,472
Depreciation and amortization 5,317 1,851 42 1,893 7,210
---------- ---------- ---------- ---------- ---------- ----------
Operating income 28,438 5,703 489 522 6,714 35,152
---------- ---------- ---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (1,256) (2,857) (109) (2,966) (4,222)
Minority interest -- -- (30) (30) (30)
Other, net 732 13 (64) (51) 681
---------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 27,914 2,859 286 522 3,667 31,581
INCOME TAX PROVISION 11,445 1,172 72 40(d) 1,284 12,729
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) $ 16,469 $ 1,687 $ 214 $ 482 $ 2,383 $ 18,852
========== ========== ========== ========== ========== ==========
NET INCOME PER COMMON SHARE
BASIC $ 1.03 $ 1.06
========== ==========
DILUTED $ 1.00 $ 1.03
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 16,015 17,753(e)
========== ==========
DILUTED 16,521 18,259(f)
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 21
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 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; (ii) Global, which was purchased by
StaffMark effective April 1, 1997; (iii) EBS, which was purchased by
StaffMark effective July 1, 1997; (iv) SLC, which was purchased by
StaffMark effective October 1, 1997; (v) SLR, which was purchased by
StaffMark effective January 1, 1998; and (vi) Progressive, which was
purchased by StaffMark effective May 1, 1998.
(b) Records the audited financial results of ESA, which was acquired in a
pooling-of-interests transaction by StaffMark on August 3, 1998.
(c) Adjusts compensation to the level the owners have agreed to receive
from StaffMark subsequent to the acquisition.
(d) Records the incremental provision to reflect federal and state
income taxes at an effective combined tax rate of 39%.
(e) Represents the actual weighted average basic shares outstanding for the
twelve months ended December 31, 1997 of 16,015,589 adjusted to reflect
the issuance as of January 1, 1997 of: (i) the 189,557 shares issued in
conjunction with the March 1997 acquisition of Flexible; (ii) the
690,855 shares issued in conjunction with the April 1997 acquisition of
Global; (iii) the 129,500 shares issued in conjunction with the July
1997 acquisition of EBS; (iv) the 276,846 shares issued in conjunction
with October 1997 acquisition of SLC; (v) the 46,320 shares issued in
conjunction with the January 1998 acquisition of SLR; (vi) the 211,496
shares issued in conjunction with the May 1998 acquisition of
Progressive; and (vii) the 961,554 shares issued in conjunction with the
August 1998 pooling-of-interest with ESA.
(f) Pro forma diluted weighted average shares outstanding for the twelve
months ended December 31, 1997 include the shares discussed in Note (e)
above and 505,908 shares representing the incremental dilutive effect of
the Company's outstanding stock options.
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 8-K into the following
registration statements of StaffMark, Inc.: (1) Registration Statement (Form S-8
No. 333-29689) filed with the SEC on June 20, 1997; (2) Registration Statement
(Form S-8 No. 333-30209) filed with the SEC on June 27, 1997; (3) Registration
Statement (Form S-3 No. 333-51263) filed with the SEC on April 29, 1998; (4)
Registration Statement (Form S-3 No. 333-56791) filed with the SEC on June 12,
1998; and (5) Registration Statement (Form S-3 No. 333-65283) filed with the
SEC on October 2, 1998. It should be noted that we have not audited any
financial statements of StaffMark, Inc. subsequent to December 31, 1997, or
performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Little Rock Arkansas,
October 14, 1998
