As filed with the Securities and Exchange
Commission on May 27, 2011
Registration No. 333-173447
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 2
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Staffmark Holdings,
Inc.
(Exact name of Registrant as
specified in its charter)
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Delaware
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7363
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06-1553489
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(State of other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial)
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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435 Elm Street, Suite 300
Cincinnati, Ohio 45202
(513) 651-1111
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(Address, including zip code,
and telephone number, including area code, of Registrants
principal executive offices)
Lesa J. Francis
President and Chief Executive Officer
Staffmark Holdings, Inc.
435 Elm Street, Suite 300
Cincinnati, Ohio 45202
(513) 651-1111
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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Stephen C. Mahon, Esq.
Toby D. Merchant, Esq.
Squire, Sanders & Dempsey (US) LLP
221 East Fourth Street, Suite 2900
Cincinnati, Ohio 45202
(513) 361-1200
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Michael J. Zeidel, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
(212) 735-3000
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after this Registration
Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act, check the following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer x
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission
acting pursuant to said Section 8(a) may determine.
The
information contained in this prospectus is not complete and may
be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell
these securities and we are not soliciting offers to buy these
securities in any jurisdiction where the offer or sale is not
permitted.
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PRELIMINARY
PROSPECTUS
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Subject to Completion
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May 27, 2011
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Shares
Common
Stock
This is the initial public offering of our common stock. No
public market currently exists for our common stock. We are
offering shares
of common stock offered by this prospectus and the selling
stockholders identified in this prospectus are
offering shares
of common stock. We will not receive any of the proceeds from
the common stock sold by the selling stockholders. We expect the
public offering price to be between
$ and
$ per share.
We intend to apply to list our common stock on the New York
Stock Exchange under the symbol STMK.
Investing in our common stock involves a high degree of risk.
Before buying any shares, you should carefully read the
discussion of material risks of investing in our common stock in
Risk factors beginning on page 11 of this
prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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Per
Share
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Total
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Public offering price
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds, before expenses, to us
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$
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$
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Proceeds, before expenses, to the selling stockholders
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$
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$
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The underwriters may also purchase up to an
additional shares
of our common stock from us and the selling stockholders at the
public offering price, less underwriting discounts and
commissions, to cover over-allotments, if any, within
30 days from the date of this prospectus. Of such amount,
up
to shares
will be sold by us and up
to shares
will be sold by the selling stockholders. If the underwriters
exercise this option in full, the total underwriting discounts
and commissions will be $ . Our
total proceeds, after underwriting discounts and commissions but
before estimated offering expenses, will be
$ , and the selling
stockholders total proceeds, after underwriting discounts
and commissions but before estimated offering expenses, will be
$ , in each case based on a public
offering price of $ , the midpoint
of the price range set forth above.
The underwriters are offering the common stock as set forth
under Underwriting. Delivery of the shares will be
made on or
about ,
2011.
Joint
Book-Running
Managers
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UBS
Investment Bank |
BMO Capital Markets |
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Baird |
SunTrust Robinson Humphrey |
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Avondale
Partners |
CJS Securities, Inc. |
You should rely only on the information contained in this
prospectus and in any related free writing prospectus. We, the
underwriters, and the selling stockholders have not authorized
anyone to provide you with information different from that
contained in this prospectus or any related free writing
prospectus. We, the underwriters, and the selling stockholders
are offering to sell, and seeking offers to buy, shares of our
common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is
accurate only as of the date on the front cover of this
prospectus, or such other dates as are stated in this
prospectus, regardless of the time of delivery of this
prospectus or any sale of our common stock.
TABLE OF
CONTENTS
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F-1
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i
Staffmark is a registered trademark of Staffmark Holdings, Inc.
The Staffmark logo is a registered stylized trademark of
Staffmark Holdings, Inc.
MARKET, INDUSTRY
AND OTHER DATA
This prospectus includes other market and industry data
(including forecasts and estimates) based on industry
publications and independent research reports or, where
indicated, that we have developed from industry publications,
independent research reports, publicly available information,
and our internal data (including forecasts and estimates).
Industry publications and independent research reports generally
indicate that the authors of these documents have obtained
information from sources believed to be reliable, but do not
guarantee the accuracy and completeness of such information.
While we believe these publications and reports to be reliable,
none of us, the underwriters, or the selling stockholders have
independently verified the data. Our internal data are based on
information obtained from our investors, trade and business
organizations, and our managements understanding of
industry conditions. While we believe such information to be
reliable, we have not had such information verified by any
independent sources.
Any forecasts and estimates involve a number of assumptions,
risks, and uncertainties, and you are cautioned not to give
undue weight to them. See Risk factors and
Special note regarding forward-looking statements
elsewhere in this prospectus.
ii
This summary highlights certain information contained
elsewhere in this prospectus. You should read the following
summary together with the more detailed information appearing in
this prospectus, including Selected historical
consolidated financial data, Risk factors,
Managements discussion and analysis of financial
condition and results of operations, Business,
and our consolidated financial statements and related notes,
before deciding whether to purchase shares of our common stock.
Unless the context otherwise requires, the terms
Staffmark, the Company, we,
us, and our in this prospectus refer to
Staffmark Holdings, Inc. and its subsidiaries.
OVERVIEW
We are a leading, national provider of contingent workforce
solutions that serves the temporary staffing needs of employers
throughout the United States. We are focused on providing a full
spectrum of light industrial and clerical staffing solutions.
Since 1970, our clients have relied on us to consistently
identify, screen, and deliver temporary employees that support
their growth and enable them to respond quickly to changes in
their business environments. Through our nationwide network of
over 300 branch,
on-site, and
output solutions locations in 32 states, we currently place
over 40,000 temporary employees weekly and have a client base of
approximately 6,000. We maintain a well-diversified revenue
base, and, in 2010, our top 10 clients accounted for less than
25% of our revenues. As evidence of our market position, we have
been ranked by SIA as the 8th largest industrial-staffing
company and the 17th largest staffing company overall in
the United States, based on 2009 revenues, out of approximately
9,000 staffing firms.
According to Staffing Industry Analysts, or SIA, a research and
analysis firm covering the contingent workforce, staffing in the
United States is a large and growing industry, generating
approximately $92 billion in revenue in 2009 and is
projected to generate approximately $123 billion in revenue
in 2012, representing a three-year compound annual growth rate,
or CAGR, of 10%. Our core markets are the $32 billion light
industrial and clerical staffing industries, which together are
expected to reach $46 billion in 2012, representing a
three-year CAGR of 13%, according to SIA. Two key factors
driving this growth are overall economic activity and the ease
and flexibility that contingent workers offer to employers.
We provide an enterprise-class level of staffing solutions,
those typically reserved for large,
multi-national
corporations, to our predominantly middle-market clients. We
believe that the majority of our larger competitors that offer
similar services typically focus on the Fortune Global
500, while most of our smaller competitors lack the
expertise and infrastructure to deliver the same quality and
breadth of services. We take a consultative approach to our
client engagements, devoting significant resources to the
upfront assessment and development of customized programs. Once
implemented, we conduct regular business reviews with our
clients to ensure that the program is performing as intended. We
believe our approach is highly valued by our clients, as
evidenced by an average tenure of approximately 10 years
among our top 20 clients.
We are focused on establishing and growing into a leading
position in the markets in which we operate. We seek to achieve
this by winning our clients business one location at a
time, and leveraging that success into a broader relationship
where we service multiple client locations. As our client
relationships develop, we enhance our position within markets
by: (i) hiring additional sales and operations staff;
(ii) opening branch and
on-site
locations; and (iii) making strategic acquisitions. This
strategy enables us to gain operating leverage in our markets,
raise the awareness of our brand and realize efficiencies of
scale.
For the three months ended March 31, 2011, we had revenues
of $247 million, adjusted EBITDA of $4 million, and a
net loss of $1 million. For the year ended
December 31, 2010, we had revenues of $1,003 million,
adjusted EBITDA of $38 million, and net income of
$15 million. For a reconciliation of net income to adjusted
EBITDA, which is a non-GAAP financial measure, see Summary
consolidated financial
dataNon-GAAP
financial measures.
OUR
BUSINESS
We are primarily focused on light industrial, clerical, and
specialty staffing.
1
Light
industrial
A substantial portion of our revenues are derived from the
placement of unskilled and semi-skilled temporary workers
through our light industrial offerings, which primarily consist
of the distribution
(pick-and-pack
and forklift) and light manufacturing (factory assembly line and
machine operations) sectors of the economy. In addition, we
provide temporary employees for positions such as line
supervisors, operations managers, and quality control personnel.
Approximately 74% of our revenues in 2010 were derived from
light industrial staffing.
Clerical
We also derive revenues from the placement of temporary workers
through our clerical offerings, which primarily consist of
administrative, contact center, and healthcare office support
services. These employees are often placed at business operation
centers and corporate offices. Approximately 18% of our revenues
in 2010 were derived from clerical staffing.
Specialty
We also provide temporary employees through our transportation
and professional offerings. In transportation, we are a national
supplier of fully-screened commercial vehicle drivers who meet
applicable Department of Transportation, or DOT, requirements
through a network of 18 offices across the United States. In
professional staffing, we provide higher-skilled professionals
in the engineering, information technology, finance, accounting,
and corporate services disciplines. Approximately 4% of our
revenues in 2010 were derived from specialty offerings.
Other
services
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Direct hire servicesWe offer services for sourcing
and screening candidates for full-time employment.
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Employee leasing servicesWe provide human resource
services outsourcing, such as payroll, employee benefits, risk
management, unemployment services, and human resources support.
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Managed servicesWe provide administrative services,
including managing other staffing firms as second source
providers
and/or
payrolling services.
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Approximately 4% of our revenues in 2010 were derived from other
services.
Delivery
models
Our clients access our services through one of three delivery
models depending on their specific needs.
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BranchWe maintain approximately 200 branch offices
across 30 states. We assign an account manager to each
client, who works closely with the client to gain an in-depth
understanding of its staffing needs. This approach allows us to
provide temporary workers that are more suited to meet our
clients needs. During 2010, approximately 5,700 clients
used our branch delivery model, representing approximately 67%
of our revenues.
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On-siteWe
have approximately 90
on-site
locations across 26 states. Our
on-site
program supports organizations that use contingent labor as a
significant percentage of their overall workforce. Clients using
this delivery model receive the benefits of a dedicated staff
deployed into their facility. Our
on-site
staff becomes an extension of the clients operations and
is responsible for the recruitment, on-boarding, attendance,
coaching, and turnover of the contingent workforce. During 2010,
our on-site
delivery model represented approximately 29% of our revenues.
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Output solutionsOur output solutions delivery model
combines industrial engineering principles with human resource
management to create a workforce model focused on productivity
improvement. In this model, we manage the labor and output
component of a discrete activity or process. The client pays a
per unit cost versus a more typical hourly bill rate. All work
is performed within the clients facility and we assume
accountability for cost of labor, quality, and production
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standards. During 2010, 25 client sites used our output
solutions delivery model, representing approximately 3% of our
revenues.
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MARKET
OPPORTUNITY
According to SIA, light industrial and clerical staffing are
among the largest and fastest growing categories within the
temporary staffing sector. Comprised of unskilled and
semi-skilled temporary workers in manufacturing, distribution,
logistics, and other similar industries, light industrial
staffing is projected by SIA to grow 15% annually from 2009 to
$27 billion in 2012. Clerical staffing, comprised of
administrative, contact center, and healthcare office support
services, is projected by SIA to grow 10% annually from 2009 to
$19 billion in 2012. Industry analysts generally believe
that the benefits of a flexible workforce, the rising costs of
full-time employees, and the aging United States population will
drive secular growth in the staffing sector.
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Focus on flexible workforce management and fixed-cost
mitigationThe length and severity of the recent
recession has forced companies to build more agile workforces to
achieve greater cost flexibility. In addition, we believe the
morale impact associated with layoffs of full-time employees has
led companies to favor temporary employees versus over-hiring
and chronically right-sizing. In order to mitigate fixed costs,
many companies are using temporary staffing to respond quickly
and efficiently to changes in the economy or competitive
environment, without the associated recruiting, benefits, and
severance costs or the challenge of screening and hiring the
right employee.
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Increasing cost of full-time employeesWe believe
the regulatory and cost burden of full-time employees will
increase as state and federal governments struggle with mounting
deficits and growing entitlement programs. Many of these costs,
including healthcare benefits, unemployment insurance, and
workers compensation, have risen dramatically over the
last few years. We believe that current legislation, such as the
Patient Protection and Affordable Care Act, or the PPACA, will
exacerbate this trend.
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Aging United States populationAs the population in
the United States ages, it is altering the age distribution of
the labor force. According to the United States Census Bureau,
or Census Bureau, many of the 77 million baby-boomers that
participate in the labor force are choosing not to retire. As a
result, the percentage of the labor force that is over the age
of 55 is expected to increase from 18% in 2008 to 24% in 2018
according to the Bureau of Labor Statistics, or BLS. We believe
the projected aging of the labor force should create a favorable
business environment for the temporary staffing industry,
particularly for companies that derive revenue from light
industrial staffing which typically requires more strenuous
physical activity and, as a result, is generally more appealing
to workers under the age of 55.
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A closely monitored statistic within the temporary staffing
industry is the temporary penetration rate, which measures the
percent of the total United States workforce that is temporary
versus full-time based on data from the United States Bureau of
Labor Statistics, or BLS. During the most recent economic cycle,
the temporary penetration rate peaked at 1.96% in November 2005
and dipped to a trough at 1.34% in June 2009. In March 2011, the
temporary penetration rate reached 1.73%. We believe, as the
factors described above continue to increase the burden for
employers, companies will seek out flexible workforce solutions
and temporary penetration rates should surpass historical peaks.
The temporary staffing industry in the United States is highly
fragmented, and, according to IBISWorld, Inc., or IBISWorld,
consists of approximately 9,000 firms. According to the Census
Bureau, a majority of staffing firms in the United States
generate less than $10 million in annual revenues. In
addition, temporary staffing firms with more than 10 branch
locations account for less than 2% of the total number of
service providers, but generate over 50% of revenues in the
temporary staffing industry. The data suggests there are a large
number of small, local, and regional high-quality staffing firms
throughout the United States that could serve as potential
acquisitions to build market share and geographic density in a
cost-effective and efficient manner. We believe this creates a
compelling consolidation opportunity for us as there is a
limited number of large-scale, nationally-branded temporary
staffing companies that are capable of acquiring and integrating
sub-scale
operators.
3
OUR COMPETITIVE
STRENGTHS
We believe the following competitive strengths will allow us to
capitalize on the current market opportunity and enhance our
position as a leading, national provider of contingent workforce
solutions:
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Customized staffing solutions with strong ongoing
supportFor our key clients, we have developed a
service protocol designed to achieve optimal quality and
servicethe Staffmark Service Quality Process, or SSQP. The
SSQP is our approach to develop customized staffing solutions
that incorporate an in-depth assessment and implementation
phase, ongoing data-driven feedback, and continuous process
improvements. Critical to the success of the SSQP, and the
resulting programs, are the key performance indicators, or KPIs,
that we develop to measure the success of a program.
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Density in core marketsOur strategy of penetrating
our core markets with multiple locations helps us to raise our
brand awareness, provide qualified temporary workers on an
expedited basis, and achieve operating efficiencies through
economies of scale related to advertising and administrative
overhead.
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Local focus with nationwide capabilityWe develop
client relationships one location at a time. This approach
allows our clients to benefit from a highly personal and
attentive level of service typically associated with much
smaller operators, while receiving the benefits of a national
staffing platform. We accomplish this by delivering customized
enterprise-class staffing solutions tailored to our
clients individual needs versus a
one-size-fits-all approach used by many of our
larger competitors.
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Experienced acquirer and integrator of
businessesSince 2000, we have completed four
acquisitions in the commercial staffing sector. Following each
acquisition, we successfully integrated the acquired business
and eliminated redundant costs. In 2004 and 2008, we acquired
Venturi Staffing Partners and Staffmark Investment,
respectively, each of which approximately doubled our revenues.
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Experienced management teamOur four senior
executives collectively have over 70 years of experience in
the staffing industry. Strong leadership by our management team
has led to successful business expansion through well-managed
organic and acquisition growth. This leadership has allowed us
to navigate through challenging economic times, while
demonstrating the ability to successfully implement strategic
plans.
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OUR
STRATEGY
We intend to continue to grow our business by:
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Increasing revenues and profitability through expansion
within existing marketsIn many of our existing
markets, we have multiple branch locations. We intend to
continue to opportunistically invest in these existing markets
through hiring additional sales and operations personnel and
establishing new locations. We believe this strategy will enable
us to continue to build strong brand recognition within our
existing markets and achieve operating efficiencies from shared
fixed costs.
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Implementing remote recruitingIn 2010, we
established a remote recruiting network, which allows us to
leverage recruiting resources throughout our organization to
meet the staffing needs of our clients. Our remote recruiting
network is a cost-effective way for us to assist our field
operations with time-sensitive, large-volume staffing
requirements.
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Promoting our specialty services and output solutions
delivery modelWe will continue to invest in and
promote our transportation, output solutions, and engineering
service offerings. We market these service offerings in
combination with our core light industrial staffing solution to
address the full range of our clients staffing needs. In
addition, these value-added offerings have historically produced
higher gross and operating margins as compared to our core light
industrial and clerical offerings.
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Pursuing strategic acquisitionsWe plan to increase
density in our core markets, expand geographically, and
accelerate the growth of our service offerings through selective
acquisitions. Consummation of this offering will enhance our
ability to pursue strategic acquisitions.
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Converting local relationships into multi-site
accountsWe build client relationships by understanding
expectations and customizing service delivery at the local
level. Our flexibility and
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responsiveness enable us to cultivate long-term client
relationships. We seek to leverage these local successes to
secure additional business from our clients other
locations. We believe this strategy has been effective, as 12 of
our top 20 clients began as local relationships and subsequently
became multi-site clients.
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CONCURRENT
TRANSACTIONS
Reclassification
Currently, our certificate of incorporation authorizes
Class A, Class B, Class C, and Class D
common stock. As of May 16, 2011, there were
13,024,773 shares of Common Stock,
Classes A-D,
issued and outstanding. Prior to the consummation of this
offering, we will amend our certificate of incorporation
to: (i) authorize only one class of common stock
issuable in one series and blank check preferred stock; and
(ii) reclassify and combine all outstanding shares of our
existing Common Stock,
Classes A-D,
into shares
of the newly authorized single class of common stock. Upon the
completion of this offering, an
aggregate shares
of our common stock will be issued and outstanding including the
newly issued shares of our common stock that we will have sold
in this offering. See Description of capital stock.
Credit
facility
In connection with the completion of this offering, we expect to
enter into a new senior credit facility, or the New Credit
Facility, consisting of a $150 million revolving line of
credit with a $75 million accordion feature, a
$20 million swing line, and a $110 million letter of
credit sub-facility. The New Credit Facility, which we expect to
mature in five years, will replace our existing
$155 million credit facility, or our Existing Credit
Facility, with Compass Group Diversified Holdings LLC, a
Delaware limited liability company (together with Compass
Diversified Holdings, a Delaware statutory trust, CODI). We
expect to use a portion of the net proceeds of this offering to
repay all amounts outstanding under the Existing Credit
Facility. For a more complete description of the New Credit
Facility, see the section entitled Managements
discussion and analysis of financial condition and results of
operationsLiquidity and Capital
ResourcesTransactions affecting liquidity and capital
resources.
Management
services agreements
We have entered into management services agreements with Compass
Group Management LLC, or CGM, and Staffing Holding LLC, or
Staffing Holding, pursuant to which each of CGM and Staffing
Holding agreed to perform executive, financial and managerial
oversight services to us. Pursuant to the terms of their
respective management services agreement, each of CGM and
Staffing Holding are entitled to a management fee equal to
0.10635% and 0.04365%, respectively, of our annual revenues (as
defined in the management services agreements) plus
reimbursement of reasonable expenses incurred in connection with
the provision of services to us. In connection with this
offering, we, CGM, and Staffing Holding will enter into
Management Services Termination Agreements, pursuant to which
the parties will terminate their respective management services
agreement and we will agree to pay accrued but unpaid management
fees. For a more complete description of the management services
agreements, see the section entitled Certain relationships
and related party transactionsManagement Services
Agreements.
SUMMARY RISK
FACTORS
Investing in our common stock is subject to numerous risks,
including those that generally are associated with our industry.
You should carefully consider the risks and uncertainties
summarized below, the risks described under Risk
factors, the other information contained in this
prospectus, and our consolidated financial statements and the
related notes before you decide whether to purchase our common
stock.
5
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Any significant or prolonged economic downturn could result in
our clients using fewer temporary employees and the other
services that we offer, terminating their relationship with us,
or becoming unable to pay for our services on a timely basis, or
at all.
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Any significant or prolonged economic downturns could result in
a higher occurrence of unemployment claims, resulting in higher
state unemployment taxes, which could have a material and
adverse effect on our costs.
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A substantial portion of our revenues and earnings is generated
by our business operations in seven states.
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|
We are exposed to employment-related claims and costs and
periodic litigation that could materially adversely affect our
financial condition, business, and results of operations.
|
|
Ø
|
The temporary staffing industry is affected by seasonal
fluctuations which make management of working capital more
challenging and could adversely impact our financial position
and the market price of our common stock.
|
|
Ø
|
We assume the obligation to make wage, tax, and regulatory
payments for our temporary employees, and, as a result, are
exposed to client credit risks.
|
|
Ø
|
Workers compensation costs for temporary employees,
including workers compensation costs related to our
self-insurance
program in certain states, may rise and reduce our margins and
require more liquidity.
|
|
Ø
|
We do not have long-term or exclusive agreements with our
temporary staffing clients and our client contracts contain
termination provisions and pricing risks that could decrease our
revenues, profitability, and cash flows.
|
|
Ø
|
Substantially all of our assets will be pledged as collateral
under our New Credit Facility and if we are unable to repay all
of our borrowings when due, the lenders will have the right to
proceed against and sell the pledged collateral.
|
|
Ø
|
There has been no prior public market for our common stock, and
one may not develop, and even if it does develop, our stock
price could be volatile.
|
|
Ø
|
Securities analysts may not initiate coverage of our common
stock or may issue negative reports, and this may have a
negative impact on the market price of our common stock.
|
|
Ø
|
CODI and Staffing Holding will continue to own a large
percentage of our voting stock after this offering, which will
limit your ability to influence corporate matters subject to
stockholder approval, and they may from time to time acquire
interests in businesses that compete with us.
|
|
Ø
|
Future sales of shares of our common stock in the public markets
could cause the market price of our common stock to drop
significantly, even if our business is doing well. In addition,
CODI has pledged a large number of shares of our common stock
under its credit facility. If the lenders foreclose on these
shares, the market price of our common stock could be materially
adversely affected.
|
These risks and the other risks described under Risk
factors could have a material adverse effect on our
business, financial condition, and results of operations.
CORPORATE
INFORMATION
Our principal offices are located at 435 Elm Street,
Suite 300, Cincinnati, Ohio 45202. Our telephone number at
this address is
(513) 651-1111.
Our website is www.staffmark.com. The information contained on
our website does not constitute a part of this prospectus.
6
The offering
|
|
|
Common stock offered by us |
|
shares
(or shares
if the underwriters exercise their over-allotment option in full) |
|
Common stock offered by the selling stockholders |
|
shares
(or shares
if the underwriters exercise their over-allotment option in full) |
|
Common stock to be outstanding after this offering |
|
shares
(or shares
if the underwriters exercise their over-allotment option in full) |
|
Proposed New York Stock Exchange symbol |
|
STMK |
|
Use of proceeds |
|
We estimate that net proceeds to us from this offering will be
approximately $ million, or
approximately $ million if
the underwriters exercise their over-allotment option in full,
assuming an offering price of $
per share, the midpoint of the price range reflected on the
cover page of this prospectus, and after deducting estimated
underwriting discounts and commissions and estimated offering
expenses. We intend to use the net proceeds from this offering
to repay all amounts outstanding under our Existing Credit
Facility, to pay all accrued management fees under our
management services agreements, and for working capital and
general corporate purposes, which may include funding potential
acquisitions. See Use of proceeds. We will not
receive any proceeds from the sale of shares by the selling
stockholders. |
|
Risk factors |
|
See Risk factors beginning on page 11 of this
prospectus for a discussion of factors you should carefully
consider before deciding to invest in our common stock. |
The number of shares of common stock to be outstanding after
this offering is based
on shares
outstanding as
of ,
2011 (which gives effect to the Reclassification) and excludes:
|
|
Ø
|
shares
of common stock issuable upon the exercise of options
outstanding as
of ,
2011 at a weighted average exercise price of
$ per share; and
|
|
Ø
|
shares
reserved for future issuance under our 2011 Omnibus Plan.
|
Except as otherwise indicated, all information in this
prospectus:
|
|
Ø
|
assumes an offering price of $ per
share, the midpoint of the price range reflected on the cover
page of this prospectus;
|
|
Ø
|
assumes no exercise of the underwriters over-allotment
option;
|
|
Ø
|
gives effect to the amendment and restatement of our certificate
of incorporation and bylaws, which will become effective at or
prior to the consummation of this offering; and
|
|
Ø
|
gives effect to the Reclassification to be effected at or prior
to the consummation of this offering as described under
Reclassification at an assumed ratio of one share of
existing common stock, Classes
A-D, into
one share of newly authorized single class of common stock.
|
Certain monetary amounts, percentages, and other figures
included in this prospectus have been subject to rounding
adjustments. Accordingly, figures shown as totals in certain
tables may not be the arithmetic aggregation of the figures that
precede them, and figures expressed as percentages in the text
may not total 100% or, as applicable, when aggregated may not be
the arithmetic aggregation of the percentages that precede them.
7
Summary consolidated
financial data
The following table sets forth a summary of our historical
consolidated financial data for the periods ended or as of the
dates indicated. The consolidated statement of operations data
for the years ended December 31, 2010, 2009, and 2008 is
derived from our audited consolidated financial statements
appearing elsewhere in this prospectus. The consolidated
statement of operations data for the three months ended March
31, 2011 and 2010 and the consolidated balance sheet data as of
March 31, 2011 are derived from our unaudited interim
consolidated financial statements appearing elsewhere in this
prospectus and include all adjustments (consisting of normal
recurring adjustments) that we considered necessary for a fair
presentation of the results of operations and financial position
for, or as of, these periods. Operating results for the three
months ended March 31, 2011 are not necessarily indicative
of the results that may be expected for the year ending
December 31, 2011. You should read this table together with
Managements discussion and analysis of financial
condition and results of operations, Selected
historical consolidated financial data, and our
consolidated financial statements and the related notes thereto.
Our historical results are not necessarily indicative of our
future results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31,
|
|
|
Year ended
December 31,
|
|
Consolidated
statement of operations data:
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands,
except share and per share data)
|
|
|
Revenues
|
|
$
|
246,799
|
|
|
$
|
217,402
|
|
|
$
|
1,002,512
|
|
|
$
|
745,340
|
|
|
$
|
1,006,345
|
|
Cost of revenues
|
|
|
214,850
|
|
|
|
188,525
|
|
|
|
854,699
|
|
|
|
632,800
|
|
|
|
832,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
31,949
|
|
|
|
28,877
|
|
|
|
147,813
|
|
|
|
112,540
|
|
|
|
173,815
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expense
|
|
|
31,149
|
|
|
|
28,483
|
|
|
|
117,682
|
|
|
|
113,289
|
|
|
|
152,220
|
|
Amortization
|
|
|
1,136
|
|
|
|
1,226
|
|
|
|
4,903
|
|
|
|
4,854
|
|
|
|
4,828
|
|
Impairment expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(336
|
)
|
|
|
(832
|
)
|
|
|
25,228
|
|
|
|
(55,603
|
)
|
|
|
16,767
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,331
|
)
|
|
|
(1,793
|
)
|
|
|
(7,080
|
)
|
|
|
(7,674
|
)
|
|
|
(11,107
|
)
|
Other income (expense)
|
|
|
261
|
|
|
|
180
|
|
|
|
905
|
|
|
|
(404
|
)
|
|
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
(1,406
|
)
|
|
|
(2,445
|
)
|
|
|
19,053
|
|
|
|
(63,681
|
)
|
|
|
6,391
|
|
Provision (benefit) for income taxes
|
|
|
(197
|
)
|
|
|
(3,790
|
)
|
|
|
3,623
|
|
|
|
(25,445
|
)
|
|
|
1,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,209
|
)
|
|
$
|
1,345
|
|
|
$
|
15,430
|
|
|
$
|
(38,236
|
)
|
|
$
|
5,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.09
|
)
|
|
$
|
0.10
|
|
|
$
|
1.19
|
|
|
$
|
(3.76
|
)
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.09
|
)
|
|
$
|
0.10
|
|
|
$
|
1.16
|
|
|
$
|
(3.76
|
)
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding(1)
|
|
|
13,019,973
|
|
|
|
13,016,773
|
|
|
|
13,016,773
|
|
|
|
10,159,667
|
|
|
|
6,273,130
|
|
Incremental shares from the assumed exercise of dilutive stock
options
|
|
|
|
|
|
|
315,850
|
|
|
|
293,122
|
|
|
|
|
|
|
|
196,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
13,019,973
|
|
|
|
13,332,623
|
|
|
|
13,309,895
|
|
|
|
10,159,667
|
|
|
|
6,469,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options not included in the computation of diluted
earnings (loss) per share as their effect would have been
antidilutive
|
|
|
1,447,568
|
|
|
|
467,901
|
|
|
|
455,901
|
|
|
|
1,280,568
|
|
|
|
251,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma financial
dataunaudited:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma pre-tax net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma income tax provision (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
(1) |
|
Consists of Class A, B, C, and D common stock. |
|
|
|
(2) |
|
Subsequent to the completion of this offering, we expect
changes to certain expenses incurred by us. The unaudited pro
forma financial data gives effect to the offering and other
transactions described in this prospectus as if they had
occurred on January 1, 2010 and assumes that there were no
borrowings outstanding during 2010. We estimate that, for the
year ended December 31, 2010, interest expense would have
been reduced by approximately $4.8 million, management fees
would have been reduced by approximately $0.4 million, and
we would have incurred additional costs related to being a
public company of approximately $2.5 million. Accordingly,
pre-tax income for the year ended December 31, 2010 would
have increased by approximately $2.7 million and net income
would have increased by approximately $2.2 million. For the
three months ended March 31, 2011, we estimate that
interest expense would have been reduced by approximately
$0.8 million, management fees would have been reduced by
approximately $0.4 million, and we would have incurred
additional costs related to being a public company of
approximately $0.625 million. Accordingly, pre-tax loss for
the three months ended March 31, 2011 would have decreased
by approximately $0.6 million and net loss would have
decreased by approximately $0.5 million. The amount of such
additional costs is an estimate; the actual costs of being a
public company may differ. The estimated change in interest
expense is based on the expected interest rate schedule in the
New Credit Facility; however, interest rates are subject to
change based on market rates up to the completion of the
syndication of the New Credit Facility and interest under the
New Credit Facility may bear a floating rate. The pro forma
earnings (loss) per share reflects the increase in the number of
shares from the offering, the net proceeds of which will be
utilized to retire existing debt. The pro forma basic and
diluted weighted average shares outstanding
were
and for the year ended
December 31, 2010
and
and for the three
months ended March 31, 2011. |
|
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2011
|
|
|
|
|
|
|
Pro forma as
|
|
Consolidated
balance sheet data:
|
|
Actual
|
|
|
adjusted(1)
|
|
|
|
|
|
unaudited
|
|
|
|
(in
thousands)
|
|
|
Cash
|
|
$
|
15
|
|
|
|
|
|
Working
capital(2)
|
|
|
48,192
|
|
|
|
|
|
Total assets
|
|
|
290,070
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
9,000
|
|
|
|
|
|
Long-term debt
|
|
|
43,739
|
|
|
|
|
|
Total shareholders equity
|
|
|
109,863
|
|
|
|
|
|
|
|
|
(1) |
|
The pro forma as adjusted consolidated balance sheet data
gives effect to: (i) the sale
of shares
of common stock by us in this offering at an assumed offering
price of $ per share, the midpoint
of the price range reflected on the cover page of this
prospectus, and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us;
(ii) the entry into the New Credit Facility; (iii) the
repayment of all amounts outstanding under, and termination of,
our Existing Credit Facility; and (iv) the payment of all
accrued management fees under, and termination of, our
management services agreements. |
|
(2) |
|
Excludes cash and current portion of
long-term
debt. |
NON-GAAP FINANCIAL
MEASURES
We supplement the reporting of our financial information
determined under generally accepted accounting principles, or
GAAP, in the United States by presenting Adjusted EBITDA, a
non-GAAP financial measure, as a supplemental measure of our
performance. Adjusted EBITDA is defined as earnings before
interest, taxes, depreciation, amortization, impairment, stock
option compensation, restructuring, and other charges related to
acquisitions, one-time costs, and other cost reduction
9
initiatives. We believe that this financial measure provides
meaningful information to assist stockholders in understanding
our financial results and assessing our prospects for future
performance, because it removes from earnings the impact of
certain items. As presented, Adjusted EBITDA may not be
comparable to other companies similarly titled non-GAAP
financial measures and, therefore, could have material
limitations. Adjusted EBITDA reflects an additional way of
viewing our operations that, when viewed along with our GAAP
results and the below reconciliation to the corresponding GAAP
financial measure, provides a more complete understanding of our
business and should not be considered in isolation or as an
alternative to net income as presented in our financial
statements in accordance with GAAP. We strongly encourage
investors and stockholders to review our financial statements in
their entirety and not rely on any single financial measure.
The following table reconciles Adjusted EBITDA to the most
directly comparable GAAP financial measure, net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31,
|
|
|
Year ended
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
unaudited (in
thousands)
|
|
|
Net income (loss)
|
|
$
|
(1,209
|
)
|
|
$
|
1,345
|
|
|
$
|
15,430
|
|
|
$
|
(38,236
|
)
|
|
$
|
5,167
|
|
Add backs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
746
|
|
|
|
669
|
|
|
|
2,660
|
|
|
|
3,026
|
|
|
|
3,386
|
|
Amortization
|
|
|
1,136
|
|
|
|
1,226
|
|
|
|
4,903
|
|
|
|
4,854
|
|
|
|
4,828
|
|
Impairment expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
Interest expense
|
|
|
1,331
|
|
|
|
1,793
|
|
|
|
7,080
|
|
|
|
7,674
|
|
|
|
11,107
|
|
Provision (benefit) for income taxes
|
|
|
(197
|
)
|
|
|
(3,790
|
)
|
|
|
3,623
|
|
|
|
(25,445
|
)
|
|
|
1,224
|
|
Loss on disposal of fixed assets
|
|
|
4
|
|
|
|
1
|
|
|
|
3
|
|
|
|
147
|
|
|
|
127
|
|
Stock option expense
|
|
|
1,052
|
|
|
|
370
|
|
|
|
1,736
|
|
|
|
1,511
|
|
|
|
1,161
|
|
Integration/restructuring(1)
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
2,833
|
|
|
|
7,420
|
|
PeopleSoft conversion
|
|
|
270
|
|
|
|
1
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
Legal
settlement(2)
|
|
|
|
|
|
|
|
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
Management fee
|
|
|
423
|
|
|
|
368
|
|
|
|
429
|
|
|
|
931
|
|
|
|
1,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
3,578
|
|
|
$
|
1,983
|
|
|
$
|
38,380
|
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$
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7,295
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$
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36,135
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(1) |
|
During the year ended December 31, 2009, we had one-time
charges of approximately $2.0 million related to our
restructuring and the integration of Staffmark Investment LLC,
approximately $0.6 million in one-time debt restructuring
costs, and approximately $0.2 million in other
acquisition-related expenses. During the year ended
December 31, 2008, we had non-recurring charges of
approximately $7.4 million related to the integration of
Staffmark Investment LLC. |
|
(2) |
|
Consists of a one-time settlement of a lawsuit in California
in connection with a potential class action related to the
exempt status of current and former staff members. This
settlement was not related to two ongoing class action lawsuits
in California described below under the heading
BusinessLegal proceedings. |
10
Risk factors
Investing in our common stock involves a high degree of risk.
You should carefully consider the following risks and all other
information contained in this prospectus, including our
consolidated financial statements and the related notes, before
investing in our common stock. The risks and uncertainties
described below are not the only ones we face. Additional risks
and uncertainties of which we are unaware, or that we currently
believe are not material, also may become important factors that
may materially and adversely affect us and our prospects. If any
of the following risks materialize, our business, prospects,
financial condition, liquidity, and operating results could be
materially harmed. In such case, the market price of our common
stock could decline, and you may lose some or all of your
investment.
RISKS RELATED TO
OUR BUSINESS AND INDUSTRY
Any significant
or prolonged economic downturn could result in our clients using
fewer temporary employees and the other services that we offer,
terminating their relationship with us, or becoming unable to
pay for our services on a timely basis, or at all.
Because demand for temporary staffing services is sensitive to
changes in the level of economic activity, our business has in
the past and may in the future suffer during economic downturns.
Demand for temporary staffing is highly correlated to changes in
the level of economic activity and employment. Consequently, as
economic activity begins to slow down, it has been our
experience that companies tend to reduce their use of temporary
employees, resulting in decreased demand for temporary employees
and the other services we offer. Significant declines in demand,
and thus in revenues, would likely result in lower profit
levels. In addition, we have experienced pricing pressure during
economic downturns which could have a negative impact on our
results of operations.
We provide an enterprise-class level of staffing solutions to
our predominantly middle-market clients. Nevertheless, an
element of our business strategy also includes serving large
corporate clients. While this element of our strategy is
intended to enable us to increase revenues and earnings from our
large corporate clients, it also exposes us to increased risks
arising from the possible loss of these clients. In addition,
some of the industries in which our clients compete have
experienced adverse business and financial conditions in recent
years. The deterioration of the financial condition and business
prospects of these clients could reduce their need for temporary
staffing services and result in a significant decrease in our
revenues and earnings derived from these clients. This occurred
in late 2008 and persisted through most of 2009 as the weak
economic conditions and employment trends in the United States
continued to worsen and negatively affect our industry. In
addition, during economic downturns, companies may slow the rate
at which they pay their vendors, seek more flexible payment
terms or become unable to pay their debts as they become due. If
any of our significant clients do not pay amounts owed to us in
a timely manner or become unable to pay such amounts to us at a
time when we have substantial receivables from such clients, our
revenues, cash flows, and profitability may suffer.
Even if economic conditions improve, our business may not
improve, our financial results may not benefit from such
improvement, or the regions and industries in which we compete
may not recover at the same rate as the general economy.
Any significant
or prolonged economic downturn could result in a higher
occurrence of unemployment claims, resulting in higher state
unemployment taxes, which could have a material and adverse
effect on our costs.
State unemployment insurance expense is a direct cost of doing
business in the temporary staffing industry. State unemployment
tax rates are established based on a companys specific
experience rate of unemployment claims and a states
required funding formula on covered payroll. Economic downturns
11
Risk
factors
have in the past, and may in the future, result in a higher
occurrence of unemployment claims resulting in higher state
unemployment tax rates. Due to the recent economic downturn,
states have increased, and may continue to increase,
unemployment tax rates to employers, regardless of the
employers specific experience. As an employer of our staff
and our temporary employees, we would have to pay more to each
state if the unemployment tax rates increase in each state,
resulting in higher direct costs to us. In addition, many state
unemployment funds have been depleted during the recent economic
downturn and many states have borrowed from the federal
government under the Title XII loan program. Employers in
all states receive a credit against their federal unemployment
tax liability if the employers federal unemployment tax
payments are current and the applicable participating state is
also current with its Title XII loan program. If a state
fails to repay such loans within a specific time period,
employers in such states may lose a portion of their tax credit.
If our unemployment tax expense increases as a result of the
loss of such tax credits, we may not be able to recover any
increased expense from our clients.
A substantial
portion of our revenues and earnings is generated by our
business operations in seven states.
Although we operate a national network with locations in
32 states, a substantial portion of our revenues and
earnings is generated by our operations in seven states. During
2010, we generated approximately 60% of our revenue in
California, Ohio, Texas, Arkansas, Tennessee, Pennsylvania, and
North Carolina. A significant economic downturn or variation in
the economic condition or unemployment levels in any or all of
these states or any other region in which we have a significant
presence would adversely affect our business, financial
condition, and results of operations. Our results, including our
earnings, in the past and particularly in 2009, were adversely
impacted by high unemployment.
We are exposed to
employment-related claims and costs as well as periodic
litigation that could materially adversely affect our financial
condition, business, and results of operations.
The temporary staffing business entails employing individuals
and placing such individuals in clients workplaces. Our
ability to control the workplace environment of our clients is
limited. As the employer of record of our temporary employees,
we incur a risk of liability to our temporary employees and
clients for various workplace events, including:
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claims of misconduct or negligence on the part of our employees;
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discrimination or harassment claims against our employees, or
claims by our employees of discrimination or harassment by our
clients or us;
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immigration-related claims;
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claims relating to violations of wage, hour, and other workplace
regulations;
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claims related to wrongful termination or denial of employment;
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violation of employment rights related to employment screening
or privacy issues;
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claims relating to employee benefits, entitlements to employee
benefits, or errors in the calculation or administration of such
benefits; and
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possible claims relating to misuse of clients confidential
information, misappropriation of assets, or other similar claims.
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We may incur fines and other losses and negative publicity with
respect to any of these situations. Some of the claims may
result in litigation, which is expensive and distracts attention
from the operations of our business. Further, while we maintain
insurance with respect to many of these items, we may not be
able to continue to obtain insurance at a cost that does not
have a material adverse effect upon us.
12
Risk
factors
We are regularly involved in a variety of litigation arising out
of our business, particularly relating to employment matters.
For instance, we are currently the subject of two class action
lawsuits in California concerning alleged violations of the
California Labor Code and other laws. We cannot assure you that
our insurance will cover all claims that may be asserted against
us. Should the ultimate judgments or settlements exceed our
insurance coverage, they could have a material adverse effect on
our results of operations, financial position, and cash flows.
To reduce our exposure, we maintain insurance coverage for
professional malpractice liability, fidelity, employment
practices liability, and general liability in amounts and with
deductibles that we believe are appropriate for our operations.
Our insurance coverage, however, may not cover all potential
claims against us or continue to be available to us at a
reasonable cost. In this regard, we face various
employment-related risks not covered by insurance, such as wage
and hour laws and employment tax responsibility. We also cannot
assure you that that we will be able to obtain appropriate types
or levels of insurance in the future or that adequate
replacement policies will be available on acceptable terms, if
at all. Even if we successfully defend against these claims, the
existence of any such claim could negatively impact our brand
and the demand for our services.
The temporary
staffing industry is affected by seasonal fluctuations which
make management of working capital more challenging and could
adversely impact our financial position and the market price of
our common stock.
Our business is seasonal in nature. Client demand for temporary
staffing services is highest in the second half of a year,
primarily due to demands of the holiday season. Typically, our
earnings are lower in the first quarter of each year than in
other quarters due to reduced seasonal demand for temporary
staffing services and due to lower gross margins during such
period associated with the front-end loading of certain taxes
associated with payroll paid to our employees.
The nature of our operations is such that our most significant
current asset is accounts receivable, and our most significant
current liabilities are payroll-related costs. As the demand for
our services increases, we generally see an increase in our
working capital needs as we continue to pay our temporary
employees on a weekly or monthly basis, while the related
accounts receivable are outstanding for a longer period of time.
As a result of these factors, we have experienced and expect to
continue to experience significant fluctuations in our
period-to-period
operating results, which may make it more challenging for us to
manage our working capital needs. If we fail to adequately
manage our working capital to account for the seasonal
fluctuations in our business, our financial position and the
market price of our common stock could be adversely impacted.
We assume the
obligation to make wage, tax, and regulatory payments for our
temporary employees, and, as a result, are exposed to client
credit risks.
We generally assume responsibility for and manage the risks
associated with our temporary employees payroll
obligations, including liability for payment of salaries, wages,
and certain taxes. These obligations are fixed, whether or not
our clients make payments to us as required by services
contracts, which exposes us to credit risks of our clients,
primarily relating to uncollateralized accounts receivable. In
addition, we establish an allowance for doubtful accounts for
estimated losses resulting from the inability of our clients to
make required payments. If we fail to successfully manage our
credit risk, our financial condition, business, and results of
operations may be materially and adversely affected.
13
Risk
factors
Workers
compensation costs for temporary employees, including
workers compensation costs related to our self-insurance
program in certain states, may rise and reduce our margins and
require more liquidity.
We are responsible for and pay workers compensation costs
for our regular staff and temporary employees. At times, these
costs have risen substantially as a result of increased claims
and claim trends, general economic conditions, changes in
business mix, increases in healthcare costs, and government
regulations. Should these costs increase in the future or should
we be required to increase the amount of collateral we provide,
which currently consists of standby letters of credit, to our
insurers or to our self-insured states to backstop our
obligations under workers compensation policies, we may
not be able to either increase the fees charged to our clients
to recoup these costs or access alternative sources of
liquidity. In such event, our results of operations, financial
condition, and liquidity would be adversely affected.
For each workers compensation claim, we are responsible
for the first $1.0 million. We self-insure our
workers compensation exposure for a portion of our
employees working in three states. In the states where we do not
self-insure, we purchase insurance through insurance carriers
and, in one state, we participate in a state-run insurance fund.
We have insurance coverage for liabilities over
$1.0 million. As a result, we bear financial responsibility
for a large portion of expected and potential losses under our
workers compensation programs. Although we carry
insurance, unexpected changes in claim trends, including the
severity and frequency of claims, actuarial estimates, and
medical cost inflation could result in costs that are
significantly different than initially reported. If future
claims-related liabilities increase due to unforeseen
circumstances, or if new laws, rules, or regulations are passed,
our costs could increase significantly. There can be no
assurance that we will be able to increase the fees charged to
our clients in a timely manner and in a sufficient amount to
cover increased costs as a result of any changes in
claims-related liabilities.
We do not have
long-term or exclusive agreements with our temporary staffing
clients and our client contracts contain termination provisions
and pricing risks that could decrease our revenues,
profitability, and cash flows.
We generally do not have long-term or exclusive contracts with
our clients. The success of our business depends, in part, upon
our ability to continually secure new orders from clients and to
fill those orders with our temporary employees. Our contracts do
not usually provide for exclusive use of our services. Clients
are free to place orders with our competitors, and, therefore,
it is imperative to our business that we maintain positive
relationships with our clients. Most of our client contracts can
be terminated by the client on short notice without penalty. Our
clients, therefore, are not contractually obligated to continue
to do business with us in the future. This creates uncertainty
with respect to our revenues and earnings.
Additionally, some of our larger contracts contain:
(i) pricing provisions that allow clients to pay a set fee
for some of our services regardless of whether our costs to
perform these services exceed the amount of the set fee; and
(ii) provisions for credits to our clients if we fail to
achieve specific contract standards. Typically, our contracts
provide for billing at a set
mark-up
above the pay rate of the temporary employees. In estimating
these
mark-ups, we
use our best estimates of expected costs for federal and state
unemployment costs, workers compensation, or other costs.
If actual costs for these items exceed our estimates, which is
more difficult to predict in difficult economic times, we
typically cannot recover these amounts from our clients. These
pricing provisions and estimations could decrease our revenues,
profitability, and cash flows.
14
Risk
factors
Our failure or
inability to perform under client contracts could result in
damage to our reputation and give rise to legal claims against
us.
If clients are not satisfied with our level of performance, our
reputation in the industry may suffer, which could have a
material adverse effect on our business, financial condition,
results of operations, and cash flows. Certain areas of our
business require us to assume a greater level of responsibility
for developing or maintaining processes on behalf of our
clients, such as our output solutions delivery model, which
combines engineering principles with human resource management
to create a workforce model focused on productivity improvement.
Many of these processes are critical to the operation of our
clients businesses. Our failure or inability to complete
these engagements satisfactorily could have a material adverse
effect on our clients operations and consequently may give
rise to claims against us for actual or consequential damages or
otherwise damage our reputation. Any of these claims could have
a material adverse effect on our business, financial condition,
results of operations and cash flows.
We may not
achieve the intended effects of our business strategy.
We intend to grow our business by: (i) increasing revenues
and profitability through expansion within existing markets;
(ii) implementing remote recruiting; (iii) promoting
our specialty services and output solutions delivery model;
(iv) pursuing strategic acquisitions; and
(v) converting local relationships into multi-site
accounts. If we are not successful in achieving these objectives
with our clients, our revenues, profitability, and cash flows
could be negatively affected. If we are unable to execute on our
business strategy effectively, our productivity and cost
competitiveness could be negatively affected.
We may not
successfully consummate or initiate acquisitions.
We have experienced significant growth in the past through
acquisitions. Our ability to continue to grow through
acquisitions will depend on a number of factors, including
competition for acquisitions, the availability of capital and
other resources to consummate acquisitions, and our ability to
successfully integrate and train additional staff, including the
staff of an acquired company. There can be no assurance that we
will continue to be able to establish and expand our market
presence or to successfully identify suitable acquisition
candidates and complete acquisitions on favorable terms.
In addition to facing competition in identifying and
consummating successful acquisitions, such acquisitions could
involve significant risks, including:
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difficulties in the assimilation of the operations, services,
and corporate culture of acquired companies, and
higher-than-anticipated
costs associated with such assimilation;
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over-valuation by us of acquired companies or delays in
realizing or a failure to realize the benefits, revenues, cost
savings, and synergies that we anticipated;
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difficulties in integrating the acquired business into our
information systems, controls, policies, and procedures;
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failure to retain key personnel, business relationships,
reputation, or clients of an acquired business;
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the potential impairment of acquired assets;
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diversion of managements attention from other business
activities;
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insufficient indemnification from the selling parties for legal
liabilities incurred by the acquired companies prior to
acquisition;
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the assumption of unknown liabilities and additional risks of
the acquired business; and
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unforeseen operating difficulties that require significant
financial and managerial resources that would otherwise be
available for the ongoing development or expansion of our
existing operations.
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15
Risk
factors
In addition, future acquisitions could materially and adversely
affect our business, financial condition, results of operations,
and liquidity because they could result in the incurrence of
additional debt, dilution of our common stock, exposure to
unexpected contingent liabilities, or increased interest
expense. Possible impairment losses on goodwill and intangible
assets, or restructuring charges could occur. These risks could
have a material adverse effect on our business because they may
result in substantial costs to us and disrupt our business.
The temporary
staffing industry is highly competitive with limited barriers to
entry, intense pricing pressures, and competition from large
competitors with significant marketing, technological, and
financial resources, which could limit our ability to maintain
or increase our market share or profitability.
The temporary staffing industry is highly competitive with
limited barriers to entry. We compete in national, regional, and
local markets. Price competition in the staffing industry,
particularly from our smaller competitors in local and regional
markets, is intense, and pricing pressures from competitors and
clients are increasing. Pricing pressure in the past has
negatively impacted our results of operations. There are new
competitors entering various markets which may further increase
pricing pressures. Clients have continued to competitively bid
new contracts, and this trend is expected to continue for the
foreseeable future. We also face significant competition in
attracting and retaining qualified personnel.
Several of our competitors, such as Adecco, Kelly Services,
ManpowerGroup, Randstad, SFN Group, and TrueBlue have
significant marketing and financial resources. As a result, some
of our competitors may be in a better position to capitalize on
new technologies and changes in client requirements, and to
devote more resources than we can to the development, promotion,
and sale of their service offerings. There has been a
significant increase in the number of clients consolidating
their temporary staffing services purchases with a single
provider or small group of providers. Some of our competitors
provide broader geographic coverage than us (including
international coverage), and this could limit our ability to
service large clients who wish to consolidate services or have
moved their operations or outsourced certain functions to lower
cost countries. We also face the risk that current or
prospective clients may decide to provide similar services
internally. Additionally, some of our clients have undergone
significant mergers and acquisitions over the past few years,
and there can be no assurance that we will retain their business
following these transactions.
Some of our clients and potential clients are seeking to
consolidate their use of staffing services through the use of a
Vendor Management System solution, or VMS solution, a tool that
distributes job requirements to staffing companies and other
vendors and facilitates the interview and hiring process. We
provide a VMS solution to our clients, using a third-party
provider, but we do not currently own this service. We may not
be able to continue to effectively compete with those companies
that own a VMS solution.
We expect the level of competition in our industry to remain
high in the future, which could limit our ability to maintain or
increase our market share or our profitability.
Client relocation
of positions we filled may have a material adverse effect on our
financial condition, business, and results of
operations.
Many companies have built or moved their operations or
outsourced certain functions to other countries that have lower
employment costs. If our clients relocate positions we filled,
this would have a material adverse effect on our financial
condition, business, and results of our operations.
Government laws
and regulations may significantly restrict our business or
increase our costs.
Changes in laws or government regulations, or interpretations
thereof, may result in prohibition or restriction of certain
types of employment services that we are permitted to offer, or
the imposition of
16
Risk
factors
new or additional payroll, employment, benefit, licensing, or
tax requirements could increase our expenses and reduce our
earnings and revenues.
We may incur additional costs, including, without limitation,
increases in the cost of providing temporary employees with
healthcare coverage, as a result of the Patient Protection and
Affordable Care Act and the Health Care and Education
Reconciliation Act of 2010, or, collectively, the Acts, that
were signed into law in March 2010. In addition, since
significant provisions of the Acts will not become effective
until 2014, possible future changes in the Acts could
significantly increase our costs. Such increase in costs, or
future increases in costs, could have a material adverse effect
on our profit margins if we are unable to pass these increased
costs along to our clients.
The loss of key
members of our senior management team, regional managers, branch
managers, and
on-site
program managers could adversely affect the execution of our
business, financial condition, results of operations, and cash
flows.
We are highly dependent on our senior management team and the
performance and productivity of our regional managers, branch
managers, and
on-site
program managers. Our continued success will depend in large
part on the abilities and continued services of Lesa J. Francis,
our President, Chief Executive Officer, and Director; William E.
Aglinsky, our Executive Vice President and Chief Financial and
Administrative Officer, and Secretary; Kathryn S. Bernard, our
Executive Vice President of Corporate Risk, General Counsel; and
Suzanne M. Perry, our Senior Vice President, Human Resources.
The loss of any of these officers could have a material adverse
effect on our operations. In addition, the loss of any of our
regional, branch, or
on-site
program managers may jeopardize existing client relationships
with businesses that use our services based on relationships
with these individuals. We have entered into severance
agreements with members of our senior management that contain
certain non-competition provisions, and we typically obtain
confidentiality agreements that contain non-competition or
non-solicitation clauses from our regional, branch, and
on-site
program managers. These measures do not ensure performance of
our senior management team, regional managers, branch managers,
or on-site program managers and may not prevent them from
departing or competing with us in the future. The loss of the
services of these key members of our business could have a
material adverse effect on our business.
Our business
depends on our ability to attract and retain qualified temporary
employees that possess the skills demanded by our clients, and
intense competition may limit our ability to attract and retain
such qualified temporary employees.
Our success depends on our ability to attract and retain
qualified temporary employees who possess the skills and
experience necessary to meet the requirements of our clients or
to successfully bid for new client projects.
Our ability to attract and retain qualified temporary employees
could be impaired by improvement in economic conditions
resulting in lower unemployment, increases in compensation, or
increased competition. During periods of economic growth, we
face increasing competition from other staffing companies for
retaining and recruiting qualified temporary employees, which in
turn leads to greater advertising and recruiting costs and
increased salary expenses. If we cannot attract and retain
qualified temporary employees, the quality of our services may
deteriorate and our financial condition, business, and results
of operations may be materially adversely affected.
Our information
technology systems are critical to the operations of the
business, and any damage to our information technology systems
or data centers could affect our ability to sustain critical
business applications.
Our information management systems are essential for data
exchange and operational communications with branch and
on-site
locations spread across large geographical distances. Any future
interruption,
17
Risk
factors
impairment, or loss of data integrity, or malfunction of these
systems could severely impact our business, especially our
ability to timely and accurately pay employees and bill clients.
In addition, many business processes and information critical to
our continued operation are located in data centers. These
processes and information include, but are not limited to,
payroll, client reporting, and order management. While we have
taken steps to protect these operations and information, the
loss of a data center could create a substantial risk of
business interruption. We could be negatively affected by
natural disasters, fires, power losses, telecommunications
failures, hardware or software malfunctions and break-downs,
computer viruses, or similar events. Although we have disaster
recovery plans in place, we may not be able to adequately
execute these plans in a timely fashion. If our critical
information management systems fail or are otherwise
unavailable, this could impact our ability to satisfy our
financial reporting obligations, pay employees, bill clients,
service clients, maintain billing and payroll records reliably,
and pay taxes, which could adversely affect our revenues,
operating expenses, and financial condition. A prolonged outage
could impact our ability to service clients or to hire temporary
employees and our business could be materially and adversely
affected.
Outsourcing
certain aspects of our business could result in disruption and
increased costs.
We have outsourced certain aspects of our business to
third-party vendors that subject us to risks, including
disruptions in our business and increased costs. For example, we
have engaged third parties to host and to manage certain aspects
of our data center information and technology infrastructure.
Accordingly, we are subject to the risks associated with such
vendors abilities to provide these services to meet our
needs. Our operations significantly depend upon their and our
ability to make our servers, software applications, and websites
available and to protect our data from damage or interruption
from human error, computer viruses, intentional acts of
vandalism, natural disasters, and similar events. If the cost of
these services is more than expected, or if we or the vendor are
unable to adequately protect our data and information is lost,
or our ability to deliver our services is interrupted, then our
business and results of operations would be negatively impacted.
The conversion of
a portion of our information systems to Oracles PeopleSoft
product may negatively impact our business operations.
We are in the process of converting a portion of our payroll,
billing, accounts receivable, and front-office information
systems to Oracles PeopleSoft human resources management
system and customer relationship management software. There is a
chance of technical issues after conversion that are not
detected during the testing phases. These issues can affect both
the payroll and billing systems. Any future interruption,
impairment, or loss of data integrity or malfunction of these
systems could severely impact our business, especially our
ability to timely and accurately pay employees and bill
customers.
Improper
disclosure of employee and client data could result in liability
and harm our reputation.
Our business involves the use, storage, and transmission of
information about our employees and our clients. We have
established policies and procedures to help protect the security
and privacy of this information. It is possible that our
security controls over personal and other data and practices we
follow may not prevent the improper access to, or disclosure of,
personally identifiable or otherwise confidential information.
Such disclosure could harm our reputation and subject us to
liability under our contracts and the laws that protect personal
data and confidential information, resulting in increased costs
or loss of revenue. Further, data privacy is subject to
frequently changing rules and regulations, which sometimes
conflict among the various jurisdictions in which we provide
services. Our failure to adhere to or successfully implement
processes in response to changing regulatory requirements in
this area could result in legal liability or impairment to our
reputation in the marketplace.
18
Risk
factors
Impairment
charges relating to our goodwill and long-lived assets could
adversely affect our results of operations.
We regularly monitor our goodwill and long-lived assets for
impairment indicators. Changes in economic or operating
conditions impacting our estimates and assumptions could result
in the impairment of our goodwill or long-lived assets. For
instance, based on the results of our annual goodwill impairment
test in March 2009, we determined that the carrying amount of
our goodwill exceeded the fair value by approximately
$50.0 million as of March 31, 2009. As a result, we
recorded a $50.0 million pretax goodwill impairment charge
for the year ended December 31, 2009. In the event that we
determine that our long-lived assets are impaired or that our
remaining goodwill has suffered additional impairment, we may be
required to record a significant charge to earnings that could
adversely affect our results of operations.
Our New Credit
Facility may restrict our current and future
operations.
Our New Credit Facility will impose significant operating and
financial restrictions on us. These restrictions concern, among
other things: indebtedness; liens; mergers, and consolidation
and acquisitions; sale of assets; engaging in business other
than our current business and those reasonably related thereto;
investments; dividends; redemptions and other payments on junior
capital affiliate transactions; covenants limiting dividends or
loans made from subsidiaries to us or on our ability or any
subsidiary to grant liens; sale/leaseback transactions;
speculative hedging; amendments to material agreements; and
change in fiscal year or accounting practices.
In addition to the restrictions listed above, we expect that our
New Credit Facility will require us, under certain
circumstances, to meet specified financial ratios. Any of these
requirements and restrictions could limit our ability to plan
for and react to market conditions or meet extraordinary capital
needs and could otherwise restrict corporate activities. Our
ability to comply with these requirements and restrictions may
be affected by events beyond our control, and an adverse
development affecting our business could require us to seek
waivers or amendments of the terms of the New Credit Facility,
alternative or additional sources of financing, or reductions in
expenditures.
We expect to fund our expenses and repay our borrowings under
our New Credit Facility primarily from cash generated by our
operations. Our ability to meet our expenses thus depends on our
future performance, which will be affected by financial,
business, economic, and other factors. We are not able to
control many of these factors, such as economic conditions in
the markets where we operate and pressure from competitors. The
money we earn may not be sufficient to allow us to pay principal
and interest on our debt and to meet our other debt obligations.
If we do not have sufficient funds, we may be required to, in
the future, refinance our New Credit Facility, sell assets, or
borrow additional funds. We may not be able to take such actions
on terms that are acceptable to us, if at all. In addition, the
terms of our New Credit Facility or future debt agreements may
restrict us from adopting any of these alternatives.
Substantially all
of our assets will be pledged as collateral under our New Credit
Facility.
In connection with this offering, we expect to enter into the
New Credit Facility. Substantially all of our assets will be
pledged as collateral under our New Credit Facility. All of our
subsidiaries will be guarantors of this indebtedness and all of
their respective assets will be pledged as collateral for these
guarantees. If we are unable to repay all of our borrowings when
due, whether at maturity or if declared due and payable
following a default or an event of default, the lenders will
have the right to proceed against the collateral pledged to the
indebtedness and may sell the assets pledged as collateral in
order to repay those borrowings, which could have a material
adverse effect on our business, financial condition, results of
operations, and cash flows. A significant portion of our pledged
collateral
19
Risk
factors
consists of accounts receivable. If our creditors were to
foreclose on this collateral, such foreclosure could result in
significant damage to our relationship with key clients.
Regulatory
challenges to our tax filing positions could result in
additional taxes.
We file tax returns with various governmental entities within
the United States. The filings include returns with the Federal
government, states, and numerous cities, counties, and
municipalities including but not limited to, income taxes, gross
receipt taxes, and sales taxes. When we prepare these tax
filings, we are required to follow numerous complex legal and
technical requirements in which interpretation of rules and
regulations is required. We believe that we have appropriately
filed our tax returns and properly reported taxable
transactions, but the final tax amounts are subject to
regulatory audit and interpretation.
RISKS RELATED TO
OUR COMMON STOCK AND THIS OFFERING
There has been no
prior public market for our common stock, and one may not
develop, and even if it does develop, our stock price could be
volatile.
Prior to the consummation of this offering, there has been no
public market for our common stock. An active public trading
market may not develop after the consummation of this offering
or, even if it does develop, it may not be sustained. The
offering price of our common stock in this offering will not
necessarily reflect the market price of our common stock in the
future. The market price for our common stock after this
offering will be affected by a number of factors, some of which
are beyond our control, including those described above under
Risks Related to our Business and Industry and
include, without limitation, the following:
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announcements by us or our competitors of significant contracts,
acquisitions, or capital commitments;
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changes in financial estimates by us or analysts;
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variations in quarterly operating results;
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general economic conditions;
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litigation involving our company or investigations or audits by
regulators into the operations of our company or our competitors;
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future sales of our common stock;
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changes in federal or state laws and regulations affecting our
industry;
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investor perception of us and the industries in which we operate;
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natural disasters; and
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terrorist acts.
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You should consider an investment in our common stock to be
risky, and you should invest in our common stock only if you can
withstand a significant loss and wide fluctuation in the market
value of your investment. The market price of our common stock
could be subject to wide fluctuations in response to, among
other things, the factors described in this Risk
factors section, and other factors, some of which are
beyond our control.
Furthermore, the stock markets have experienced price and volume
fluctuations that have affected and continue to affect the
market price of equity securities of many companies. These
fluctuations have often been unrelated or disproportionate to
the operating performance of these companies. These broad market
fluctuations, as well as general economic, systemic, political,
and market conditions, such as recessions, loss of investor
confidence, or interest rate changes, may negatively affect the
market price of our common stock.
20
Risk
factors
If any of the foregoing occurs, it could cause our stock price
to fall and may expose us to securities class action litigation
that, even if unsuccessful, could be costly to defend and a
distraction to management.
Securities
analysts may not initiate coverage of our common stock or may
issue negative reports, and this may have a negative impact on
the market price of our common stock.
The market price of our common stock will be influenced by the
research and reports that industry or securities analysts
publish about us, our industry and our competitors. If
securities analysts do not cover our common stock, the lack of
research coverage may adversely affect the market price of our
common stock. Even if analysts elect to cover us, if one or more
of the analysts downgrades our stock, our stock price would
likely decline. Additionally, if one or more of these analysts
ceases coverage of our company, we could lose visibility in the
market, which in turn could cause our stock price to decline. It
may be difficult for companies such as ours to attract
independent financial analysts that will cover our common stock.
CODI and Staffing
Holding will continue to own a large percentage of our voting
stock after this offering, which will limit your ability to
influence corporate matters subject to stockholder approval, and
they may from time to time acquire interests in businesses that
compete with us.
At the completion of this offering, we expect that CODI and
Staffing Holding LLC, an affiliate of Stephens Capital Partners
LLC, or Stephens Capital, will beneficially own
approximately %
and % of our outstanding shares of
common stock (or approximately %
and % if the underwriters exercise
their over-allotment option in full), respectively. As a result,
these stockholders will be able to exercise a significant level
of control over all matters requiring stockholder approval,
including the election of directors, amendment of our
certificate of incorporation, and approval of any merger,
consolidation, or sale of all, or substantially all, of our
assets or other significant corporate transactions. In addition,
CODI and Stephens Capital will have input on all matters before
our board of directors as our directors Elias Sabo and Robert
Janes are affiliated with CODI and Stephens Capital,
respectively. CODI and Stephens Capital may also delay or
prevent a change of control or otherwise discourage a potential
acquirer from attempting to obtain control of us, even if such a
change of control would benefit our other stockholders. So long
as CODI, Stephens Capital, or any of their affiliates continue
to indirectly own a significant amount of our outstanding common
stock, even if such amount is less than 50%, they will continue
to be able to significantly influence our decisions.
In addition, CODI and Stephens Capital are in the business of
making investments in companies and may from time to time
acquire and hold interests in businesses that may compete
directly or indirectly with us. CODI and Stephens Capital may
also pursue acquisition opportunities that are complementary to
our business and, as a result, those acquisition opportunities
may not be available to us.
Future sales of
shares of our common stock in the public markets could cause the
market price of our common stock to drop significantly, even if
our business is doing well. In addition, CODI has pledged a
large number of shares of our common stock under its credit
facility. If the lenders foreclose on these shares, the market
price of our common stock could be materially adversely
affected.
Upon completion of this offering, there will
be shares
of our common stock outstanding
( shares
if the underwriters exercise their over-allotment option in
full).
The shares
being sold in this offering
( shares,
if the underwriters exercise their over-allotment option in
full) will be freely tradable immediately after this offering
without restriction or further registration under the Securities
Act, unless these shares are held by affiliates, as
that term is defined in Rule 144 under the Securities Act.
Of the
remaining shares
not sold in this
offering, shares
will be subject to a
180-day
lock-up
period. The holders of these shares will only be able to sell
their
21
Risk
factors
respective shares in the public market upon termination of the
lock-up
period, subject to any applicable volume, manner of sale,
holding period and other requirements of Rule 144 under the
Securities Act of 1933, as amended.
Upon completion of this offering, the holders
of shares
of common stock subject to the
lock-up
period or their permitted transferees will be entitled to
various rights with respect to the registration of these shares
under the Securities Act pursuant to a registration rights
agreement. We also intend to register all shares of our common
stock subject to outstanding options under our 1999 Stock Option
Plan and 2009 Stock Option Plan and reserved for issuance under
the 2011 Omnibus Plan. Upon the completion of this offering, an
aggregate
of shares
of our common stock will be reserved for future issuance under
the 2011 Omnibus Plan. Once we register shares pursuant to
registration rights of our holders or under our option plans,
they can be freely sold in the public market upon issuance,
subject to any applicable Rule 144 volume limitations and
other requirements applicable to our affiliates and the
applicable
lock-up
restrictions referred to above. If a large number of these
shares are sold in the public market, the sales could reduce the
market price of our common stock. See Shares eligible for
future sale.
In addition, CODI has pledged all of its shares of our common
stock that it is not selling in this offering as security under
its credit facility with Madison Capital Funding LLC, or Madison
Capital, as agent for the lenders. If CODI breaches certain
covenants and obligations in its credit facility with Madison
Capital, an event of default could result and Madison Capital
could exercise its right to accelerate all the debt under the
facility and foreclose on the pledged shares. While the pledged
shares are subject to the
180-day
lock-up
restrictions described above, any future sale of pledged shares
after foreclosure could cause the market price of our common
stock to decline. In addition, because CODI owns a substantial
amount of our common stock, the occurrence of an event of
default, foreclosure, and a subsequent sale of all, or
substantially all, of the pledged shares could result in a
change of control, even when such change may not be in the best
interests of our stockholders.
You will
experience immediate and substantial dilution as a result of
this offering and may experience additional dilution in the
future.
If you purchase shares of our common stock in this offering, you
will pay more for your shares than the amounts paid by existing
stockholders for their shares. As a result, as of
December 31, 2010, based on an aggregate
of shares
of our common stock outstanding after this offering, you will
incur immediate and substantial dilution of
$ per share, representing the
difference between our pro forma as adjusted net tangible book
value per share after giving effect to this offering and an
assumed offering price of $ , the
midpoint of the price range reflected on the cover page of this
prospectus. Investors purchasing shares of our common stock in
this offering will contribute
approximately % of the total
consideration paid to us for our equity, but will own only
approximately % of the shares
outstanding immediately following the consummation of this
offering.
If we raise additional funding by issuing equity securities or
convertible debt, or if we acquire other companies or finance
strategic transactions by issuing equity, the newly issued or
issuable shares will further dilute your percentage ownership
and may also reduce the value of your investment and may cause
dilution in earnings per share.
After completion
of this offering, we do not expect to declare any dividends in
the foreseeable future.
After completion of this offering, we do not anticipate
declaring any dividends on our common stock in the foreseeable
future. Our New Credit Facility will restrict or limit our
ability to pay dividends and we may enter into agreements in the
future that will further limit our ability to pay dividends.
Consequently, investors may need to rely on sales of their
common stock after price appreciation, which
22
Risk
factors
may never occur, as the only way to realize any future gains on
their investment. Investors seeking dividends should not
purchase our stock.
Delaware Law and
our articles of incorporation and bylaws contain provisions that
could make the takeover of our company more difficult.
Provisions in our organizational documents will make it more
difficult and expensive for a third party to acquire control of
us even if a change of control would be beneficial to the
interests of our stockholders. For example, our amended and
restated organizational documents, which will be effective at or
prior to the consummation of this offering, provide for advance
notice for stockholder proposals and director nominations and
for a classified board of directors with staggered, three-year
terms. Certain provisions of Delaware law may also delay or
prevent a transaction that could cause a change in our control.
The market price of our shares could be adversely affected to
the extent that provisions of our organizational documents
discourage potential takeover attempts that our stockholders may
favor.
We will incur
significant increased costs as a result of operating as a public
company, and our management will be required to devote
substantial time to new compliance initiatives.
As a public company, we will incur significant legal, accounting
and other expenses that we did not incur as a private company.
In addition, the Sarbanes-Oxley Act of 2002, or the
Sarbanes-Oxley Act, as well as rules subsequently implemented by
the SEC and the New York Stock Exchange, have imposed various
requirements on public companies, including the establishment
and maintenance of effective disclosure and financial controls
and corporate governance practices. We will need to devote a
substantial amount of time to these new compliance initiatives.
Moreover, these rules and regulations will increase our legal
and financial compliance costs and will make some activities
more time-consuming and costly. For example, we expect these
rules and regulations to make it more difficult and more
expensive for us to obtain director and officer liability
insurance, and we may be required to incur substantial costs to
maintain the same or similar coverage. The Sarbanes-Oxley Act
requires, among other things, that we maintain effective
internal control over financial reporting and disclosure
controls and procedures. As a result of our required compliance
with Section 404 of the Sarbanes-Oxley Act, we will incur
substantial accounting expense and expend significant management
efforts and we will need to hire additional accounting and
financial staff with appropriate experience and technical
accounting knowledge to ensure such compliance. Furthermore, if
we identify any issues in complying with the requirements of the
Sarbanes-Oxley Act (for example, if we or our independent
registered public accounting firm identify a material weakness
or significant deficiency in our internal controls over
financial reporting), we would likely incur additional costs
rectifying those issues, and the existence of those issues could
adversely affect us, our reputation, investor perceptions of us
and the market price of our common stock.
We will have
broad discretion over the use of the proceeds we receive in this
offering and might not apply the proceeds in ways that
ultimately increase the value of your investment.
We will have broad discretion over the use of our net proceeds
from this offering that have been allocated to working capital
and other purposes, and you will be relying on the judgment of
our management regarding the application of these proceeds. Our
management might not apply our net proceeds in ways that
ultimately increase the value of your investment. We expect to
use substantially all of the net proceeds from this offering to
repay all amounts outstanding under our Existing Credit Facility
with the remainder, if any, being used for working capital and
general corporate purposes. We might not be able to yield a
significant return, if any, on the investment of these proceeds.
You will not have the opportunity to influence our decisions on
how to use our net proceeds from this offering.
23
Special note
regarding forward-looking statements
This prospectus, including the sections titled Prospectus
summary, Risk factors, Managements
discussion and analysis of financial condition and results of
operations, Business and Executive
compensation, contains forward-looking
statements within the meaning of the federal securities
laws that involve risks and uncertainties. Forward-looking
statements convey our current expectations or forecasts of
future events. All statements contained in this prospectus other
than statements of historical fact are forward-looking
statements. Forward-looking statements include statements
regarding our plans, objectives, goals, business strategies,
future events, future revenues or performance, capital
expenditures, financing needs, projected costs, plans and
objectives of management for future operations, and other
information that is not historical information. The words
anticipates, believes,
continues, estimates,
expects, forecasts,
foresees, goal, intends,
likely, may, projects,
plans, seeks, should,
target, will, and variations of these
words or similar expressions (or the negative versions of any
such words) may identify forward-looking statements, but the
absence of these words does not necessarily mean that a
statement is not forward-looking.
These forward-looking statements are subject to risks and
uncertainties that may change at any time, and, therefore, our
actual results may differ materially from those that we
expected. Accordingly, investors should not place undue reliance
on our forward-looking statements. We derive many of our
forward-looking statements from our operating budgets and
forecasts. While we believe that our assumptions are reasonable,
we caution that it is very difficult to predict the impact of
known factors, and, of course, it is impossible for us to
anticipate all factors that could affect our actual results. All
forward-looking statements are based on information available to
us as of the date of this prospectus. Unless required by law, we
undertake no obligation to publicly update or revise
forward-looking statements to reflect events or circumstances
after the date made or to reflect the occurrence of
unanticipated events.
Important factors that could cause actual results to differ
materially from our expectations, which we refer to as
cautionary statements, are disclosed under Risk
factors and elsewhere in this prospectus. All
forward-looking statements in this prospectus are expressly
qualified in their entirety by the cautionary statements. The
factors that we believe could affect our results include, but
are not limited to:
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economic downturns that affect our business;
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higher state unemployment taxes;
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substantial portions of our revenues and earnings being
generated by our business operations in seven states;
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exposure to employment-related claims and costs and periodic
litigation;
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seasonal fluctuations in the staffing industry;
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our exposure to client credit risks as a result of our
obligation to make wage, tax, and regulatory payments for our
temporary employees; and
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an increase in workers compensation costs for temporary
employees and related reductions in our margins and increased
liquidity requirements.
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24
Use of proceeds
We estimate that net proceeds to us from this offering will be
approximately $ million, or
approximately $ million if
the underwriters exercise their over-allotment option in full,
assuming an offering price of $
per share, the midpoint of the price range reflected on the
cover page of this prospectus, and after deducting estimated
underwriting discounts and commissions and estimated offering
expenses. A $1.00 increase (decrease) in the assumed offering
price of $ per share would
increase (decrease) the net proceeds to us from this offering by
$ million, assuming that the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same and after deducting
estimated underwriting discounts and commissions and estimated
offering expenses. A 100,000 share increase (decrease) in
the number of shares of common stock sold by us in this offering
would increase (decrease) the net proceeds to us from this
offering by approximately
$ million, assuming an
offering price of $ per share, the
midpoint of the price range reflected on the cover page of this
prospectus and after deducting estimated underwriting discounts
and commissions and estimated offering expenses. We will not
receive any proceeds from the sale of shares of common stock by
the selling stockholders, including any shares sold by the
selling stockholders pursuant to the underwriters
over-allotment option, although we will bear the costs, other
than underwriting discounts and commissions, associated with the
sale of these shares. The selling stockholders include a member
of our board of directors and entities affiliated with or
controlled by certain of our directors.
We intend to use approximately
$ million of the net proceeds
from this offering to repay all amounts outstanding under our
Existing Credit Facility, which will be terminated,
approximately $ million to
pay all accrued management fees under our management services
agreements, which will be terminated, and the remaining
approximately $ million for
working capital and general corporate purposes, which may
include funding potential acquisitions. Our Existing Credit
Facility, which matures on January 21, 2014, had a weighted
average interest rate of 7.72% per annum for the year ended
December 31, 2010. See Certain relationships and
related party transactions. The potential uses of net
proceeds from this offering represent our current intentions
based upon our present business plans and business conditions.
25
Dividend policy
We currently do not anticipate paying any cash dividends in the
foreseeable future. We expect to retain any future earnings for
working capital and general corporate purposes, which may
include funding potential acquisitions and the repayment of
debt. Any future determination to declare dividends will be made
at the discretion of our board of directors, subject to
applicable laws and compliance with certain covenants under our
New Credit Facility, which will restrict or limit our ability to
pay dividends, and will depend on our financial condition,
results of operations, capital requirements, general business
conditions, and other factors that our board of directors may
deem relevant. Future agreements that we enter into may also
restrict or limit our ability to pay dividends. We have not paid
any cash dividends on any class of our common stock during the
current fiscal year or during the two most recently completed
fiscal years.
26
Reclassification
CODI has owned a controlling interest in us since May 2006 and
after the completion of this offering is expected to own
approximately % of our common stock. Currently, our
certificate of incorporation authorizes Class A,
Class B, Class C, and Class D common stock.
Classes B and C common stock are convertible into
Class A common stock under various circumstances. Except
for Classes A and D common stock having superior voting
rights and Class D common stock having a liquidation
preference, the terms of Classes A, B, C, and D common
stock are identical. Our Class C common stock has been
reserved for issuance pursuant to our option plans, and shares
of each of Classes A, B, C, and D common stock are
currently issued and outstanding.
Immediately prior to the consummation of this offering, we will
amend our certificate of incorporation to: (i) authorize
only one class of common stock and blank check preferred stock;
and (ii) reclassify and combine all outstanding shares of
our existing common stock,
Classes A-D,
into shares
of the newly authorized single class of common stock. Our
outstanding options will become exercisable for shares of the
newly authorized single class of common stock. As a result of
this
reclassification, shares
of our common stock will be issued and outstanding, not
including the newly issued shares of our common stock that we
will have sold in this offering. Upon completion of this
offering, shares
of our common stock will be issued and outstanding, including
the newly issued shares of our common stock that we will have
sold in this offering. Except as described above, no other
options, warrants, preferred stock, or other equity securities
of ours will be then issued or outstanding.
27
Capitalization
The following table sets forth our cash and capitalization as of
March 31, 2011:
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on an actual basis; and
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on a pro forma as adjusted basis to give effect to: (i) the
amendment and restatement of our certificate of incorporation;
(ii) the Reclassification; (iii) the sale
of shares
of common stock by us in this offering at an assumed offering
price of $ per share, the midpoint
of the price range reflected on the cover page of this
prospectus, and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us;
(iv) the entry into our New Credit Facility; (v) the
repayment of all amounts outstanding under, and termination of,
our Existing Credit Facility; and (vi) payment of all
accrued management fees under, and termination of, our
management services agreements.
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The unaudited pro forma as adjusted information in the table
below is illustrative only, and our capitalization following the
completion of this offering will depend on the actual offering
price determined at pricing. You should read this table together
with Managements discussion and analysis of
financial condition and results of operations and our
consolidated financial statements and related notes thereto.
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As of
March 31, 2011
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Pro forma as
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Actual
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adjusted
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unaudited
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(in thousands,
except share data)
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Cash
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$
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15
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$
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Debt:
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Existing Credit Facility
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52,739
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New Credit Facility
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Total debt
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52,739
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Shareholders equity:
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Preferred stock, $ par value,
100,000 shares authorized actual, 100,000 shares
authorized pro forma as adjusted, no shares issued and
outstanding actual, no shares issued and outstanding pro forma
as adjusted
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Common stock, $ par
value, shares
authorized
actual, shares
authorized pro forma and pro forma as
adjusted, shares
issued and outstanding
actual, shares
issued and outstanding pro forma as adjusted
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Class A common stock, $0.001 par value,
5,000,000 shares authorized actual, 3,741,511 shares
issued and outstanding actual, no shares authorized, issued, and
outstanding pro forma as adjusted
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4
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Class B common stock, $0.001 par value,
5,000,000 shares authorized actual, 2,436,750 shares
issued and outstanding actual, no shares authorized, issued, and
outstanding pro forma as adjusted
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2
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Class C common stock, $0.001 par value,
2,000,000 shares authorized actual, 258,483 shares
issued and outstanding actual, no shares authorized, issued, and
outstanding pro forma as adjusted
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Class D common stock, $0.001 par value,
10,000,000 shares authorized actual, 6,588,029 shares
issued and outstanding actual, no shares authorized, issued, and
outstanding pro forma as adjusted
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7
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Additional paid-in capital
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103,262
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Accumulated earnings
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6,588
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Total shareholders equity
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109,863
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Total capitalization
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$
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162,617
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$
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28
Capitalization
The number of shares of common stock set forth in the table
above excludes:
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1,447,568 shares of Class C common stock subject to
outstanding options as of March 31, 2011; and
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shares
of common stock reserved for future issuance under our 2011
Omnibus Plan.
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A $1.00 increase (decrease) in the assumed offering price of
$ per share, the midpoint of the
price range reflected on the cover page of this prospectus,
would increase (decrease) total shareholders equity and
total capitalization by
$ million, assuming that the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same and after deducting
estimated underwriting discounts and commissions and estimated
offering expenses. A 100,000 share increase (decrease) in
the number of shares of common stock sold by us in this offering
would increase (decrease) total shareholders equity and
total capitalization by approximately
$ million, assuming an
offering price of $ per share, the
midpoint of the price range reflected on the cover page of this
prospectus, and after deducting estimated underwriting discounts
and commissions and estimated offering expenses.
29
Dilution
If you invest in our common stock, your interest will be diluted
immediately to the extent of the difference between the public
offering price per share of our common stock and the as adjusted
net tangible book value per share of our common stock upon
consummation of this offering.
For purposes of this section only, we have assumed each
outstanding share of Class A, Class B, Class C,
and Class D common stock is exchanged
for shares
of our common stock in the Reclassification.
Our net tangible book value as of December 31, 2010 was
approximately $ million or
$ per share of common stock, based
on shares
of common stock issued and outstanding on such date. Net
tangible book value per share represents the book value of our
total tangible assets less the book value of our total
liabilities divided by the number of shares of common stock then
issued and outstanding.
After giving effect to the sale of the shares of common stock,
we are offering at an assumed offering price of
$ per share, the midpoint of the
price range reflected on the cover page of this prospectus, and
after deducting estimated underwriting discounts and commissions
and estimated offering expenses, and after giving effect to the
Reclassification, our pro forma as adjusted net tangible book
value as
of ,
2011 would have been approximately
$ million, or
$ per share of common stock. This
amount represents an immediate increase in net tangible book
value of $ per share to our
existing stockholders and an immediate dilution of
$ per share to new investors. The
following table illustrates this calculation on a per share
basis:
|
|
|
|
|
|
|
|
|
Assumed offering price per share
|
|
|
|
|
|
$
|
|
|
Net tangible book value per share
at ,
2011
|
|
$
|
|
|
|
|
|
|
Pro forma decrease in net tangible book value per share of
common stock as a result of the Reclassification
|
|
|
|
|
|
|
|
|
Pro forma increase in net tangible book value per share
attributable to this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after
this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma dilution per share to new investors in this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Each $1.00 increase (decrease) in the assumed offering price of
$ per share would increase
(decrease) our pro forma as adjusted net tangible book value by
approximately $ million, or
approximately $ per share, and the
pro forma dilution per share to new investors in this offering
by approximately $ per share,
assuming that the number of shares offered by us, as set forth
on the cover of this prospectus, remains the same and after
deducting estimated underwriting discounts and commissions and
estimated offering expenses. The number of shares offered by us
in this offering may be increased or decreased from the number
of shares on the cover page of this prospectus. Each increase
(decrease) of 100,000 shares in the number of shares
offered by us would increase (decrease) our pro forma as
adjusted net tangible book value by approximately
$ million, or approximately
$ per share, and the pro forma
dilution per share to new investors in this offering by
approximately $ per share,
assuming the assumed offering price per share of
$ per share, the midpoint of the
price range reflected on the cover of this prospectus, remains
the same and after deducting estimated underwriting discounts
and commissions and estimated offering expenses. The pro forma
as adjusted information discussed above is illustrative only and
will change based on the actual offering price determined at
pricing.
If the underwriters exercise their over-allotment option in
full, our pro forma as adjusted net tangible book value would
increase to $ per share,
representing an immediate increase in net tangible book
30
Dilution
value of $ per share to our
existing stockholders and an immediate pro forma dilution of
$ per share to new investors.
The following table summarizes, as
of ,
2011, the number of shares of common stock purchased from us,
the total consideration paid to us and the average price paid
per share by existing stockholders and by new investors in this
offering, based on an assumed offering price of
$ per share, the midpoint of the
price range reflected on the cover page of this prospectus, and
before deducting estimated underwriting discounts and
commissions and estimated offering expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
purchased
|
|
|
Total
consideration
|
|
|
price per
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
share
|
|
|
|
|
Existing stockholders
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100.0
|
%
|
|
$
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assuming no exercise of the over-allotment option, sales of
shares of common stock by the selling stockholders in this
offering will reduce the number of shares of common stock held
by existing stockholders
to ,
or approximately % of the total
shares of common stock outstanding after this offering, and will
increase the number of shares held by new investors in this
offering
to ,
or approximately % of the total
shares of common stock outstanding after this offering. If the
underwriters exercise their over-allotment option in full, the
number of shares held by existing stockholders will be reduced
to shares,
or % of the total shares
outstanding, and the number of shares held by investors
participating in this offering will be increased
to shares,
or % of the total shares
outstanding.
The above table and calculations are based
on shares
of our common stock outstanding as
of ,
2011 and exclude:
|
|
Ø
|
shares
of common stock issuable upon the exercise of options
outstanding as
of ,
2011 at a weighted average exercise price of
$ per share; and
|
|
Ø
|
shares
reserved for future issuance under our 2011 Omnibus Plan.
|
To the extent any such options are exercised or shares issued,
there will be further dilution to new investors in this offering.
31
Selected historical
consolidated financial data
The following table sets forth selected historical consolidated
financial data that is qualified in its entirety by and should
be read in conjunction with Managements discussion
and analysis of financial condition and results of
operations and our consolidated financial statements and
related notes thereto. The selected historical consolidated
financial data in this section is not intended to replace our
historical consolidated financial statements and the related
notes thereto. Our historical results are not necessarily
indicative of future results.
The consolidated statement of operations data for the three
months ended March 31, 2011 and 2010 and the consolidated
balance sheet data as of March 31, 2011 are derived from
our unaudited interim consolidated financial statements
appearing elsewhere in this prospectus and include all
adjustments (consisting of normal recurring adjustments) that we
considered necessary for a fair presentation of the results of
operations and financial position for, or as of, these periods.
Operating results for the three months ended March 31, 2011
are not necessarily indicative of the results that may be
expected for the year ended December 31, 2011. The
consolidated statement of operations data for the years ended
December 31, 2010, 2009, and 2008 and consolidated balance
sheet data as of December 31, 2010 and 2009 are derived
from our audited consolidated financial statements appearing
elsewhere in this prospectus. The consolidated statement of
operations data, with the exception of share and per share data,
for the years ended December 31, 2007 and 2006 and
consolidated balance sheet data as of December 31, 2008,
2007, and 2006 have been derived from our audited consolidated
financial statements not included in this prospectus. Past
performance is not an indication of future results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31,
|
|
|
Year ended
December 31,
|
|
Consolidated
statement of operations data:
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands,
except share and per share data)
|
|
|
Revenues
|
|
$
|
246,799
|
|
|
$
|
217,402
|
|
|
$
|
1,002,512
|
|
|
$
|
745,340
|
|
|
$
|
1,006,345
|
|
|
$
|
569,880
|
|
|
$
|
551,080
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
214,850
|
|
|
|
188,525
|
|
|
|
854,699
|
|
|
|
632,800
|
|
|
|
832,530
|
|
|
|
464,343
|
|
|
|
446,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
31,949
|
|
|
|
28,877
|
|
|
|
147,813
|
|
|
|
112,540
|
|
|
|
173,815
|
|
|
|
105,537
|
|
|
|
104,810
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
31,149
|
|
|
|
28,483
|
|
|
|
117,682
|
|
|
|
113,289
|
|
|
|
152,220
|
|
|
|
81,871
|
|
|
|
80,513
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
1,136
|
|
|
|
1,226
|
|
|
|
4,903
|
|
|
|
4,854
|
|
|
|
4,828
|
|
|
|
1,123
|
|
|
|
2,687
|
|
|
|
|
|
|
|
|
|
Impairment expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(336
|
)
|
|
|
(832
|
)
|
|
|
25,228
|
|
|
|
(55,603
|
)
|
|
|
16,767
|
|
|
|
22,543
|
|
|
|
21,610
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,331
|
)
|
|
|
(1,793
|
)
|
|
|
(7,080
|
)
|
|
|
(7,674
|
)
|
|
|
(11,107
|
)
|
|
|
(6,691
|
)
|
|
|
(7,030
|
)
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
261
|
|
|
|
180
|
|
|
|
905
|
|
|
|
(404
|
)
|
|
|
731
|
|
|
|
143
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
(1,406
|
)
|
|
|
(2,445
|
)
|
|
|
19,053
|
|
|
|
(63,681
|
)
|
|
|
6,391
|
|
|
|
15,995
|
|
|
|
14,873
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
(197
|
)
|
|
|
(3,790
|
)
|
|
|
3,623
|
|
|
|
(25,445
|
)
|
|
|
1,224
|
|
|
|
5,545
|
|
|
|
5,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,209
|
)
|
|
$
|
1,345
|
|
|
$
|
15,430
|
|
|
$
|
(38,236
|
)
|
|
$
|
5,167
|
|
|
$
|
10,450
|
|
|
$
|
9,282
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on interest rate swap
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(1,209
|
)
|
|
$
|
1,345
|
|
|
$
|
15,430
|
|
|
$
|
(38,236
|
)
|
|
$
|
5,167
|
|
|
$
|
10,450
|
|
|
$
|
9,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Selected
historical consolidated financial data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31,
|
|
|
Year ended
December 31,
|
|
Consolidated
statement of operations data:
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands,
except share and per share data)
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.09
|
)
|
|
$
|
0.10
|
|
|
$
|
1.19
|
|
|
$
|
(3.76
|
)
|
|
$
|
0.82
|
|
|
$
|
2.38
|
|
|
$
|
1.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.09
|
)
|
|
$
|
0.10
|
|
|
$
|
1.16
|
|
|
$
|
(3.76
|
)
|
|
$
|
0.80
|
|
|
$
|
2.27
|
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
13,019,973
|
|
|
|
13,016,773
|
|
|
|
13,016,773
|
|
|
|
10,159,667
|
|
|
|
6,273,130
|
|
|
|
4,395,691
|
|
|
|
5,214,278
|
|
|
|
|
|
|
|
|
|
Incremental shares from the assumed exercise of dilutive stock
options
|
|
|
|
|
|
|
315,850
|
|
|
|
293,122
|
|
|
|
|
|
|
|
196,493
|
|
|
|
215,440
|
|
|
|
250,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
13,019,973
|
|
|
|
13,332,623
|
|
|
|
13,309,895
|
|
|
|
10,159,667
|
|
|
|
6,469,623
|
|
|
|
4,611,131
|
|
|
|
5,464,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options not included in the computation of diluted
earnings (loss) per share as their effect would have been
antidilutive
|
|
|
1,447,568
|
|
|
|
467,901
|
|
|
|
455,901
|
|
|
|
1,280,568
|
|
|
|
251,901
|
|
|
|
10,500
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
March 31,
|
|
|
As of
December 31,
|
|
Consolidated
balance sheet data:
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
Total current assets
|
|
$
|
132,991
|
|
|
$
|
134,976
|
|
|
$
|
117,884
|
|
|
$
|
112,949
|
|
|
$
|
66,527
|
|
|
$
|
71,009
|
|
Total assets
|
|
|
290,070
|
|
|
|
293,536
|
|
|
|
282,678
|
|
|
|
317,760
|
|
|
|
137,804
|
|
|
|
142,571
|
|
Total current liabilities
|
|
|
93,784
|
|
|
|
95,495
|
|
|
|
76,039
|
|
|
|
81,080
|
|
|
|
44,591
|
|
|
|
48,055
|
|
Long-term obligations
|
|
|
86,423
|
|
|
|
88,036
|
|
|
|
113,800
|
|
|
|
146,678
|
|
|
|
57,760
|
|
|
|
69,050
|
|
Total shareholders equity
|
|
|
109,863
|
|
|
|
110,005
|
|
|
|
92,839
|
|
|
|
90,002
|
|
|
|
35,453
|
|
|
|
25,466
|
|
33
Managements
discussion and analysis of financial condition and results of
operations
You should read the following discussion of our results of
operations and financial condition together with Selected
historical consolidated financial data and our
consolidated financial statements and related notes thereto
included elsewhere in this prospectus. This discussion contains
forward-looking statements and involves numerous risks and
uncertainties, including, but not limited to, those described in
Risk factors. Actual results may differ materially
from those contained in any forward-looking statements. Certain
monetary amounts, percentages and other figures included in this
prospectus have been subject to rounding adjustments.
Accordingly, figures shown as totals in certain tables may not
be the arithmetic aggregation of the figures that precede them,
and figures expressed as percentages in the text may not total
100% or, as applicable, when aggregated may not be the
arithmetic aggregation of the percentages that precede them.
EXECUTIVE
SUMMARY
We are a leading, national provider of contingent workforce
solutions that serves the temporary staffing needs of employers
throughout the United States. We are focused on providing a full
spectrum of light industrial and clerical staffing solutions.
Since 1970, our clients have relied on us to consistently
identify, screen, and deliver the temporary employees that
support their growth and enable them to respond quickly to
changes in their business environment. We currently place over
40,000 temporary employees weekly through our national network
of over 300 branch,
on-site, and
output solutions locations in 32 states and have a client
base of approximately 6,000. We maintain a well-diversified
revenue base, and, in 2010, our top 10 clients accounted for
less than 25% of our revenues. As evidence of our market
position, we have been ranked by SIA as the 8th largest
industrial-staffing company and the 17th largest staffing
company overall in the United States, based on 2009 revenues,
out of approximately 9,000 staffing firms.
Demand for temporary staffing is highly correlated to changes in
the level of economic activity and employment. Consequently,
late 2008 and most of 2009 were challenging periods for the
temporary staffing industry as the weak economic conditions and
employment trends in the United States continued to worsen.
Economic conditions and employment trends in the staffing
industry exhibited signs of improvement in the fourth quarter of
2009 and have continued into 2011. According to the BLS, during
the fourth quarter of 2009 and through April 2011, the temporary
labor market in the United States grew by an average of
approximately 26,000 temporary placements per month for a total
of approximately 500,000 temporary jobs, representing a 28%
increase.
On January 21, 2008, we acquired Staffmark Investment for
$133.8 million in cash and stock. Staffmark Investment was
a leading provider of commercial staffing services in the United
States which derived a majority of its revenues from light
industrial staffing. Our results of operations for 2008 reflect
the results of Staffmark Investment from the date of
acquisition, which was January 21, 2008. Staffmark
Investments revenues for the first 20 days of 2008
were approximately $31.1 million.
For each workers compensation claim, we are responsible
for the first $1.0 million. We self-insure our
workers compensation exposure for a portion of our
employees working in three states. In the states where we do not
self-insure, we purchase insurance through insurance carriers
and, in one state, we participate in a state-run insurance fund.
We have insurance coverage for liabilities over
$1.0 million. In addition, we maintain standby letters of
credit to support our self-insured and large deductible-related
programs. As of March 31, 2011, we were required to post
approximately $73.1 million for letters of credit related
to our workers compensation arrangements. Our
workers compensation reserve is established using
estimates of the future cost of claims and related expenses. Our
reserve as of March 31, 2011 was approximately
$57.6 million, the current portion of which was
approximately
34
Managements
discussion and analysis of financial condition and results of
operations
$16.7 million. As we grow our business, we generally
anticipate the amount of our outstanding standby letters of
credit and workers compensation reserve will increase.
Our business is seasonal in nature. Client demand for temporary
staffing services is highest in the second half of a year,
primarily due to demands of the holiday season. Typically, our
earnings are lower in the first quarter of each year than in
other quarters due to reduced seasonal demand for temporary
staffing services and due to lower gross margins during that
period associated with the front-end loading of certain taxes
associated with payroll paid to our employees.
In May 2006, CODI acquired a controlling equity interest in us.
Compass Diversified Holdings is the sole owner of all of the
trust interests of Compass Group Diversified Holdings LLC. CODI
is listed on the New York Stock Exchange, or NYSE, under the
symbol CODI and acquires and manages a diversified
group of leading middle-market businesses headquartered in North
America.
In connection with CODIs acquisition of a controlling
interest in us, we entered into the Existing Credit Facility
with CODI and a management services agreement with Compass Group
Management LLC, or CGM, a Delaware limited liability company and
the manager of CODI. We also entered into a management services
agreement with Staffing Holding, an affiliate of Stephens
Capital Partners LLC, the prior owner of Staffmark Investment
and a significant minority stockholder in us, in connection with
our acquisition of Staffmark Investment in 2008. Each of the
management services agreements required us to incur a quarterly
management fee based upon our gross revenues. Following the
completion of this offering, the management services agreements
will be terminated and we will not be required to pay management
fees to either CGM or Staffing Holding with respect to periods
after the completion of this offering. We expect the elimination
of management fees, the payment of which has been deferred since
January 1, 2009, following the completion of this offering
will offset a portion of the additional legal, insurance, and
financial costs we expect to incur related to compliance and
other public company expenses, as described below.
We expect to use a portion of the proceeds of this offering to
repay all amounts outstanding under our Existing Credit
Facility, which we will terminate, to pay all accrued management
fees under our management services agreements, which we will
terminate, and for working capital and general corporate
purposes, which may include the funding of potential
acquisitions. In connection with the termination of the Existing
Credit Facility, we expect to have a non-cash charge of
approximately $0.7 million related to our unamortized loan
origination costs. For a more complete description of the
Existing Credit Facility, see the section entitled
Liquidity and capital resourcesTransactions
affecting liquidity and capital resources.
In connection with the completion of this offering, we expect to
enter into a new credit facility with SunTrust Bank, as
administrative agent; SunTrust Robinson Humphrey, Inc., as lead
arranger and bookrunner; Harris, N.A., as joint lead arranger
and syndication agent; and the lenders identified therein, for a
secured revolving line of credit of up to a maximum of
$150 million with a $75 million accordion feature, a
$20 million swing line and a $110 million letter of
credit
sub-facility.
The New Credit Facility will replace our Existing Credit
Facility. For a more complete description of the New Credit
Facility, see the section entitled Liquidity and capital
resourcesTransactions affecting liquidity and capital
resources.
As a subsidiary of a public company listed on the NYSE, we have
implemented certain corporate governance practices and adhered
to a variety of reporting requirements and accounting rules as
they relate to CODI. Following the completion of this offering,
however, we will be required to implement additional corporate
governance practices and to adhere to a variety of additional
reporting requirements. Compliance with these and other
obligations as a public company will require significant time
and resources from management, require the hiring of additional
personnel, and increase our legal, insurance, and financial
costs. We anticipate we will incur approximately
$2.5 million in additional annual legal, insurance, and
financial costs related to compliance and other public company
expenses.
35
Managements
discussion and analysis of financial condition and results of
operations
RESULTS OF
OPERATIONS
The table below summarizes our consolidated results of
operations for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31,
|
|
|
Year ended
December 31,
|
|
|
|
2011
|
|
|
|
|
|
2010
|
|
|
|
|
|
2010
|
|
|
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands,
except percentages)
|
|
|
Revenues
|
|
$
|
246,799
|
|
|
|
100.0
|
%
|
|
$
|
217,402
|
|
|
|
100.0
|
%
|
|
$
|
1,002,512
|
|
|
|
100.0
|
%
|
|
$
|
745,340
|
|
|
|
100.0
|
%
|
|
$
|
1,006,345
|
|
|
|
100.0
|
%
|
Cost of revenues
|
|
|
214,850
|
|
|
|
87.1
|
%
|
|
|
188,525
|
|
|
|
86.7
|
%
|
|
|
854,699
|
|
|
|
85.3
|
%
|
|
|
632,800
|
|
|
|
84.9
|
%
|
|
|
832,530
|
|
|
|
82.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
31,949
|
|
|
|
12.9
|
%
|
|
|
28,877
|
|
|
|
13.3
|
%
|
|
|
147,813
|
|
|
|
14.7
|
%
|
|
|
112,540
|
|
|
|
15.1
|
%
|
|
|
173,815
|
|
|
|
17.3
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
31,149
|
|
|
|
12.6
|
%
|
|
|
28,483
|
|
|
|
13.1
|
%
|
|
|
117,682
|
|
|
|
11.7
|
%
|
|
|
113,289
|
|
|
|
15.2
|
%
|
|
|
152,220
|
|
|
|
15.1
|
%
|
Amortization
|
|
|
1,136
|
|
|
|
0.5
|
%
|
|
|
1,226
|
|
|
|
0.6
|
%
|
|
|
4,903
|
|
|
|
0.5
|
%
|
|
|
4,854
|
|
|
|
0.7
|
%
|
|
|
4,828
|
|
|
|
0.5
|
%
|
Impairment expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(336
|
)
|
|
|
(0.2
|
)%
|
|
|
(832
|
)
|
|
|
(0.4
|
)%
|
|
|
25,228
|
|
|
|
2.5
|
%
|
|
|
(55,603
|
)
|
|
|
(7.5
|
)%
|
|
|
16,767
|
|
|
|
1.7
|
%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,331
|
)
|
|
|
(0.5
|
)%
|
|
|
(1,793
|
)
|
|
|
(0.8
|
)%
|
|
|
(7,080
|
)
|
|
|
(0.7
|
)%
|
|
|
(7,674
|
)
|
|
|
(1.0
|
)%
|
|
|
(11,107
|
)
|
|
|
(1.1
|
)%
|
Other income (expense)
|
|
|
261
|
|
|
|
0.1
|
%
|
|
|
180
|
|
|
|
0.1
|
%
|
|
|
905
|
|
|
|
0.1
|
%
|
|
|
(404
|
)
|
|
|
(0.1
|
)%
|
|
|
731
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
(1,406
|
)
|
|
|
(0.6
|
)%
|
|
|
(2,445
|
)
|
|
|
(1.1
|
)%
|
|
|
19,053
|
|
|
|
1.9
|
%
|
|
|
(63,681
|
)
|
|
|
(8.6
|
)%
|
|
|
6,391
|
|
|
|
0.7
|
%
|
Provision (benefit) for income taxes
|
|
|
(197
|
)
|
|
|
(0.1
|
)%
|
|
|
(3,790
|
)
|
|
|
(1.7
|
)%
|
|
|
3,623
|
|
|
|
0.4
|
%
|
|
|
(25,445
|
)
|
|
|
(3.4
|
)%
|
|
|
1,224
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,209
|
)
|
|
|
(0.5
|
)%
|
|
$
|
1,345
|
|
|
|
0.6
|
%
|
|
$
|
15,430
|
|
|
|
1.5
|
%
|
|
$
|
(38,236
|
)
|
|
|
(5.2
|
)%
|
|
$
|
5,167
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31, 2011 compared to three months ended
March 31, 2010
RevenuesSubstantially all of our revenues are based
on the number of hours we bill to our clients and the rate at
which our clients pay. Revenues for the three months ended
March 31, 2011 were $246.8 million, an increase of
approximately $29.4 million, or 13.5%, compared to the same
period in 2010. This increase in revenues reflected increased
demand for temporary staffing services. Revenues from our light
industrial offerings were $181.7 million, an increase of
approximately $22.4 million, or 14.0%, over the same period
in 2010. Revenues from our clerical, specialty and other
offerings increased approximately $3.7 million or 9.1%,
$12,000 or 0.1%, and $3.3 million or 40.7%, respectively,
over the same period in 2010.
Cost of revenues and gross profitCost of revenues
includes wages of temporary employees, employer payroll taxes,
workers compensation expense, and other temporary
employee-related expenses. Cost of revenues for the three months
ended March 31, 2011 were approximately
$214.9 million, an increase of approximately
$26.3 million, compared to the same period in 2010. This
increase was primarily due to the increase in revenues for 2011.
Gross profit for the three months ended March 31, 2011 was
approximately $31.9 million, an increase of approximately
$3.1 million compared to the same period in 2010. Gross
profit as a percent of revenues was approximately 12.9% and
13.3% for the three months ended March 31, 2011 and 2010,
respectively. The decrease in the gross profit margin is
principally the result of higher state unemployment tax rates in
2011 resulting from increases in funding required for various
states depleted unemployment reserves, to the extent not
recovered through pricing, and from higher workers
compensation costs. These cost increases were offset in part by
the increased gross profit provided by an increase in direct
hire revenues. Gross profit as a percent of revenues is
historically lowest in the first quarter due to the
front-loading of certain employment taxes. Gross profit margins
have historically increased throughout the year. As a result, we
expect gross profit margins to increase through the remainder of
this year, although any increase in state unemployment tax rates
not fully recovered through pricing will have an adverse effect
on our gross profit margins in the future.
Selling, general, and administrative
expenseSelling, general, and administrative expense
includes costs associated with our branch,
on-site, and
output solutions locations, including compensation, rent, and
36
Managements
discussion and analysis of financial condition and results of
operations
other office expenses, as well as marketing and recruiting for
our temporary employees. Selling, general and administrative
expense also includes our corporate and branch office support
expenses, including the salaries of corporate operations and
support personnel, marketing expenses, rent, management fees,
and other general and administrative expenses. Selling, general,
and administrative expense for the three months ended
March 31, 2011 was approximately $31.1 million, an
increase of approximately $2.7 million, or 9.4%, compared
to the same period in 2010. Selling, general and administrative
expense as a percent of revenues declined from 13.1% in 2010 to
12.6% in 2011 through operating leverage and our focus on
containing overhead costs. We continue to seek to control costs
with the goal of limiting spending increases to areas required
to support increased service volumes. The increase in 2011
expenses reflected: (i) increased overhead costs
commensurate with the increase in revenues and overall
operations, primarily related to our staff; and (ii) a
one-time, non-cash compensation charge related to a one-time
cost for accelerating vesting rights in stock options (see
Consulting Agreement in Certain relationships
and related party transactions for additional detail).
Management fees, which will be eliminated following the
completion of this offering, were approximately
$0.4 million in each of the three months ended
March 31, 2011 and 2010.
AmortizationAmortization includes amortization of
intangibles, which consists primarily of customer lists and
trade names. Amortization for the three months ended
March 31, 2011 was approximately $1.1 million, a
decrease of approximately $90,000, or 7.3%, compared to the same
period in 2010.
Interest expenseInterest expense for the three
months ended March 31, 2011 was approximately
$1.3 million, a decrease of approximately $0.5 million
compared to the same period in 2010. This decrease was primarily
due to our lower average debt balance, which was approximately
$65.1 million during the three months ended March 31,
2011, a decrease of approximately $18.8 million compared to
the same period in 2010.
Other income (expense)Other income for the three
months ended March 31, 2011 was approximately
$0.3 million, an increase of approximately
$0.1 million compared to the same period in 2010. We are
party to a revenue sharing agreement that contributed
approximately $0.1 million more other income in the three
months ended March 31, 2011 than in the comparable period
in 2010.
Provision (benefit) for income taxesWe record an
interim quarterly tax provision or benefit based on a projected
effective annual tax rate. Benefit for income taxes for the
three months ended March 31, 2011 was approximately
$0.2 million, compared to a benefit of approximately
$3.8 million in the same period in 2010. Our estimated
effective tax provision rate for 2011, based on projected annual
results, is 23.3%. As of March 31, 2010, we projected a net
annual loss. This, along with the estimated Work Opportunity Tax
Credits, or WOTC, resulted in an estimated effective tax benefit
rate of 155.7% in the first quarter of 2010. We receive tax
credits under WOTC, a federal tax credit program related to
employing certain disadvantaged workers, as defined under the
program.
Net income (loss)Net loss for the three months
ended March 31, 2011 was approximately $1.2 million, a
decrease from net income of $1.3 million in the same period
in 2010 based primarily on the factors described above.
Year ended
December 31, 2010 compared to year ended December 31,
2009
RevenuesRevenues for the year ended
December 31, 2010 were $1,002.5 million, an increase
of approximately $257.2 million, or 34.5%, compared to the
same period in 2009. This increase in revenues reflected
increased demand for temporary staffing services, as a result of
a strengthening economy throughout 2010. Revenues from our light
industrial offerings were $741.1 million, an increase of
approximately $220.1 million, or 42.2%, over the same
period in 2009. Revenues from our clerical, specialty and other
offerings increased $16.1 million or 9.7%,
$9.6 million or 33.5%, and $11.4 million or 37.8%,
respectively, over the same period in 2009.
37
Managements
discussion and analysis of financial condition and results of
operations
Cost of revenues and gross profitCost of revenues
for the year ended December 31, 2010 were approximately
$854.7 million, an increase of approximately
$221.9 million, or 35.1%, compared to the same period in
2009. This increase was primarily due to the increase in
revenues for 2010.
Gross profit for the year ended December 31, 2010 was
approximately $147.8 million, an increase of approximately
$35.3 million compared to the same period in 2009. Gross
profit as a percent of revenues was approximately 14.7% and
15.1% for the years ended December 31, 2010 and 2009,
respectively. The Hiring Incentives to Restore Employment Act
H.R. 2847, or HIRE Act, enacted March 18, 2010, provided
for exemptions from the employers portion of social
security taxes for certain eligible new hires during the year.
This exemption was short term and expired December 31,
2010. Excluding the exemptions related to the HIRE Act, our
gross profit margin would have been approximately 14.3% for the
year ended December 31, 2010, a decrease of 80 basis
points compared to 2009. The decrease in gross profit margin was
the result of higher unemployment tax rates in 2010, which was
slightly offset by the net effect of increased Direct Hire
revenues which carry a higher gross profit margin and a slight
shift in business mix. We do not expect unemployment taxes to
decline for the foreseeable future.
Selling, general, and administrative
expenseSelling, general, and administrative expense
for the year ended December 31, 2010 was approximately
$117.7 million, an increase of approximately
$4.4 million, or 3.9%, compared to the same period in 2009.
Selling, general, and administrative expense as a percent of
revenues declined from 15.2% in 2009 to 11.7% in 2010 through
operating leverage and our focus on reducing overhead costs. We
continue to seek to control costs with the goal of limiting
spending increases to areas required to support increased
service volumes. The increase in 2010 reflected:
(i) increased overhead costs commensurate with the
significant increase in revenues and overall operations,
primarily related to our staff; and (ii) a settlement of a
lawsuit in California for $2.1 million in connection with a
potential class action involving current and former staff
members. Management fees totaling $0.4 million in 2010 will
be eliminated following the completion of this offering.
AmortizationAmortization for the year ended
December 31, 2010 was approximately $4.9 million, an
increase of approximately $49,000, or 1.0%, compared to the same
period in 2009.
Impairment expenseBased on the results of our
annual goodwill impairment test in March 2009, we determined
that the carrying amount of our goodwill exceeded the implied
fair value by approximately $50.0 million as of
March 31, 2009. Therefore, we recorded a $50.0 million
pretax goodwill impairment charge for the year ended
December 31, 2009. Future periods that do not contain an
impairment charge may not be comparable to a period that
contains an impairment charge. On March 31, 2010, we
performed an annual goodwill impairment test and our results
indicated that no impairment of goodwill was evident at that
time. We completed our preliminary annual impairment analysis of
goodwill as of March 31, 2011 and there is no indication of
impairment. Accordingly, we currently believe that we are not at
risk of failing step one of the goodwill impairment test. Our
historical operating results are not necessarily indicative of
results that may be expected for future periods.
Interest expenseInterest expense for the year ended
December 31, 2010 was approximately $7.1 million, a
decrease of approximately $0.6 million compared to the same
period in 2009. This decrease was primarily due to lower
weighted average interest rates on the Existing Credit Facility
which were approximately 7.72% in 2010 as compared to 8.57% in
2009. The reduction in our effective interest rate in 2010 was
largely driven by a shift in debt balances from our Term
Note B to the revolving credit facility, which has a lower
effective interest rate. We expect that the effective interest
rate for the New Credit Facility will be lower than our Existing
Credit Facilitys effective interest rate.
Other income (expense)Other income for the year
ended December 31, 2010 was approximately
$0.9 million, an increase of approximately
$1.3 million compared to the same period in 2009. In 2009,
we had approximately $0.6 million in one-time debt
restructuring costs. Additionally, we are a party to
38
Managements
discussion and analysis of financial condition and results of
operations
a revenue sharing agreement that resulted in approximately
$0.9 million in other income for 2010 as compared to
approximately $0.3 million for 2009.
Provision (benefit) for income taxesProvision for
income taxes for the year ended December 31, 2010 was
approximately $3.6 million, compared to a benefit for
income taxes of $25.4 million in 2009. This increase was
primarily the result of a tax benefit recorded in 2009 of
approximately $18.8 million related to our impairment
expense. Our pre-tax income, excluding the impairment expense,
increased to approximately $19.1 million in 2010 compared
to a pretax loss of approximately $13.7 million in 2009.
This improved financial performance also contributed to the
additional tax expense in 2010.
Net income (loss)Net income for the year ended
December 31, 2010 was approximately $15.4 million, an
increase of approximately $53.7 million as compared to the
same period in 2009 based primarily on the factors described
above.
Year ended
December 31, 2009 compared to year ended December 31,
2008
RevenuesRevenues for the year ended
December 31, 2009 were approximately $745.3 million, a
decrease of approximately $261.0 million, or 25.9%,
compared to the same period in 2008. This decrease in revenues
reflected reduced demand for temporary staffing services as a
result of the downturn in the economy. Revenues from our light
industrial offerings decreased approximately
$181.1 million, or 25.8%, and revenues from our clerical,
specialty, and other offerings decreased approximately
$64.7 million or 28.1%, $1.7 million or 5.6%, and
$13.5 million or 30.8%, respectively, over the same period
in 2008.
Cost of revenues and gross profitCost of revenues
for the year ended December 31, 2009 were approximately
$632.8 million, a decrease of approximately
$199.7 million, or 24.0%, as compared to the same period in
2008. This decrease was primarily due to the decrease in
revenues for 2009.
Gross profit for the year ended December 31, 2009 was
approximately $112.5 million, a decrease of approximately
$61.3 million compared to the same period in 2008. Gross
profit as a percent of revenues decreased from 17.3% in 2008 to
15.1% in 2009. The decrease in gross profit margin was primarily
due to a difficult pricing environment, a reduction of direct
hire services, which carries a higher gross profit margin, and
an increase in workers compensation and unemployment
insurance costs. The reduction of direct hire services was
responsible for approximately 0.8% of the 2.2% gross profit
margin decrease.
Selling, general and administrative expenseSelling,
general, and administrative expense for the year ended
December 31, 2009 was approximately $113.3 million, a
decrease of approximately $38.9 million, or 25.6%, compared
to the same period in 2008. Selling, general and administrative
expense as a percent of revenues increased slightly from 15.1%
in 2008 to 15.2% in 2009. We reduced overhead costs,
consolidated facilities, and closed unprofitable branches in
order to mitigate the impact of the weak economic environment
and to maintain operating leverage despite a 25.9% decline in
revenues. We had one-time charges of approximately
$2.0 million related to the integration of Staffmark
Investment and restructuring associated with the reduction in
overhead costs during 2009. For the year ended December 31,
2008, one-time charges associated with the Staffmark Investment
integration totaled approximately $7.4 million. Management
fees for the year ended December 31, 2009 were
approximately $0.9 million, a decrease of approximately
$0.8 million compared to the same period in 2008.
AmortizationAmortization for the year ended
December 31, 2009 was approximately $4.9 million, an
increase of approximately $26,000, or 0.5%, compared to the same
period in 2008.
Impairment expenseBased on the results of our
annual goodwill impairment test in March 2009, we determined
that the carrying amount of our goodwill exceeded the implied
fair value by approximately $50.0 million as of
March 31, 2009. Therefore, we recorded a $50.0 million
pretax goodwill
39
Managements
discussion and analysis of financial condition and results of
operations
impairment charge for the year ended December 31, 2009. The
impairment expense was primarily due to the significant decrease
in our revenues and operating profit that resulted from the
impact on our business from the weak economic environment.
Interest expenseInterest expense for the year ended
December 31, 2009 was approximately $7.7 million, a
decrease of approximately $3.4 million as compared to the
same period in 2008. The decrease was primarily due to a decline
in our average debt balance from approximately
$116.6 million in 2008 to approximately $83.4 million
in 2009. The reduction in our average debt balance resulted from
capital contributions by our majority and large minority
stockholders that were used to reduce amounts outstanding under
the Term Note B, which carried a higher interest rate.
Additionally, our weighted-average interest rate for 2009 was
approximately 8.57% as compared to approximately 9.05% in 2008.
Other income (expense)Other expense for the year
ended December 31, 2009 was approximately
$0.4 million, a decrease of approximately
$1.1 million, as compared to the same period in 2008. This
decrease is primarily due to approximately $0.6 million in
one-time debt restructuring costs related to the amendment of
our Existing Credit Facility in May 2009. We are party to a
revenue sharing agreement that resulted in approximately
$0.3 million in other income for 2009 as compared to
$0.4 million for the same period in 2008.
Provision (benefit) for income taxesBenefit for
income taxes for the year ended December 31, 2009 was
$25.4 million, a decrease from the $1.2 million
provision for income taxes in the same period in 2008. This
decrease was primarily due to a tax benefit recorded in 2009 of
approximately $18.8 million related to our impairment
expense. Excluding the impairment expense, our pre-tax income
decreased to a loss of approximately $13.7 million in 2009
from $6.4 million of pre-tax income in 2008. This decline
in performance also contributed to the decrease in provision for
income taxes.
Net income (loss)Net loss for the year ended
December 31, 2009 was approximately $38.2 million, a
decrease from net income of $5.2 million in the same period
in 2008 based primarily on the factors described above.
LIQUIDITY AND
CAPITAL RESOURCES
Overview
We primarily use cash to finance accounts receivable, which
increases with the volume of our temporary placements. Temporary
employees are typically paid on a weekly basis, while payments
from customers are generally received 30 to 60 days after
billing. We have typically funded our operations, administrative
expenses, capital expenditures, and debt service obligations
with internally generated funds from operations and borrowings
under our Existing Credit Facility. We believe that we will have
adequate liquidity to satisfy our capital requirements over the
next twelve months and will meet long-term needs through: the
cash net proceeds of this offering; cash flows from operations;
and the ability to borrow under our New Credit Facility. Our New
Credit Facility will have a five-year term and an accordion
feature which will permit us to increase the initial
$150 million revolving line of credit up to
$225 million as we grow and to the extent supported through
our accounts receivable borrowing base. We do not expect to have
any borrowings outstanding upon the completion of this offering.
Upon completion of this offering, we will be required to post
letters of credit for approximately $74.1 million in face
value. If we are unable to achieve projected operating results,
we may be required to curtail our growth plans and scale back
our activities or seek additional sources of debt or equity
capital. We continue to focus on working capital management by
monitoring key metrics associated with accounts receivable,
payroll expense and workers compensation claims and
reserves.
We expect our costs to increase in the future due to several
factors, including increases associated with compliance and
being a public company, providing temporary employees with
healthcare coverage as a
40
Managements
discussion and analysis of financial condition and results of
operations
result of the Patient Protection and Affordable Care Act and the
Health Care and Education Reconciliation Act of 2010,
collectively the Acts, and our strategy to grow our business
through expansion within existing markets and acquisitions.
We anticipate that we will incur approximately $2.5 million
in additional annual legal, insurance and financial costs
related to compliance and other public company expenses. The
amount of such additional costs is an estimate; the actual costs
of being a public company may differ.
While we are analyzing the potential impact of the Acts on us,
the Acts are complex and, since significant provisions of the
Acts will not become effective until 2014, possible future
changes in the Acts limit our ability to accurately assess
future increases in our costs. Our strategy with respect to the
management of future increases in costs as a result of the Acts
will be to pass such costs through to our clients. At the
present time, however, we cannot predict whether we will be able
to pass such costs through to our clients.
We intend to continue to opportunistically invest in our
existing markets through hiring additional sales and operations
personnel and establishing new locations. We do not expect the
incremental expenses we will incur by hiring additional sales
and operations personnel and establishing new locations to
materially impact our results of operations, liquidity and
capital resources.
We plan to increase density in our core markets, expand
geographically, and accelerate the growth of our service
offerings through selective acquisitions, which may require
significant investments that would materially impact our
liquidity and capital resources. In addition, depending upon the
availability of capital to us at such time, we may be required
to seek additional sources of debt or equity capital.
Cash
flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31,
|
|
|
Year ended
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
23,426
|
|
|
$
|
3,642
|
|
|
$
|
11,447
|
|
|
$
|
(11,607
|
)
|
|
$
|
21,581
|
|
Net cash provided by (used in) investing activities
|
|
|
(834
|
)
|
|
|
(482
|
)
|
|
|
(3,142
|
)
|
|
|
(773
|
)
|
|
|
(80,417
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(22,631
|
)
|
|
|
(3,070
|
)
|
|
|
(8,340
|
)
|
|
|
12,408
|
|
|
|
58,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(39
|
)
|
|
$
|
90
|
|
|
$
|
(35
|
)
|
|
$
|
28
|
|
|
$
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities
Cash provided by operating activities for the three months ended
March 31, 2011 was approximately $23.4 million. Cash
provided by operating activities before changes in operating
assets and liabilities was approximately $2.8 million, an
increase of approximately $0.3 million compared to the same
period in 2010.
Cash provided by operating activities for the year ended
December 31, 2010 was approximately $11.4 million.
Cash provided by operating activities before changes in
operating assets and liabilities was approximately
$26.7 million, an increase of approximately
$22.7 million compared to the same period in 2009, due
primarily to higher income from operations resulting from a
stronger economy.
41
Managements
discussion and analysis of financial condition and results of
operations
Cash used in operating activities for the year ended
December 31, 2009 was approximately $11.6 million.
Cash provided by operating activities before changes in
operating assets and liabilities was approximately
$4.0 million, which is approximately $5.1 million
lower than the same period in 2008 due primarily to lower income
from operations resulting from a weaker economic environment.
Additionally, in connection with our acquisition of Staffmark
Investment in 2008, we incurred approximately $7.4 million
in integration costs.
Cash flows from
investing activities
Cash used in investing activities for the three months
ended March 31, 2011 was approximately $0.8 million,
an increase of approximately $0.4 million compared to the
same period in 2010, due primarily to the purchase of equipment,
leasehold improvements, and costs associated with the conversion
of our operating systems to the PeopleSoft management platform
in 2011.
Cash used in investing activities for the year ended
December 31, 2010 was approximately $3.1 million, an
increase of approximately $2.4 million compared to the same
period in 2009 due primarily to the purchase of equipment,
leasehold improvements, and costs associated with enhancements
to our PeopleSoft operating system in 2010.
Cash used in investing activities for the year ended
December 31, 2009 was approximately $0.8 million, a
decrease of approximately $79.6 million compared to the
same period in 2008, due primarily to our efforts to reduce
capital spending in order to mitigate the impact of the weak
economic environment throughout 2009. The cash portion of the
purchase price related to the Staffmark Investment acquisition
in 2008 was approximately $76.9 million.
Cash flows from
financing activities
Cash used in financing activities for the three months ended
March 31, 2011 was approximately $22.6 million, which
included payments totaling $22.5 million toward the
reduction of our term loans. The cash used in financing
activities for the three months ended March 31, 2011 was
approximately $19.6 million higher than the comparable
period in 2010 when we repaid approximately $2.3 million of
our term loans.
Cash used in financing activities for the year ended
December 31, 2010 was approximately $8.3 million,
which included payments totaling $9.0 million toward the
reduction of our term loans. The cash used in 2010 was
approximately $20.7 million higher than in 2009. During
2009, as a result of agreements with our majority and large
minority shareholders, we reduced our debt balance by
approximately $39.5 million. The contribution of
approximately $34.0 million from the majority shareholder
was classified as a debt to equity conversion. The large
minority shareholder contributed approximately
$5.5 million. The increase in cash used in 2009 was a
combination of this capital contribution used to pay down debt
and increased borrowings against our revolving line of credit to
fund working capital needs. In 2010, despite revenue growth of
34.5%, which increased working capital needs, we increased our
borrowings against our revolving line of credit by only
$0.7 million.
Cash provided by financing activities for the year ended
December 31, 2009 was approximately $12.4 million, a
decrease of approximately $46.4 million compared to the
same period in 2008 due primarily to increased borrowings in
2008 to finance our acquisition of Staffmark Investment.
Additionally, in 2009, we received cash from the combination of
the capital contributions of $9.4 million from our majority
and large minority shareholders that was used to pay down debt
and increased borrowings against our revolving line of credit to
fund working capital needs.
42
Managements
discussion and analysis of financial condition and results of
operations
Transactions
affecting liquidity and capital resources
At March 31, 2011, the outstanding borrowings under our
Existing Credit Facility were $52.7 million, compared to
$75.4 million at December 31, 2010. The total
borrowings at March 31, 2011 consisted of
$38.5 million under a revolving line of credit,
approximately $11.2 million under a Term Note A, and
approximately $3.0 million under a Term Note B. At
March 31, 2011, we had $29.0 million available to
borrow pursuant to the revolving portion of the Existing Credit
Facility. Concurrent with the closing of this offering, we
intend to enter into the New Credit Facility with SunTrust Bank,
as administrative agent; SunTrust Robinson Humphrey, Inc., or
SunTrust, as lead arranger and bookrunner; Harris N.A., as joint
lead arranger and syndication agent; and the lenders identified
therein. The New Credit Facility will consist of a
$150 million revolving line of credit with a
$75 million accordion feature, a $20 million swing
line, and a $110 million letter of credit
sub-facility.
The maximum amount we will be permitted to borrow under the New
Credit Facility will be subject to certain borrowing
limitations, including: 85% of our eligible accounts receivable,
plus, subject to certain requirements, up to 80% of our eligible
accounts that are unbilled, plus unrestricted cash to the extent
controlled by SunTrust, less a reserve for one week of payroll
and payroll taxes for our temporary workers and certain other
amounts, and less outstanding letters of credit. The
sub-facility
for letters of credit will be utilized at the closing of this
offering in an amount equal to the aggregate face amount of our
then outstanding letters of credit. The total letter of credit
and fronting fees will range from 2.25% to 2.75% based on our
revolving line of credit utilization; provided, however, that
such rates, which are based on the expected interest rate
schedule for the New Credit Facility may change based on market
rates up to the completion of the syndication of the New Credit
Facility.
Borrowings under the New Credit Facility will bear interest at a
rate based upon: (i) the London Interbank Offered Rate, or
LIBOR, plus a margin ranging from 2.00% to 2.50%; or
(ii) the highest of (a) the per annum rate which
SunTrust publicly announces as its prime lending rate,
(b) the Federal Funds Rate plus
1/2%,
and (c) the one-month LIBOR determined on a daily basis,
plus a margin ranging from 1.00% to 1.50%.
The New Credit Facility will be secured, subject to permitted
liens and other agreed upon exceptions, by a first-priority lien
on and perfected security interest in substantially all of our
assets including accounts receivable, and a pledge of the equity
of all of our subsidiaries. In addition, we expect the New
Credit Facility will require that we maintain liquidity in
excess of the greater of (i) $15.5 million or
(ii) 12.5% of the lesser of our borrowing base or the
aggregate commitments under the revolving line of credit, or we
will be required to satisfy a fixed charge coverage ratio. We
expect that the New Credit Facility will contain customary
representations and warranties and customary events of default,
as well as certain affirmative and negative covenants, including
restrictions on: indebtedness; liens; mergers, and
consolidations and acquisitions; sale of assets; engaging in
business other than our current business and those reasonably
related thereto; investments; dividends; redemptions and other
payments on junior capital; affiliate transactions; covenants
limiting dividends or loans made from subsidiaries to us or on
our ability or any subsidiary to grant liens; sale/leaseback
transactions; speculative hedging; amendments to material
agreements; and change in fiscal year or accounting practices.
As of March 31, 2011, we were required to post, or cause to
be posted, letters of credit with an aggregate face value of
approximately $74.1 million, including $73.1 million
related to our workers compensation arrangements. In
connection with our acquisition of Staffmark Investment, an
entity affiliated with Staffing Holding agreed to post, or cause
to be posted, letters of credit aggregating $6.0 million of
the approximately $74.1 million. Upon the completion of
this offering, such Staffing Holding letters of credit will be
cancelled and we will be required to post letters of credit for
approximately $74.1 million aggregate face amount. As a
result of such increase in the amount of letters of credit that
we will be required to post, the amount available for us to
borrow under the New Credit Facility will be reduced.
43
Managements
discussion and analysis of financial condition and results of
operations
OFF-BALANCE SHEET
ARRANGEMENTS
We have not had, nor do we expect to have, any relationships
with unconsolidated entities, such as entities often referred to
as structured finance or special purpose entities, established
for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes.
CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following represents our contractual obligations and other
commercial commitments as of March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by
period
|
|
Contractual
Obligations:
|
|
Total
|
|
|
<
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5+
years
|
|
|
|
|
|
(in
thousands)
|
|
|
Operating leases
|
|
$
|
13,273
|
|
|
$
|
5,068
|
|
|
$
|
5,975
|
|
|
$
|
2,230
|
|
|
|
|
|
Term
Note A(1)
|
|
|
11,239
|
|
|
|
8,000
|
|
|
|
3,239
|
|
|
|
|
|
|
|
|
|
Term
Note B(1)
|
|
|
3,000
|
|
|
|
1,000
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
Revolving line of
credit(1)
|
|
|
38,500
|
|
|
|
|
|
|
|
38,500
|
|
|
|
|
|
|
|
|
|
Purchase obligations
|
|
|
6,284
|
|
|
|
5,703
|
|
|
|
581
|
|
|
|
|
|
|
|
|
|
Management
fees(2)
|
|
|
1,782
|
|
|
|
|
|
|
|
1,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
74,078
|
|
|
$
|
19,771
|
|
|
$
|
52,077
|
|
|
$
|
2,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Does not give effect to the repayment of all amounts
outstanding under, and termination of, the Existing Credit
Facility, which will occur in connection with the completion of
this offering. Upon the completion of this offering, we do not
expect to have any amounts outstanding under the New Credit
Facility. We, however, expect to borrow amounts under the New
Credit Facility on an as-needed basis for operational
requirements in the ordinary course of business following
completion of this offering. |
|
(2) |
|
Represents management fees accrued, but not payable pursuant
to amendments to our management services agreements, effected as
a result of covenants in our Existing Credit Agreement, until
the achievement of specified leverage ratios. All management
fees will be paid in full at the completion of this offering,
and each of the management services agreements will be
terminated. |
QUANTITATIVE AND
QUALITATIVE ANALYSIS OF MARKET RISK
Interest rate
risk
We are exposed to market risk in the normal course of our
business operations due to our ongoing investing and financing
activities. The risk of loss can be assessed from the
perspective of adverse changes in fair values, cash flows and
future earnings. We have established policies and procedures
governing our management of market risks and the use of
financial instruments to manage exposure to such risks and, at
the completion of this offering, we will terminate our Existing
Credit Facility and have no amounts borrowed under the New
Credit Facility. The average monthly outstanding variable-rate
debt for the year ended December 31, 2010 was
$83.1 million. Based on this amount, an increase of 1.0% in
the interest rate would have increased our interest expense by
approximately $0.8 million in 2010. We generally do not
hedge our interest rate exposure.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition, results
of operations, and cash flows are based on our consolidated
financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United
States. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and
44
Managements
discussion and analysis of financial condition and results of
operations
expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates,
including those related to workers compensation liability,
accounts receivable, long-lived assets, revenue recognition,
self-insurance, deferred tax assets, and goodwill. We base our
estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. As noted
below, in some cases, our estimates are also based in part on
the assistance of third-party advisors. Actual results may
differ from these estimates under different assumptions or
conditions.
We have addressed and reviewed our critical accounting policies
and consider them appropriate. We believe the following critical
accounting policies utilize significant judgments and estimates
used in the preparation of our consolidated financial statements:
Revenue
recognition
We generate revenues from temporary staffing, employee leasing,
and direct hire services. Revenues from temporary staffing
services that we provide are recognized at the time services are
performed and are reported based on billings to customers, net
of any agreed upon allowances and adjustments. Revenues from
subcontracted temporary staffing services are recorded net of
direct subcontracting costs. We believe that net revenue
accounting for subcontracted temporary services is appropriate
as we are not the primary obligor in the transactions. Temporary
staffing services are generally billed weekly at rates
established with customers prior to commencing services.
Revenues from employee leasing services are recognized at the
time services are provided and are recorded net of worksite
employee salaries, wages, and payroll-related taxes. We believe
that net revenue accounting for leasing services more closely
depicts the substance of the transactions with our leasing
customers as we are not the primary obligor in the transactions.
Revenues from direct hire services are recognized at the
employee start date, which we believe is the culmination of the
earnings process. Direct hire services generally are
fully-guaranteed to the satisfaction of the customer for a
specified period, usually 30 to 90 days. Allowances for
estimated guarantee obligations are recorded as a reduction of
revenue at the time revenue is recognized.
Allowance for
doubtful accounts
We provide an allowance for potentially uncollectible accounts
receivable. The adequacy of the allowance is evaluated and
adjusted, if necessary, based upon periodic reviews of customer
accounts. This review incorporates a consideration of historical
loss experience, customer payment patterns, current economic
trends and customer specific circumstances.
Impairment of
long-lived assets and intangible assets
Goodwill represents the excess of the purchase price over the
fair value of the assets acquired. We are required to perform
impairment reviews at least annually and more frequently if
events and circumstances indicate that goodwill or other
intangible assets may be impaired.
The goodwill impairment test is a two-step process, which
requires management to make judgments in determining certain
assumptions used in the calculation. The first step of the
process consists of estimating the fair value of our reporting
unit based on a discounted cash flow model using forecasts of
revenue and profit and a market approach which compares publicly
traded peer data and multiples. We then compare those estimated
fair values with the carrying value, which includes allocated
goodwill. If the estimated fair value is less than the carrying
value, a second step is performed to compute the amount of the
impairment by determining an implied fair value of
goodwill. The determination of implied fair value of goodwill
requires the allocation of the estimated fair value of the
reporting unit to the assets and liabilities of the reporting
unit. Any unallocated fair value represents the implied fair
value of goodwill, which is then compared to its corresponding
carrying value. We cannot predict the
45
Managements
discussion and analysis of financial condition and results of
operations
occurrence of certain future events that might adversely affect
the reported value of goodwill
and/or
intangible assets. Such events include, but are not limited to,
strategic decisions made in response to economic and competitive
conditions, the impact of the economic environment on our
customer base, and material adverse effects in relationships
with significant customers.
We determine fair value for our reporting unit using both the
income and market approaches. For purposes of the income
approach, fair value was determined based on the present value
of estimated future cash flows, discounted at an appropriate
risk-adjusted rate. We use our internal forecasts to estimate
future cash flows and include an estimate of long-term future
growth rates based on our most recent views of the long-term
outlook for our business. The discount rate is derived by
applying market derived inputs and analyzing published rates for
our industry. We use a discount rate that is commensurate with
the risks and uncertainty inherent in the financial markets
generally and in the internally developed forecasts. The
discount rate used in this valuation was approximately 14% in
our most recent annual impairment review. Valuations using the
market approach reflect prices and other relevant observable
information generated by market transactions involving
businesses comparable to ours. We assess the valuation
methodologies under the market approach based on the relevance
and availability of data at the time of performing the valuation
and weight the methodologies appropriately.
The impact of over- or under-estimating the implied fair value
of our goodwill could have a material effect on our operating
results. In addition, the implied fair value of our goodwill is
subject to the volatility of our operations which may result in
significant fluctuation in the value assigned at any given point
in time.
We last completed our annual goodwill impairment testing as of
March 31, 2010. At that time, the reporting units
fair value exceeded its carrying value. We test goodwill at
interim dates if events or circumstances indicate that goodwill
might be impaired. No interim testing was performed during
fiscal 2010.
We completed our preliminary annual impairment analysis of
goodwill as of March 31, 2011 and there is no indication of
impairment. Accordingly, we currently believe that we are not at
risk of failing step one of the goodwill impairment test.
We previously completed annual goodwill impairment testing as of
March 31, 2009. At that time, the reporting units
carrying value exceeded its fair value primarily due to the
significant decrease in revenue and operating profit resulting
from the negative impact on temporary staffing revenues from
weak macroeconomic conditions and downward employment trends
experienced during 2008 and 2009. As a result, we performed the
second step of the goodwill impairment test in order to
determine the amount of impairment loss. The second step of the
goodwill impairment test involved comparing the implied fair
value of our goodwill with its carrying value. This comparison
resulted in a goodwill impairment charge of $50.0 million,
which was recorded as impairment expense on the consolidated
statement of operations.
Long-lived intangible assets subject to amortization, including
customer relationships, non-compete agreements and trade names,
are amortized using the straight-line method over their
estimated useful lives, which we determine based on the
consideration of several factors, including the period of time
the asset is expected to remain in service. We evaluate the
carrying value and remaining useful lives of intangible assets
subject to amortization whenever indications of impairment are
present.
The determination of fair values and estimated useful lives
requires significant judgment both by our management team and by
outside experts engaged to assist in this process. The judgment
could result in either a higher or lower value assigned to our
business and intangible assets. The impact could result in
either higher or lower amortization
and/or the
incurrence of an impairment charge.
Workers
compensation liability
Our workers compensation liability represents the reserve
for estimated unpaid costs of self-insurance and large
deductible plans and accruals for insurance premiums and other
administrative-related costs.
46
Managements
discussion and analysis of financial condition and results of
operations
The reserve for workers compensation is estimated with the
assistance of qualified actuaries based upon actuarial
assumptions of estimated claims, including incurred but not
reported, or IBNR, losses. The current portion of this reserve
is included as current portion of workers compensation
obligation and the non-current portion is included as
workers compensation obligation on the consolidated
balance sheets. We have purchased insurance coverage that limits
our exposure to $1.0 million per claim as of March 31,
2011 and December 31, 2010 and 2009.
Income
taxes
We account for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates applied to tax/book differences. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in the period that includes the enactment date. A
valuation allowance is provided for deferred tax assets when it
is more likely than not that the asset will not be realized. A
valuation allowance was not deemed necessary in 2008, 2009,
2010, or the first quarter of 2011. Work opportunity tax
credits, which we receive under a federal tax credit program
related to employing certain disadvantaged workers, as defined
under the program, are recognized as a reduction of income tax
expense in the year tax credits are certified.
We adopted the authoritative provisions of accounting guidance
on uncertain tax positions on January 1, 2007. The adoption
did not result in a cumulative adjustment to our accumulated
earnings. We file U.S., state, and local income tax returns in
many jurisdictions with varying statutes of limitations. Tax
years 2006 through 2009 remain subject to examination by federal
taxing authorities and tax years 2005 through 2009 are open
years subject to potential audit by state taxing authorities.
Stock-based
compensation
We account for stock-based awards granted to employees and
directors by recording compensation expense for awards granted
after January 1, 2006, based on the awards estimated
fair values. We expect that our expense related to stock-based
compensation will increase over time.
We estimate the fair value of our stock-based awards as of the
date of grant using the Black-Scholes option-pricing model.
Determining the fair value of stock-based awards under this
model requires judgment, including estimating the value per
share of our common stock adjusted for our status as a private
company, estimated volatility, expected term of the awards,
estimated dividend yield and the risk-free interest rate. The
assumptions used in calculating the fair value of stock-based
awards represent our best estimates, based on managements
judgment and subjective future expectations. These estimates
involve inherent uncertainties. If any of the assumptions used
in the model change significantly, stock-based compensation
recorded for future awards may differ materially from that
recorded for awards granted previously.
The determination of the estimated value per share of our common
stock is discussed below. We use the average volatility of
similar publicly traded companies as an estimate for our
estimated volatility. For purposes of determining the expected
term of the awards in the absence of sufficient historical data
relating to stock-option exercises for our company, we apply a
simplified approach in which the expected term of an award is
generally presumed to be the midpoint between the vesting date
and the expiration date of the award. The risk-free interest
rate for periods within the expected life of an award, as
applicable, is based on the United States Treasury yield curve
in effect during the period the award is granted. Our estimated
dividend yield is zero, as we have not and do not currently
intend to declare dividends in the foreseeable future.
Once we have determined the estimated fair value of our
stock-based awards, we recognize the portion of that value that
corresponds to the portion of the award that is ultimately
expected to vest, taking
47
Managements
discussion and analysis of financial condition and results of
operations
estimated forfeitures into account. This amount is recognized as
an expense over the vesting period of the award using the
straight-line method. We estimate forfeitures based upon our
historical experience, and, at each period, review the estimated
forfeiture rate and make changes as factors affecting the
forfeiture rate calculations and assumptions change.
Information related to our stock-based compensation activity,
including weighted average grant date fair values and associated
Black-Scholes option-pricing model assumptions, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
2011(1)
|
|
|
2010
|
|
|
|
|
Stock options granted (in thousands)
|
|
|
60
|
|
|
|
175
|
|
Weighted average exercise price
|
|
$
|
19.81
|
|
|
$
|
8.73
|
|
Weighted average grant date fair value per share of stock
options granted
|
|
$
|
9.74
|
|
|
$
|
7.75
|
|
Weighted average Black-Scholes model assumptions:
|
|
|
|
|
|
|
|
|
Estimated fair value of common stock
|
|
$
|
19.81
|
|
|
$
|
12.85
|
|
Estimated volatility
|
|
|
44.4
|
%
|
|
|
44.4
|
%
|
Estimated dividend yield
|
|
|
|
%
|
|
|
|
%
|
Expected term (years)
|
|
|
6.5
|
|
|
|
6.5
|
|
Risk-free rate
|
|
|
3.41
|
%
|
|
|
3.48
|
%
|
|
|
|
(1) |
|
Represents grants in 2011 through May 16, 2011 |
Given the absence of an active market for our common stock, our
board of directors estimates the fair value of our common stock
at the time of each grant of stock-based awards. Our board has
historically considered recent transactions in our company stock
or recent valuations performed by our majority shareholder.
Recent transactions in our stock have included issuance of
shares in connection with a significant acquisition, as well as
shares issued to majority and minority shareholders in
connection with the 2009 restructuring of debt. The valuations
performed by our majority shareholder are completed for the
purpose of their financial reporting, are validated annually by
an independent investment banking firm, and reviewed quarterly
by our majority shareholder and updated as necessary. The
valuations are based on a model that multiplies the trailing
twelve month EBITDA by an estimated enterprise value to EBITDA
multiple to determine an estimated selling price. Factors
considered in the valuation include comparable company data,
comparable transactions, and discounted cash flow analyses. In
addition, an appropriate discount for lack of marketability is
considered.
The table below sets forth information regarding stock options
for each grant date since January 1, 2010.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair
|
|
|
|
|
|
|
|
|
|
|
|
|
value of
|
|
|
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
common
|
|
|
Intrinsic
|
|
Date of
Grant
|
|
shares
|
|
|
price
|
|
|
stock
|
|
|
value(1)
|
|
|
|
|
January 5, 2010
|
|
|
75,000
|
|
|
$
|
6.00
|
|
|
$
|
6.00
|
|
|
$
|
|
|
December 21, 2010
|
|
|
100,000
|
|
|
$
|
10.77
|
|
|
$
|
17.98
|
|
|
$
|
7.21
|
|
April 7, 2011
|
|
|
60,000
|
|
|
$
|
19.81
|
|
|
$
|
19.81
|
|
|
$
|
|
|
|
|
|
(1) |
|
Represents the difference between the estimated fair value of
common stock and the exercise price. Options granted 12/21/10
were valued at an exercise price of $10.77 based on the majority
shareholders most recent quarterly enterprise valuation
preceding the grant date. The annual valuation, which was
completed in early 2011, indicated that valuations had increased
significantly in the last quarter of 2010. For determining fair
value used for accounting purposes we applied the multiple of
earnings reflected in the annual valuation to our most recent
results preceding the grant date. This resulted in a market
value of $17.98 per share. |
48
Managements
discussion and analysis of financial condition and results of
operations
The fair value of our stock has increased since January 1,
2010 due to our improved operating results and increased
valuation multiples ascribed to public companies operating in
the staffing industry.
See Note 4, Stock Option Plan, to the
Consolidated Financial Statements for further discussion on
stock option compensation.
RECENT ACCOUNTING
PRONOUNCEMENTS
In December 2010, the Financial Accounting Standards Board, or
FASB, issued amended guidance for performing goodwill impairment
tests, which was effective for us on January 1, 2011. The
amended guidance requires reporting units with zero or negative
carrying amounts to be assessed to determine if it is more
likely than not that goodwill impairment exists. As part of this
assessment, entities should consider all qualitative factors
that could impact the carrying value. We do not expect the
adoption of this guidance will have a significant impact on the
consolidated financial statements.
In January 2010, the FASB issued amended guidance to enhance
disclosure requirements related to fair value measurements. The
amended guidance for Level 1 and Level 2 fair value
measurements was effective for us on January 1, 2010. The
amended guidance for Level 3 fair value measurements will
be effective for us on January 1, 2011. The guidance
requires disclosures of amounts and reasons for transfers in and
out of Level 1 and Level 2 recurring fair value
measurements as well as additional information related to
activities in the reconciliation of Level 3 fair value
measurements. The guidance expanded the disclosures related to
the level of disaggregation of assets and liabilities and
information about inputs and valuation techniques. The adoption
of the guidance for Level 1 and Level 2 fair value
measurements did not have a material impact on our consolidated
financial statements. We do not expect the adoption of the
guidance related to Level 3 fair value measurements will
have a significant impact on the consolidated financial
statements.
In January 2010, the FASB issued amended authoritative guidance
related to consolidations when there is a decrease in ownership.
The guidance was effective for us on January 1, 2010.
Specifically, the amendment clarified the scope of the existing
guidance and increased the disclosure requirements when a
subsidiary is deconsolidated or when a group of assets is
de-recognized. The adoption of the amended guidance did not have
a significant impact on our consolidated financial statements.
49
Business
OVERVIEW
We are a leading, national provider of contingent workforce
solutions that serves the temporary staffing needs of employers
throughout the United States. We are focused on providing a full
spectrum of light industrial and clerical staffing solutions.
Since 1970, our clients have relied on us to consistently
identify, screen, and deliver temporary employees to support
their growth and enable them to respond quickly to changes in
their business environments. Through our nationwide network of
over 300 branch,
on-site, and
output solutions locations in 32 states, we currently place
over 40,000 temporary employees weekly and have a client base of
approximately 6,000. We maintain a well-diversified revenue
base, and, in 2010, our top 10 clients accounted for less than
25% of our revenues. As evidence of our market position, we have
been ranked by SIA as the 8th largest industrial-staffing
company, and the 17th largest staffing company overall, in the
United States, based on 2009 revenues, out of approximately
9,000 staffing firms.
We provide an enterprise-class level of staffing solutions,
those typically reserved for large, multi-national corporations,
to our predominantly middle-market clients. We believe that the
majority of our larger competitors that offer similar services
typically focus on the Fortune Global 500, while most of
our smaller competitors lack the expertise and infrastructure to
deliver the same quality and breadth of services. We take a
consultative approach to our client engagements, devoting
significant resources to the upfront assessment and development
of customized programs. Once implemented, we conduct regular
business reviews with our clients to ensure that the custom
program is performing as intended. We believe our approach is
highly valued by our clients, as evidenced by an average tenure
of approximately 10 years among our top 20 clients.
We are focused on establishing and growing into a leading
position in the markets in which we operate. We seek to achieve
this by winning our clients business one location at a
time, and leveraging that success into a broader relationship
where we service multiple client locations. As our client
relationships develop, we enhance our position within markets
by: (i) hiring additional sales and operations staff;
(ii) opening branch and
on-site
locations; and (iii) making strategic acquisitions. This
strategy enables us to gain operating leverage in our markets,
raise the awareness of our brand, and realize efficiencies of
scale.
OUR
BUSINESS
We are primarily focused on light industrial, clerical, and
specialty staffing.
Light
Industrial
We have approximately 40 years of experience in light
industrial staffing. A substantial portion of our revenues are
derived from the placement of unskilled and semi-skilled
temporary workers, which primarily consist of the distribution
(pick-and-pack
and forklift) and light manufacturing (such as assembly line and
machine operations) sectors of the economy. In addition we
provide temporary employees for positions such as line
supervisors, operations managers, and quality control personnel.
Reinforcing our expertise in light industrial staffing, we have
implemented customized service and screening programs, such as a
forklift assessment program, our cost-per-unit model, and work
simulation centers. Approximately 74% of our revenues in 2010
were derived from light industrial staffing.
50
Business
Clerical
We also derive revenues from the placement of temporary workers
through our clerical offerings, which primarily consist of
administrative, contact center, and healthcare office support
services. These employees are often placed at business operation
centers and corporate offices. In many cases we provide clerical
staffing to the same clients who use our light industrial
staffing services. Approximately 18% of our revenues in 2010
were derived from clerical staffing.
Specialty
We also provide temporary employees through our transportation
and professional offerings. In transportation, we are a national
supplier of fully-screened, professional Class A, B, and C
drivers who meet applicable Department of Transportation, or
DOT, requirements through a network of 18 offices across the
United States. Our transportation team delivers a turnkey
solution by using a comprehensive screening process that
includes a: (i) professional driving experience review;
(ii) comprehensive ten-year historical employment review;
(iii) motor vehicle records check; (iv) DOT
pre-employment drug screening; and (v) criminal background
check. Our dedicated transportation specialists have relevant
industry experience which gives them an in-depth understanding
of the requirements necessary to successfully meet our
clients needs. In professional staffing, we provide
higher-skilled professionals in the engineering, information
technology, finance, accounting, and corporate services
disciplines. Approximately 4% of our revenues in 2010 were
derived from specialty offerings.
Other
Services
|
|
Ø
|
Direct hire servicesWe offer services for sourcing
and screening candidates for full-time employment. This solution
is fee-based and depends on the specific position being filled.
Our direct hire services are designed to provide our clients
with flexibility to interview and quickly hire pre-screened
applicants who meet prescribed qualifications.
|
|
Ø
|
Employee leasing servicesWe provide human resource,
outsourcing services such as payroll, employee benefits, risk
management, unemployment services, and human resources support.
Our employee leasing services are most beneficial to small and
mid-sized clients who desire an outsourced solution for these
human resource and payroll functions. The value that employee
leasing brings to our clients includes human resources expertise
and guidance on worksite employment issues, access to a broader
range of benefits packages, and enhanced compliance. In
addition, our employee leasing services provide our clients with
improved risk management practices, which can reduce turnover,
improve cost control, simplify workers compensation claims
management, and improve efficiency.
|
|
Ø
|
Managed servicesWe provide administrative services,
including managing other staffing firms as second source
providers
and/or
payrolling services. Through our managed services provider, or
MSP, program, we provide process improvement and
standardization, comprehensive supplier management, quality
management, visibility/real time reporting, and risk mitigation
services to our clients. Our payrolling services provide payroll
and administrative services for client-referred temporary
employees.
|
Approximately 4% of our revenues in 2010 were derived from other
services.
MARKET
OPPORTUNITY
Staffing in the United States is a large and growing industry,
and, according to SIA, generated approximately $92 billion
in revenue in 2009 and is projected to generate approximately
$123 billion in 2012, representing a three-year compound
annual growth rate, or CAGR, of 10%. Our core markets are the
$32 billion light industrial and clerical staffing
industries, which together are expected to reach
$46 billion in 2012 according to SIA, representing a
three-year CAGR of 13%. We believe two key
51
Business
factors driving this anticipated growth are overall economic
activity and the ease and flexibility that temporary workers
offer.
Light industrial and clerical staffing are among the largest and
fastest growing categories within the temporary staffing sector.
Comprised of unskilled and semi-skilled temporary workers in
manufacturing, distribution, logistics, and other similar
industries, light industrial staffing is projected by SIA to
grow 15% annually from 2009 to $27 billion in 2012.
Clerical staffing, comprised of administrative, contact center,
and healthcare office support services, is projected by SIA to
grow 10% annually from 2009 to $19 billion in 2012.
Industry analysts generally believe that the benefits of a
flexible workforce, the rising costs of full-time employees, and
the aging United States population will drive secular growth in
the staffing sector.
|
|
Ø
|
Focus on flexible workforce management and fixed-cost
mitigationThe length and severity of the recent
recession has forced companies to build more agile workforces to
achieve greater cost flexibility. In addition, we believe the
morale impact associated with layoffs of full-time employees has
led companies to favor temporary employees versus over-hiring
and chronically right-sizing. In order to mitigate fixed costs,
many companies are using temporary staffing to respond quickly
and efficiently to changes in the economy or competitive
environment, without associated recruiting, benefits, and
severance costs or the challenge of screening and hiring the
right employee.
|
|
Ø
|
Increasing cost of full-time employeesWe believe
the regulatory and cost burden of full-time employees will
increase as state and federal governments struggle with mounting
deficits and growing entitlement programs. Many of these costs,
including healthcare benefits, unemployment insurance, and
workers compensation have risen dramatically over the last
few years. We believe that current legislation, such as the
Patient Protection and Affordable Care Act, or the PPACA, will
exacerbate this trend.
|
|
Ø
|
Aging United States populationAs the population in
the United States ages, it is altering the age distribution of
the labor force. According to the Census Bureau, many of the
77 million baby-boomers that participate in the labor force
are choosing not to retire. As a result, the percentage of the
labor force that is over the age of 55 is expected to increase
from 18% in 2008 to 24% in 2018 according to BLS. We believe the
projected aging of the labor force should create a favorable
business environment for the temporary staffing industry,
particularly for companies that derive revenue from light
industrial staffing which typically requires more strenuous
physical activity and, as a result, is generally more appealing
to workers under the age of 55.
|
A closely monitored statistic within the temporary staffing
industry is the temporary penetration rate, which measures the
percent of the total United States workforce that is temporary
versus full-time based on data from the BLS. During the most
recent economic cycle, the temporary penetration rate peaked at
1.96% in November 2005 and dipped to a trough at 1.34% in June
2009. As of March 2011, the rate reached 1.73%. We believe as
the factors described above continue to increase the burden for
employers, companies will seek out flexible workforce solutions
and temporary penetration rates should surpass historical peaks.
The temporary staffing industry in the United States is highly
fragmented, and, according to IBISWorld, consists of
approximately 9,000 firms. According to the Census Bureau, a
majority of staffing firms in the United States generate less
than $10 million in annual revenues. In addition, temporary
staffing firms with more than 10 branch locations account for
less than 2% of the total number of service providers, but
generate over 50% of revenues in the temporary staffing
industry. The data suggests there are a large number of small,
local, and regional high-quality staffing firms throughout the
United States that could serve as potential acquisitions to
build market share and geographic density in a cost-effective
and efficient manner. We believe this creates a compelling
consolidation opportunity for us as there is a limited number of
large-scale, nationally-branded temporary staffing companies
that are capable of acquiring and integrating
sub-scale
operators.
52
Business
OUR COMPETITIVE
STRENGTHS
We believe the following competitive strengths will allow us to
capitalize on the current market opportunity and enhance our
position as a leading, national provider of contingent workforce
solutions:
|
|
Ø
|
Customized staffing solutions with strong ongoing
supportFor our key clients, we have developed a
service protocol designed to achieve optimal quality and
servicethe Staffmark Service Quality Process, or SSQP. The
SSQP is our approach to develop customized staffing solutions
that incorporate an in-depth assessment and implementation
phase, ongoing data-driven feedback, and continuous process
improvements. Critical to the success of the SSQP, and the
resulting programs, are the key performance indicators, or KPIs,
that we develop to measure the success of a program. We believe
our rigorous approach to developing staffing solutions for both
large and small businesses differentiates us from our
competitors.
|
|
Ø
|
Density in core marketsOur strategy of penetrating
our core markets with multiple locations helps us to raise our
brand awareness, provide qualified temporary workers on an
expedited basis, and achieve operating efficiencies through
economies of scale related to advertising and administrative
overhead. By maintaining a strong physical presence within our
markets, we are able to attract a high volume of qualified
candidates, which in turn makes us more attractive to employers.
These two factors drive a virtuous cycle of candidate
recruitment and client acquisition. As a result, we are able to
drive higher revenues within a market thereby achieving
operating cost efficiencies by leveraging our existing fixed
cost infrastructure.
|
|
Ø
|
Local focus with nationwide capabilityWe develop
our client relationships one location at a time. This approach
allows our clients to benefit from a highly personal and
attentive level of service typically associated with much
smaller operators, while receiving the benefits of a national
staffing platform. We accomplish this by delivering customized
enterprise-class staffing solutions tailored to our
clients individual needs versus a one-size-fits-all
approach used by many of our larger competitors.
|
|
Ø
|
Experienced acquirer and integrator of
businessesSince 2000, we have completed four
acquisitions in the commercial staffing sector. Following each
acquisition, we successfully integrated the acquired business
and eliminated redundant costs. In 2004 and 2008, we acquired
Venturi Staffing Partners and Staffmark Investment,
respectively, each of which approximately doubled our revenues.
With respect to our most recent acquisition of Staffmark
Investment, we achieved in excess of 100% of our targeted
synergies within 12 months.
|
|
Ø
|
Experienced management teamOur four senior
executives have over 70 years of experience in the staffing
industry. Strong leadership by our management team has led to
successful business expansion through well-managed organic and
acquisition growth. This leadership has allowed us to navigate
through challenging economic times, while demonstrating the
ability to successfully implement strategic plans. For
additional information about our management team, see
Management.
|
OUR
STRATEGY
We intend to continue to grow our business by:
|
|
Ø
|
Increasing revenues and profitability through expansion
within existing marketsIn many of our existing
markets, we have multiple branch locations. We intend to
continue to opportunistically invest in these existing markets
through hiring additional sales and operations personnel and by
establishing new locations. We believe this strategy will enable
us to continue to build strong brand recognition within our
existing markets and achieve operating efficiencies from shared
fixed costs.
|
|
Ø
|
Implementing remote recruitingIn 2010, we
established our Talent Acquisition Group, or TAG. TAG is a
remote network of on-demand recruiting professionals, which
allows us to leverage recruiting resources throughout our
organization to meet the staffing needs of our clients. We
believe TAG offers us a significant competitive advantage by
assisting our field operations on a flexible,
|
53
Business
just-in-time
basis. TAG supports our field operations by identifying and
screening candidates and forwarding them to our field personnel
for placement. Based on our success to date, we intend to deploy
TAG company-wide to improve our timeliness in fulfilling
high-volume orders and to enhance our efforts to support future
growth.
|
|
Ø |
Promoting our specialty services and output solutions
delivery modelWe will continue to invest in and
promote our transportation, output solutions, and engineering
staffing offerings. We market these service offerings in
combination with our core light industrial staffing solution to
address the full range of our clients staffing needs. We
have invested in our output solutions delivery model by hiring
key engineering and sales personnel to drive increased client
adoption and service quality. In addition, these value-added
offerings have historically produced higher gross and operating
margins as compared to our core light industrial and clerical
offerings.
|
|
|
Ø
|
Pursuing strategic acquisitionsThe market for
staffing services is highly fragmented, which presents us with
opportunities to increase density in our core markets, expand
geographically, and accelerate the growth of our differentiated
service offerings through selective acquisitions. We evaluate
acquisition candidates based on their fit with our strategy,
culture, and ability to produce strong returns on investment.
Since 2000, we have completed four acquisitions, two of which
approximately doubled our revenues. This offering will enhance
our ability to pursue strategic acquisitions.
|
|
Ø
|
Converting local relationships into multi-site
accountsWe build client relationships by understanding
expectations and customizing service delivery at the local
level. Our flexibility and responsiveness enable us to cultivate
long-term client relationships. We seek to leverage these local
successes to secure additional business from our clients
other locations. Supporting this initiative is a team of
dedicated professionals focused on identifying single-site
relationships that can be leveraged into multi-site
relationships. We believe this strategy has been effective, as
12 of our top 20 clients began as local relationships and
subsequently became multi-site clients.
|
OUR
HISTORY
We were originally formed as Compass CS Inc., or Compass CS, in
July 1999. In August 1999, Compass CS acquired Columbia
Staffing, Inc., or Columbia Staffing, a provider of light
industrial, clerical, medical, and technical personnel to
clients throughout the southeast. In October 2000, Compass CS
acquired CBS Personnel Services, a Cincinnati-based provider of
human resources outsourcing services that began operations in
1970 initially providing professional placement and temporary
staffing services in Ohio, Kentucky, and Indiana.
In July 2004, we changed our name to CBS Personnel Holdings,
Inc. and shortly thereafter we expanded geographically by
acquiring Venturi Staffing Partners, Inc., or VSP. In May 2006,
Compass Diversified Holdings, a Delaware statutory trust, and
Compass Group Diversified Holdings LLC, a Delaware limited
liability company, collectively CODI, acquired a controlling
equity interest in us. Compass Diversified Holdings is the sole
owner of all of the trust interests of Compass Group Diversified
Holdings LLC. CODI is listed on the New York Stock Exchange, or
NYSE, under the symbol CODI.
In January 2008, we acquired Staffmark Investment LLC and its
subsidiaries, or Staffmark Investment. Staffmark Investment was
a leading provider of commercial staffing services in the United
States and provided staffing services in 29 states through
more than 200 branch and
on-site
locations. Immediately prior to this acquisition, both we and
Staffmark Investment were among the largest privately held
staffing companies in the United States. In December 2008, all
Staffmark Investment subsidiaries were merged into Staffmark
Investment.
On January 1, 2009, VSP merged into CBS Personnel. Shortly
thereafter, on February 27, 2009, following a twelve-month
strategic review, the combined temporary staffing business
operations of
54
Business
Columbia Staffing, CBS Personnel, and Staffmark Investment were
rebranded as Staffmark. In May 2010, we formally
changed our name from CBS Personnel Holdings, Inc. to Staffmark
Holdings, Inc.
CLIENTS
In 2010, we served approximately 6,000 clients across a broad
range of industries, including manufacturing, transportation,
retail, distribution, warehousing, automotive supply,
construction, industrial, healthcare, and financial services.
These clients range in size from small, local firms to large,
regional, or national corporations. Our top ten clients
accounted for approximately 22%, 25%, and 22% of revenues in
2010, 2009, and 2008, respectively. Our client assignments vary
from a period of a few days to long-term, annual, or multi-year
contracts. Our largest client represented approximately 5% of
revenues in 2010.
OPERATIONS
We centralize our back office and shared support programs and
activities. We are committed to increasing the efficiency of our
centralized back office through the use of technology and
third-party services. Our emphasis on technology and a
centralized back office reduces the administrative burden placed
on our branch office employees, allowing them to focus on sales
and customer service thereby enhancing the overall efficiency
and profitability of our business. We are also focused on our
risk management programs. These practices have increased the
safety of the work environment for our temporary workers,
improved service to our customers, and mitigated our
workers compensation expense.
Sales and
marketing
Our marketing efforts are principally focused on branch-level
development of local business relationships. Local salespeople
are tasked with recruiting new clients and increasing usage by
existing clients and are incentivized with compensation
programs, as well as numerous contests and competitions.
Regional or corporate resources, such as subject matter experts,
assist local salespeople in closing potentially large accounts,
particularly where they may involve an
on-site
presence by us. On the regional and national levels, marketing
efforts are focused on expanding and aligning our services to
fulfill the needs of clients with multiple locations, which may
include establishing
on-site
locations.
We are focused on retaining our employees that interface with
our clients, including our branch and account managers, and
managing the rate of attrition among such employees. We evaluate
employee turnover data on a quarterly basis, including exit
interviews, to evaluate trends and ensure strategies are in
place to retain top talent. Our strategy for the retention of
such employees includes several key areas including competitive
base pay, bonuses and benefits, recognition programs, training
opportunities, and extensive employee communication.
Service
strategy
We developed a service protocol designed to achieve optimal
quality and servicethe Staffmark Service Quality Process,
or SSQP. The SSQP is our proven approach to developing
customized staffing solutions for our key clients. By
systematically deploying the SSQP, we organize our delivery
model into six key
55
Business
components, as illustrated below, that fall within the following
three implementation phases: (i) planning and assessment;
(ii) control; and (iii) continuous improvement.
|
|
Ø
|
Planning and AssessmentThe planning phase of our
SSQP model includes three critical components that enable us to
gain a thorough understanding of the clients requirements,
which results in a customized solution designed to meet specific
expectations. We first identify the clients needs by
conducting an in-depth site assessment, which may include job
shadowing, participant interviews, benchmark review, and site
challenge analysis. The primary goal of the site assessment is
to better understand the clients staffing model, hiring
trends, as well as recruiting and order fulfillment needs. It is
also used to develop an orientation process, understand existing
turnover challenges, identify current attendance statistics and
expectations, implement safety programs (if appropriate), and
determine the appropriate measurement and reporting tools. Upon
completion of the site assessment, we begin the service design
phase, creating an effective solution for our client. Once the
service solution is designed and agreed upon with our client, we
implement the solution.
|
|
Ø
|
ControlThe control phase of our SSQP is comprised
of two key steps. We often develop a key performance indicator,
or KPI, matrix with a client to which we are held accountable.
The KPI matrix outlines the goals established for key metrics to
be discussed during regular service quality review meetings with
our clients management team. We begin this process by
benchmarking our performance with the client for a predetermined
period to establish acceptable KPIs. The KPIs most requested by
our clients include retention/turnover, fill ratio,
attendance/hours, safety/injuries, employee quality reviews,
satisfaction survey results, and exit interview results. During
the control phase we also capture client feedback using a
variety of methods including business reviews, client surveys,
temporary employee surveys, and focus groups to ensure we are
meeting expectations.
|
|
Ø
|
Continuous ImprovementThe continuous improvement
phase of our SSQP is a perpetual cycle, involving program
modifications driven by on-going analysis of client and employee
feedback, service delivery metrics, and operating processes. As
clients staffing needs fluctuate with changes in the
business environment, it is important that we are positioned to
recognize these changes and respond to them by rapidly adjusting
our staffing solutions. To maximize our ability to respond
effectively to our clients changing needs, we conduct
regular business reviews with our clients where we provide
feedback and assess past performance, changing business
conditions, and KPI benchmarks. This constant measurement and
analysis enables us to provide a timely and proactive response
to service improvement opportunities.
|
56
Business
Locations
We provide our staffing services through our over 300 locations
across 32 states; 195 of these are branch locations and the
remaining 118 are
on-site and
output solutions locations. The following table sets forth the
number of our branch offices,
on-site, and
output solutions locations and the employee hours in each state,
as of December 31, 2010, in which we operated for 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-site
|
|
|
|
|
|
|
|
|
|
and output
|
|
|
|
|
|
|
Branch
|
|
|
solutions
|
|
|
Employee hours
|
|
State
|
|
offices(1)
|
|
|
locations
|
|
|
billed
(000s)
|
|
|
|
|
Alabama
|
|
|
2
|
|
|
|
|
|
|
|
492
|
|
Arkansas
|
|
|
16
|
|
|
|
3
|
|
|
|
4,999
|
|
Arizona
|
|
|
3
|
|
|
|
|
|
|
|
653
|
|
California
|
|
|
28
|
|
|
|
15
|
|
|
|
9,269
|
|
Colorado
|
|
|
2
|
|
|
|
|
|
|
|
435
|
|
Connecticut
|
|
|
1
|
|
|
|
2
|
|
|
|
443
|
|
Delaware
|
|
|
1
|
|
|
|
1
|
|
|
|
1,408
|
|
Georgia
|
|
|
7
|
|
|
|
8
|
|
|
|
2,914
|
|
Illinois
|
|
|
10
|
|
|
|
7
|
|
|
|
2,940
|
|
Indiana
|
|
|
7
|
|
|
|
7
|
|
|
|
2,937
|
|
Kansas
|
|
|
2
|
|
|
|
1
|
|
|
|
1,455
|
|
Kentucky
|
|
|
10
|
|
|
|
4
|
|
|
|
3,395
|
|
Massachusetts
|
|
|
2
|
|
|
|
1
|
|
|
|
229
|
|
Maryland
|
|
|
4
|
|
|
|
3
|
|
|
|
855
|
|
Missouri
|
|
|
1
|
|
|
|
3
|
|
|
|
699
|
|
Mississippi
|
|
|
2
|
|
|
|
|
|
|
|
580
|
|
Nebraska
|
|
|
|
|
|
|
1
|
|
|
|
0
|
|
North Carolina
|
|
|
10
|
|
|
|
6
|
|
|
|
3,611
|
|
New Jersey
|
|
|
4
|
|
|
|
6
|
|
|
|
1,059
|
|
Nevada
|
|
|
4
|
|
|
|
1
|
|
|
|
1,190
|
|
New York
|
|
|
3
|
|
|
|
2
|
|
|
|
734
|
|
Ohio
|
|
|
20
|
|
|
|
14
|
|
|
|
9,680
|
|
Oklahoma
|
|
|
2
|
|
|
|
|
|
|
|
185
|
|
Oregon
|
|
|
1
|
|
|
|
1
|
|
|
|
273
|
|
Pennsylvania
|
|
|
8
|
|
|
|
11
|
|
|
|
3,269
|
|
South Carolina
|
|
|
8
|
|
|
|
3
|
|
|
|
2,319
|
|
Tennessee
|
|
|
13
|
|
|
|
4
|
|
|
|
4,367
|
|
Texas
|
|
|
17
|
|
|
|
10
|
|
|
|
4,912
|
|
Virginia
|
|
|
5
|
|
|
|
1
|
|
|
|
1,371
|
|
Washington
|
|
|
2
|
|
|
|
2
|
|
|
|
301
|
|
Wisconsin
|
|
|
|
|
|
|
1
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
195
|
|
|
|
118
|
|
|
|
67,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
One branch was opened in Florida in January 2011 and one
branch was closed in Illinois during the first quarter of 2011,
with its accounts transferred to other branches. Neither of
these events is reflected in the above table, which is as of
December 31, 2010. |
All of the above branch offices, along with our principal
executive offices in Cincinnati, Ohio, are leased. Lease terms
for branch offices generally range from one to five years. We do
not anticipate any difficulty in renewing these leases or in
finding alternate sites in the ordinary course of business.
57
Business
Delivery
Models
Our clients access our services through one of three delivery
models depending on their specific needs.
|
|
Ø
|
BranchBranch locations average approximately
2,100 square feet, a majority of which are storefront
locations. Our branches provide a full range of staffing
solutions, from light industrial to clerical, and may include a
specialty, such as transportation, engineering, or professional
services. Our typical branch clients range from small companies
with periodic needs to mid-size companies with on-going needs.
Branches are generally staffed with a branch manager, account
managers, and may include support staff, as appropriate for the
business volume. In addition to being responsible for the
overall profitability of the branch, branch managers promote new
business and supervise the staff. Each client is assigned an
account manager, who is responsible for order fulfillment and
monitoring the worksite performance of temporary employees.
|
|
Ø
|
On-siteOn-site
locations operate within a clients premises and serve as
an extension of the clients operations. A typical
on-site
staff consists of an
on-site
manager and may include one or more account managers. The
on-site
delivery model is designed to be a comprehensive program for our
larger clients where the support team manages the
day-to-day
staffing needs of the client, including recruitment,
on-boarding, attendance, coaching, and turnover of the
contingent workforce. Additional service solutions include
site-specific hiring/selection process, orientation programs,
and employee performance management. Our
on-site
locations are highly strategic to our business. By physically
co-locating with our larger clients, we believe they view us as
a trusted partner. In addition, as we are not responsible for
the overhead associated with
on-site
deployments,
on-site
delivery is a cost-effective way to fulfill large deployments of
temporary employees.
|
|
Ø
|
Output solutionsOur output solutions delivery model
combines industrial engineering principles with human resource
management to create a workforce model focused on productivity
improvement. In this model, we manage the labor and output
component of a discrete activity or process. We start with an
engineering study or assessment, which includes a time and
motion study and an evaluation of the clients workflow
process. Based on the results of our initial analysis, we
optimize the workflow process, establish production and quality
standards, and identify critical skill requirements. Subsequent
to that, we establish a productivity based compensation plan
based on engineered standards. The client pays a per unit cost
versus a more typical hourly bill rate. All work is performed
within the clients facility, and we are responsible for
cost of labor, quality, and production standards.
|
Hiring
process
We develop proactive recruiting plans based on forecasts of our
clients needs. The plans include information on resources,
forecasts, recruiting ideas, hiring ratios needed to reach
fulfillment goals, source tracking, demographics, and wage
analysis. We regularly update wage analysis information to
ensure that we provide a competitive wage on behalf of our
clients.
Our recruiting methodology, which is used by all delivery models
as well as the Talent Acquisition Group, is based on several
factors. We use a targeted approach that includes a review of
market demographics, identification of the hiring competition,
and the creation of recruiting materials that solicit employees
with desired attributes. Execution is aggressively approached
with defined applicant goals, and the enlistment of a wide array
of sources such as internet, job boards, community
organizations, education institutions, job fairs, open houses,
referrals, social organizations, and unemployment offices. Based
on these initiatives, recruiting is proactive through the
effective forecasting of recruiting needs and established hiring
ratios.
58
Business
Our screening process includes interviews, skills
and/or
behavioral assessments, education and reference verification,
and may include client-specific screening such as drug and
background screening. The following chart outlines our process
for screening and assessing candidates.
We have developed and implemented an interview process that is
used for each candidate. With each prospective temporary
employee, we discuss the candidates job history, career
objectives and skills, and conduct a behavioral based interview.
We assess applicant proficiency levels through various screening
processes, which may include our proprietary distribution
simulation centers and forklift validation centers, as well as a
variety of commercially available software solutions such as
Prove It! This plays a crucial role in placing the right
temporary employees with our clients.
RISK
MANAGEMENT
Workers
Compensation Program
As the employer of record, we are responsible for complying with
applicable statutory requirements for workers compensation
coverage. State law (and in certain circumstances, federal law)
generally mandates that an employer reimburse its employees for
the costs of medical care and other specified benefits for
injuries or illnesses, including catastrophic injuries and
fatalities, incurred in the ordinary course of employment. The
benefits payable for various categories of claims are determined
by state regulation and vary with the severity and nature of the
injury or illness and other specified factors. In return for
this guaranteed protection, workers compensation is the
exclusive remedy for injured employees who are then generally
precluded from seeking additional damages from employers. Most
states require employers to maintain workers compensation
insurance or otherwise demonstrate financial responsibility to
meet workers compensation obligations.
For each workers compensation claim, we are responsible
for the first $1.0 million. We self-insure our
workers compensation exposure for a portion of our
employees working in three states. In the states where we do not
self-insure, we purchase insurance through insurance carriers
and, in one state, we participate in a state-run insurance fund.
We have insurance coverage for liabilities over
$1.0 million. In addition, we maintain standby letters of
credit to support our self-insured and large deductible-related
reserves. As of March 31, 2011, we were required to post
approximately $73.1 million for letters of
59
Business
credit related to our workers compensation arrangements.
Our workers compensation reserve is established using
estimates of the future cost of claims and related expenses. Our
reserve as of March 31, 2011 was approximately
$57.6 million, the current portion of which was
approximately $16.7 million. As we grow our business, we
generally anticipate the amount of our outstanding standby
letters of credit and workers compensation reserve will
increase.
Safety
We are committed to the safety of our employees. Our goal is to
provide our employees with a safe and healthy environment in
which to work. We have a team of field-based safety specialists
working with our locations and our clients to support our
commitment to safety. Depending on the industry, our safety
program requires that each client have a safety review prior to
the placement of our employees into the work environment. This
safety review is completed by a member of our safety team or a
trained field member. Each employee is educated with general
safety guidelines prior to placement in any light industrial
environment including the viewing of an Occupational Safety and
Health Administration, or OSHA, approved temporary employee
safety training video.
As an employer with self-insurance and large deductible plans
for workers compensation, our workers compensation
expense is tied directly to the incidence and severity of
workplace injuries sustained by our employees. We seek to
contain our workers compensation costs through a proactive
front-end client selection process in order to mitigate the
acceptance of high risk situations. In addition, we take an
aggressive approach to claims management, including: promptly
performing thorough
on-site
investigations; requiring incident based drug testing; working
with physicians to encourage efficient medical management of
cases; denying questionable claims; and attempting to negotiate
early settlements to mitigate contingent and future costs and
liabilities. Where possible, we assign injured workers to
short-term, light-duty assignments that accommodate physical
limitations.
TECHNOLOGY
We use various software and technology platforms to support our
field personnel and corporate back-office. Our field personnel
use these systems to assist in candidate searches, recruiting,
client order management, client service, sales management, and
payroll entry and submission. Our corporate back-office uses
these systems to process payroll, invoicing, and management and
financial reporting. These systems also provide for the sharing
of information between field personnel and corporate
headquarters.
We are currently operating two human resource management
platforms, PeopleSoft and Tempware. We are currently
consolidating all locations onto the PeopleSoft platform.
Consolidating our human resource management platform into
PeopleSoft will improve productivity for our field and corporate
support teams, improve reporting capabilities both internally
and for our clients, and enhance our ability to interface with
other technology solutions by using a single database across all
locations.
COMPETITION
The temporary staffing industry in the United States is highly
fragmented and according to IBISWorld, consists of approximately
9,000 firms. We compete with both large, national, and small
local staffing companies. Competition in the temporary staffing
industry, we believe, revolves around quality of service,
reputation, and price. The largest companies in the United
States specializing in temporary staffing services are Adecco,
Allegis, Kelly Services, ManpowerGroup, Randstad Holding, and
Robert Half International.
EMPLOYEES
As of March 31, 2011, our corporate staff included
approximately 139 employees and our field operations
included approximately 946 employees. Neither we nor any of
our employees are subject to a collective
60
Business
bargaining agreement, except for approximately 50 of our leased
employees who are subject to a collective bargaining agreement
where the client is the party of interest for the National Labor
Relations Board. We believe that we maintain good relationships
with our employees.
TRADE
NAMES
We own various trade names and actively use the trade names
Staffmarktm
and Columbia Healthcare
Servicestm.
We believe these actively used trade names have strong brand
equity in their markets and have significant value to our
business.
REGULATORY
ENVIRONMENT
In the United States, temporary employment services firms are
considered the legal employers of their temporary workers.
Therefore, federal and state laws regulating the
employer/employee relationship, such as tax withholding and
reporting, social security and retirement, equal employment
opportunity, and Title VII Civil Rights laws and
workers compensation, including those governing
self-insured employers under the workers compensation
systems in various states, govern our operations. By entering
into a co-employer relationship with employees who are assigned
to work at client locations, we assume certain obligations of an
employer under these federal and state laws. Because many of
these federal and state laws were enacted prior to the
development of nontraditional employment relationships, such as
professional employer, temporary employment, and outsourcing
arrangements, many of these laws do not specifically address the
obligations of nontraditional employers. In addition, the
definition of employer under these laws is not
uniform.
Although compliance with these requirements imposes additional
financial risk on us, particularly with respect to those clients
who breach their payment obligations to us, such compliance has
not had a material adverse impact on our business to date. We
believe that our operations are in compliance in all material
respects with applicable federal and state laws.
LEGAL
PROCEEDINGS
We are the subject of two class action lawsuits,
Jaramillo v. Staffmark Inc., et al and
Lopez v. Staffmark Investment LLC, pending in the
Los Angeles County Superior Court and Riverside County Superior
Court, respectively. Both cases involve claims for statutory
monetary damages from current and former employees resulting
from alleged violations of the California Labor Code. The
Jaramillo case was instituted on September 18, 2009
and principally involves allegations that we caused employees to
forfeit certain vacation wages, incorrectly calculated tenure
bonuses, violated a wage order, failed to pay reporting time
pay, failed to pay required wages at termination, failed to
provide accurate wage statements, and engaged in unfair business
practices. The Lopez case was instituted on
October 20, 2010 and principally involves allegations that
we failed to pay for certain meal and rest periods, failed to
pay certain overtime, failed to pay minimum wage in some
instances, failed to split shift premiums, failed to indemnify
employees for uniform and equipment costs, failed to pay
reporting time pay, failed to pay required wages at termination,
failed to provide accurate wage statements, engaged in unfair
business practices and violated the Private Attorney General
Act. The two cases involve significant overlapping issues.
Accordingly, our motion to coordinate the cases was recently
approved and proceedings are stayed in both matters pending the
assignment of a coordination trial judge. At this stage of the
litigation, it is not feasible to predict the outcome of or a
range of loss, should a loss occur, from these proceedings, and,
accordingly, no amounts have been provided in the accompanying
financial statements. We believe we have meritorious defenses to
the allegations and will continue to vigorously defend against
the litigation.
61
Business
We are also involved in a number of other lawsuits that arise in
the ordinary course of our business. We maintain insurance in
amounts and with such coverage and deductibles that we believe
are reasonable and prudent. The principal risks that we insure
against are workers compensation, personal injury, bodily
injury, property damage, professional malpractice, errors and
omissions, and fidelity losses. We also have the typical wage
and hour matters and employment issues (mainly filed against our
customers) in the ordinary course of business. Management does
not expect that the outcome of any of the ordinary course of
business lawsuits relating to such matters will have a material
adverse effect on our financial condition, results of
operations, or cash flows.
62
Management
EXECUTIVE
OFFICERS AND DIRECTORS
The following table sets forth information about our executive
officers and directors as of May 1, 2011 and the
composition of our board committees upon consummation of this
offering:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s)
|
|
|
Lesa J. Francis
|
|
|
53
|
|
|
President, Chief Executive Officer, and Director
|
William E. Aglinsky
|
|
|
59
|
|
|
Executive Vice President and Chief Financial and Administrative
Officer
|
Kathryn S. Bernard
|
|
|
57
|
|
|
Executive Vice President of Corporate Risk, General Counsel, and
Secretary
|
Suzanne M. Perry
|
|
|
48
|
|
|
Senior Vice President, Human Resources
|
D. Eugene
Ewing(1)(2)(3)
|
|
|
62
|
|
|
Chairman of the Board
|
Robert
Janes(3)
|
|
|
44
|
|
|
Director
|
Frederick L. Kohnke
|
|
|
61
|
|
|
Director
|
John
LaBarca(1)(2)(3)
|
|
|
68
|
|
|
Director
|
Stephen
Russell(1)(2)
|
|
|
71
|
|
|
Director
|
Elias J. Sabo
|
|
|
40
|
|
|
Director
|
|
|
|
(1) |
|
Member of our audit committee. |
|
(2) |
|
Member of our compensation committee. |
|
(3) |
|
Member of our nominating and corporate governance
committee. |
Lesa J. Francis has served as our President since
January 2010, as our Chief Executive Officer since March
2011, and as a director since April 6, 2011. From 1991 to
2005, Ms. Francis held various positions at SFN Group, a
recruiting and staffing provider, including Senior Vice
President of Business Development and Operations. In that
position, she had national responsibility for their Staffing and
Workforce Management business. Prior to her 14 years at SFN
Group, Ms. Francis held various positions with Adia (now
Adecco S.A.), from Branch Manager to Regional Vice President.
She received her undergraduate degree in Business Management
from Northwest Missouri State University. Ms. Francis has
an extensive and distinguished career in the staffing industry
with executive management experience at a large public company
and an in-depth knowledge of our Company from her experience as
our President and Chief Operating Officer. Ms. Francis
brings to the Board a breadth of knowledge of the staffing
industry and a keen sense of the economic and labor trends in
the industry.
William E. Aglinsky has served as our Executive Vice
President and Chief Financial and Administrative Officer since
January 2010 and our Chief Financial Officer since October
2003. Prior to joining Staffmark, Mr. Aglinsky spent
16 years with Cleveland-based Management Recruiters
International, or MRI, a human resources solutions provider.
Mr. Aglinsky served as Chief Financial and Administrative
Officer of MRI. Prior to MRI, Mr. Aglinsky held a number of
senior financial management positions in industry and public
accounting. He received his B.S. degree in Business
Administration from West Virginia University, and is a certified
public accountant.
Kathryn S. Bernard has served as our Executive Vice
President and General Counsel since November 1996. In her
14-year
tenure, Kathryn designed our self-insured and self-administered
workers compensation program and developed related
protocols and policies for employment practices, loss control,
safety, litigation, drug testing, and background checking.
Ms. Bernard is active in state and national legislative
efforts that affect the staffing industry and has written
numerous articles for specialty publications on workers
compensation issues and employee leasing. Previously, she was
the
63
Management
regional vice president of workers compensation,
unemployment, and employment practices for a national insurance
brokerage firm. She received her B.A. degree from the University
of Cincinnati and her J.D. from the University of Cincinnati
College of Law.
Suzanne M. Perry has served as our Senior Vice President,
Human Resources since January 2010. Ms. Perry joined our
company in March 2001 as Vice President, Human Resources and
served in that capacity until her promotion in January 2010 to
Senior Vice President, Human Resources. She has over
25 years experience in human resources management,
specializing in employee relations, compensation, benefits,
recruitment, selection, and legal compliance. She previously
held senior human resources positions, both domestic and abroad,
at various Fortune 500 companies. Ms. Perry is
a member of the Society for Human Resources and received her
professional certification in 1994. She received her B.S. degree
in Business Administration from San Jose State University
and her M.B.A. from Thomas More College.
Elias J. Sabo has served as a director since August 1999.
Since 1998, Mr. Sabo has served as a founding partner at
Compass Group Management LLC, the manager of Compass Diversified
Holdings (NYSE: CODI) and other alternative asset vehicles.
Prior to joining Compass Group, Mr. Sabo worked in the
acquisition department for Colony Capital, a Los Angeles-based
real estate private equity firm, from 1992 to 1996 and as a
healthcare investment banker for CIBC World Markets (formerly
Oppenheimer & Co.) from 1996 to 1998. Mr. Sabo
brings to our Board business leadership experience, an extensive
understanding of investment activities, and public company
experience with governance and risk management. His in-depth
investment experience with CODI enables him to advise the Board
on various strategic and business matters.
D. Eugene Ewing has served as Chairman of the Board of
Directors since November 2007 and as director since March
2004. Mr. Ewing has been the managing member of Deeper
Water Consulting, LLC, a private wealth and business consulting
company, since March 2004. Previously, Mr. Ewing was with
Fifth Third Bank. Prior to that, Mr. Ewing was a partner in
Arthur Andersen LLP. Mr. Ewing is on advisory boards for
the business schools at Northern Kentucky University and the
University of Kentucky. Mr. Ewing is a member of the board
of directors of Compass Group Diversified Holdings LLC and a
director of a private trust company located in Wyoming and a
private consulting company located in California. Mr. Ewing
is a graduate of the University of Kentucky. As a former partner
with a respected independent registered public accounting firm,
Mr. Ewing brings to our Board substantial experience with
complex accounting and reporting issues, SEC filings, and
corporate transactions.
Robert Janes has served as a director since our
acquisition of Staffmark Investment LLC in January 2008. Since
1999, Mr. Janes has held senior positions at Stephens
Capital Partners LLC, a Little Rock-based private investment
firm, and has served as Managing Director of Stephens since June
2006. The primary shareholder of Stephens Capital Partners LLC
and its affiliates hold a majority position in Staffing Holding
LLC, which is a significant stockholder of our company. As a
Managing Director of Stephens, Mr. Janes serves on the
boards of several of its privately-held portfolio companies. He
received his B.B.A. from Southern Methodist University and his
M.B.A. from The Wharton School of the University of
Pennsylvania. The Board believes that Mr. Janes
finance, business leadership, knowledge of investment and
financing activities, and prior board experiences qualify him
for service as a director.
Frederick L. Kohnke has served as a director since
February 2001. Mr. Kohnke served as our President and Chief
Executive Officer from February 2001 to March 2011. Prior to
joining our company, Mr. Kohnke held senior financial and
general management positions in related service companies. He
received his B.S. degree in Accounting from Northern Illinois
University, and his M.B.A. in Finance from Loyola University in
Chicago, and is a certified public accountant. As a result of
these professional and other experiences, Mr. Kohnke
possesses knowledge and experience in business leadership,
finance and accounting, and has an in-depth understanding of the
Companys history and the staffing and
64
Management
recruiting industry due to his long service on the Board and as
the Companys President and Chief Executive Officer, which
strengthen the Boards overall knowledge, capabilities, and
experience.
John LaBarca has served as a director since May
2011. Mr. LaBarca has been retired since February 2005. Prior to
that, he worked as a consultant at Time Warner, Inc. from
February 2002 to February 2005 and was Senior Vice President of
Financial Operations of Time Warner, Inc. from February 2000 to
February 2002. Prior to February 2002, he held several other
positions with Time Warner, Inc. since joining in May 1993
including Senior Vice President, Controller and Chief Accounting
Officer, and Vice President Internal Audit. Prior to joining
Time Warner, Inc., Mr. LaBarca spent 28 years in the
public accounting profession gaining extensive experience in
auditing privately and publicly owned companies. He received his
B.B.A. from Adelphi University and is a member of the American
Institute of Certificate Public Accountants and the New York
State Society of CPAs. As a result of his substantial experience
in the public accounting profession and as a senior executive
with Time Warner, Inc., Mr. LaBarca brings to our Board an
in-depth understanding of the internal audit function. In
addition, Mr. LaBarcas experience in managing revenue
and cost synergies at Time Warner, Inc., coupled with his
experience in integrating acquired businesses, will provide our
Board with an experienced perspective in implementing our
business strategy.
Stephen Russell has served as a director since April
2002. Mr. Russell has been Chairman of the Board and Chief
Executive Officer of Celadon Group, Inc. (NYSE: CGI) since its
inception in July 1986 and served as President of Celadon Group,
Inc. from September 2000 to October 2004. In addition to his
roles within Celadon, he is a member of the American Trucking
Associations Executive Committee and serves as Chairman of
their Audit Committee. He previously served as the Chairman of
the Homeland Security Policy Committee of the American Trucking
Associations as a member of the Board of the Truckload Carriers
Association. Mr. Russell currently serves as Chairman of
the Board of Governors of the Indianapolis Museum of Art. The
Board believes that Mr. Russells significant and
extensive understanding of the transportation business and
industry developed over the past 25 years, as well as his
leadership skills, qualify him for continued service as a
director.
Our executive officers are appointed by our board of directors
and serve until their successors have been duly elected and
qualified.
COMPOSITION OF
BOARD OF DIRECTORS
At or prior to consummation of this offering, our board of
directors will consist of seven members as we expect our board
of directors to appoint one additional independent
director as defined under the rules of the New York Stock
Exchange.
Our amended and restated certificate of incorporation and
amended and restated bylaws, which will become effective before
completion of this offering, will provide for a classified board
of directors consisting of three classes of directors, each
serving staggered three-year terms, as follows:
|
|
Ø
|
the Class I directors will be D. Eugene Ewing, Lesa
Francis, and Elias Sabo, and their terms will expire at the
annual meeting of stockholders to be held in 2012;
|
|
Ø
|
the Class II directors will be Robert Janes and Stephen
Russell, and their terms will expire at the annual meeting of
stockholders to be held in 2013; and
|
|
Ø
|
the Class III directors will be Frederick Kohnke and John
LaBarca, and their terms will expire at the annual meeting of
stockholders to be held in 2014.
|
Upon expiration of the term of a class of directors, directors
for that class will be elected for three-year terms at the
annual meeting of stockholders in the year in which that term
expires. Each directors term continues until the election
and qualification of his successor, or his earlier death,
resignation, or removal. Any increase or decrease in the number
of directors will be distributed among the three classes
65
Management
so that, as nearly as possible, each class will consist of
one-third of the directors. This classification of our board of
directors may have the effect of delaying or preventing changes
in control of our company.
DIRECTOR
INDEPENDENCE
Upon the completion of this offering, we intend to have our
common stock listed on the New York Stock Exchange. Under the
rules of the New York Stock Exchange, independent directors must
comprise a majority of our board of directors within a specified
period of the completion of this offering. In addition, the
rules of the New York Stock Exchange require that, subject to
specified exceptions, each member of a listed companys
audit, compensation, and nominating and governance committees be
independent. Audit committee members must also satisfy the
independence criteria set forth in
Rule 10A-3
under the Securities Exchange Act of 1934, as amended. Under the
rules of the New York Stock Exchange, a director will only
qualify as an independent director if, in the
opinion of that companys board of directors, that person
does not have a relationship that would interfere with the
exercise of independent judgment in carrying out the
responsibilities of a director.
In order to be considered to be independent for purposes of
Rule 10A-3,
a member of an audit committee of a listed company may not,
other than in his or her capacity as a member of the audit
committee, the board of directors, or any other board committee:
(1) accept, directly or indirectly, any consulting,
advisory, or other compensatory fee from the listed company or
any of its subsidiaries; or (2) be an affiliated person of
the listed company or any of its subsidiaries.
In ,
our board of directors undertook a review of its composition,
the composition of its committees, and the independence of each
director. Based upon information requested from and provided by
each director concerning his background, employment, and
affiliations, including family relationships, our board of
directors has determined that none of Messrs. Ewing, Janes,
LaBarca, and Russell, representing four of our seven directors,
has a relationship that would interfere with the exercise of
independent judgment in carrying out the responsibilities of a
director and that each of these directors is
independent as that term is defined under the rules
of the New York Stock Exchange. Our board of directors also
determined that Messrs. Ewing, LaBarca, and Russell, who will
comprise our audit committee, Messrs. Ewing, LaBarca, and
Russell who will comprise our compensation committee, and
Messrs. Ewing, Janes, and LaBarca, who will comprise our
nominating and governance committee, satisfy the independence
standards for those committees established by the rules of the
New York Stock Exchange and (in the case of the audit committee)
the applicable SEC rules. In making this determination, our
board of directors considered the relationships that each
non-employee director has with our company and all other facts
and circumstances our board of directors deemed relevant in
determining their independence, including the beneficial
ownership of our capital stock by each non-employee director.
RISK MANAGEMENT
AND OVERSIGHT
Our full board of directors oversees our risk management
process. Our board of directors oversees a company-wide approach
to risk management, carried out by our management. Our full
board of directors determines the appropriate risk for us
generally, assesses the specific risks faced by us, and reviews
the steps taken by management to manage those risks.
While the full board of directors maintains the ultimate
oversight responsibility for the risk management process, its
committees oversee risk in certain specified areas. In
particular, our compensation committee is responsible for
overseeing the management of risks relating to our executive
compensation plans and arrangements, and the incentives created
by the compensation awards it administers. Our audit committee
oversees management of enterprise risks as well as financial
risks, and effective upon the consummation of this offering,
will also be responsible for overseeing potential conflicts of
interests. Effective upon the listing of our common stock on the
New York Stock Exchange, our nominating and
66
Management
corporate governance committee will be responsible for
overseeing the management of risks associated with the
independence of our board of directors. Pursuant to our board of
directors instruction, management regularly reports on
applicable risks to the relevant committee or the full board of
directors, as appropriate, with additional review or reporting
on risks conducted as needed or as requested by our board and
its committees.
COMMITTEES OF THE
BOARD OF DIRECTORS
Our board of directors has established an audit committee, a
compensation committee, and a nominating and governance
committee, each of which will have the composition and
responsibilities described below.
Audit
committee
Our audit committee will be comprised of Messrs. Ewing, LaBarca,
and Russell, each of whom is a non-employee member of our board
of directors. Mr. LaBarca will be the chairperson of our
audit committee. All of the members of the audit committee are
financially literate and have accounting or related financial
management expertise within the meaning of the rules of the New
York Stock Exchange. Our board of directors has determined that
Mr. Ewing qualifies as an audit committee financial
expert, as that term is defined under the SEC rules
implementing Section 407 of the Sarbanes-Oxley Act of 2002.
Our audit committee will be responsible for, among other things:
|
|
Ø
|
reviewing and approving the selection of our independent
auditors, and approving the audit and non-audit services to be
performed by our independent auditors;
|
|
Ø
|
monitoring the integrity of our financial statements and our
compliance with legal and regulatory requirements as they relate
to financial statements or accounting matters;
|
|
Ø
|
reviewing the adequacy and effectiveness of our internal control
policies and procedures;
|
|
Ø
|
discussing the scope and results of the audit with the
independent auditors and reviewing with management and the
independent auditors our interim and year-end operating
results; and
|
|
Ø
|
preparing the audit committee report that the SEC requires in
our annual proxy statement.
|
Compensation
committee
Our compensation committee will be comprised of Messrs. Ewing,
LaBarca, and Russell. Mr. Russell will be the chairperson
of our compensation committee. The compensation committee will
be responsible for, among other things:
|
|
Ø
|
overseeing our compensation policies, plans, and benefit
programs;
|
|
Ø
|
reviewing and approving for our executive officers: the annual
base salary, the annual incentive bonus, including the specific
goals and amount, equity compensation, employment agreements,
severance arrangements and change in control arrangements, and
any other benefits, compensations, or arrangements;
|
|
Ø
|
preparing the compensation committee report that the SEC
requires to be included in our annual proxy statement; and
|
|
Ø
|
administrating our equity compensation plans.
|
67
Management
Nominating and
corporate governance committee
Our nominating and corporate governance committee will be
comprised of Messrs. Ewing, Janes, and LaBarca. Mr. LaBarca
will be the chairperson of our nominating and corporate
governance committee. The nominating and corporate governance
committee will be responsible for, among other things:
|
|
Ø
|
assisting our board of directors in identifying prospective
director nominees and recommending nominees for each annual
meeting of stockholders to the board of directors;
|
|
Ø
|
reviewing developments in corporate governance practices and
developing and recommending governance principles applicable to
our board of directors;
|
|
Ø
|
reviewing the succession planning for our executive officers;
|
|
Ø
|
overseeing the evaluation of our board of directors and
management; and
|
|
Ø
|
recommending members for each board committee to our board of
directors.
|
DIRECTOR
COMPENSATION
Following the completion of this offering, we intend to pay an
annual retainer fee of $40,000 to the chairman of our board of
directors and an annual retainer fee of $37,500 to each
non-employee director. We intend to pay an annual fee of $5,000
to the chairs of each of the compensation committee and
nominating and corporate governance committee, and annual fee of
$15,000 to the chair of the audit committee. In addition, we
intend to pay a fee of $1,000 to the members of each of the
compensation committee and nominating and corporate governance
committee, and a fee of $2,500 to each member of the audit
committee, for their participation in each of the respective
committee meetings.
Following the completion of this offering, non-employee
directors will each receive an annual grant of restricted shares
of common stock with a value of $37,500. The first grant will be
made shortly following the completion of this offering and the
number of shares will be based upon the fair market value on the
date of the grant. The restricted stock grant will vest in full
on the first anniversary of the date of the grant.
Our employees who serve as directors receive no additional
compensation, although we may reimburse them for travel and
other expenses.
Following the offering, we may re-evaluate and, if appropriate,
adjust the fees and stock awards granted to directors as
compensation in order to ensure that our director compensation
is commensurate with that of similarly situated public companies.
The following table provides information for fiscal year ended
December 31, 2010, regarding all plan and non-plan
compensation awarded to, earned by, or paid to, each person who
served as a director for some portion or all of 2010:
|
|
|
|
|
|
|
|
|
|
|
Fees earned
|
|
|
|
|
|
|
or paid in
|
|
|
|
|
Name
|
|
cash
|
|
|
Total
|
|
|
|
|
D. Eugene Ewing
|
|
$
|
12,000
|
|
|
$
|
12,000
|
|
Stephen Russell
|
|
$
|
24,000
|
|
|
$
|
24,000
|
|
David
Bartholomew(1)
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
|
|
|
(1) |
|
Effective March 31, 2011, Mr. Bartholomew resigned
as a director. |
68
Management
CORPORATE
GOVERNANCE POLICY
Our board of directors has adopted a corporate governance policy
to assist the board in the exercise of its duties and
responsibilities and to serve the best interests of us and our
stockholders. A copy of this policy will be posted on our
website upon completion of this offering. These guidelines,
which provide a framework for the conduct of the boards
business, provide that:
|
|
Ø
|
directors are responsible for attending board meetings and
meetings of committees on which they serve and to review in
advance of meetings material distributed for such meetings;
|
|
Ø
|
the boards principal responsibility is to oversee and
direct our management in building long-term value for our
stockholders and to assure the vitality of Staffmark for our
customers, clients, employees, and the communities in which we
operate;
|
|
Ø
|
at least a majority of the board shall be independent directors;
|
|
Ø
|
our nominating and corporate governance committee is responsible
for nominating members for election to our board of directors
and will consider candidates submitted by stockholders;
|
|
Ø
|
our board of directors believes that it is important for each
director to have a financial stake in us to help align the
directors interests with those of our stockholders;
|
|
Ø
|
although we do not impose a limit to the number of other public
company boards on which a director serves, our board of
directors expects that each member be fully committed to
devoting adequate time to his or her duties to us;
|
|
Ø
|
the independent directors meet in executive session on a regular
basis, but not less than quarterly;
|
|
Ø
|
each of our audit committee, compensation committee, and
nominating and corporate governance committee must consist
solely of independent directors;
|
|
Ø
|
new directors participate in an orientation program and all
directors are encouraged to attend, at our expense, continuing
educational programs to further their understanding of our
business and enhance their performance on our board; and
|
|
Ø
|
our board of directors and its committees will sponsor annual
self-evaluations to determine whether members of the board are
functioning effectively.
|
CODES OF BUSINESS
CONDUCT AND ETHICS
We expect our board of directors will adopt a code of business
conduct and ethics that will apply to all of our employees,
officers, and directors, including our chief executive officer,
chief financial officer, and those officers responsible for
financial reporting. Upon completion of this offering, the code
of business conduct and ethics will be available on our website
at www.staffmark.com. Information on, or accessible through, our
website is not part of this prospectus. We expect that any
amendments to the code, or any waivers of its requirements, will
be disclosed on our website.
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our compensation committee is an officer
or employee of our company. None of our executive officers
currently serves, or in the past year has served, as a member of
the compensation committee (or other board committee performing
equivalent functions or, in the absence of any such committee,
the entire board of directors) of any entity that has one or
more executive officers serving on our compensation committee.
69
COMPENSATION
DISCUSSION AND ANALYSIS
The following discussion and analysis of compensation
arrangements of our named executive officers for 2010 should be
read together with the compensation tables and related
disclosures set forth below. This discussion contains
forward-looking statements that are based on our current
considerations, expectations, and determinations regarding
future compensation programs. The actual amount and form of
compensation and the compensation programs that we adopt may
differ materially from current or planned programs as summarized
in this discussion.
Introduction
The purpose of this compensation discussion and analysis is to
provide information about the compensation earned by or paid to
our named executive officers and to explain the material
elements of that compensation, including the basis for
determining the elements of compensation and how those elements
fit into our overall compensation objectives. It should be read
in conjunction with the Summary Compensation Table
and related tables that are presented below.
Objectives of our
executive compensation program
Our compensation program for our named executive officers is
designed to achieve the following objectives:
|
|
Ø
|
attract, retain, and incentivize talented and experienced
executives to successfully lead and manage our business and
personnel;
|
|
Ø
|
reward our executives fairly for strong business results and
performance; and
|
|
Ø
|
align the interests of our executives with the interests of our
stockholders.
|
We use a mix of short-term compensation in the form of base
salaries and cash incentive bonuses and long-term compensation
in the form of stock options to provide a total compensation
structure that is designed to achieve these objectives.
Determining
executive compensation
The compensation committee of our board of directors, the
members of which are appointed by our board, is responsible for
developing, administering, and interpreting the compensation
program for our executive officers and other key employees.
Although the compensation committee has the authority to retain
consultants and other advisors to assist it with its duties, for
2010, it did not do so. Historically, our CEO makes
recommendation to the compensation committee regarding the
salaries, bonuses, and option grants for key employees,
including all executive officers (other than our CEO). Following
the completion of this offering, our CEO will continue to make
such recommendations.
On an annual basis, the compensation committee will conduct a
thorough review and assessment of each executives
performance, compensation, and development objectives and, where
applicable, considers our CEOs recommendations. This
process includes a review of each element of total compensation
individually and total compensation in aggregate. Based on its
review, the compensation committee makes recommendations to our
board of directors for approval of compensation or each of our
named executive officers.
For our CEO, the compensation committee establishes performance
objectives on an annual basis. The compensation committee also
evaluates the CEOs performance and, based thereon, makes
recommendations for our CEOs compensation to our board of
directors. The CEOs total
70
Executive
compensation
compensation is comprised of the same elements as all the named
executives. The determination of the CEOs compensation,
and of our other named executive officers, is based on the
measures and responsibilities deemed by the compensation
committee to be relevant and historically has taken into account
available data relating to the compensation practices of other
companies within and outside our industry. However, we have not
formally benchmarked the compensation of our executives against
any group of peer companies.
Elements of
compensation program
Overall, the compensation program for our named executive
officers is designed to achieve and be consistent with the
objectives and philosophies described herein. The principal
elements of our executive officer compensation program are:
|
|
Ø
|
base salaries;
|
|
Ø
|
annual incentive bonuses;
|
|
Ø
|
equity-based incentives;
|
|
Ø
|
severance benefits; and
|
|
Ø
|
other benefits.
|
We combine these elements in order to formulate compensation
packages that provide competitive pay, reward achievement of
financial, operational, and strategic objectives, and align the
interests of our named executive officers and other senior
personnel with those of our stockholders.
Base
salaries
Base salaries for our executive officers are determined annually
by an assessment of our overall financial and operating
performance, each executive officers performance
evaluation, and changes in executive officer responsibilities.
While many aspects of performance can be measured in financial
terms, senior management is also evaluated in areas of
performance that are more subjective. These areas include the
development and execution of strategic plans, the exercise of
leadership in the development of management and other employees,
innovation and improvement in our business activities, and each
executive officers involvement in industry groups and in
the communities that we serve. We seek to compensate our
executive officers for their performance throughout the year
with annual base salaries that are fair and competitive within
our marketplace. We believe that executive officer base salaries
should be competitive with salaries for executive officers in
similar positions and with similar responsibilities in our
marketplace and adjusted for financial and operating performance
and each executive officers performance evaluation, length
of service with us, and previous work experience. Individual
salaries have historically been established by the Board based
on the general industry knowledge and experience of the
directors on our Board, in alignment with these considerations
and with reference to industry survey data, to ensure the
attraction, development, and retention of superior talent. Going
forward, we expect that determinations will continue to focus on
the above considerations and will also be made based upon
relevant market data.
Our board of directors provided base salary increases in 2010 to
certain of our named executive officers as provided in the table
below. From time to time, our board of directors provides base
salary merit increases to our executive officers
based on the compensation committees subjective assessment
of each named executive officers performance. However,
following its review of the considerations set forth above, and
on the recommendation of the compensation committee, no such
merit increases were awarded in 2010. Rather, all 2010 base
salary increases were in connection with promotions of the
receiving executive officer.
71
Executive
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base salary
|
|
|
2010 base
salary
|
|
|
|
Base salary at
|
|
|
increase
|
|
|
following
|
|
Name
|
|
start of
2010
|
|
|
in
2010(1)
|
|
|
increase
|
|
|
|
|
Lesa J. Francis
|
|
$
|
325,000
|
|
|
$
|
25,000
|
|
|
$
|
350,000
|
|
Frederick L. Kohnke
|
|
|
500,000
|
|
|
|
|
|
|
|
500,000
|
|
William E. Aglinsky
|
|
|
300,000
|
|
|
|
|
|
|
|
300,000
|
|
Kathryn S. Bernard
|
|
|
215,000
|
|
|
|
|
|
|
|
215,000
|
|
Suzanne M. Perry
|
|
|
165,000
|
|
|
|
10,000
|
|
|
|
175,000
|
|
|
|
|
(1) |
|
Base salary increases were awarded in 2010 only to those
executive officers who received promotions in connection with
such promotions. Ms. Francis was promoted to President and
Chief Operating Officer, and Ms. Perry was promoted to
Senior Vice President, Human Resources. |
Annual incentive
bonuses
As one way of accomplishing compensation objectives, executive
officers are rewarded for their contribution to our financial
and operational success through the award of discretionary
annual incentive cash bonuses. Annual incentive awards, if any,
for executive officers are determined by the compensation
committee based upon (other than for our CEO) the CEOs
recommendations.
While target bonuses for our executive officers (other than our
CEO) are initially set at percentages or dollar amounts that are
30% to 60% of their base salaries, the compensation committee
has broad discretion to retain, reduce, or increase the award
amounts when making its final bonus determinations. As
individually negotiated with our former CEO and set forth in his
employment agreement, target bonus amounts consisted of a
discretionary component (up to 30% of his base salary and
subject to broad discretion by the compensation committee) and
an objective component (up to 90% of base salary based on
achievement of pre-defined full year adjusted earnings of the
company and its subsidiaries before interest, taxes,
depreciation and amortization, or Adjusted EBITDA, targets).
Although we have not entered into employment agreements with any
of our other executive officers that obligate us to pay annual
bonuses to them, these executive officers have historically been
paid, and we intend to continue to pay them, annual bonuses,
based largely on achieving our Adjusted EBITDA targets, in order
to motivate them to achieve superior performance and to provide
them with competitive amounts of total compensation.
The annual incentive bonuses (similar to other elements of the
compensation provided to executive officers) are not based on a
prescribed formula or pre-determined goals or performance
targets (other than the objective component of our former
CEOs bonus), but rather have been determined on a
subjective basis and generally have been based on a subjective
evaluation of individual, company-wide, and industry
performances. Our board of directors and the compensation
committee believe that this approach to assessing performance
results in a more comprehensive evaluation of compensation
decisions, and have recognized the following factors in making
discretionary annual bonus recommendations and determinations:
|
|
Ø
|
subjective performance evaluation based on our financial
performance and on individual qualitative performance;
|
|
Ø
|
length of service with us; and
|
|
Ø
|
the scope, level of expertise, and experience required for the
executive officers position.
|
The compensation committee and our board of directors believe
that these factors help to align individual compensation with
competency and contribution.
For 2010, actual Adjusted EBITDA exceeded our Adjusted EBITDA
target, resulting in the maximum amount for the objective
component of the annual incentive bonus for each of our named
executive officers, including our former CEO.
72
Executive
compensation
In determining the annual incentive bonuses for 2010, the
compensation committee determined that each named executive
officer made positive contributions to our financial
performance. Among other items, the compensation committee
identified the following areas of success for each of our named
executive officers:
|
|
Ø
|
Each of Ms. Francis and Mr. Kohnke was successful in driving the
significant productivity increases that contributed to our
improved financial performance in 2010;
|
|
Ø
|
Mr. Aglinsky was successful in managing our working capital
growth and in otherwise proactively addressing our financial
stability, as well as in leading the consolidation of our
locations onto the PeopleSoft management platform;
|
|
Ø
|
Ms. Bernard was successful in directing our company-wide
approach to risk management, thereby facilitating the
establishment of a healthy and safe work environment for our
employees and the containment of our workers compensation
costs; and
|
|
Ø
|
Ms. Perry was successful in effectively managing our human
resource functions, thereby minimizing employee turnover, as
well as in leading our effort to analyze the impact of current
legislation on our current and future operations.
|
As a result of the above qualitative assessment by the
compensation committee of individual performance and based on
our financial performance, and in order to provide total cash
compensation for the year that was competitive and consistent
with total cash compensation provided by other companies in our
industry, as recommended by the compensation committee and based
on their industry knowledge and experience, our board of
directors determined to award the incentive bonus amounts set
forth in the table below to our named executive officers in 2010.
|
|
|
|
|
Name
|
|
2010
bonus
|
|
|
|
|
Lesa J. Francis
|
|
$
|
262,500
|
|
Frederick L. Kohnke
|
|
|
600,000
|
|
William E. Aglinsky
|
|
|
202,500
|
|
Kathryn S. Bernard
|
|
|
96,750
|
|
Suzanne M. Perry
|
|
|
78,750
|
|
For years subsequent to 2010, the compensation committee expects
that it will continue to base annual incentive compensation
award recommendations on both Company-wide and industry criteria.
Equity-based
awardsstock option grants
Our equity award program is the primary vehicle for offering
long-term incentives to our named executive officers. Our
equity-based incentives have historically been granted in the
form of options to purchase shares of our common stock under,
originally, our 1999 Stock Option Plan, which expired in 2009.
During 2010, we granted options under our 2009 Stock Option
Plan. We believe that equity grants align the interests of our
named executive officers with our stockholders, provide our
named executive officers with incentives linked to long-term
performance and create an ownership culture. In addition, the
vesting feature of our equity grants contributes to executive
retention because this feature provides an incentive to our
named executive officers to remain in our employ during the
vesting period. To date, we have not had an established set of
criteria for granting equity awards; instead our compensation
committee has exercised its judgment and discretion, in
consultation with our CEO (except with respect to awards to our
CEO), and considered, among other things, the role and
responsibility of the named executive officer, competitive
factors, the amount of stock-based equity compensation already
held by the named executive officer, and the cash-based
compensation received by the named executive officer, as well as
the positive contributions and successes of our named executive
officers that were considered in the determination of their
annual incentive bonuses, to determine its recommendations for
equity awards. Based on these recommendations of our
compensation committee,
73
Executive
compensation
our board of directors approved the stock option grants in 2010
as set forth in the Equity-based awardsStock option
grants table.
Severance
benefits
We entered into severance agreements with each of our named
executive officers (other than our former CEO, whose severance
provisions in his employment agreement are no longer in effect)
that require specific payments to be provided to them in the
event of the termination of such executive officers
employment by us without cause or, during the one year following
a change of control, by us without cause or by such executive
officer for Good Reason. See Executive
compensationCompensation discussion and
analysisPotential payments upon employment
termination.
Perquisites
Other than monthly car allowances for our former CEO of $1,000,
Ms. Francis of $800, and Ms. Perry of $500, we do not
provide perquisites to our named executive officers.
Other
benefits
We provide the following benefits to our named executive
officers on the same basis provided to all of our employees
(except for contributions to our executive bonus plan, which
plan is available only to our executive officers and other
highly compensated employees as defined in the Internal Revenue
Code of 1986):
Ø health,
dental, and vision insurance;
Ø life
insurance and accidental death and dismemberment insurance;
Ø executive
bonus plan contributions; and
Ø long-term
disability.
Our named executive officers are eligible to participate in our
executive bonus plan, which is a nonqualified deferred
compensation plan. This plan is intended to help us attract and
retain key employees by providing them with the opportunity to
defer receipt of a portion of their compensation and plan for
retirement. Our executive bonus plan allows eligible employees,
including our named executive officers, to allocate a portion of
their annual compensation and to receive matching company
contributions which cannot be provided to them under our 401(k)
plan, due to limitations under the Internal Revenue Code of 1986.
74
Executive
compensation
SUMMARY
COMPENSATION TABLE FOR 2010
The following table sets forth certain information with respect
to the compensation paid to our named executive officers for the
fiscal year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
All Other
|
|
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
awards
|
|
|
compensation
|
|
|
Total
|
|
Name and
principal position
|
|
($)
|
|
|
($)(3)
|
|
|
($)(4)
|
|
|
($)(5)
|
|
|
($)
|
|
|
|
|
Lesa J.
Francis(1)
|
|
$
|
349,519
|
|
|
$
|
262,500
|
|
|
$
|
405,200
|
|
|
$
|
18,105
|
(6)
|
|
$
|
1,035,324
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frederick L.
Kohnke(2)
|
|
|
500,000
|
|
|
|
600,000
|
|
|
|
254,700
|
|
|
|
42,075
|
(7)
|
|
|
1,396,775
|
|
Former Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William E. Aglinsky
|
|
|
300,000
|
|
|
|
202,500
|
|
|
|
242,800
|
|
|
|
20,014
|
(8)
|
|
|
765,314
|
|
Executive Vice President and Chief Financial and
Administrative Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kathryn S. Bernard
|
|
|
215,000
|
|
|
|
96,750
|
|
|
|
56,600
|
|
|
|
14,393
|
(9)
|
|
|
382,743
|
|
Executive Vice President, General Counsel, and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suzanne M. Perry
|
|
|
174,808
|
|
|
|
78,750
|
|
|
|
56,600
|
|
|
|
16,800
|
|
|
|
326,958
|
|
Senior Vice President, Human Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Ms. Francis served as our President and Chief Operating
Officer throughout 2010. In March 2011, she was promoted to
President and Chief Executive Officer. |
|
(2) |
|
Mr. Kohnke resigned as our CEO in March 2011 in
connection with his retirement. He continues to work for us as a
consultant. |
|
(3) |
|
Amounts in this column represent discretionary cash bonuses
paid in fiscal 2010 to the respective named executive
officers. |
|
(4) |
|
The amounts in this column represent the aggregate grant date
fair value of the option awards computed in accordance with FASB
Topic ASC 718. |
|
(5) |
|
This column represents all other compensation paid to the
named executive officers for employer HCE matches, executive
disability insurance, car allowance, and other benefits, none of
which individually exceeded $10,000 (except, as described in the
notes below, for Mr. Kohnkes car allowance and
contributions to the executive bonus plans of Ms. Francis,
Mr. Kohnke, Mr. Aglinsky and Ms. Bernard). |
|
(6) |
|
This amount includes $14,372 received by Ms. Francis for
contributions we made to her executive bonus plan. |
|
(7) |
|
This amount includes $12,000 received by Mr. Kohnke for
his auto allowance and $24,019 for contributions we made to his
executive bonus plan. |
|
(8) |
|
This amount includes $15,200 received by Mr. Aglinsky
for contributions we made to his executive bonus plan. |
|
(9) |
|
This amount includes $10,350 received by Ms. Bernard for
contributions we made to her executive bonus plan. |
75
Executive
compensation
GRANTS OF
EQUITY-BASED AWARDS IN FISCAL 2010
The following table provides information regarding grants of
stock options to each of our named executive officers during the
year ended December 31, 2010:
Equity-Based
AwardsStock Option Grants
For the Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise or
base
|
|
|
Grant date
fair
|
|
|
|
|
|
Number of
shares
|
|
|
price of
option
|
|
|
value of
option
|
|
|
|
|
|
acquired on
exercise
|
|
|
awards
|
|
|
awards(1)
|
|
Name
|
|
Grant
date
|
|
(#)
|
|
|
($/share)
|
|
|
($)
|
|
|
|
|
Lesa J. Francis
|
|
12/21/2010
|
|
|
20,000
|
|
|
|
10.77
|
|
|
|
226,400
|
|
|
|
1/5/2010
|
|
|
60,000
|
|
|
|
6.00
|
|
|
|
178,800
|
|
Frederick L. Kohnke
|
|
12/21/2010
|
|
|
22,500
|
|
|
|
10.77
|
|
|
|
254,700
|
|
William E. Aglinsky
|
|
12/21/2010
|
|
|
17,500
|
|
|
|
10.77
|
|
|
|
198,100
|
|
|
|
1/5/2010
|
|
|
15,000
|
|
|
|
6.00
|
|
|
|
44,700
|
|
Kathryn S. Bernard
|
|
12/21/2010
|
|
|
5,000
|
|
|
|
10.77
|
|
|
|
56,600
|
|
Suzanne M. Perry
|
|
12/21/2010
|
|
|
5,000
|
|
|
|
10.77
|
|
|
|
56,600
|
|
|
|
|
(1) |
|
The amounts in this column represent the aggregate grant date
fair value of the option awards computed in accordance with FASB
Topic ASC 718. |
76
Executive
compensation
OUTSTANDING
EQUITY-BASED AWARDS AT FISCAL YEAR-END 2010
The following table presents certain information concerning
outstanding equity awards held by each of our named executive
officers at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
awards
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
securities
|
|
|
|
|
|
|
|
|
|
|
|
underlying
|
|
|
underlying
|
|
|
Option
|
|
|
|
|
|
|
|
|
unexercised
|
|
|
unexercised
|
|
|
exercise
|
|
|
|
|
|
|
|
|
options
|
|
|
options
|
|
|
price per
|
|
|
Option
|
|
|
|
|
|
(#)
|
|
|
(#)
|
|
|
share
|
|
|
expiration
|
Name
|
|
Grant
Date
|
|
|
exercisable
|
|
|
unexercisable
|
|
|
($)
|
|
|
date
|
|
|
Lesa J. Francis
|
|
|
12/21/2010
|
(1)
|
|
|
|
|
|
|
20,000
|
|
|
|
10.77
|
|
|
12/21/2020
|
|
|
|
1/5/2010
|
(1)
|
|
|
|
|
|
|
60,000
|
|
|
|
6.00
|
|
|
1/5/2020
|
|
|
|
7/29/2009
|
(1)
|
|
|
30,000
|
|
|
|
60,000
|
|
|
|
6.00
|
|
|
7/29/2019
|
|
|
|
1/21/2008
|
(2)
|
|
|
22,500
|
|
|
|
22,500
|
|
|
|
24.83
|
|
|
1/21/2018
|
|
|
|
10/2/2006
|
(4)
|
|
|
40,000
|
|
|
|
10,000
|
|
|
|
14.54
|
|
|
10/2/2016
|
Frederick L.
Kohnke(6)
|
|
|
12/21/2010
|
(3)
|
|
|
|
|
|
|
22,500
|
|
|
|
10.77
|
|
|
12/21/2020
|
|
|
|
7/29/2009
|
(3)
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
6.00
|
|
|
7/29/2019
|
|
|
|
1/21/2008
|
(1)
|
|
|
50,000
|
|
|
|
25,000
|
|
|
|
24.83
|
|
|
1/21/2018
|
|
|
|
8/2/2006
|
(1)
|
|
|
50,000
|
|
|
|
|
|
|
|
12.84
|
|
|
8/3/2016
|
William E. Aglinsky
|
|
|
12/21/2010
|
(1)
|
|
|
|
|
|
|
17,500
|
|
|
|
10.77
|
|
|
12/21/2020
|
|
|
|
1/5/2010
|
(1)
|
|
|
|
|
|
|
15,000
|
|
|
|
6.00
|
|
|
1/5/2020
|
|
|
|
7/29/2009
|
(1)
|
|
|
30,000
|
|
|
|
60,000
|
|
|
|
6.00
|
|
|
7/29/2019
|
|
|
|
1/21/2008
|
(2)
|
|
|
12,500
|
|
|
|
12,500
|
|
|
|
24.83
|
|
|
1/21/2018
|
|
|
|
8/3/2006
|
(4)
|
|
|
16,000
|
|
|
|
4,000
|
|
|
|
12.84
|
|
|
8/3/2016
|
|
|
|
10/1/2004
|
(4)
|
|
|
15,000
|
|
|
|
|
|
|
|
7.25
|
|
|
10/1/2014
|
|
|
|
10/13/2003
|
(5)
|
|
|
8,000
|
|
|
|
|
|
|
|
2.00
|
|
|
10/13/2013
|
Kathryn S. Bernard
|
|
|
12/21/2010
|
(1)
|
|
|
|
|
|
|
5,000
|
|
|
|
10.77
|
|
|
12/21/2020
|
|
|
|
7/29/2009
|
(1)
|
|
|
15,000
|
|
|
|
30,000
|
|
|
|
6.00
|
|
|
7/29/2019
|
|
|
|
1/21/2008
|
(2)
|
|
|
8,750
|
|
|
|
8,750
|
|
|
|
24.83
|
|
|
1/21/2018
|
|
|
|
8/3/2006
|
(4)
|
|
|
10,000
|
|
|
|
2,500
|
|
|
|
12.84
|
|
|
8/3/2016
|
|
|
|
10/1/2004
|
(5)
|
|
|
8,500
|
|
|
|
|
|
|
|
7.25
|
|
|
10/1/2014
|
Suzanne M. Perry
|
|
|
12/21/2010
|
(1)
|
|
|
|
|
|
|
5,000
|
|
|
|
10.77
|
|
|
12/21/2020
|
|
|
|
7/29/2009
|
(1)
|
|
|
10,000
|
|
|
|
20,000
|
|
|
|
6.00
|
|
|
7/29/2019
|
|
|
|
1/21/2008
|
(2)
|
|
|
6,250
|
|
|
|
6,250
|
|
|
|
24.83
|
|
|
1/21/2018
|
|
|
|
8/3/2006
|
(4)
|
|
|
10,000
|
|
|
|
2,500
|
|
|
|
12.84
|
|
|
8/3/2016
|
|
|
|
10/1/2004
|
(4)
|
|
|
15,000
|
|
|
|
|
|
|
|
7.25
|
|
|
10/1/2014
|
|
|
|
(1) |
|
These options vest at the rate of
331/3%
of the total option shares on each of the first 3 anniversaries
of the date of grant. |
|
(2) |
|
These options vest at the rate of 25% of the total option
shares on each of the first 4 anniversaries of the date of
grant. |
|
(3) |
|
These options vest at the rate of 50% of the total option
shares on the first anniversary date of the grant and 25% on
each of the second and third anniversary dates of the date of
grant. |
|
(4) |
|
These options vest at the rate of 20% of the total option
shares on each of the first 5 anniversaries of the date of
grant. |
|
(5) |
|
These options were part of a grant that vested at the rate of
20% of the total option shares on each of the first 5
anniversaries of the date of grant. |
77
Executive
compensation
|
|
|
(6) |
|
All options granted to Mr. Kohnke that were not vested
as of December 31, 2010 became vested on March 19,
2011 under the terms of the Consulting Agreement that we entered
into with him on that date. |
OPTION EXERCISES
AND STOCK VESTED IN FISCAL 2010
No named executive officer exercised stock options in 2010.
RETIREMENT PLANS
AND BENEFITS
Pension
Benefits
We do not provide a pension plan.
Executive Bonus
Plan
The following table sets forth information with respect to the
named executive officers accounts under our deferred
executive bonus plan.
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
|
|
|
|
contributions
|
|
|
Contributions
by
|
|
|
|
in last fiscal
|
|
|
us in last
fiscal
|
|
|
|
year
|
|
|
year(1)
|
|
Name
|
|
($)
|
|
|
($)
|
|
|
|
|
Lesa J. Francis
|
|
|
41,109
|
|
|
|
14,372
|
|
Frederick L. Kohnke
|
|
|
49,916
|
|
|
|
24,019
|
|
William E. Aglinsky
|
|
|
27,837
|
|
|
|
15,200
|
|
Kathryn S. Bernard
|
|
|
13,631
|
|
|
|
10,350
|
|
Suzanne M. Perry
|
|
|
16,873
|
|
|
|
8,565
|
|
|
|
|
(1) |
|
Contributions by us are also included in the All Other
Compensation column in the Summary Compensation Table. |
The executive bonus plan allows eligible employees to allocate a
portion of their base salary and bonus and to receive employer
contributions which cannot be provided under our 401(k) plan due
to limitations under the Internal Revenue Code. The executive
bonus plan provides that we make discretionary matching
contributions based upon our profitability, provided that such
matching contributions are determined without regard to any
employee contributions which are less than 2% or more than 4% of
the participants compensation.
401(k)
Plan
We maintain a tax-qualified retirement plan, our 401(k) plan,
that provides all regular employees with an opportunity to save
for retirement on a tax-advantaged basis. Under our 401(k) plan,
participants may elect to defer a portion of their compensation
on a pre-tax basis and have it contributed to the plan subject
to applicable annual Internal Revenue Code limits. Pre-tax
contributions are allocated to each participants
individual account and are then invested in selected investment
alternatives according to the participants directions.
Employee elective deferrals are 100% vested at all times. Our
401(k) plan allows for matching contributions to be made by us.
As a tax-qualified retirement plan, contributions to our 401(k)
plan and earnings on those contributions are not taxable to the
employees until distributed and all contributions are deductible
by us when made.
78
Executive
compensation
POTENTIAL
PAYMENTS UPON TERMINATION OF EMPLOYMENT
We entered into a severance agreement with each of our named
executive officers (other than our former CEO) that requires
specific payments to be provided to them in the event of
termination of employment under certain circumstances. Our
former CEO, who retired in March 2011, was also entitled to
certain payments and benefits in the event of termination of his
employment under certain circumstances (not including
retirement) in accordance with his employment agreement.
|
|
Ø
|
Severance agreement with Lesa J. FrancisIn the
event of the termination of her employment without cause or
within one year after a change of control either by the
executive for good reason or by us without cause,
Ms. Francis would be entitled to a continuation of her base
salary for a period of one year. Assuming the termination of her
employment for any such circumstance on December 31, 2010,
Ms. Francis would have been entitled to aggregate cash
severance payments of $350,000 over the course of the next
12 months.
|
|
Ø
|
Severance agreement with William E. AglinskyIn the
event of the termination of his employment without cause,
Mr. Aglinsky would be entitled to a continuation of his
base salary for a period of one year. Assuming the termination
of his employment without cause on December 31, 2010,
Mr. Aglinsky would have been entitled to aggregate cash
severance payments of $300,000 over the course of the next
12 months.
|
|
Ø
|
Severance agreements with each of Kathryn S. Bernard and
Suzanne M. PerryIn the event of the termination of
their employment without cause, each of Ms. Bernard and
Ms. Perry would be entitled to a continuation of her base
salary for a period of nine months. Assuming the termination of
her employment without cause on December 31, 2010, each of
Ms. Bernard and Ms. Perry would have been entitled to
aggregate cash severance payments of $161,250 and $131,250,
respectively, over the course of the next 9 months.
|
As set forth in the applicable severance agreements, the terms
cause, good reason and change of control have the following
meanings:
|
|
Ø |
cause means any of the following:
|
|
|
|
|
Ø
|
breach by the executive officer of such executive officers
severance agreement;
|
|
|
Ø
|
failure by the executive officer to adhere to any written policy
of the company or its subsidiaries or affiliates in any material
respect;
|
|
|
Ø
|
failure by the executive officer to effectively perform the
duties assigned to such executive officer in any material
respect;
|
|
|
Ø
|
appropriation (or attempted appropriation) by the executive
officer of a material business opportunity of the company or its
subsidiaries or affiliates, including attempting to secure or
securing any personal profit in connection with any transaction
entered into on behalf of the company or its subsidiaries or
affiliates;
|
|
|
Ø
|
misappropriation (or attempted misappropriation) by the
executive officer of any funds or property of the company or its
subsidiaries or affiliates or the commission by the executive
officer of any act of fraud against the company or its
subsidiaries or affiliates;
|
|
|
Ø
|
the executive officers conviction of, indictment for (or
its procedural equivalent), or entering of a guilty plea or plea
of no contest with respect to, a felony, the equivalent thereof
or any other crime involving moral turpitude; or
|
|
|
Ø
|
violation by the executive officer of the terms of the
confidentiality agreement to which such executive officer is a
party or the unauthorized use by the executive officer of trade
secrets or confidential information of the company or its
subsidiaries or affiliates.
|
|
|
Ø |
change in control means the occurrence of a
Change in the Ownership of the Corporation, a
Change in the Effective Control of the Corporation
or a Change in the Ownership of a
|
79
Executive
compensation
|
|
|
Substantial Portion of the Corporations Assets, as
such terms are defined in
Section 1.409A-3(i)(5)(v)-(vii)
of the Treasury Regulations.
|
|
|
Ø |
good reason means a material diminution in the
executive officers base compensation or a material change
in the geographic location at which the executive officer must
perform services for the company, provided, however, that the
company has received written notice of the existence of such
good reason from the executive officer within 90 days of
the initial existence of the good reason condition and the
company has failed to cure such condition within thirty
(30) days of receiving such notice.
|
EQUITY-BASED
INCENTIVE PLANS
1999 Stock Option
Plan
Our board of directors adopted our 1999 Stock Option Plan, or
the 1999 Plan, in August 1999, which became effective upon
approval by our stockholders. The 1999 Option Plan was amended
in September 2000. By its terms, the 1999 Plan terminated in
June 2009. However, the 2009 Plan will continue to govern the
terms and conditions of the outstanding awards previously
granted thereunder. The purpose of the 1999 Plan was to enable
us to attract and retain the best available talent and to
encourage the highest level of performance. The 1999 Plan is
administered by the compensation committee under the supervision
of our board of directors.
|
|
Ø
|
Stock subject to the 1999 PlanThe maximum aggregate
number of shares that could be issued under the 1999 Plan was
2,000,000 shares of our Class C common stock. As of
December 31, 2010, 250,483 shares of our Class C
common stock had been issued and options to purchase an
additional 567,068 shares of our Class C common stock
were outstanding.
|
|
Ø
|
Stock optionsThe compensation committee granted
incentive
and/or
non-statutory stock options under our 1999 Plan. The exercise
price of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as
amended, or Code, equal at least 100% of the fair market value
of our Class C common stock on the date of grant (except
for greater than 10% owners, as provided below). Incentive stock
options granted under the 1999 Plan must be exercised within ten
years from the date of grant, and the period for exercising any
non-statutory stock options was set by our compensation
committee; provided, however, that an incentive stock option
held by a participant who owns more than 10% of the total
combined voting power of all classes of our stock or of the
stock of our parents or subsidiaries, may not have a term in
excess of five years and must have an exercise price of at least
110% of the fair market value of our Class C common stock
on the grant date. The option price is payable only in cash.
Subject to the provisions of our 1999 Plan, the compensation
committee determined the remaining terms of the options (e.g.,
vesting and the period of time following a participants
termination of service during which the participant may exercise
his or her option, provided that in no event may an option be
exercised later than the expiration of its term).
|
|
Ø
|
Certain adjustmentsIf any change is made in our
common stock subject to the 1999 Plan, or subject to any award
thereunder, without the receipt of consideration by us, such as
through a merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate
structure, or other transaction not involving the receipt of
consideration by us, appropriate adjustments will be made in the
number and class of shares that may be delivered under the 1999
Plan and/or
the number, class, and price of shares covered by each
outstanding award and the numerical share limits contained in
the 1999 Plan.
|
|
Ø
|
Plan terminationBy its terms, the 1999 Plan
terminated in June 2009; provided, however, that the 1999 Plan
will continue to govern the terms and conditions of awards
originally granted under the 1999 Plan.
|
80
Executive
compensation
2009 Stock Option
Plan
Our board of directors adopted our 2009 Stock Option Plan, or
the 2009 Plan, in July 2009, which became effective upon
approval by our stockholders. The purpose of the 2009 Plan is to
enable us to attract and retain personnel upon whose judgment,
initiative and efforts the successful conduct of our business
depends. The 2009 Plan provides for the grant of either
incentive or non-statutory stock options to our employees and to
employees of any of our subsidiaries and of non-statutory stock
options to members of our board of directors and of the board of
directors of any of our subsidiaries. The 2009 Plan will
terminate in connection with, and contingent upon, the
effectiveness of this offering; provided that the 2009 Plan will
continue to govern the terms and conditions of awards originally
granted under the 2009 Plan. The 2009 Plan is administered by
the compensation committee under the supervision of our board of
directors.
|
|
Ø
|
Stock subject to the 2009 PlanThe maximum aggregate
number of shares that may be issued under the 2009 Plan is
1,000,000 shares of our Class C common stock. As of
December 31, 2010, options to purchase 888,500 shares
of our Class C common stock had been granted (all of which
remained unexercised) and 111,500 options were available for
future grant under the 2009 Plan. If a stock option expires or
otherwise terminates without having been exercised in full, the
unpurchased shares subject to such awards would become available
for future grant or sale under the 2009 Plan, unless the plan
has terminated.
|
|
Ø
|
Stock optionsThe compensation committee may grant
incentive
and/or
non-statutory stock options under our 2009 Plan; provided that
incentive stock options are only granted to employees. The
exercise price of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as
amended, or Code, must equal at least 100% of the fair market
value of our Class C common stock on the date of grant
(except for greater than 10% owners, as provided below).
Incentive stock options granted under the 2009 Plan must be
exercised within ten years from the date of grant, and the
period for exercising any non-statutory stock options is set by
our compensation committee; provided, however, that an incentive
stock option held by a participant who owns more than 10% of the
total combined voting power of all classes of our stock or of
the stock of our parents or subsidiaries, may not have a term in
excess of five years and must have an exercise price of at least
110% of the fair market value of our Class C common stock
on the grant date. The option price is payable in cash unless
the compensation committee permits the option holder to satisfy
the exercise price by delivering our common shares held by such
option holder. Subject to the provisions of our 2009 Plan, the
compensation committee determines the remaining terms of the
options (e.g., vesting and the period of time following a
participants termination of service during which the
participant may exercise his or her option, provided that in no
event may an option be exercised later than the expiration of
its term).
|
|
Ø
|
Certain adjustmentsIf any change is made in our
common stock subject to the 2009 Plan, or subject to any award
thereunder, without the receipt of consideration by us, such as
through a merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate
structure, or other transaction not involving the receipt of
consideration by us, appropriate adjustments will be made in the
number and class of shares that may be delivered under the 2009
Plan and/or
the number, class, and price of shares covered by each
outstanding award and the numerical share limits contained in
the 2009 Plan.
|
|
Ø
|
Plan termination and amendmentOur board of
directors or the compensation committee may at any time amend,
suspend, or terminate the 2009 Plan, provided such action does
not impair the existing rights of any participant. The 2009 Plan
will terminate in connection with, and contingent upon, the
effectiveness of this offering; provided that the 2009 Plan will
continue to govern the terms and conditions of awards originally
granted under the 2009 Plan.
|
81
Executive
compensation
2011
Omnibus Plan
Prior to the completion of this offering, our board of directors
intends to adopt and recommend to our stockholders an incentive
plan to be named the Staffmark Holdings, Inc. 2011 Omnibus Plan,
or the 2011 Omnibus Plan. Following this offering, all
equity-based awards will be granted under the 2011 Omnibus Plan.
As of the date of this prospectus, no awards have been made
under the 2011 Omnibus Plan. The following summary describes
what we anticipate to be the material terms of the 2011 Omnibus
Plan.
|
|
Ø |
PurposesThe purposes of the 2011 Omnibus Plan will
be to promote our interests and the interests of our
stockholders by (i) attracting and retaining employees and
directors of, and consultants to, the company;
(ii) motivating such individuals by means of
performance-related incentives to achieve longer-range
performance goals; and (iii) enabling such individuals to
participate in the long-term growth and financial success of the
company.
|
|
|
Ø |
Types of Awards; Authorized SharesThe 2011 Omnibus
Plan will authorize the grant of nonqualified stock options,
incentive stock options, stock appreciation rights, or SARs,
restricted stock, restricted stock units, or RSUs, performance
awards, other stock-based awards and performance compensation
awards to any of our employees or consultants or any of our
affiliates (including any prospective employee), or nonemployee
director who is a member of our board of directors or the board
of directors of any of our affiliates. The number of shares of
common stock issuable pursuant to all awards granted under the
2011 Omnibus Plan will be . The number of shares
issued or reserved pursuant to the 2011 Omnibus Plan will be
subject to adjustment as a result of mergers, consolidations,
reorganizations, stock splits, stock dividends and other changes
in our common stock. Shares subject to awards that expire or are
forfeited or cancelled or settled in cash will not count as
shares issued under the 2011 Omnibus Plan. However, (i) if
shares are tendered or otherwise used in payment of the exercise
price of any option, the total number of shares covered by the
option being exercised shall count as shares issued under the
2011 Omnibus Plan; (ii) shares withheld by us to satisfy a
tax withholding obligation shall count as shares issued under
the 2011 Omnibus Plan; and (iii) the number of shares
covered by a SAR, to the extent it is exercised and settled in
shares, and whether or not shares are actually issued to the
participant upon exercise of the SAR, shall be considered issued
or transferred pursuant to the 2011 Omnibus Plan. If, under the
2011 Omnibus Plan a participant has elected to give up the right
to receive compensation in exchange for shares based on fair
market value, shares will not count as shares issued under the
2011 Omnibus Plan.
|
|
|
Ø
|
AdministrationThe 2011 Omnibus Plan will be
administered by the compensation committee of our board of
directors. The compensation committee will have the full power
and authority to determine the individuals to whom awards may be
granted under the 2011 Omnibus Plan, the type or types of awards
to be granted to a participant, and the other terms and
conditions applicable to awards. The compensation committee will
also be authorized to interpret the 2011 Omnibus Plan, to
establish, amend and rescind any rules and regulations relating
to the 2011 Omnibus Plan and to make any other determinations
that it deems necessary or desirable for the administration of
the 2011 Omnibus Plan. All designations, determinations,
interpretations, and other decisions under or with respect to
the 2011 Omnibus Plan or any award will be within the sole
discretion of the compensation committee and will be final,
conclusive and binding upon all persons, including us, any
affiliate, any participant, any holder or beneficiary of any
award, and any stockholder.
|
|
Ø
|
OptionsThe compensation committee will determine
the participants to whom options will be granted, the number of
shares to be covered by each option, the exercise price thereof
and the conditions and limitations applicable to the exercise of
the option. The 2011 Omnibus Plan will provide that incentive
stock options may be granted only to employees and will be
subject to certain other restrictions. To the extent an option
intended to be an incentive stock option does not so qualify, it
will be treated as a nonqualified option. The 2011 Omnibus Plan
will further provide that
|
82
Executive
compensation
|
|
|
each option will be exercisable at such times and subject to
such terms and conditions as the compensation committee
determines and that payment of the exercise price may be in
cash, shares or a combination thereof, as determined by the
compensation committee, including an irrevocable commitment by a
broker to pay over such amount from a sale of the shares
issuable under an option.
|
|
|
Ø
|
Stock Appreciation RightsThe compensation committee
will determine the participants to whom SARS will be granted,
the number of shares to be covered by each SAR, the grant price
and the conditions and limitations applicable to the exercise
thereof. Generally, each SAR will entitle a participant upon
exercise to an amount equal to the excess of the fair market
value of a share on the date of exercise of the SAR over the
grant price. The compensation committee will determine whether a
SAR will be settled in cash, shares or a combination of cash and
shares.
|
|
Ø
|
Restricted Stock and Restricted Stock UnitsThe
compensation committee may award shares of restricted stock and
RSUs. Restricted stock awards will consist of shares of stock
that are transferred to the participant subject to restrictions
that may result in forfeiture if specified conditions are not
satisfied. RSUs will result in the transfer of shares of cash or
stock to the participant only after specified conditions are
satisfied. The compensation committee will determine the
participants to whom shares of restricted stock
and/or the
number of restricted stock units to be granted to each
participant, the duration of the period during which, and the
conditions, if any, under which the restricted stock and
restricted stock units may be forfeited to us.
|
|
Ø
|
Performance AwardsThe compensation committee may
award performance awards that consist of a right which is
(i) denominated in cash or shares, (ii) valued, as
determined by the compensation committee, in accordance with the
achievement of such performance goals during performance periods
established by the compensation committee, and (iii) payable at
such time and in such form as determined by the compensation
committee. Performance awards will be payable in a lump sum or
in installments following the close of the applicable
performance periods.
|
|
Ø
|
Other Stock-Based AwardsThe compensation committee
may grant participants other stock-based awards which will
consist of any right which is (i) not an award described
above and (ii) an award of shares or an award denominated
or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, shares. The compensation
committee will determine the terms and conditions of any such
other stock-based award, including the price, if any, at which
securities may be purchased pursuant to any other stock-based
award granted under the 2011 Omnibus Plan.
|
|
Ø
|
Performance CriteriaThe compensation committee will
have the authority to determine the performance criteria used to
establish performance goals. The performance goals may vary from
participant to participant, group to group, and period to period.
|
|
Ø
|
TransferabilityAwards granted under the 2011
Omnibus Plan will not be transferable other than by will or by
the laws of descent and distribution.
|
|
Ø
|
Effectiveness of the 2011 Omnibus Plan; Amendment and
TerminationThe 2011 Omnibus Plan will become effective
when it is approved by our stockholders. The 2011 Omnibus Plan
will remain available for the grant of awards until the tenth
anniversary of the effective date. The board of directors may
amend, alter or discontinue the 2011 Omnibus Plan in any respect
at any time, but no amendment may diminish any of the rights of
a participant under any awards previously granted, without his
or her consent. In addition, stockholder approval will be
required for any amendment that (i) would materially
increase the benefits accruing to the participants under the
plan, (ii) would materially increase the number of
securities which may be issued under the plan, (iii) would
materially modify the requirements for participation in the
plan, or (iv) must otherwise be approved by our
stockholders in order to comply with applicable law or the rules
of a national securities exchange upon which the shares are
traded.
|
83
In addition to the director and executive officer compensation
arrangements discussed above under Executive
compensation, the following is a summary of material
provisions of transactions since January 1, 2008, that we
have been a party to and in which the amount involved exceeded
or will exceed $120,000 and in which any of our directors,
executive officers, beneficial holders of more than 5% of our
capital stock, or entities affiliated with them, had or will
have a direct or indirect material interest.
MANAGEMENT
SERVICES AGREEMENTS
Pursuant to the management services agreement between us and
CGM, as successor in interest to Kilgore Consulting II LLC,
dated October 13, 2000, as amended, or the CGM Management
Services Agreement, CGM agreed to perform executive, financial
and managerial oversight services for us. In connection with our
acquisition of Staffmark Investment LLC, we entered into a
management services agreement with Staffing Holding dated
January 21, 2008, or the Staffing Holding Management
Services Agreement, pursuant to which Staffing Holding agreed to
perform executive, financial, and managerial oversight services
for us. Each of CGM and Staffing Holding receives a management
fee paid quarterly in arrears equal to 0.10635% and 0.04365%,
respectively, of our annual revenues (as defined in the
management services agreements) plus reimbursement of reasonable
expenses incurred in connection with the provision of services
to us. The CGM Management Services Agreement renews annually and
will continue until it is terminated in accordance with its
terms (including by mutual agreement). The Staffing Holding
Management Services Agreement will continue until an event of
default, as defined in the Staffing Holding Management Services
Agreement, occurs or it is otherwise terminated in accordance
with its terms (including by mutual agreement). In connection
with this offering, we, CGM, and Staffing Holding will enter
into Management Services Termination Agreements, pursuant to
which the parties will terminate their respective management
services agreement and we will agree to pay accrued but unpaid
management fees, as described below. Mr. Sabo owns a
portion of, but does not control, CGM. As of May 16, 2011,
Staffing Holding owns approximately 21.8% of our outstanding
common stock. CGM is the manager of CODI.
We have accrued management fees to each of CGM and Staffing
Holding since January 2009. Pursuant to the terms of the
amendment to our Existing Credit Facility, such management fees
are accrued, but not paid, until we achieve certain defined
ratios pursuant to the terms of our Existing Credit Facility. We
did not achieve any of the required levels for any quarter
during 2009 or 2010. We accrued $0.3 million and $0.1 million in
management fees for CGM and Staffing Holding, respectively, for
the three months ended March 31, 2011, $0.3 million
and $0.1 million for the year ended December 31, 2010,
and $0.7 million and $0.3 million for the year ended
December 31, 2009, which accrued management fees will be
paid in full at the completion of this offering with our net
proceeds from this offering. We paid $1.2 million and
$0.5 million in management fees for the year ended
December 31, 2008 to CGM and Staffing Holding, respectively.
COMPASS GROUP
DIVERSIFIED HOLDINGS LLC CREDIT FACILITY
At March 31, 2011, our outstanding borrowings from CODI
were $52.7 million. For a description of the Existing
Credit Facility, see Managements discussion and
analysis of financial condition and results of
operationLiquidity and capital resourcesTransactions
affecting liquidity and capital resources and Note 2
to our consolidated financial statements for the three months
ended March 31, 2011 and 2010 appearing elsewhere in this
prospectus.
84
Certain
relationships and related party transactions
In addition, effective March 31, 2009, the Existing Credit
Facility was amended to include a requirement of CODI and
Staffing Holding to invest in our equity capital on the
occurrence of certain events. As a result of such amendment,
during the year ended December 31, 2009, CODI invested an
aggregate of approximately $34 million and received
5,671,168 shares of our Class D common stock, and
Staffing Holding invested an aggregate of approximately
$5.5 million and received 915,536 shares of our
Class D common stock. All investments by CODI pursuant to
such amendment were satisfied through an entry on the books of
CODI pursuant to which that amount of outstanding loans by CODI
to us was converted to equity.
STOCKHOLDERS
AGREEMENTS
We have entered into a stockholders agreement dated
February 2008 with our non-management stockholders. This
agreement contains provisions concerning the composition of our
board of directors and includes registration rights, among other
provisions.
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Board compositionStaffing Holding has the right to
designate two members to our board of directors, which right
will expire upon the consummation of this offering.
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Piggyback registrationAt any time after the
completion of this offering, if we register any shares of common
stock for public sale for our own account in excess of
$30,000,000, Staffing Holding and Madison Capital Funding
Co-Investment Fund LP will have the right to include their
shares in the registration statement. The underwriters of any
underwritten offering will have the right to limit the number of
shares to be included in the registration statement.
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We expect that the stockholders agreement will be
terminated prior to the completion of this offering and each of
CODI, Staffing Holding, and Madison Capital Funding
Co-Investment Fund LP will have registration rights as described
below under Registration rights.
In addition, we enter into a separate stockholders
agreement with each holder of our stock options, including our
executive officers and certain directors, at such time, if any,
as such holder first exercises options. These stockholder
agreements restrict the ability of the exercising holder to
transfer the option shares. We expect that each such
stockholders agreement will be terminated prior to the
completion of this offering.
REGISTRATION
RIGHTS
Upon completion of this offering, CODI, Staffing Holding, and
Madison Capital Funding Co-Investment Fund LP, representing
an aggregate
of shares
of our common stock, will be entitled to rights with respect to
the registration of such shares under the Securities Act. For a
further description of the rights, see Description of
capital stockRegistration rights.
CONSULTING
AGREEMENT
In March 2011, we entered into a Consulting Agreement with our
former CEO, Mr. Kohnke. Mr. Kohnke continues to serve
on our board of directors. Pursuant to this agreement,
Mr. Kohnke will provide certain executive management
services for the one-year period commencing April 1, 2011.
In return for these services, we have agreed to pay management
fees to Mr. Kohnke aggregating $1,091,797 and payable in
four approximately equal installments in each of April 2011,
July 2011, October 2011 and December 2011. In addition, pursuant
to this agreement, we agreed to continue certain of
Mr. Kohnkes health and welfare benefits until
age 65, and to vest all his unvested stock options.
85
Certain
relationships and related party transactions
CERTAIN CLIENT
RELATIONSHIPS
During the years ended December 31, 2010, 2009, and 2008,
we provided temporary staffing services to Fox Factory, Inc., or
Fox, and Tridien Medical, Inc., or Tridien, each of which is
controlled by CODI. Sales to Fox were approximately
$5.9 million, $3.0 million, and $334,000 for the years
ended December 31, 2010, 2009, and 2008, respectively.
Accounts receivable from Fox at December 31, 2010 and 2009
were approximately $572,000 and $491,000, respectively. Sales to
Tridien were approximately $3.5 million for the year ended
December 31, 2010. Accounts receivable from Tridien were
approximately $352,000 at December 31, 2010.
ACQUISITION OF
STAFFMARK INVESTMENT LLC
On January 21, 2008, we entered into a Purchase Agreement
with Staffmark Holding, Staffmark Merger LLC, Staffmark
Investment, SF Holding Corp., and Stephens-SM LLC to purchase
all of the issued and outstanding capital stock of Staffmark
Investment, or the Staffmark Investment Acquisition. As a result
of the acquisition, Staffmark Investment became our wholly-owned
subsidiary. The purchase price for the Staffmark Investment
Acquisition consisted of the repayment of approximately
$76.9 million of Staffmark Investment debt and
approximately $47.9 million of our common stock. In
addition, an entity affiliated with Staffing Holding agreed to
post, or cause to be posted, letters of credit aggregating
$6 million, which obligation terminates upon the occurrence
of certain events, including completion of this offering.
Staffmark Investments stockholders retained approximately
29% of the equity, on a fully diluted basis, in us following the
Staffmark Acquisition. The parties made customary
representations, warranties, and covenants in the Staffmark
Investment Purchase Agreement. We also paid an aggregate of
approximately $5.2 million in acquisition related costs,
which included approximately $1.2 million in fees to
Compass Group Management LLC.
POLICIES AND
PROCEDURES FOR RELATED PARTY TRANSACTIONS
Our board of directors will adopt a written related person
transaction policy to be effective upon completion of this
offering to set forth the policies and procedures for the review
and approval or ratification of related person transactions.
This policy will cover, with certain exceptions set forth in
Item 404 of
Regulation S-K
under the Securities Act, any transaction, arrangement, or
relationship, or any series of similar transactions,
arrangements, or relationships in which we were or are to be a
participant, the amount involved exceeds $120,000, and a related
person had or will have a direct or indirect material interest,
including, without limitation, purchases of goods or services by
or from the related person or entities in which the related
person has a material interest, indebtedness, guarantees of
indebtedness, and employment by us of a related person. As
provided by our audit committee charter to be effective upon
completion of this offering, our audit committee is responsible
for reviewing and approving in advance any related party
transaction. Prior to the creation of our audit committee, our
full board of directors will review related party transactions.
DIRECTOR
INDEPENDENCE
For a discussion of the independence of our directors, please
see ManagementDirector independence above.
86
The following table sets forth certain information with respect
to the beneficial ownership of our common stock as of
May 27, 2011 by:
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each person, or group of affiliated persons, known to us to be
the beneficial owner of more than 5% of our common stock;
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each named executive officer;
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each of our directors;
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all of our executive officers and directors as a group; and
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each selling stockholder.
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We have determined beneficial ownership in accordance with the
rules of the SEC. Except as indicated by the footnotes below, we
believe, based on the information furnished to us, that the
persons and entities named in the table below have sole voting
and investment power with respect to all shares of common stock
that they beneficially own, subject to applicable community
property laws.
Applicable percentage ownership is based on
13,024,773 shares of common stock outstanding at
May 27, 2011. For purposes of the table below, we have
assumed
that shares
of common stock will be outstanding upon completion of this
offering. In computing the number of shares of common stock
beneficially owned by a person and the percentage ownership of
that person, we deemed to be outstanding all shares of common
stock subject to options or other convertible securities held by
that person or entity that are currently exercisable or
exercisable within 60 days of May 27, 2011. We,
however, did not deem these shares outstanding for the purpose
of computing the percentage ownership of any other person.
Beneficial ownership representing less than 1% is denoted below
with an asterisk (*).
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Shares
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Shares
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beneficially
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beneficially
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owned before
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Shares
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owned after
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the
offering
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being
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the
offering
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Beneficial owner
name(1)
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Number
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%
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offered
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Number
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%
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Greater than 5% Stockholders:
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Compass Group Diversified Holdings
LLC(2)
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9,920,340
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76.2
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%
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Staffing Holding
LLC(3)
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2,844,625
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21.8
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%
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Executive Officers and Directors:
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Lesa J.
Francis(4)
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123,750
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*
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Frederick L.
Kohnke(5)
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522,500
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3.9
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%
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William E.
Aglinsky(6)
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112,750
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*
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Kathryn S.
Bernard(7)
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63,625
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*
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Suzanne M.
Perry(8)
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49,125
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*
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D. Eugene Ewing
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Robert
Janes(9)
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John LaBarca
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Stephen
Russell(10)
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25,000
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*
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Elias J. Sabo
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All current executive officers and directors as a group
(10 persons)
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896,750
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6.5
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%
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Other selling stockholders:
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Madison Capital Funding Co-Investment
Fund LP(11)
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26,325
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*
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(1) |
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Except as otherwise indicated, addresses are
c/o Staffmark
Holdings, Inc., 435 Elm Street, Suite 300, Cincinnati, Ohio
45202. |
87
Principal and
selling stockholders
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(2) |
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Includes 2,573,268 shares of Class A common stock,
1,675,904 shares of Class B common stock, and
5,671,168 shares of Class D common stock |
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(3) |
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Includes 1,168,243 shares of Class A common stock,
760,846 shares of Class B common stock, and
915,536 shares of Class D common stock. SF Holding
Corp., as the sole manager of Staffing Holding, and Warren A.
Stephens and W.R. Stephens, Jr., as the two co-chairmen of SF
Holding Corp., may be deemed to beneficially own the shares held
by Staffing Holding. The address for SF Holding Corp. and Warren
A. Stephens is 111 Center Street, Little Rock, Arkansas 72201.
The address for W.R. Stephens, Jr. is The Stephens Group, LLC,
100 Morgan Keegan Drive, Suite 500, Little Rock, Arkansas
72202. Each of SF Holding Corp., Warren A. Stephens and W.R.
Stephens, Jr. disclaims beneficial ownership of the shares held
by Staffing Holding except to the extent of their pecuniary
interest therein. |
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(4) |
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Includes 123,750 shares of Class C common stock
issuable upon exercise of options exercisable within
60 days of May 27, 2011. |
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(5) |
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Includes 125,000 shares of Class C common stock and
397,500 shares of Class C common stock issuable upon
exercise of options exercisable within 60 days of
May 27, 2011. |
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(6) |
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Includes 28,000 shares of Class C common stock and
84,750 shares of Class C common stock issuable upon
exercise of options exercisable within 60 days of
May 27, 2011. |
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(7) |
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Includes 17,000 shares of Class C common stock and
46,625 shares of Class C common stock issuable upon
exercise of options exercisable within 60 days of
May 27, 2011. |
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(8) |
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Includes 4,750 shares of Class C common stock and
44,375 shares of Class C common stock issuable upon
exercise of options exercisable within 60 days of
May 27, 2011. |
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(9) |
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Mr. Janes may be deemed to indirectly own shares of
common stock through his equity ownership in Staffing Holding
LLC, to the extent of his pecuniary interest therein.
Mr. Janes is a non-managing member of Staffing Holding LLC
and has no voting or investment power with respect to such
shares. Mr. Janes disclaims beneficial ownership in any
shares held by Staffing Holding LLC except to the extent of his
pecuniary interest therein. |
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(10) |
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Includes 8,333 shares of Class C common stock and
16,667 shares of Class C common stock issuable upon
exercise of options exercisable within 60 days of
May 27, 2011. |
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(11) |
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Includes 25,000 shares of Class C common stock and
1,325 shares of Class D common stock. Madison Capital
Funding Co-Investment Fund LP is managed by their general
partner, MCF Co-Investment, LP. MCF Co-Investment, LP is
controlled by MCF Co-Investment GP, LLC, an entity wholly owned
by Madison Capital Funding LLC. |
88
GENERAL
Upon completion of this offering, we will have authorized under
our amended and restated certificate of
incorporation shares
of common stock, $0.001 par value per share. The following
information assumes the filing of our amended and restated
certificate of incorporation and the reclassification of our
Class A, Class B, Class C and Class D common
stock into shares of common stock. See
Reclassification for conversion ratio adjustments
that may be applicable upon future events, such as the
completion of this offering. As
of ,
2011, there were outstanding:
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shares
of our common stock held by
approximately stockholders; and
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shares
of our common stock issuable upon exercise of outstanding stock
options.
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COMMON
STOCK
Each holder of common stock is entitled to one vote for each
share on all matters to be voted upon by the stockholders and
there are no cumulative voting rights. Subject to preferences to
which holders of preferred stock may be entitled, holders of
common stock are entitled to receive ratably those dividends, if
any, that may be declared from time to time by our board of
directors out of funds legally available for the payment of
dividends. See Dividend policy for additional
information. In the event of a liquidation, dissolution or
winding up of us, holders of our common stock would be entitled
to share in our assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference
granted to holders of any outstanding shares of preferred stock.
Holders of our common stock have no preemptive or conversion
rights or other subscription rights and there are no redemption
or sinking fund provisions applicable to our common stock. The
rights, preferences and privileges of the holders of common
stock are subject to, and may be adversely affected by, the
rights of holders of shares of any series of preferred stock
that we may designate in the future.
PREFERRED
STOCK
After the closing of this offering, no shares of preferred stock
will be outstanding. Pursuant to our amended and restated
certificate of incorporation, our board of directors will have
the authority, without further action by our stockholders, to
issue from time to time up to 100,000,000 shares of
preferred stock in one or more series. Our board of directors
may designate the rights, preferences, privileges and
restrictions of the preferred stock, including dividend rights,
conversion rights, voting rights, terms of redemption,
liquidation preference, sinking fund terms and the number of
shares constituting any series or the designation of any series.
The issuance of preferred stock could have the effect of
restricting dividends on our common stock, diluting the voting
power of our common stock, impairing the liquidation rights of
our common stock or delaying, deterring or preventing a change
in control. Such issuance could have the effect of decreasing
the market price of the common stock. The issuance of preferred
stock or even the ability to issue preferred stock could also
have the effect of delaying, deterring or preventing a change in
control. We currently have no plans to issue any shares of
preferred stock.
REGISTRATION
RIGHTS
Prior to the completion of this offering, we will enter into a
registration rights agreement with CODI, Staffing Holding, and
Madison Capital Co-Investment Fund LP with respect
to shares of our common
stock, which will provide such parties the right in specified
circumstances to require us to register their shares under the
Securities Act for resale to the public. These shares are
referred to as
89
Description of
capital stock
restricted shares. Set forth below is a summary of the
registration rights pursuant to the registration rights
agreement.
Form S-3
registration
We will be required to use commercially reasonable efforts to
effect a registration of the restricted shares on
Form S-3
promptly following the first anniversary of the date of the
registration rights agreement. If the holders of a majority of
the restricted shares request, we will be required to cooperate
in an underwritten offering for such shares, provided that such
underwritten offering is for at least an amount of our shares
equal to 1% of our shares issued and outstanding immediately
after the consummation of this offering. If our board of
directors believes in good faith that it would be materially
detrimental to us and our stockholders to proceed with a
Form S-3
registration at such time, we may defer the filing of the
Form S-3
registration for up to thirty days. In addition, we are not
required to make any registration on
Form S-3
to the extent a registration statement covering the resale of
all restricted securities has previously been filed and become
effective.
Piggyback
registration
Subject to certain limitations, holders of registration rights
pursuant to the registration rights agreement will have
unlimited rights to request that their restricted shares be
included in any registration of our common stock that we
initiate.
Transferability
The registration rights will be generally transferable to any
permitted transferee, which generally includes affiliates of the
holders of registration rights.
Expenses
Generally, we will be required to bear all registration and
selling expenses incurred in connection with the registration of
restricted shares described above, other than underwriting
discounts and commissions. We will also be required to bear the
reasonable fees and expenses, not to exceed $20,000, of one
counsel for the selling stockholders in each registration.
ANTI-TAKEOVER
PROVISIONS
Certificate of
incorporation and bylaws to be in effect upon the completion of
this offering
Our amended and restated certificate of incorporation and our
amended and restated bylaws, which will be in effect upon the
closing of this offering, contain certain provisions that could
have the effect of delaying, deterring or preventing another
party from acquiring control of us. These provisions and certain
provisions of Delaware law, which are summarized below, are
expected to discourage coercive takeover practices and
inadequate takeover bids. These provisions are also designed, in
part, to encourage persons seeking to acquire control of us to
negotiate first with our board of directors. We believe that the
benefits of increased protection of our potential ability to
negotiate more favorable terms with an unfriendly or unsolicited
acquirer outweigh the disadvantages of discouraging a proposal
to acquire us.
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Undesignated preferred stockAs discussed above, our
board of directors has the ability to issue preferred stock with
voting or other rights or preferences that could impede the
success of any attempt to change control of us. These and other
provisions may have the effect of deterring hostile takeovers or
delaying changes in control or management of our company.
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Limits on ability of stockholders to act by written consent
or call a special meetingOur amended and restated
certificate of incorporation provides that our stockholders may
not act by written
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90
Description of
capital stock
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consent, which may lengthen the amount of time required to take
stockholder actions. As a result, a holder controlling a
majority of our capital stock would not be able to amend our
bylaws without holding a meeting of our stockholders called in
accordance with our bylaws.
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In addition, our amended and restated bylaws provide that
special meetings of the stockholders may be called only by the
chairperson of the board, the chief executive officer or our
board of directors. Stockholders may not call a special meeting,
which may delay the ability of our stockholders to force
consideration of a proposal or for holders controlling a
majority of our capital stock to take any action.
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Requirements for advance notification of stockholder
nominations and proposalsOur amended and restated
bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for
election as directors, other than nominations made by or at the
direction of our board of directors or a committee of our board
of directors. These provisions may have the effect of precluding
the conduct of certain business at a meeting if the proper
procedures are not followed. These provisions may also
discourage or deter a potential acquirer from conducting a
solicitation of proxies to elect the acquirers own slate
of directors or otherwise attempting to obtain control of our
company.
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Board classificationOur board of directors is
divided into three classes, one class of which is elected each
year by our stockholders. The directors in each class will serve
for a three-year term. For more information on the classified
board, see ManagementBoard of directors. A
third party may be discouraged from making a tender offer or
otherwise attempting to obtain control of us as it is it more
difficult and time-consuming for stockholders to replace a
majority of the directors on a classified board.
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No cumulative votingOur amended and restated
certificate of incorporation and amended and restated bylaws do
not permit cumulative voting in the election of directors.
Cumulative voting allows a stockholder to vote a portion or all
of its shares for one or more candidates for seats on the board
of directors. Without cumulative voting, a minority stockholder
may not be able to gain as many seats on our board of directors
as the stockholder would be able to gain if cumulative voting
were permitted. The absence of cumulative voting makes it more
difficult for a minority stockholder to gain a seat on our board
of directors to influence our boards decision regarding a
takeover.
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Amendment of charter provisionsThe amendment of the
above provisions of our amended and restated certificate of
incorporation requires approval by holders of at least
two-thirds of our outstanding capital stock entitled to vote
generally in the election of directors.
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Limitations of liability and indemnification
mattersSection 102(b)(7) of the Delaware General
Corporate Law (DGCL) provides that a corporation may
eliminate or limit the personal liability of a director to the
corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director:
(i) for any breach of the directors duty of loyalty
to the corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) under
Section 174 of the DGCL (regarding, among other things, the
unlawful payment of dividends); or (iv) for any transaction
from which the director derived an improper personal benefit.
Our amended and restated certificate of incorporation includes a
provision that eliminates the personal liability of directors
for monetary damages for breach of fiduciary duty as a director
to the fullest extent permitted by Delaware law.
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In addition, our amended and restated bylaws also provide that
we shall indemnify our directors and officers to the fullest
extent permitted by Delaware law. We also are expressly required
to advance certain expenses to our directors and officers and to
carry directors and officers insurance providing
indemnification for our directors and officers for certain
liabilities. We believe that these indemnification provisions
and the directors and officers insurance are useful
to attract and retain qualified directors and executive officers.
91
Description of
capital stock
Section 145(a) of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the
corporation), by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses
(including attorneys fees), judgments, fines, and amounts
paid in settlement actually and reasonably incurred by such
person in connection with such action, suit, or proceeding,
provided that such person acted in good faith and in a manner
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe the
persons conduct was unlawful.
Section 145(b) of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action
or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person is
or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorney fees) actually
and reasonably incurred by the person in connection with the
defense or settlement of such action or suit if the person acted
in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation
and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to
the extent that the Delaware Court of Chancery or the court in
which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the
Delaware Court of Chancery or such other court shall deem
proper. Notwithstanding the preceding sentence, except as
otherwise provided in the bylaws, we shall be required to
indemnify any such person in connection with a proceeding (or
part thereof) commenced by such person only if the commencement
of such proceeding (or part thereof) by any such person was
authorized by our board of directors.
Section 203
of the Delaware General Corporate Law
We are subject to the provisions of Section 203 of the
Delaware General Corporation Law regulating corporate takeovers.
In general, Section 203 prohibits a publicly held Delaware
corporation from engaging, under certain circumstances, in a
business combination with an interested stockholder for a period
of three years following the date the person became an
interested stockholder unless:
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prior to the date of the transaction, our board of directors
approved either the business combination or the transaction
which resulted in the stockholder becoming an interested
stockholder;
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upon completion of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
calculated as provided under Section 203; or
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at or subsequent to the date of the transaction, the business
combination is approved by our board of directors and authorized
at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least two-thirds
of the outstanding voting stock which is not owned by the
interested stockholder.
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In general, Section 203 defines business combination to
include the following:
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any merger or consolidation involving the corporation and the
interested stockholder;
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any sale, transfer, pledge or disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
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92
Description of
capital stock
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subject to certain exceptions, any transaction that results in
the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
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any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock or any class or
series of the corporation beneficially owned by the interested
stockholder; or
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the receipt by the interested stockholder of the benefit of any
loss, advances, guarantees, pledges or other financial benefits
by or through the corporation.
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In general, Section 203 defines an interested
stockholder as an entity or person who, together with the
persons affiliates and associates, beneficially owns, or
is an affiliate or associate of the corporation and within three
years prior to the time of determination of interested
stockholder status did own, 15% or more of the outstanding
voting stock of the corporation.
The provisions of Delaware law and the provisions of our amended
and restated certificate of incorporation and amended and
restated bylaws, as amended upon the closing of this offering,
could have the effect of discouraging others from attempting
hostile takeovers and, as a consequence, they might also inhibit
temporary fluctuations in the market price of our common stock
that often result from actual or rumored hostile takeover
attempts. These provisions might also have the effect of
preventing changes in our management. It is possible that these
provisions could make it more difficult to accomplish
transactions that stockholders might otherwise deem to be in
their best interests.
THE NEW YORK
STOCK EXCHANGE LISTING
We intend to apply to have our common stock approved for listing
on the NYSE under the symbol STMK.
TRANSFER AGENT
AND REGISTRAR
The transfer agent and registrar for our common stock will be
BNY Mellon Shareowner Services. The transfer agents
address is 480 Washington Blvd., Jersey City, New Jersey 07310.
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Prior to this offering, there has been no public market for
shares of our common stock. Future sales of substantial amounts
of our common stock, including shares issued upon the exercise
of outstanding options, in the public market, or the perception
that these sales could occur, could adversely affect the price
of our common stock from time to time or impair our ability to
raise equity capital in the future.
Based on the number of shares outstanding as
of ,
2011, we will have approximately shares of our common stock
outstanding after the completion of this offering
(approximately shares
if the underwriters exercise their over-allotment option in
full). Of those shares, the shares of common stock sold in this
offering
( shares
if the underwriters exercise their over-allotment option in
full) will be freely transferable without restriction, unless
purchased by our affiliates. The remaining shares of common
stock to be outstanding immediately following the completion of
this offering, which are restricted securities under
Rule 144 of the Securities Act of 1933, or Rule 144,
as well as any other shares held by our affiliates, may not be
resold except pursuant to an effective registration statement or
an applicable exemption from registration, including an
exemption under Rule 144 or Rule 701, which are
summarized below.
Subject to the
lock-up
agreements described below and the provisions of Rules 144
and 701 under the Securities Act, these restricted securities
will be available for sale in the public market as follows:
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Number of
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Date
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shares
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On the date of this prospectus
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At various times beginning more than 180 days (subject to
extension) after the date of this prospectus
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In addition, of the shares of our common stock that were subject
to stock options outstanding as
of ,
2011, options to
purchase shares
of common stock were vested as
of ,
2011 and will be eligible for sale 180 days following the
effective date of this offering, subject to extension as
described in the section entitled Underwriters.
RULE 144
In general, under Rule 144, as in effect on the date of
this prospectus, once we have been subject to public company
reporting requirements for at least 90 days, a person who
is not deemed to have been one of our affiliates for purposes of
the Securities Act at any time during 90 days preceding a
sale and who has beneficially owned the shares proposed to be
sold for at least six months, including the holding period of
any prior owner other than our affiliates, is entitled to sell
such shares without complying with the manner of sale, volume
limitations or notice provisions of Rule 144, subject to
compliance with the public information requirements of
Rule 144. If such a person has beneficially owned the
shares proposed to be sold for at least one year, including the
holding period of any prior owner other than our affiliates,
then such person is entitled to sell such shares without
complying with any of the requirements of Rule 144. In
general, under Rule 144, as in effect on the date of this
prospectus, our affiliates or persons selling shares on behalf
of our affiliates are entitled to sell upon expiration of the
lock-up
agreements described above, within any three-month period
beginning 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of:
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1% of the number of shares of common stock then outstanding,
which will be
approximately shares
immediately after this offering; or
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the average weekly trading volume of the common stock on the New
York Stock Exchange during the four calendar weeks preceding the
date on which the notice of sale is filed with the SEC.
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94
Shares eligible
for future sale
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Sales under Rule 144 by our affiliates or persons selling
shares on behalf of our affiliates are also subject to certain
manner of sale provisions and notice requirements and to the
availability of current public information about us.
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RULE 701
Rule 701, as in effect on the date of this prospectus,
generally allows a stockholder who purchased shares of our
common stock pursuant to a written compensatory plan or contract
and who is not deemed to have been an affiliate of ours during
the immediately preceding 90 days to sell these shares in
reliance upon Rule 144, but without being required to
comply with the public information, holding period, volume
limitation, or notice provisions of Rule 144. Rule 701
also permits affiliates to sell their Rule 701 shares
under Rule 144 without complying with the holding period
requirements of Rule 144. All holders of
Rule 701 shares, however, are required to wait until
90 days after the date of this prospectus before selling
such shares pursuant to Rule 701.
As
of ,
2011, shares
of our outstanding common stock had been issued in reliance on
Rule 701 as a result of exercises of stock options. These
shares will be eligible for resale in reliance on this rule upon
expiration of the lockup agreements described above.
LOCK-UP
AGREEMENTS
We, our executive officers and directors, and all of our selling
stockholders have entered into
lock-up
agreements with the underwriters. Under these agreements,
subject to certain exceptions, we and each of these persons may
not, without the prior written approval of UBS Securities LLC
offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, or hedge our common stock or securities
convertible into or exchangeable or exercisable for our common
stock. These restrictions will be in effect for a period of
180 days after the date of this prospectus, which period is
subject to extension in the circumstances described in the
paragraph below. At any time and without public notice, UBS
Securities LLC may, in their discretion, release some or all the
securities from these
lock-up
agreements.
Notwithstanding the above, if (i) during the period
beginning on the date that is 15 calendar days plus three
business days before the last day of the
180-day
period described in the paragraph above, or the initial
lock-up
period, and ends on the last day of the initial
lock-up
period, we issue an earnings release or material news or a
material event relating to us occurs; or (ii) prior to the
expiration of the initial
lock-up
period, we announce that we will release earnings results during
the 16 day period beginning on the last day of the initial
lock-up
period, then the restrictions imposed by these
lock-up
agreements will continue to apply until the expiration of the
date that is 15 calendar days plus three business days after the
date on which the issuance of the earnings release or the
material news or material event occurs.
The restrictions set forth above do not apply to certain
issuances by us and certain transfers by our stockholders, which
are described in UnderwritingNo sales of similar
securities.
PLEDGED
SHARES
CODI has previously pledged all of its shares of our common
stock that it is not selling in this offering as security under
its credit facility with Madison Capital, as agent for the
lenders. If CODI breaches certain covenants in its credit
facility with Madison Capital, an event of default could result
and Madison Capital could exercise its right to accelerate all
the debt under the facility and foreclose on the pledged shares.
The pledged shares are subject to the
180-day
lock-up
restrictions described under
Lock-up
agreements above.
95
Shares eligible
for future sale
REGISTRATION
RIGHTS
Upon completion of this offering, CODI, Staffing Holding, and
Madison Capital Funding Co-Investment Fund LP, or their
transferees, will be entitled to various rights with respect to
the registration of these shares under the Securities Act.
Registration of these shares under the Securities Act would
result in these shares becoming fully tradable without
restriction under the Securities Act immediately upon the
effectiveness of the registration, except for shares purchased
by affiliates. See Description of capital
stockRegistration rights for additional information.
Shares covered by a registration statement will be eligible for
sales in the public market upon the expiration or release from
the terms of the lock up agreement.
REGISTRATION
STATEMENTS
We intend to file a registration statement on
Form S-8
under the Securities Act following this offering to register all
of the shares of common stock issued or reserved for issuance
under our stock option plans. We expect to file this
registration statement as soon as practicable after this
offering, which will be effective immediately upon filing.
Shares covered by this registration statement will be eligible
for sale in the public market, upon the expiration or release
from the terms of the
lock-up
agreements, and subject to vesting of such shares.
96
The following is a summary of the material United States federal
income tax and estate tax consequences of the purchase,
ownership, and disposition of our common stock to
non-United
States holders (defined below), but does not purport to be a
complete analysis of all the potential tax considerations
relating thereto, and does not constitute tax advice. This
summary is based upon the provisions of the Internal Revenue
Code of 1986, as amended (the Code), Treasury
regulations promulgated thereunder, administrative rulings and
judicial decisions, all as of the date hereof. These authorities
may be changed, possibly retroactively, so as to result in
United States federal income tax or estate tax consequences
different from those set forth below. We have not sought any
ruling from the Internal Revenue Service (the IRS)
with respect to the statements made and the conclusions reached
in the following summary, and there can be no assurance that the
IRS will agree with such statements and conclusions or that any
such contrary position will not be sustained by a court.
This summary also does not address the tax considerations
arising under the laws of any United States state or local or
any
non-United
States jurisdiction or under United States federal gift and
estate tax laws, except to the limited extent below. In
addition, this discussion does not address tax considerations
applicable to an investors particular circumstances or to
investors that may be subject to special tax rules, including,
without limitation:
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banks, insurance companies, or other financial institutions;
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persons subject to the alternative minimum tax;
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tax-exempt organizations;
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dealers in securities or currencies;
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traders in securities that elect to use a
mark-to-market
method of accounting for their securities holdings;
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persons that own, or are deemed to own, more than five percent
of our capital stock (except to the extent specifically set
forth below);
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certain former citizens or long-term residents of the United
States;
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persons who hold our common stock as a position in a hedging
transaction, straddle, conversion
transaction, or other risk reduction transaction;
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persons who do not hold our common stock as a capital asset
within the meaning of the Code (generally, for investment
purposes); or
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persons deemed to sell our common stock under the constructive
sale provisions of the Code.
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In addition, if a partnership or entity classified as a
partnership for United States federal income tax purposes holds
our common stock, the tax treatment of a partner generally will
depend on the status of the partner and upon the activities of
the partnership. Accordingly, partnerships that hold our common
stock and partners in such partnerships should consult their tax
advisors.
You are urged to consult your tax advisor with respect to the
application of the United States federal income tax and estate
tax laws to your particular situation, as well as any tax
consequences of the purchase, ownership, and disposition of our
common stock arising under the United States federal estate or
gift tax laws or under the laws of any United States state or
local or any
non-United
States taxing jurisdiction or under any applicable tax
treaty.
97
Material United
States tax considerations for
non-United
States holders
NON-UNITED
STATES HOLDER DEFINED
For purposes of this discussion, you are a
non-United
States holder if you are any holder other than:
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an individual citizen or resident for United States federal
income tax purposes;
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a corporation or other entity taxable as a corporation for
United States federal income tax purposes created or organized
in the United States or under the laws of the United States, any
State thereof, or the District of Columbia;
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an estate whose income is subject to United States federal
income tax regardless of its source; or
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a trust (x) whose administration is subject to the primary
supervision of a United States court and which has one or more
United States persons who have the authority to control all
substantial decisions of the trust or (y) which has made a
valid election to be treated as a United States person for
United States income tax purposes.
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DISTRIBUTIONS
If we make distributions of cash or property (other than certain
distributions of stock) in respect of our common stock, those
payments will constitute dividends for United States federal
income tax purposes to the extent paid from our current or
accumulated earnings and profits, as determined under United
States federal income tax principles. To the extent those
distributions exceed both our current and our accumulated
earnings and profits, such excess will constitute a return of
capital and will first reduce your basis in our common stock,
but not below zero, and then will be treated as gain from the
sale of stock. Such gain will be treated as described below in
Gain on Sale or Other Disposition of Common
Stock.
Any dividend paid to you generally will be subject to United
States federal withholding tax either at a rate of 30% of the
gross amount of the dividend or such lower rate as may be
specified by an applicable income tax treaty. In order to
receive a reduced treaty rate, you must provide us with a valid
IRS
Form W-8BEN
or other appropriate version of IRS
Form W-8
certifying qualification for the reduced rate. This
certification must be provided to us prior to the payment of
dividends and may be required to be updated periodically.
Dividends received by you that are effectively connected with
your conduct of a United States trade or business (and, if an
income tax treaty applies, are attributable to a permanent
establishment maintained by you in the United States) generally
are exempt from such withholding tax. In order to obtain this
exemption, you must provide us with a valid IRS
Form W-8ECI
or other applicable IRS
Form W-8
properly certifying such exemption. This certification must be
provided to us prior to the payment of dividends and may be
required to be updated periodically. Such dividends, although
not subject to withholding tax, are taxed at the same graduated
rates applicable to United States persons, net of certain
deductions and credits, subject to an applicable income tax
treaty providing otherwise. In addition to this graduated tax
applicable to such dividends, if you are a corporate
non-United
States holder, your dividends may also be subject to a branch
profits tax at a rate of 30% or such lower rate as may be
specified by an applicable income tax treaty.
If you are eligible for a reduced rate of withholding tax
pursuant to an applicable income tax treaty, you may be able to
obtain a refund of any excess amounts currently withheld if you
file an appropriate claim for refund with the IRS. If a
non-United
States holder holds our common stock through a foreign
partnership or a foreign intermediary, the foreign partnership
or foreign intermediary will also be required to comply with
additional certification requirements under applicable Treasury
regulations.
98
Material United
States tax considerations for
non-United
States holders
GAIN ON SALE OR
OTHER DISPOSITION OF COMMON STOCK
You generally will not be required to pay United States federal
income tax on any gain realized upon the sale or other
disposition of our common stock unless:
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the gain is effectively connected with your conduct of a United
States trade or business (and, if an income tax treaty applies,
the gain is attributable to a permanent establishment maintained
by you in the United States), in which case you will be required
to pay tax on the net gain derived from the sale under regular
graduated United States federal income tax rates, and for a
corporate
non-United
States holder, such
non-United
States holder may be subject to the branch profits tax at a rate
of 30% or such lower rate as may be specified by an applicable
income tax treaty;
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you are an individual who is present in the United States for a
period or periods aggregating 183 days or more during the
calendar year in which the sale or disposition occurs and
certain other conditions are met, in which case you will be
required to pay a flat tax at a rate of 30% on the gain derived
from the sale, which tax may be offset by United States source
capital losses (even though you are not considered a resident of
the United States) (subject to applicable income tax or other
treaties); or
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our common stock constitutes a United States real property
interest by reason of our status as a United States real
property holding corporation (USRPHC) for United
States federal income tax purposes at any time within the
shorter of the five-year period preceding the disposition or
your holding period for our common stock. We believe that we are
not currently and will not become a USRPHC. However, because the
determination of whether we are a USRPHC depends on the fair
market value of our United States real property relative to the
fair market value of our other business assets, there can be no
assurance that we will not become a USRPHC in the future. Even
if we become a USRPHC, however, as long as our common stock is
regularly traded on an established securities market within the
meaning of applicable Treasury regulations, such common stock
will be treated as United States real property interests only if
you actually or constructively hold more than five percent of
such regularly traded common stock at any time during the
applicable period that is specified in the Code.
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UNITED STATES
FEDERAL ESTATE TAX
Our common stock held (or treated as held) by an individual
non-United
States holder (as specially determined for United States federal
estate tax purposes) at the time of death will be included in
such holders gross estate for United States federal estate
tax purposes, unless an applicable estate tax treaty provides
otherwise, and therefore may be subject to United States federal
estate tax.
BACKUP
WITHHOLDING AND INFORMATION REPORTING
Generally, we must report annually to the IRS the amount of
dividends paid to you, your name and address, and the amount of
tax withheld, if any. A similar report will be sent to you.
Pursuant to applicable income tax treaties or other agreements,
the IRS may make these reports available to tax authorities in
your country of residence.
Payments of dividends in respect of, or proceeds on the sale or
other disposition of, stock made to you may be subject to
additional information reporting and backup withholding at a
current rate of 28% unless you establish an exemption, for
example by properly certifying your
non-United
States status on a valid IRS
Form W-8BEN
or another appropriate version of IRS
Form W-8.
Notwithstanding the foregoing, backup withholding and
information reporting may apply if either we or our paying agent
has actual knowledge, or reason to know, that you are a United
States person.
Backup withholding is not an additional tax; rather, the United
States income tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If
withholding results in
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Material United
States tax considerations for
non-United
States holders
an overpayment of taxes, a refund or credit may generally be
obtained from the IRS, provided that the required information is
furnished to the IRS in a timely manner.
NEW
LEGISLATION
Newly enacted legislation may impose withholding taxes on
certain types of payments made to foreign financial
institutions and non-financial foreign
entities. Under this legislation, the failure to comply
with additional certification, information reporting, and other
specified requirements could result in withholding tax being
imposed on payments of dividends and gross sales proceeds to
foreign intermediaries and certain
non-United
States holders. The legislation imposes a withholding tax at a
rate of 30% on dividends in respect of, or gross proceeds from
the sale or other disposition of, our common stock paid to a
foreign financial institution or to a foreign non-financial
entity, unless (i) the foreign financial institution
undertakes certain diligence and reporting obligations
(discussed further below) or (ii) the non-financial foreign
entity either certifies it does not have any substantial United
States owners or furnishes identifying information regarding
each substantial United States owner, which we will in turn
provide to the United States Treasury. If the payee is a foreign
financial institution, it must enter into an agreement with the
United States Treasury requiring, among other things, that it
undertake to identify accounts held by certain United States
persons or certain foreign entities wholly or partially owned by
United States persons, annually report certain information about
such accounts, and withhold at a rate of 30% on payments to
account holders whose actions prevent it from complying with
these reporting and other requirements. Accordingly, the entity
through which our common stock is held will affect the
determination of whether withholding is required. The
legislation would apply to payments made after December 31,
2012. Prospective investors should consult their tax advisors
regarding this legislation.
The preceding discussion of United States federal tax
considerations is for general information only. It is not tax
advice. Each prospective investor should consult its own tax
advisor regarding the particular United States federal, state
and local and
non-United
States tax consequences of purchasing, holding, and disposing of
our common stock, including the consequences of any proposed
change in applicable laws.
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We and the selling stockholders are offering the shares of our
common stock described in this prospectus through the
underwriters named below. UBS Securities LLC and BMO Capital
Markets Corp. are acting as joint book-running managers of this
offering and as the representatives of the underwriters. We and
the selling stockholders have entered into an underwriting
agreement with the representatives. Subject to the terms and
conditions of the underwriting agreement, each of the
underwriters has severally agreed to purchase, and we and the
selling stockholders have agreed to sell to the underwriters,
the number of shares of common stock listed next to its name in
the following table.
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Number of
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Underwriters
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shares
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UBS Securities LLC
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BMO Capital Markets Corp.
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Robert W. Baird & Co. Incorporated
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SunTrust Robinson Humphrey, Inc.
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Avondale Partners, LLC
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CJS Securities, Inc.
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Total
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The underwriting agreement provides that the underwriters must
buy all of the shares if they buy any of them. However, the
underwriters are not required to pay for the shares covered by
the underwriters over-allotment option described below.
Our common stock is offered subject to a number of conditions,
including:
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receipt and acceptance of our common stock by the
underwriters; and
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the underwriters right to reject orders in whole or in
part.
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We have been advised by the representatives that the
underwriters intend to make a market in our common stock but
that they are not obligated to do so and may discontinue making
a market at any time without notice.
In connection with this offering, certain of the underwriters or
securities dealers may distribute prospectuses electronically.
OVER-ALLOTMENT
OPTION
We and the selling stockholders have granted the underwriters an
option to buy up to an aggregate
of
additional shares of our common stock. The underwriters may
exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with this offering.
The underwriters have 30 days from the date of this
prospectus to exercise this option. If the underwriters exercise
this option, they will each purchase additional shares
approximately in proportion to the amounts specified in the
table above.
COMMISSIONS AND
DISCOUNTS
Shares sold by the underwriters to the public will initially be
offered at the offering price set forth on the cover of this
prospectus. Any shares sold by the underwriters to securities
dealers may be sold at a discount of up to
$ per share from the initial
public offering price. Sales of shares made outside of the U.S.
may be made by affiliates of the underwriters. If all the shares
are not sold at the offering price, the representatives may
change the offering price and the other selling terms. Upon
execution of the underwriting agreement, the underwriters will
be obligated to purchase the shares at the prices and
101
Underwriting
upon the terms stated therein and, as a result, will thereafter
bear any risk associated with changing the offering price to the
public or other selling terms. The representatives of the
underwriters have informed us that they do not expect to sell
more than an aggregate of five percent of the total number of
shares of common stock offered by them to accounts over which
such representatives exercise discretionary authority.
The following table shows the per share and total underwriting
discounts and commissions we and the selling stockholders will
pay to the underwriters assuming both no exercise and full
exercise of the underwriters option to purchase up
to
additional shares.
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Paid by
us
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Paid by selling
stockholders
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Total
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No
exercise
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Full
exercise
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No
exercise
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Full
exercise
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No
exercise
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Full
exercise
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Per share
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$
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$
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$
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$
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$
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$
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Total
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$
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$
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$
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$
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$
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$
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We estimate that the total expenses of the offering payable by
us, not including the underwriting discounts and commissions,
will be approximately
$ million.
NO SALES OF
SIMILAR SECURITIES
We, our executive officers and directors and all of our
stockholders have entered into
lock-up
agreements with the underwriters. Under these agreements,
subject to certain exceptions, we and each of these persons may
not, without the prior written approval of UBS Securities LLC
offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, or hedge our common stock or securities
convertible into or exchangeable or exercisable for our common
stock. These restrictions will be in effect for a period of
180 days after the date of this prospectus, which period is
subject to extension in the circumstances described in the
paragraph below. At any time and without public notice, UBS
Securities LLC may, in their discretion, release some or all the
securities from these
lock-up
agreements.
Notwithstanding the above, if: (i) during the period
beginning on the date that is 15 calendar days plus three
business days before the last day of the
180-day
period described in the paragraph above, or the initial
lock-up
period, and ends on the last day of the initial
lock-up
period, we issue an earnings release or material news or a
material event relating to us occurs; or (ii) prior to the
expiration of the initial
lock-up
period, we announce that we will release earnings results during
the 16 day period beginning on the last day of the initial
lock-up
period, then the restrictions imposed by these
lock-up
agreements will continue to apply until the expiration of the
date that is 15 calendar days plus three business days after the
date on which the issuance of the earnings release or the
material news or material event occurs.
The restrictions set forth above shall not apply to the
following:
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transfers pursuant to the Reclassification;
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Ø
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if the holder is an individual, bona fide gifts, provided that
the recipient thereof agrees in writing with the underwriters to
be bound by the
lock-up
restrictions;
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Ø
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if the holder is an individual, dispositions to any trust for
the direct or indirect benefit of the holder
and/or the
immediate family of the holder, provided that such trust agrees
in writing with the underwriters to be bound by the
lock-up
restrictions;
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Ø
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if the holder is an individual, transfers that occur solely by
operation of law, such as the rules of intestate succession;
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Ø
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transfers to any corporation, limited liability company,
partnership, or other entity of which all of the equity interest
is directly or indirectly owned by the holder or (if the holder
is an individual) to the immediate family of the holder or (if
the holder is an entity) to the direct or indirect stockholders,
members, partners or other affiliates of the holder, in each
case provided that: (i) such
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102
Underwriting
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transfer does not involve a disposition for value; (ii) the
transferee agrees in writing with the underwriters to be bound
by the
lock-up
restrictions; and (iii) no filing pursuant to
Section 16 of the Exchange Act or other public announcement
is required or shall be voluntarily made in connection with such
transfer;
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Ø
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the establishment of a trading plan pursuant to
Rule 10b5-1
under the Exchange Act for the transfer of common stock,
provided that such plan does not provide for the transfer of
common stock during the
lock-up
period; and
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Ø
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as previously noted, CODI has pledged all of its shares of our
common stock that it is not selling in this offering as security
under its credit facility; the pledged shares are subject to the
180-day
lock-up
described above.
|
INDEMNIFICATION
We and the selling stockholders have agreed to indemnify the
several underwriters against certain liabilities, including
certain liabilities under the Securities Act. If we and the
selling stockholders are unable to provide this indemnification,
we and the selling stockholders have agreed to contribute to
payments the underwriters may be required to make in respect of
those liabilities.
NEW YORK STOCK
EXCHANGE QUOTATION
We intend to apply to have our common stock approved for listing
on the New York Stock Exchange under the symbol STMK.
PRICE
STABILIZATION, SHORT POSITIONS
In connection with this offering, the underwriters may engage in
activities that stabilize, maintain, or otherwise affect the
price of our common stock during and after this offering,
including:
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Ø
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stabilizing transactions;
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Ø
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short sales;
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Ø
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purchases to cover positions created by short sales;
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Ø
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imposition of penalty bids; and
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Ø
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syndicate covering transactions.
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Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or impeding a decline in the market
price of our common stock while this offering is in progress.
These transactions may also include making short sales of our
common stock, which involve the sale by the underwriters of a
greater number of shares of common stock than they are required
to purchase in this offering and purchasing shares of common
stock on the open market to cover short positions created by
short sales. Short sales may be covered short sales,
which are short positions in an amount not greater than the
underwriters over-allotment option referred to above, or
may be naked short sales, which are short positions
in excess of that amount.
The underwriters may close out any covered short position by
either exercising their over-allotment option, in whole or in
part, or by purchasing shares in the open market. In making this
determination, the underwriters will consider, among other
things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase
shares through the over-allotment option.
Naked short sales are short sales made in excess of the
over-allotment option. The underwriters must close out any naked
short position by purchasing shares in the open market. A naked
short position is more likely to be created if the underwriters
are concerned that there may be downward pressure on the price
of the common stock in the open market that could adversely
affect investors who purchased in this offering.
103
Underwriting
The underwriters also may impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of that underwriter in stabilizing or short covering
transactions.
As a result of these activities, the price of our common stock
may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be
discontinued by the underwriters at any time. The underwriters
may carry out these transactions on the New York Stock Exchange,
in the
over-the-counter
market, or otherwise. Neither we nor the underwriters make any
representation or prediction as to the effect that the
transactions described above may have on the price of the shares.
DETERMINATION OF
OFFERING PRICE
Prior to this offering, there has been no public market for our
common stock. The offering price will be determined by
negotiation among us, the selling stockholders, and the
representatives of the underwriters. The principal factors to be
considered in determining the offering price include:
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the information set forth in this prospectus and otherwise
available to representatives;
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Ø
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our history and prospects and the history and prospects for the
industry in which we compete;
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Ø
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our past and present financial performance and an assessment of
our management;
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Ø
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our prospects for future earnings and the present state of our
development;
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Ø
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the general condition of the securities market at the time of
this offering;
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Ø
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the recent market prices of, and demand for, publicly traded
common stock of generally comparable companies; and
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Ø
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other factors deemed relevant by the underwriters, the selling
stockholders, and us.
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The estimated public offering price range set forth on the cover
page of this preliminary prospectus is subject to change as a
result of market conditions and other factors. Neither we nor
the underwriters can assure investors that an active trading
market will develop for our common stock or that the common
stock will trade in the public market at or above the offering
price.
AFFILIATIONS
The underwriters and their respective affiliates are
full-service financial institutions engaged in various
activities, which may include securities trading, commercial and
investment banking, financial advisory, investment management,
investment research, principal investment, hedging, financing,
and brokerage activities. Certain of the underwriters and their
affiliates have from time to time performed and may in the
future perform banking and other services for us or the selling
stockholders or their affiliates in the ordinary course of their
business for which they received or will receive customary fees
and expenses. SunTrust Robinson Humphrey, Inc., an underwriter
in this offering, is a joint lead arranger and bookrunner, and
an affiliate, SunTrust Bank, is the administrative agent.
Harris, N.A., an affiliate of BMO Capital Markets Corp., which
is an underwriter in this offering, is the other joint lead
arranger and syndication agent. In the ordinary course of their
various business activities, the underwriters and their
respective affiliates may make or hold a broad array of
investments and actively trade debt and equity securities (or
related derivative securities) and financial instruments
(including bank loans) for their own account and for the
accounts of their customers, and such investment and securities
activities may involve securities
and/or
instruments of us or the selling stockholders. The underwriters
and their respective affiliates may also make investment
recommendations
and/or
publish or express independent research views in respect of
these securities or instruments and may at any time hold, or
recommend to clients that they acquire long
and/or short
positions in these securities and instruments.
104
Underwriting
NOTICE TO
INVESTORS
Notice to
prospective investors in the European Economic Area
In relation to each Member State of the European Economic Area
that has implemented the Prospectus Directive (each, a
Relevant Member State), other than Germany, with
effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State (the
Relevant Implementation Date), an offer of the
common stock described in this prospectus may not be made to the
public in that Relevant Member State other than:
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to any legal entity which is a qualified investor as defined in
the Prospectus Directive;
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Ø
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by the managers to fewer than 100, or, if the Relevant Member
State has implemented the relevant provisions of the 2010 PD
Amending Directive, 150, natural or legal persons (other than
qualified investors as defined in the Prospectus Directive), as
permitted under the Prospectus Directive, subject to obtaining
the prior consent of the book-runners for any such offer; or
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Ø
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in any other circumstances falling within Article 3(2) of
the Prospectus Directive, provided that no such offer of common
stock shall require us or any underwriter to publish a
prospectus pursuant to Article 3 of the Prospectus
Directive.
|
For purposes of this provision, the expression an offer of
common stock to the public in any Relevant Member State
means the communication in any form and by any means of
sufficient information on the terms of the offer and the common
stock to be offered so as to enable an investor to decide to
purchase or subscribe for the common stock, as the expression
may be varied in that Member State by any measure implementing
the Prospectus Directive in that Member State, and the
expression Prospectus Directive means Directive
2003/71/EC (and amendments thereto, including the 2010 PD
Amending Directive, to the extent implemented in the Relevant
Member State), and includes any relevant implementing measure in
the Relevant Member State, and the expression 2010 PD
Amending Directive means Directive 2010/73/EU.
We have not authorized and do not authorize the making of any
offer of common stock through any financial intermediary on
their behalf, other than offers made by the underwriters with a
view to the final placement of the common stock as contemplated
in this prospectus. Accordingly, no purchaser of the common
stock, other than the underwriters, is authorized to make any
further offer of the common stock on behalf of us or the
underwriters.
The EEA selling restriction is in addition to any other selling
restrictions set out in this prospectus.
Notice to
prospective investors in Australia
This prospectus is not a formal disclosure document and has not
been, nor will be, lodged with the Australian Securities and
Investments Commission. It does not purport to contain all
information that an investor or their professional advisers
would expect to find in a prospectus or other disclosure
document (as defined in the Corporations Act 2001 (Australia))
for the purposes of Part 6D.2 of the Corporations Act 2001
(Australia) or in a product disclosure statement for the
purposes of Part 7.9 of the Corporations Act 2001
(Australia), in either case, in relation to the common stock.
The common stock is not being offered in Australia to
retail clients as defined in sections 761G and
761GA of the Corporations Act 2001 (Australia). This offering is
being made in Australia solely to wholesale clients
for the purposes of section 761G of the Corporations Act
2001 (Australia) and, as such, no prospectus, product disclosure
statement, or other disclosure document in relation to the
common stock has been, or will be, prepared.
This prospectus does not constitute an offer in Australia other
than to wholesale clients. By submitting an application for our
common stock, you represent and warrant to us that you are a
wholesale client for the purposes of section 761G of the
Corporations Act 2001 (Australia). If any recipient of this
105
Underwriting
prospectus is not a wholesale client, no offer of, or invitation
to apply for, our common stock shall be deemed to be made to
such recipient and no applications for our common stock will be
accepted from such recipient. Any offer to a recipient in
Australia, and any agreement arising from acceptance of such
offer, is personal and may only be accepted by the recipient. In
addition, by applying for our common stock you undertake to us
that, for a period of 12 months from the date of issue of
the common stock, you will not transfer any interest in the
common stock to any person in Australia other than to a
wholesale client.
Notice to
prospective investors in Hong Kong
Our common stock may not be offered or sold in Hong Kong, by
means of this prospectus or any document other than (i) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (ii) in circumstances
which do not constitute an offer to the public within the
meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong),
or (iii) in other circumstances which do not result in the
document being a prospectus within the meaning of
the Companies Ordinance (Cap.32, Laws of Hong Kong). No
advertisement, invitation, or document relating to our common
stock may be issued or may be in the possession of any person
for the purpose of issue (in each case whether in Hong Kong or
elsewhere) which is directed at, or the contents of which are
likely to be accessed or read by, the public in Hong Kong
(except if permitted to do so under the securities laws of Hong
Kong) other than with respect to the common stock which are or
are intended to be disposed of only to persons outside Hong Kong
or only to professional investors within the meaning
of the Securities and Futures Ordinance (Cap. 571, Laws of Hong
Kong) and any rules made thereunder.
Notice to
prospective investors in Japan
Our common stock has not been and will not be registered under
the Financial Instruments and Exchange Law of Japan (the
Financial Instruments and Exchange Law) and our
common stock will not be offered or sold, directly or
indirectly, in Japan, or to, or for the benefit of, any resident
of Japan (which term as used herein means any person resident in
Japan, including any corporation or other entity organized under
the laws of Japan), or to others for re-offering or resale,
directly or indirectly, in Japan, or to a resident of Japan,
except pursuant to an exemption from the registration
requirements of, and otherwise in compliance with, the Financial
Instruments and Exchange Law and any other applicable laws,
regulations, and ministerial guidelines of Japan.
Notice to
prospective investors in Singapore
This document has not been registered as a prospectus with the
Monetary Authority of Singapore, and in Singapore, the offer and
sale of our common stock is made pursuant to exemptions provided
in sections 274 and 275 of the Securities and Futures Act,
Chapter 289 of Singapore (SFA). Accordingly,
this prospectus and any other document or material in connection
with the offer or sale, or invitation for subscription or
purchase, of our common stock may not be circulated or
distributed, nor may our securities be offered or sold, or be
made the subject of an invitation for subscription or purchase,
whether directly or indirectly, to persons in Singapore other
than (i) to an institutional investor as defined in
Section 4A of the SFA pursuant to Section 274 of the
SFA, (ii) to a relevant person as defined in
section 275(2) of the SFA pursuant to Section 275(1)
of the SFA, or any person pursuant to Section 275(1A) of
the SFA, and in accordance with the conditions specified in
Section 275 of the SFA, or (iii) otherwise pursuant
to, and in accordance with the conditions of, any other
applicable provision of the SFA, in each case subject to
compliance with the conditions (if any) set forth in the SFA.
Moreover, this document is not a prospectus as defined in the
SFA. Accordingly, statutory liability under the SFA in relation
to the content of prospectuses would not apply. Prospective
investors in Singapore should consider carefully whether an
investment in our common stock is suitable for them.
106
Underwriting
Where our common stock are subscribed or purchased under
Section 275 of the SFA by a relevant person which is:
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by a corporation (which is not an accredited investor as defined
in Section 4A of the SFA) the sole business of which is to hold
investments and the entire share capital of which is owned by
one or more individuals, each of whom is an accredited
investor; or
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for a trust (where the trustee is not an accredited investor)
whose sole purpose is to hold investments and each beneficiary
of the trust is an individual who is an accredited investor;
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shares of that corporation or the beneficiaries rights and
interest (howsoever described) in that trust shall not be
transferable for six months after that corporation or that trust
has acquired the shares under Section 275 of the SFA,
except:
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Ø
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to an institutional investor (for corporations under
Section 274 of the SFA) or to a relevant person defined in
Section 275(2) of the SFA, or any person pursuant to an
offer that is made on terms that such shares of that corporation
or such rights and interest in that trust are acquired at a
consideration of not less than S$200,000 (or its equivalent in a
foreign currency) for each transaction, whether such amount is
to be paid for in cash or by exchange of securities or other
assets, and further for corporations, in accordance with the
conditions, specified in Section 275 of the SFA;
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Ø
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where no consideration is given for the transfer; or
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Ø
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where the transfer is by operation of law.
|
In addition, investors in Singapore should note that the common
stock acquired by them are subject to resale and transfer
restrictions specified under Section 276 of the SFA, and
they, therefore, should seek their own legal advice before
effecting any resale or transfer of their common stock.
Notice to
prospective investors in Switzerland
This prospectus does not constitute an issue prospectus pursuant
to Article 652a or Article 1156 of the Swiss Code of
Obligations (CO), and the common stock will not be
listed on the SIX Swiss Exchange. Therefore, this prospectus may
not comply with the disclosure standards of the CO
and/or the
listing rules (including any prospectus schemes) of the SIX
Swiss Exchange. Accordingly, the common stock may not be offered
to the public in or from Switzerland, but only to a selected and
limited circle of investors, which do not subscribe to the
shares with a view to distribution.
Notice to
prospective investors in United Kingdom
This prospectus is only being distributed to and is only
directed at: (i) persons who are outside the United
Kingdom; (ii) investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order);
or (iii) high net worth companies, and other persons to
whom it may lawfully be communicated, falling within
Article 49(2)(a) to (d) of the Order (all such persons
falling within (i)-(iii) together being referred to as
relevant persons). The shares are only available to,
and any invitation, offer, or agreement to subscribe, purchase
or otherwise acquire such shares will be engaged in only with,
relevant persons. Any person who is not a relevant person should
not act or rely on this prospectus or any of its contents.
107
The validity of the shares of common stock offered hereby will
be passed upon for us by Squire, Sanders & Dempsey
(US) LLP, Cincinnati, Ohio. Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York, is acting as
counsel to the underwriters.
The consolidated financial statements as of December 31,
2010 and 2009 and for each of the three years in the period
ended December 31, 2010 included in this prospectus have
been so included in reliance upon the report of Grant Thornton
LLP, independent registered public accountants, upon the
authority of said firm as experts in giving said reports.
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the shares of common
stock offered hereby. This prospectus, which constitutes a part
of the registration statement, does not contain all of the
information set forth in the registration statement or the
exhibits and schedules filed therewith. For further information
about us and the common stock offered hereby, we refer you to
the registration statement and the exhibits and schedules filed
thereto. Statements contained in this prospectus regarding the
contents of any contract or any other document that is filed as
an exhibit to the registration statement are not necessarily
complete, and each such statement is qualified in all respects
by reference to the full text of such contract or other document
filed as an exhibit to the registration statement. Following
this offering, we will be required to file periodic reports,
proxy statements, and other information with the SEC pursuant to
the Securities Exchange Act of 1934. You may read and copy this
information at the Public Reference Room of the SEC,
100 F Street, N.E., Room 1580,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains a website that contains reports, proxy
statements, and other information about issuers, like us, that
file electronically with the SEC. The address of that site is
www.sec.gov.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the
Securities Exchange Act of 1934, or the Exchange Act, and, in
accordance therewith, will file periodic reports, proxy
statements, and other information with the SEC. Such periodic
reports, proxy statements, and other information will be
available for inspection and copying at the public reference
room and website of the SEC referred to above. We maintain a
website at www.staffmark.com. You may access our annual report
on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act with the SEC
free of charge at our website as soon as reasonably practicable
after such material is electronically filed with, or furnished
to, the SEC. The reference to our website address does not
constitute incorporation by reference of the information
contained on our website into this prospectus.
108
Staffmark
Holdings, Inc.
Index to
consolidated financial statements
CONSOLIDATED
FINANCIAL STATEMENTS
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UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
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SUPPLEMENTAL
FINANCIAL DATA
The following supplementary financial data of the registrant
required to be included by Item 16(b) of
Form S-1
is listed below:
All other schedules not listed above have been omitted as not
applicable or because the required information is included in
the financial statements or in the notes thereto.
F-1
Report of
independent registered public accounting firm
Board of Directors and Shareholders
Staffmark Holdings, Inc.
We have audited the accompanying consolidated balance sheets of
Staffmark Holdings, Inc. (a Delaware corporation) and
subsidiaries as of December 31, 2010 and 2009, and the
related consolidated statements of operations,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2010. Our audits of
the basic financial statements included the financial statement
schedule listed in the index appearing under
Schedule No. II. These financial statements and
financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Staffmark Holdings, Inc. and subsidiaries as of
December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2010 in conformity with
accounting principles generally accepted in the United States of
America. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ GRANT THORNTON LLP
Cincinnati, Ohio
March 31, 2011
F-2
Staffmark
Holdings, Inc.
Consolidated balance
sheets
December 31, 2010 and
2009
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
53,178
|
|
|
$
|
88,441
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Trade, net of allowance for doubtful accounts of $2,519,056 and
$2,679,807 at December 31, 2010 and 2009, respectively
|
|
|
111,779,669
|
|
|
|
91,358,723
|
|
Unbilled revenue
|
|
|
13,736,920
|
|
|
|
11,538,134
|
|
Income tax receivable
|
|
|
406,216
|
|
|
|
7,781,500
|
|
Prepaid expenses and other current assets
|
|
|
6,298,864
|
|
|
|
4,058,204
|
|
Deferred tax assets
|
|
|
2,701,031
|
|
|
|
3,058,855
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
134,975,878
|
|
|
|
117,883,857
|
|
Property and equipmentnet
|
|
|
5,047,587
|
|
|
|
4,568,120
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
89,714,729
|
|
|
|
89,714,729
|
|
Loan origination feesnet
|
|
|
967,855
|
|
|
|
1,446,088
|
|
Other intangiblesnet
|
|
|
40,629,300
|
|
|
|
45,332,886
|
|
Deferred tax assetslong term
|
|
|
20,403,060
|
|
|
|
21,563,722
|
|
Other
|
|
|
1,797,590
|
|
|
|
2,168,628
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
293,535,999
|
|
|
$
|
282,678,030
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt with a related party
|
|
$
|
29,296,355
|
|
|
$
|
9,000,000
|
|
Accounts payable
|
|
|
8,710,709
|
|
|
|
9,469,113
|
|
Accrued expenses:
|
|
|
|
|
|
|
|
|
Accrued payroll, bonuses and commissions
|
|
|
20,397,963
|
|
|
|
18,128,640
|
|
Payroll taxes and other withholdings
|
|
|
11,402,328
|
|
|
|
9,346,102
|
|
Current portion of workers compensation obligation
|
|
|
18,170,008
|
|
|
|
18,677,891
|
|
Other
|
|
|
7,517,804
|
|
|
|
11,416,912
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
95,495,167
|
|
|
|
76,038,658
|
|
Long-term debt with a related party
|
|
|
46,089,264
|
|
|
|
74,685,619
|
|
Workers compensation obligation
|
|
|
40,588,282
|
|
|
|
37,997,260
|
|
Other
|
|
|
1,358,867
|
|
|
|
1,116,674
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
183,531,580
|
|
|
|
189,838,211
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
Class A, $0.001 par value, 5,000,000 shares
authorized; issued and outstanding 3,741,511 at
December 31, 2010 and 2009
|
|
|
3,741
|
|
|
|
3,741
|
|
Class B, $0.001 par value, 5,000,000 shares
authorized; issued and outstanding 2,436,750 at
December 31, 2010 and 2009
|
|
|
2,437
|
|
|
|
2,437
|
|
Class C, $0.001 par value, 2,000,000 shares
authorized; issued and outstanding 250,483 shares at
December 31, 2010 and 2009
|
|
|
251
|
|
|
|
251
|
|
Class D, $0.001 par value, 10,000,000 shares
authorized; issued and outstanding 6,588,029 shares at
December 31, 2010 and 2009
|
|
|
6,588
|
|
|
|
6,588
|
|
Additional paid-in capital
|
|
|
102,194,763
|
|
|
|
100,459,172
|
|
Accumulated earnings (deficit)
|
|
|
7,796,639
|
|
|
|
(7,632,370
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
110,004,419
|
|
|
|
92,839,819
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
293,535,999
|
|
|
$
|
282,678,030
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-3
Staffmark
Holdings, Inc.
Consolidated
statements of operations
For the years
ended December 31, 2010, 2009, and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Revenues
|
|
$
|
1,002,511,852
|
|
|
$
|
745,340,475
|
|
|
$
|
1,006,345,371
|
|
Cost of revenues
|
|
|
854,698,570
|
|
|
|
632,800,278
|
|
|
|
832,530,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
147,813,282
|
|
|
|
112,540,197
|
|
|
|
173,814,858
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
117,681,753
|
|
|
|
113,288,944
|
|
|
|
152,220,106
|
|
Amortization
|
|
|
4,903,585
|
|
|
|
4,853,585
|
|
|
|
4,827,666
|
|
Impairment expense
|
|
|
|
|
|
|
50,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
25,227,944
|
|
|
|
(55,602,332
|
)
|
|
|
16,767,086
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense to a related party
|
|
|
(7,080,381
|
)
|
|
|
(7,674,313
|
)
|
|
|
(11,107,007
|
)
|
Other income (expense)
|
|
|
904,309
|
|
|
|
(404,460
|
)
|
|
|
731,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
19,051,872
|
|
|
|
(63,681,105
|
)
|
|
|
6,391,088
|
|
Provision (benefit) for income taxes
|
|
|
3,622,863
|
|
|
|
(25,445,408
|
)
|
|
|
1,224,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
15,429,009
|
|
|
$
|
(38,235,697
|
)
|
|
$
|
5,167,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
1.19
|
|
|
$
|
(3.76
|
)
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
1.16
|
|
|
$
|
(3.76
|
)
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
13,016,773
|
|
|
|
10,159,667
|
|
|
|
6,273,130
|
|
Incremental shares from the assumed exercise of dilutive stock
options
|
|
|
293,122
|
|
|
|
|
|
|
|
196,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
13,309,895
|
|
|
|
10,159,667
|
|
|
|
6,469,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option not included in the computation of diluted earnings
per share as their effect would have been antidilutive
|
|
|
455,901
|
|
|
|
1,280,568
|
|
|
|
251,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-4
Staffmark
Holdings, Inc.
Consolidated
statements of shareholders equity
For the years
ended December 31, 2010, 2009, and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
|
Class D
|
|
|
paid-in
|
|
|
earnings
|
|
|
|
|
|
|
Stock
|
|
|
Value
|
|
|
Stock
|
|
|
Value
|
|
|
Stock
|
|
|
Value
|
|
|
Stock
|
|
|
Value
|
|
|
capital
|
|
|
(deficit)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BalanceDecember 31, 2007
|
|
|
2,573,268
|
|
|
$
|
2,573
|
|
|
|
1,675,904
|
|
|
$
|
1,676
|
|
|
|
154,533
|
|
|
$
|
155
|
|
|
|
|
|
|
$
|
|
|
|
$
|
10,012,453
|
|
|
$
|
25,436,261
|
|
|
$
|
35,453,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,167,066
|
|
|
|
5,167,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Issued Due to Staffmark Acquisition
|
|
|
1,168,243
|
|
|
|
1,168
|
|
|
|
760,846
|
|
|
|
761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,897,351
|
|
|
|
|
|
|
|
47,899,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,800
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
321,281
|
|
|
|
|
|
|
|
321,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Compensation Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,160,704
|
|
|
|
|
|
|
|
1,160,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BalanceDecember 31, 2008
|
|
|
3,741,511
|
|
|
|
3,741
|
|
|
|
2,436,750
|
|
|
|
2,437
|
|
|
|
223,333
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
59,391,789
|
|
|
|
30,603,327
|
|
|
|
90,001,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,235,697
|
)
|
|
|
(38,235,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,150
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
59,523
|
|
|
|
|
|
|
|
59,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Compensation Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,511,274
|
|
|
|
|
|
|
|
1,511,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Costs of Granting Equity Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Contributions by Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,588,029
|
|
|
|
6,588
|
|
|
|
39,521,586
|
|
|
|
|
|
|
|
39,528,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BalanceDecember 31, 2009
|
|
|
3,741,511
|
|
|
|
3,741
|
|
|
|
2,436,750
|
|
|
|
2,437
|
|
|
|
250,483
|
|
|
|
251
|
|
|
|
6,588,029
|
|
|
|
6,588
|
|
|
|
100,459,172
|
|
|
|
(7,632,370
|
)
|
|
|
92,839,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,429,009
|
|
|
|
15,429,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Redeemed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Compensation Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,735,591
|
|
|
|
|
|
|
|
1,735,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BalanceDecember 31, 2010
|
|
|
3,741,511
|
|
|
$
|
3,741
|
|
|
|
2,436,750
|
|
|
$
|
2,437
|
|
|
|
250,483
|
|
|
$
|
251
|
|
|
|
6,588,029
|
|
|
$
|
6,588
|
|
|
$
|
102,194,763
|
|
|
$
|
7,796,639
|
|
|
$
|
110,004,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-5
Staffmark
Holdings, Inc.
Consolidated
statements of cash flows
For the years
ended December 31, 2010, 2009, and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
15,429,009
|
|
|
$
|
(38,235,697
|
)
|
|
$
|
5,167,066
|
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
8,041,347
|
|
|
|
8,348,095
|
|
|
|
8,515,471
|
|
Loss on disposal of property and equipment
|
|
|
3,063
|
|
|
|
146,621
|
|
|
|
126,843
|
|
Stock compensation expense
|
|
|
1,735,591
|
|
|
|
1,511,274
|
|
|
|
1,160,704
|
|
Impairment expense
|
|
|
|
|
|
|
50,000,000
|
|
|
|
|
|
Deferred taxes
|
|
|
1,518,486
|
|
|
|
(17,807,490
|
)
|
|
|
(5,898,570
|
)
|
Changes in operating assets and liabilities, net of acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable, unbilled and tax
receivable
|
|
|
(15,244,448
|
)
|
|
|
2,439,167
|
|
|
|
22,993,593
|
|
(Increase) decrease in prepaid expenses and other assets
|
|
|
(1,869,622
|
)
|
|
|
(6,877,651
|
)
|
|
|
2,479,285
|
|
(Decrease) in accounts payable
|
|
|
(758,404
|
)
|
|
|
(1,721,257
|
)
|
|
|
(5,925,141
|
)
|
(Decrease) increase in accrued expenses and other long-term
liabilities
|
|
|
2,591,806
|
|
|
|
(9,410,073
|
)
|
|
|
(7,038,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used in) by operating activities
|
|
|
11,446,828
|
|
|
|
(11,607,011
|
)
|
|
|
21,580,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisition, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(76,914,913
|
)
|
Purchases of equipment and improvements
|
|
|
(3,142,153
|
)
|
|
|
(784,520
|
)
|
|
|
(3,505,169
|
)
|
Proceeds from sale of equipment and improvements
|
|
|
95
|
|
|
|
11,017
|
|
|
|
2,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,142,058
|
)
|
|
|
(773,503
|
)
|
|
|
(80,417,230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
59,550
|
|
|
|
321,350
|
|
Loan fees
|
|
|
|
|
|
|
(250,000
|
)
|
|
|
(1,100,000
|
)
|
Purchase of customer lists
|
|
|
(40,033
|
)
|
|
|
|
|
|
|
|
|
Proceeds from swing-line/revolver
|
|
|
343,100,000
|
|
|
|
275,840,346
|
|
|
|
370,242,506
|
|
Repayments of swing-line/revolver
|
|
|
(342,400,000
|
)
|
|
|
(258,540,346
|
)
|
|
|
(359,042,506
|
)
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
|
|
|
|
60,000,000
|
|
Capital contributions by shareholders for Class D shares
|
|
|
|
|
|
|
9,393,075
|
|
|
|
|
|
Direct cost of granting equity interest
|
|
|
|
|
|
|
(25,000
|
)
|
|
|
|
|
Repayment of long-term debt funded by shareholder contribution
for Class D shares
|
|
|
|
|
|
|
(4,864,905
|
)
|
|
|
|
|
Repayment of long-term debt
|
|
|
(9,000,000
|
)
|
|
|
(9,204,147
|
)
|
|
|
(11,612,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(8,340,033
|
)
|
|
|
12,408,573
|
|
|
|
58,809,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(35,263
|
)
|
|
|
28,059
|
|
|
|
(27,436
|
)
|
CashBeginning of year
|
|
|
88,441
|
|
|
|
60,382
|
|
|
|
87,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CashEnd of year
|
|
$
|
53,178
|
|
|
$
|
88,441
|
|
|
$
|
60,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
6,432,947
|
|
|
$
|
7,074,045
|
|
|
$
|
10,604,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (received) for taxes
|
|
$
|
5,270,908
|
|
|
$
|
(183,510
|
)
|
|
$
|
6,778,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Landlord-provided tenant improvements
|
|
$
|
|
|
|
$
|
(115,641
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase accounting adjustments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,359,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity paid for acquisition
|
|
$
|
|
|
|
$
|
|
|
|
$
|
47,899,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term debt funded by majority shareholder
contribution for Class D shares
|
|
$
|
|
|
|
$
|
30,135,099
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-6
Notes to
consolidated financial statements
For years ended
December 31, 2010, 2009, and 2008
|
|
1.
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
|
Nature of
operations
Staffmark Holdings, Inc. and subsidiaries (the
Company) is a portfolio company of Compass
Diversified Holdings LLC that provides various staffing services
including temporary help, employee leasing, and direct hire,
which constitutes one segment for financial reporting purposes.
The Company has staffing offices located throughout the United
States, and the Companys headquarters are in Cincinnati,
Ohio. The Company was incorporated on July 27, 1999 under
the laws of the state of Delaware as Compass CS, Inc. It later
changed its name to CBS Personnel Holdings, Inc. and, in May
2010, changed its name to Staffmark Holdings, Inc.
Principles of
consolidation
The consolidated financial statements include the accounts of
the Company. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and cash
equivalents
Cash consists of cash on deposit at banks and cash on hand. Cash
overdrafts are included with accounts payable. The Company
considers short-term investments with original maturities of
90 days or less to be cash equivalents. The Company places
its cash with high quality financial institutions. At times,
cash balances may be in excess of the Federal Deposit Insurance
Corporation (FDIC) insurance limit.
Revenue
recognition
The Company follows ASC 605 (formally known as Emerging
Issues Task Force (EITF)
99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent) in the presentation of revenues and expenses.
This guidance requires the Company to assess whether it acts as
a principal in the transaction or as an agent acting on behalf
of others. In situations where the Company is the principal in
the transaction and has the risks and rewards of ownership, the
transactions are recorded gross in the Consolidated Statements
of Operations. When the Company acts as an agent, revenues are
reported on a net basis.
Revenue from temporary staffing services is recognized at the
time services are provided by Company employees and is reported
based on gross billings to customers. Such revenue is recorded
on a gross basis as the Company is the primary obligor since it
is responsible for providing the services to the customer, has
latitude in determining price, and assumes credit risk.
Revenue from subcontracted temporary staffing services is
reported on a net basis. Net revenues recorded in revenue from
subcontracted temporary staffing services were $570,740,
$235,090, and $11,067 for the years ended December 31,
2010, 2009, and 2008, respectively. Revenue from employee
leasing services is recorded at the time services are provided
by the Company. Such revenue is reported on a net basis (gross
billings to clients less worksite employee salaries, wages, and
payroll-related taxes). Net revenues for employee leasing
services were $6,317,216, $7,283,621, and $8,226,662 for the
years ended December 31, 2010, 2009, and 2008,
respectively. Revenues from subcontracted temporary staffing
services and leasing services are recorded on a net basis as the
Company is acting as an agent. The Company is not the primary
obligor in the arrangements since either a third party or the
customer is responsible for locating and securing employees and
the Company has no discretion in determining who is employed or
how services are delivered. In addition, for leasing services,
the
F-7
Notes to
consolidated financial statements
Company has no latitude in establishing the exchange price, but
merely earns an administrative fee for its services. The Company
generally does not assume credit risk in these arrangements.
The Company recognizes revenue for direct hire services at the
employee start date, which management believes is the
culmination of the earnings process. Direct hire services are
generally fully guaranteed to the satisfaction of the customer
for a specified period, usually 30 to 90 days. Allowances
for estimated guarantee obligations are recorded as a reduction
of revenue at the time revenue is recognized.
Trade accounts
receivable and allowance for doubtful accounts
Trade accounts receivable are initially recorded at the invoiced
amount and are stated at the net amount. The Company records an
allowance for doubtful accounts based on historical loss
experience, customer payment patterns, and current economic
trends. The Company reviews the adequacy of the allowance for
doubtful accounts on a periodic basis and adjusts the balance if
necessary.
Concentrations of
credit risk
Financial instruments, which potentially subject the Company to
a concentration of credit risk, consist principally of
uncollateralized accounts receivable. The Company provides
services to customers in numerous states. The Company believes
its credit risk due to concentrations is minimal.
Goodwill and
other intangible assets
Goodwill represents the excess of the purchase price over the
fair value of net assets acquired. Purchased intangible assets
with definite lives are valued at fair value and are amortized
over their respective useful lives on a straight-line basis.
Impairment of
long-lived assets and intangible assets
The Company evaluates long-lived assets and intangible assets
with definite lives for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. When it is probable that undiscounted future
cash flows will not be sufficient to recover an assets
carrying amount, the asset is written down to its fair value.
Assets to be disposed of by sale, if any, are reported at the
lower of the carrying amount or fair value less cost to sell.
Goodwill is tested for impairment at least annually or if an
event occurs or circumstances change that may reduce the
estimated fair value of the reporting unit below its carrying
value. The Company uses one reporting unit for its goodwill
impairment testing. If the estimated fair value of the reporting
unit tested has fallen below its carrying value, the implied
fair value of goodwill is compared to the carrying value of
goodwill. If the carrying value of goodwill exceeds the implied
fair value, an impairment loss would be recognized in an amount
equal to that excess. The Company uses market and income
methodologies to determine fair value.
Based on the results of the annual impairment test performed as
of March 31, 2009, an impairment existed. This impairment
was primarily the result of the negative impact on temporary
staffing revenues and operating profit from weak macroeconomic
conditions and downward employment trends experienced in 2008
and 2009. Based on the results of the second step of the
impairment test, the Company determined that the carrying value
of the Companys goodwill exceeded its implied fair value
by approximately $50.0 million. As a result of this
shortfall, the Company recorded a $50.0 million pretax
goodwill impairment charge for 2009. The results of the annual
impairment tests performed as of March 31, 2010 and
April 30, 2008 indicated that the fair values exceeded the
carrying values and, therefore, goodwill was not impaired.
Accordingly, there were no charges for goodwill impairment in
2010 or 2008.
F-8
Notes to
consolidated financial statements
Property and
equipment
Property and equipment are recorded at cost. Depreciation is
provided over the estimated useful lives of the related assets
using the straight-line method. Leasehold improvements are
amortized over the term of the related lease or 5 years,
whichever is shorter. The estimated useful lives are as follows:
|
|
|
|
|
|
|
Years
|
|
|
|
|
Equipment
|
|
|
5
|
|
Furniture and fixtures
|
|
|
7
|
|
Computer software and hardware costs
|
|
|
3-5
|
|
Advertising
The Company expenses the cost of advertising as incurred.
Advertising expense was approximately $1,519,000, $1,648,000,
and $3,367,000 for the years ended December 31, 2010, 2009,
and 2008, respectively.
Use of
estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of 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.
Workers
compensation liability
Workers compensation liability represents estimated costs
of self insurance and large deductible plans. The reserves for
workers compensation are based upon actuarial assumptions
of individual case estimates and incurred but not reported
(IBNR) losses. At December 31, 2010 and 2009,
the current portion of these reserves is included as a component
of current workers compensation obligation and the
non-current portion is included as a component of workers
compensation obligation on the consolidated balance sheets. The
Company has purchased stop-loss insurance coverage with exposure
limits of $1,000,000 per claim as of December 31, 2010 and
2009.
Income
taxes
The Company accounts for income taxes using the asset and
liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates applied to tax/book
differences. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the period that
includes the enactment date. A valuation allowance is provided
for deferred tax assets when it is more likely than not that the
asset will not be realized. Work opportunity tax credits are
recognized as a reduction of income tax expense in the year tax
credits are certified.
The Company adopted the authoritative provisions of accounting
guidance on uncertainty in income taxes on January 1, 2007.
The adoption did not result in a cumulative adjustment to the
Companys accumulated earnings. The Company files U.S.,
state, and local income tax returns in many jurisdictions with
varying statutes of limitations. Tax years 2006 through 2009
remain subject to examination by federal taxing authorities, and
tax years 2005 through 2009 are open years subject to potential
audit by state taxing authorities.
F-9
Notes to
consolidated financial statements
Sales
tax
The Company presents taxes assessed by a governmental authority
that are both imposed on and concurrent with a specific
revenue-producing transaction between a seller and a customer on
a net basis (excluded from revenues).
Earnings per
share
Basic and fully diluted earnings per share are computed on a
weighted average basis of shares outstanding. Fully diluted
earnings per share is calculated using the treasury stock method
whereby proceeds from the exercise of stock options are assumed
to be utilized to purchase currently outstanding Company shares
for an estimated average price per share. The company estimated
the price of its stock based on valuations
and/or
transactions in its stock that have occurred over time.
Stock option
plan
The Company has a stock option plan, which is described more
fully in Note 4. For stock options granted on or after
January 1, 2006, in accordance with accepted guidance, the
Company recognizes compensation cost under the fair value
method. Under the prospective method adopted by the Company,
compensation cost is only recognized on options awards,
modifications, and cancellations made after January 1, 2006.
For options granted prior to January 1, 2006, and in
accordance with most recent guidance, the Company does not
record compensation cost related to stock options in determining
net income, as the stock option awards granted under the plan
during that period have an exercise price of at least market
value of the related stock on the date of grant. The
Companys options awards are granted with an exercise price
at the market value of the related stock or greater on the date
of grant. The table below illustrates the effect on net income
(loss) had compensation cost for stock options granted prior to
January 1, 2006 been determined pursuant to the fair value
method, which the Company has adopted for stock options granted
January 1, 2006 and after. For the purposes of pro forma
disclosure, the fair value of these options was estimated at the
date of grant using a minimum value option pricing model which
is described in Note 4.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Net income (loss)as reported
|
|
$
|
15,429,009
|
|
|
$
|
(38,235,697
|
)
|
|
$
|
5,167,066
|
|
Stock compensation expense required under fair value
methodnet of tax
|
|
|
(2,762
|
)
|
|
|
(28,936
|
)
|
|
|
(60,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)pro forma
|
|
$
|
15,426,247
|
|
|
$
|
(38,264,633
|
)
|
|
$
|
5,106,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
measurement
The Company adopted the fair value guidelines issued by the
Financial Accounting Standards Board (FASB) as of
January 1, 2008. These guidelines establish a hierarchy for
disclosure of the inputs used to measure fair value for assets
and liabilities that are required to be reported at fair value.
This hierarchy prioritizes the inputs into three broad levels as
follows. Level 1 inputs are quoted prices (unadjusted) in
active markets for identical assets or liabilities. Level 2
inputs are quoted prices for similar assets and liabilities in
active markets or inputs that are observable for the asset or
liability, either directly or indirectly through market
corroboration, for substantially the full term of the financial
instrument. Level 3 inputs are unobservable inputs based on
the Companys own assumptions used to measure assets and
liabilities at fair value. A financial asset or liabilitys
classification within the hierarchy is determined based on the
lowest level input that is significant to the fair value
measurement.
F-10
Notes to
consolidated financial statements
Recent accounting
pronouncements
In December 2010, the FASB issued amended guidance for
performing goodwill impairment tests, which was effective for
the Company on January 1, 2011. The amended guidance
requires reporting units with zero or negative carrying amounts
to be assessed to determine if it is more likely than not that
goodwill impairment exists. As part of this assessment, entities
should consider all qualitative factors that could impact the
carrying value. The Company does not expect the adoption of this
guidance will have a significant impact on the consolidated
financial statements.
In January 2010, the FASB issued amended guidance to enhance
disclosure requirements related to fair value measurements. The
amended guidance for Level 1 and Level 2 fair value
measurements was effective for the Company on January 1,
2010. The amended guidance for Level 3 fair value
measurements will be effective for the Company January 1,
2011. The guidance requires disclosures of amounts and reasons
for transfers in and out of Level 1 and Level 2
recurring fair value measurements as well as additional
information related to activities in the reconciliation of
Level 3 fair value measurements. The guidance expanded the
disclosures related to the level of disaggregation of assets and
liabilities and information about inputs and valuation
techniques. The adoption of the guidance for Level 1 and
Level 2 fair value measurements did not have a material
impact on the Companys consolidated financial statements.
The Company does not expect the adoption of the guidance related
to Level 3 fair value measurements will have a significant
impact on the consolidated financial statements.
In January 2010, the FASB issued amended authoritative guidance
related to consolidations when there is a decrease in ownership.
The guidance was effective for the Company on January 1,
2010. Specifically, the amendment clarifies the scope of the
existing guidance and increases the disclosure requirements when
a subsidiary is deconsolidated or when a group of assets is
de-recognized. The adoption of the amended guidance did not have
a significant impact on the Companys consolidated
financial statements.
|
|
2.
|
LONG-TERM DEBT
WITH A RELATED PARTY
|
The following are the components of the Companys debt as
of December 31:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Senior Debt:
|
|
|
|
|
|
|
|
|
Revolving line of credit, maturing on January 21, 2014
|
|
$
|
38,600,000
|
|
|
$
|
37,900,000
|
|
Term Note A due in quarterly installments through
January 21, 2014
|
|
|
33,535,620
|
|
|
|
41,535,620
|
|
Subordinated Debt:
|
|
|
|
|
|
|
|
|
Term Note B due in quarterly installments through
January 21, 2014
|
|
|
3,249,999
|
|
|
|
4,249,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,385,619
|
|
|
|
83,685,619
|
|
Less: current maturities
|
|
|
(29,296,355
|
)
|
|
|
(9,000,000
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
46,089,264
|
|
|
$
|
74,685,619
|
|
|
|
|
|
|
|
|
|
|
Debt
structure
On May 16, 2006, the Company entered into a Credit
Agreement with its primary shareholder that provides for Senior
Debt comprised of a revolving credit facility up to $37,500,000,
letters of credit up to $25,000,000, and a term loan (Term
Note A) of $30,000,000 and Subordinated Debt comprised
of a term loan (Term Note B) in the amount of
$20,000,000. The proceeds from these borrowings were utilized to
repay amounts outstanding under the Companys former credit
agreements and to fund the recapitalization of CBS Personnel
Holdings, Inc. on May 16, 2006.
F-11
Notes to
consolidated financial statements
On January 21, 2008, the Company amended its Credit
Agreement. Under the terms of the Amendment, the Company
increased its revolving credit facility by $30,000,000, letters
of credit by $50,000,000, and Term Note A loan by
$40,000,000. The Term Note A maturity date was extended to
January 14, 2014. Term Note B was increased by
$20,000,000 and the maturity date extended to January 21,
2015. The proceeds from these borrowings were utilized to
finance the acquisition of Staffmark (see Note 12).
The Company amended its Credit Agreement effective
March 31, 2009. The Amendment required a pay down of the
Term Note B in the amount of $35,000,000, which was funded
by contributions of approximately $30.1 million from the
Companys majority shareholder, who is also the
Companys lender and approximately $4.9 million from
the Companys largest minority shareholder. Additionally,
the amendment accelerated the maturity date to January 21,
2014 from January 21, 2015. The Amendment also required
accelerated amortization of principal for both the Term A and
Term B Notes. This amendment was accounted for as a debt
modification in accordance with
ASC 470-50
(DebtModifications and
Extinguishments). Accordingly, the Company capitalized
costs paid to the lender of $250,000 and expensed costs paid to
other third parties of approximately $572,000.
Senior Debt under the Credit Agreement bears interest equal to
LIBOR plus a margin ranging from 2.25% to 5.25%, depending on
the Companys ratio of consolidated debt to EBITDA; or the
greater of prime or the U.S. Fed Funds Rate plus a margin
ranging from 0.75% to 3.75%, depending on the Companys
ratio of consolidated debt to EBITDA. The rates on the various
Senior Debt components at December 31, 2010 ranged from
4.51% to 6.00%.
The Company is required under the Credit Agreement, as amended,
to pay a commitment fee on the unused portion of the revolving
credit commitment and on standby letters of credit. The
revolving credit commitment fee ranges from 0.25% to 0.50%,
depending on the Companys consolidated debt to EBITDA
ratio. The standby letter of credit commitment fee shall not
exceed 4.25%.
Borrowings under the revolving
line-of-credit
are limited to a defined borrowing base equal to 85% of eligible
accounts receivable plus 75% of eligible unbilled receivables.
As of December 31, 2010, approximately $28,900,000 was
available to borrow.
The Company is required to post approximately $72,700,000 for
letters of credit, the majority of which are related to the
Companys workers compensation arrangements. The
Company has letters of credit outstanding of approximately
$66,700,000 at December 31, 2010. An entity affiliated with
the Companys largest minority shareholder has posted
$6,000,000 for the benefit of Staffmark. This is related to the
acquisition of Staffmark in January 2008.
Subordinated Debt under the Credit Agreement bears interest
equal to LIBOR plus a margin ranging from 6.50% to 10.00%,
depending on the Companys ratio of consolidated debt to
EBITDA; or the greater of prime or the U.S. Fed Funds Rate
plus a margin ranging from 5.00% to 8.50%, depending on the
Companys ratio of consolidated debt to EBITDA. The rate on
the Subordinated Debt at December 31, 2010 was 10.26%.
The Companys Amended Credit Agreement contains affirmative
and negative covenants. The Agreement requires the Company to
maintain levels of minimum EBITDA and Maintenance Fixed Charge
Coverage, as defined in the Agreement. Additionally, these
covenants limit the Companys ability to incur additional
debt, distribute dividends and limit capital expenditures, among
other restrictions. Borrowings under the Credit Agreement are
secured by the assets of the Company.
In connection with the Amendment and the requirements of the
Maintenance Fixed Charge Coverage ratio calculation, as defined
in the Agreement, the Company received additional capital
contributions in 2009 of approximately $4,500,000 from its
shareholders. These contributions were used to pay down debt.
F-12
Notes to
consolidated financial statements
The Credit Agreement contains a provision that requires
additional annual payments of principal, in the amount of 90% of
Excess Cash Flow as defined in the Credit Agreement.
Maturities of
debt
The fair value of the Companys outstanding debt does not
differ materially from its recorded amount.
The maturities of long-term debt for each of the years
subsequent to December 31, 2010 are as follows:
|
|
|
|
|
2011
|
|
$
|
29,296,355
|
|
2012
|
|
|
9,000,000
|
|
2013
|
|
|
9,000,000
|
|
2014
|
|
|
28,089,264
|
|
|
|
|
|
|
|
|
$
|
75,385,619
|
|
|
|
|
|
|
Effective March 31, 2009, the Companys authorized
capital stock consists of 5,000,000 shares of Class A
common, 5,000,000 shares of Class B common,
2,000,000 shares of Class C common, and
10,000,000 shares of Class D common. Holders of
Class A and Class D shares are entitled to 10 votes
per share, whereas holders of Class B and C shares are
entitled to 1 vote per share. In the event of any liquidation,
dissolution, or winding up of the Company, holders of
Class D shares are entitled to payment of $6 per share
before any distribution or payment to Class A, B, or C
shareholders. After payment of all preferential amounts to
Class D shareholders, distributions would be made ratably
to the holders of Class A, Class B, and Class C
common shares, up to $6 per share. Finally, any remaining assets
would be distributed ratably among holders of Class A,
Class B, Class C, and Class D common shares, in
proportion to the number of shares held.
The Company has a stock option plan which provides for the
issuance of incentive stock options to employees of the Company.
Under the terms of this plan, options are granted at an exercise
price that is not less than the fair market value of the related
stock, vest as established by the Board of Directors (generally
ratably over 3-5 years), are exercisable immediately upon
vesting, and generally expire within 10 years from the date
of grant. Provisions of the current plan call for a maximum of
1,000,000 Class C shares to be issued over the life of the
plan, and option grants can be made as long as the total of
issued and outstanding shares plus options outstanding do not
exceed that amount. We have granted options for additional
shares under similar plans that have expired. As of
December 31, 2010, approximately 111,500 shares were
available for grant.
Prior to January 1, 2006, fair value of options granted was
estimated by the Company through the use of the minimum value
method. The Company does not recognize compensation expense for
awards issued during that time. Beginning January 1, 2006,
the Company began recognizing compensation cost for employee
stock options. This expense is based on the fair value on the
grant date and charged to expense over the employees
requisite service period for the option. Compensation costs are
only applied to new options awards and those modified,
repurchased, or cancelled on or after January 1, 2006.
For the years ended December 31, 2010, 2009, and 2008, the
amount of stock-based compensation expense reported was
approximately $1,736,000, $1,511,000, and $1,161,000,
respectively. Future stock compensation expense for unvested
options at December 31, 2010 is approximately $3,430,000,
which is expected to be recognized over a weighted average
period of approximately 2.23 years.
The Company estimates the fair value of stock options granted on
or after January 1, 2006 using the Black-Scholes valuation
model. Key input assumptions used to estimate the fair value of
stock options
F-13
Notes to
consolidated financial statements
include a) the fair value of the stock at the date of
grant; b) the expected term of the options, based on their
contractual lives and holders historical behavior;
c) the expected share price volatility of the
Companys stock based on a peer-group of companies; and
d) the risk-free interest rate based on Treasury rates that
correspond to the lives of the options. The Company believes
that the valuation technique and the approach utilized to
develop the underlying assumptions are appropriate in estimating
the fair values of the Companys stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Share price volatility
|
|
|
44.4
|
%
|
|
|
44.4
|
%
|
|
|
48.2
|
%
|
Risk-free interest rates
|
|
|
3.29-3.73
|
%
|
|
|
3.56
|
%
|
|
|
3.74-3.81
|
%
|
Expected term
|
|
|
6.50 years
|
|
|
|
6.50 years
|
|
|
|
6.50 years
|
|
The following table summarizes stock option activity for the
year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
options
|
|
|
|
Pre-1/1/2006
options
|
|
|
Post-1/1/2006
options
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
average
|
|
|
Approximate
|
|
|
|
|
|
|
average
|
|
|
|
|
|
average
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
aggregate
|
|
|
|
Number of
|
|
|
exercise
|
|
|
Number of
|
|
|
exercise
|
|
|
Number of
|
|
|
exercise
|
|
|
contractual
|
|
|
intrinsic
|
|
|
|
options
|
|
|
price
|
|
|
options
|
|
|
price
|
|
|
options
|
|
|
price
|
|
|
life
(yrs)
|
|
|
value
|
|
|
|
|
Outstanding BalanceDecember 31, 2009
|
|
|
109,167
|
|
|
$
|
6.21
|
|
|
|
1,171,401
|
|
|
$
|
11.43
|
|
|
|
1,280,568
|
|
|
$
|
10.98
|
|
|
|
8.39
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
|
|
8.73
|
|
|
|
175,000
|
|
|
|
8.73
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding BalanceDecember 31, 2010
|
|
|
109,167
|
|
|
$
|
6.21
|
|
|
|
1,346,401
|
|
|
$
|
11.08
|
|
|
|
1,455,568
|
|
|
$
|
10.71
|
|
|
|
7.65
|
|
|
$
|
10,581,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010
|
|
|
109,167
|
|
|
$
|
6.21
|
|
|
|
566,299
|
|
|
$
|
12.75
|
|
|
|
675,466
|
|
|
$
|
11.69
|
|
|
|
6.73
|
|
|
$
|
4,246,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the years
ended December 31, 2010, 2009, and 2008 was approximately
$0, $103,000, and $1,094,000, respectively. The weighted average
fair value of options that vested during the years ended
December 31, 2010, 2009, and 2008 was approximately $5.19,
$9.22, and $5.06 per share, respectively. The weighted average
fair value of stock options granted during the years ended
December 31, 2010, 2009, and 2008 was $7.75, $2.97, and
$13.07 per share, respectively.
The Companys income tax provision (benefit) consisted of
the following components for the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,439,488
|
|
|
$
|
(7,380,583
|
)
|
|
$
|
6,233,224
|
|
State and local
|
|
|
350,946
|
|
|
|
|
|
|
|
1,072,138
|
|
Deferred
|
|
|
1,518,486
|
|
|
|
(17,807,490
|
)
|
|
|
(5,791,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,308,920
|
|
|
|
(25,188,073
|
)
|
|
|
1,513,960
|
|
Other
|
|
|
(686,057
|
)
|
|
|
(257,335
|
)
|
|
|
(289,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,622,863
|
|
|
$
|
(25,445,408
|
)
|
|
$
|
1,224,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
Notes to
consolidated financial statements
The income tax provision (benefit) reconciled to the tax
computed at the statutory federal income tax rate was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Provision (benefit) at federal statutory rate
|
|
$
|
6,668,155
|
|
|
$
|
(22,288,387
|
)
|
|
$
|
2,236,881
|
|
State and local taxesnet of federal benefit
|
|
|
1,085,443
|
|
|
|
(1,876,740
|
)
|
|
|
341,684
|
|
Work opportunity tax credits (WOTC)
|
|
|
(6,633,403
|
)
|
|
|
(2,525,904
|
)
|
|
|
(2,491,074
|
)
|
Permanent items
|
|
|
3,188,725
|
|
|
|
1,502,958
|
|
|
|
1,426,469
|
|
Other
|
|
|
(686,057
|
)
|
|
|
(257,335
|
)
|
|
|
(289,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
3,622,863
|
|
|
$
|
(25,445,408
|
)
|
|
$
|
1,224,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the deferred income tax amounts at
December 31, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Deferred income tax assets
|
|
|
|
|
|
|
|
|
Allowance for bad debt
|
|
$
|
951,837
|
|
|
$
|
980,784
|
|
Workers compensation
|
|
|
17,960,812
|
|
|
|
14,951,700
|
|
Other accrued expenses
|
|
|
2,405,753
|
|
|
|
2,228,423
|
|
Depreciation and amortization
|
|
|
|
|
|
|
494,960
|
|
Goodwill
|
|
|
2,084,388
|
|
|
|
5,294,631
|
|
State NOLs
|
|
|
205,248
|
|
|
|
672,079
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
23,608,038
|
|
|
|
24,622,577
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(503,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets, net
|
|
$
|
23,104,091
|
|
|
$
|
24,622,577
|
|
|
|
|
|
|
|
|
|
|
Current deferred income tax assets
|
|
$
|
2,701,031
|
|
|
$
|
3,058,855
|
|
Long-term deferred income tax assets
|
|
|
20,403,060
|
|
|
|
21,563,722
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,104,091
|
|
|
$
|
24,622,577
|
|
|
|
|
|
|
|
|
|
|
The Company believes that based on its current and expected
future operating results, the deferred tax assets will be
realized and that no valuation allowance was needed at
December 31, 2010 and 2009.
The Company has state tax credits of approximately $205,248 and
$672,079 as of December 31, 2010 and 2009, respectively, as
a result of net operating loss carryforwards. These
carryforwards/credits expire over the next
15-20 years.
|
|
6.
|
INTANGIBLE ASSETS
AND DEFERRED FINANCING COSTS
|
Amounts recorded to goodwill are as follows:
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
139,714,729
|
|
Impairment
|
|
|
(50,000,000
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
89,714,729
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
89,714,729
|
|
|
|
|
|
|
F-15
Notes to
consolidated financial statements
Other intangible assets consisted of the following at December
31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Useful
lives
|
|
|
Non-compete agreements
|
|
$
|
2,075,000
|
|
|
$
|
2,075,000
|
|
|
3 to 5 years
|
Trademarks and names
|
|
|
25,705,657
|
|
|
|
25,705,657
|
|
|
4 to 15 years
|
Customer list
|
|
|
31,992,690
|
|
|
|
31,792,690
|
|
|
7 to 12 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,773,347
|
|
|
|
59,573,347
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreements
|
|
|
(2,052,604
|
)
|
|
|
(1,694,271
|
)
|
|
|
Trademarks and trade names
|
|
|
(6,003,573
|
)
|
|
|
(4,370,240
|
)
|
|
|
Customer lists
|
|
|
(11,087,870
|
)
|
|
|
(8,175,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40,629,300
|
|
|
$
|
45,332,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan origination fees at December 31:
|
|
|
|
|
|
|
|
|
|
|
Loan origination fees
|
|
$
|
2,518,750
|
|
|
$
|
2,518,750
|
|
|
Life of related loan
|
Accumulated amortization
|
|
|
(1,550,895
|
)
|
|
|
(1,072,662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan origination fees
|
|
$
|
967,855
|
|
|
$
|
1,446,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization is recorded on a straight-line basis for intangible
assets except for certain loan origination fees. Amortization
for certain loan origination fees is recorded using the
effective interest method.
Expected future amortization of intangible assets and loan
origination fees is as follows:
|
|
|
|
|
Year ended
December 31:
|
|
|
|
|
|
|
2011
|
|
$
|
5,073,067
|
|
2012
|
|
|
4,818,463
|
|
2013
|
|
|
4,526,948
|
|
2014
|
|
|
3,682,427
|
|
2015
|
|
|
3,673,333
|
|
2016 and thereafter
|
|
|
19,822,917
|
|
|
|
|
|
|
|
|
$
|
41,597,155
|
|
|
|
|
|
|
|
|
7.
|
PROPERTY AND
EQUIPMENT
|
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
Year ended
December 31:
|
|
2010
|
|
|
2009
|
|
|
|
|
Furniture, fixtures, and equipment
|
|
$
|
18,132,760
|
|
|
$
|
15,424,631
|
|
Leasehold improvements
|
|
|
2,732,026
|
|
|
|
2,511,569
|
|
Vehicles
|
|
|
47,389
|
|
|
|
47,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,912,175
|
|
|
|
17,983,589
|
|
Lessaccumulated depreciation
|
|
|
(15,864,588
|
)
|
|
|
(13,415,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,047,587
|
|
|
$
|
4,568,120
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2010,
2009, and 2008 was $2,659,529, $3,026,465, and $3,386,399,
respectively.
F-16
Notes to
consolidated financial statements
|
|
8.
|
RELATED PARTY
TRANSACTIONS
|
Management
services agreement
The Company entered into a management services agreement with an
affiliated entity in 2000. The fee is 0.15% of annual gross
revenue, payable in quarterly installments in arrears. In May
2006, this agreement was assigned to an affiliated entity of the
new primary shareholder. The terms and conditions of the
agreement remained materially unaltered with the assignment,
including the fee percentage. As a part of the Staffmark
acquisition (see Note 12), the Company entered into a
management services agreement with its new minority shareholder.
The total management fee remains 0.15%, but is split based on
the relative ownership of the majority and minority shareholders
as of the completion of the acquisition. Under the terms of the
March 31, 2009 amendment of the Companys Credit
Agreement (see Note 2), management fees are accrued, but
not paid unless the Company achieves defined levels of its Total
Debt to EBITDA and Senior Debt to EBITDA ratios. The Company did
not achieve those levels for any quarter during 2009.
At December 31, 2010, management fees totaling
approximately $1,359,000 and $931,000 were accrued in the
accompanying balance sheet in other long-term liabilities for
the years ended December 31, 2010 and 2009, respectively.
Total management fees to related parties of approximately
$428,000, $931,000, and $1,715,000 were expensed for the years
ended December 31, 2010, 2009, and 2008, respectively. Both
shareholders reduced their management fee to be 25% of the full
year calculated management fee plus $100 per quarter per
shareholder for each of the second, third, and fourth quarters
of 2010 only.
Other than for the cost of providing services under the
management services agreement, which are included in the
management fee, neither the majority shareholder nor the
minority shareholder has paid any obligations nor incurred any
expenses on behalf of the Company for which it has not been
reimbursed. The Company believes that the fees paid pursuant to
this agreement represent a reasonable value for the services
rendered.
The Company has sales to Fox Factory, Inc. (Fox) and
Tridien Medical, Inc. (Tridien), entities that are
controlled by the Companys majority shareholder. Sales to
Fox were approximately $5,947,000, $2,995,000, and $334,000 for
the years ended December 31, 2010, 2009, and 2008,
respectively. Accounts receivable from Fox at December 31,
2010 and 2009 were approximately $572,000 and $491,000,
respectively. Sales to Tridien were approximately $3,542,000 for
the year ended December 31, 2010. There were no sales to
Tridien for the years ended December 31, 2009 and 2008.
Accounts receivable from Tridien were approximately $352,000 at
December 31, 2010.
Borrowings
The Company has incurred interest expense of approximately
$7,080,000, $7,674,000, and $11,107,000 for the years ended
December 31, 2010, 2009, and 2008, respectively (see
Note 2). At December 31, 2010 and 2009, accrued
interest payable and fees payable for letters of credit included
in other current liabilities on the balance sheets were $687,000
and $688,000, respectively. This interest expense, interest
payable, and fees payable for letters of credit are related to a
debt facility with the Companys majority shareholder.
|
|
9.
|
COMMITMENTS AND
CONTINGENCIES
|
Leases
The Company leases office facilities, computer equipment, and
software under operating arrangements. Rent expense, net of
sublease rental income, for 2010, 2009, and 2008 was
approximately $7,059,000, $8,391,000, and $11,640,000,
respectively. The leases provide for increases in future minimum
annual
F-17
Notes to
consolidated financial statements
rental payments based on defined increases in the lease terms.
In the normal course of business, it is expected that these
leases will be renewed or replaced by leases on other properties.
The minimum future rental payments under noncancelable operating
leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
|
|
|
|
Gross
|
|
|
Sublease
|
|
|
lease
|
|
Years ended
December 31:
|
|
payments
|
|
|
receipts
|
|
|
commitments
|
|
|
|
|
2011
|
|
$
|
5,389,092
|
|
|
$
|
(304,177
|
)
|
|
$
|
5,084,915
|
|
2012
|
|
|
3,966,645
|
|
|
|
(313,303
|
)
|
|
|
3,653,342
|
|
2013
|
|
|
2,394,343
|
|
|
|
(240,225
|
)
|
|
|
2,154,118
|
|
2014
|
|
|
1,381,828
|
|
|
|
|
|
|
|
1,381,828
|
|
2015
|
|
|
1,052,567
|
|
|
|
|
|
|
|
1,052,567
|
|
2016 and thereafter
|
|
|
49,090
|
|
|
|
|
|
|
|
49,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
14,233,565
|
|
|
$
|
(857,705
|
)
|
|
$
|
13,375,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation
We are the subject of two class action lawsuits,
Jaramillo v. Staffmark Inc., et al and
Lopez v. Staffmark Investment LLC, pending in the
Los Angeles County Superior Court and Riverside County Superior
Court, respectively. Both cases involve claims for statutory
monetary damages from current and former employees resulting
from alleged violations of the California Labor Code. Our motion
to coordinate the cases was recently approved and proceedings
are stayed in both matters pending the assignment of a
coordination trial judge. At this stage of the litigation, it is
not feasible to predict the outcome of or a range of loss,
should a loss occur, from these proceedings, and, accordingly,
no amounts have been provided in the accompanying financial
statements. We believe we have meritorious defenses to the
allegations and will continue to vigorously defend against the
litigation.
We are also involved in a number of other lawsuits that arise in
the ordinary course of our business. We maintain insurance in
amounts and with such coverage and deductibles that we believe
are reasonable and prudent. The principal risks that we insure
against are workers compensation, personal injury, bodily
injury, property damage, professional malpractice, errors and
omissions, and fidelity losses. We also have the typical wage
and hour matters and employment issues (mainly filed against our
customers) in the ordinary course of business. Management does
not expect that the outcome of any of the ordinary course of
business lawsuits relating to such matters will have a material
adverse effect on our financial condition, results of
operations, or cash flows.
Employment
agreements
Certain of the Companys executives are covered by
employment agreements which include, among other terms, base
compensation, incentive-bonus determinations, and payments in
the event of termination or change in control of the Company.
|
|
10.
|
RETIREMENT
SAVINGS PLANS
|
The Companys 401(k) retirement savings plan covers all
regular staff employees who have completed one month of service
and have reached age 21, except those covered by the
Executive Bonus Plan, as described below. Employees may
contribute up to 100% of the maximum allowed by the
U.S. Internal Revenue Code. The Company, on a quarterly
basis, matches employee contributions based on the Company
achieving certain EBITDA targets. Temporary employees of the
Company may contribute to the plan after one year of service and
no less than 1,000 hours worked. Temporary employees are
not eligible for any Company match.
F-18
Notes to
consolidated financial statements
The maximum Company contribution is 4% of a participants
eligible compensation. Company contributions to these plans were
approximately $346,000, $0, and $465,000 for the years ended
December 31, 2010, 2009, and 2008, respectively.
Effective January 1, 2002, the Company adopted a
non-qualified Executive Bonus Plan as a welfare benefit plan for
the Companys employees who have completed six or more
months of service and who are designated by the Administrator as
eligible for the plan because they are not eligible to
participate in the Companys 401(k) retirement plan.
Employees contribute to the plan at their will and the Company
matches employee contributions based on the Company achieving
certain EBITDA targets. The maximum Company contribution is 4%
of a participants eligible compensation. Company
contributions to the plan were approximately $273,000, $0, and
$225,000 for the years ended December 31, 2010, 2009, and
2008, respectively.
At the time of the Staffmark acquisition (see Note 12),
Staffmark had a 401(k) retirement savings plan that covered all
regular staff and temporary employees who had reached
age 21. Those covered by the Staffmark Highly Compensated
Employee (HCE) Bonus plan, as described below were
eligible to participate in
catch-up
contributions only, as allowed by the U.S. Internal Revenue
Code. Employees could contribute up to 100% of the maximum
allowed by the U.S. Internal Revenue Code. Staffmark
matched employee contributions including
catch-up
contributions on a per paycheck basis at 50% of the first 6% of
deferral. Regular staff employees were automatically enrolled at
a 2% deferral rate as administratively feasible. The Staffmark
plan was merged into the Companys 401(k) plan effective
December 15, 2008.
The maximum Staffmark plan contribution was 3% of a
participants eligible compensation. Company contributions
to this plan were approximately $466,000 for the year ended
December 31, 2008. Staffmarks HCE Bonus plan, a
post-tax non-qualified plan, remained in effect for 2008.
Staffmarks plan included a 60% company match of
participant deferrals to a maximum annual limit of $8,000 per
participant. For the year ended December 31, 2008, the
Company contributed approximately $117,000. The Staffmark plan
was eliminated effective December 31, 2008, and all HCEs in
the Staffmark plan were invited to participate in the CBS
Executive Bonus Plan effective January 1, 2009.
|
|
11.
|
UNAUDITED
QUARTERLY FINANCIAL DATA
|
The following table presents the unaudited quarterly financial
data. This information has been prepared on a basis consistent
with that of the audited consolidated financial statements, and
all necessary material adjustments, consisting of normal
recurring accruals and adjustments, have been included to
present fairly the unaudited quarterly financial data. The
quarterly results of operations for these periods are not
necessarily indicative of future results of operations. The per
share calculations for each of the quarters are based on the
weighted average number of shares for each period; therefore,
the sum of the quarters may not necessarily be equal to the full
year per share amount.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
|
|
Revenues
|
|
$
|
262,422,954
|
|
|
$
|
271,333,761
|
|
|
$
|
251,352,838
|
|
|
$
|
217,402,299
|
|
Gross profit
|
|
|
41,481,151
|
|
|
|
41,277,164
|
|
|
|
36,178,314
|
|
|
|
28,876,653
|
|
Income (loss) from operations
|
|
|
9,187,889
|
|
|
|
10,628,981
|
|
|
|
6,243,337
|
|
|
|
(832,265
|
)
|
Net income (loss)
|
|
$
|
6,186,201
|
|
|
$
|
7,446,345
|
|
|
$
|
451,462
|
|
|
$
|
1,345,001
|
|
Basic earnings per share
|
|
$
|
0.48
|
|
|
$
|
0.57
|
|
|
$
|
0.03
|
|
|
$
|
0.10
|
|
Diluted earnings per share
|
|
$
|
0.46
|
|
|
$
|
0.56
|
|
|
$
|
0.03
|
|
|
$
|
0.10
|
|
F-19
Notes to
consolidated financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
|
Revenues
|
|
$
|
219,704,893
|
|
|
$
|
193,282,898
|
|
|
$
|
169,350,571
|
|
|
$
|
163,002,113
|
|
Gross profit
|
|
|
32,128,948
|
|
|
|
29,652,343
|
|
|
|
26,383,367
|
|
|
|
24,375,539
|
|
Income (loss) from operations
|
|
|
3,326,932
|
|
|
|
1,000,422
|
|
|
|
(1,458,315
|
)
|
|
|
(58,471,371
|
)
|
Net income (loss)
|
|
$
|
2,215,680
|
|
|
$
|
(51,534
|
)
|
|
$
|
(2,872,609
|
)
|
|
$
|
(37,527,234
|
)
|
Basic earnings (loss) per share
|
|
$
|
0.17
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(5.86
|
)
|
Diluted earnings (loss) per share
|
|
$
|
0.17
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(5.86
|
)
|
PurchaseStaffmark
Investment LLC and its subsidiariesJanuary 2008
On January 21, 2008, the Company acquired Staffmark
Investment LLC and its subsidiaries (Staffmark).
Under the terms of the Purchase Agreement, the Company purchased
all of the outstanding equity interests of Staffmark for
approximately $133.8 million. Staffmark is a leading
provider of commercial staffing services in the United States.
At the time of the acquisition, Staffmark provided staffing
services in over 30 states through over 200 branches and
on-site
locations. The majority of Staffmarks revenues are derived
from light industrial staffing, with the balance of revenues
derived from administrative and transportation staffing, direct
hire services, and managed solutions.
At closing, the Company repaid approximately $80 million of
Staffmark debt and issued approximately $47.9 million of
the Companys common stock representing approximately 29%
of the Companys outstanding common stock.
The purchase price was based on valuing Staffmarks
estimated earnings stream, and when compared to the net assets
acquired, resulted in tax deductible goodwill of approximately
$78.9 million. A portion of this goodwill was included in
the $50 million impairment charge that the Company incurred
in 2009 (see Note 1).
The Company finalized the allocation of the purchase price as of
December 31, 2008. The purchase price was allocated as
follows (amounts in thousands):
|
|
|
|
|
Cash
|
|
$
|
8,997
|
|
Accounts receivable
|
|
|
65,673
|
|
Property and equipment
|
|
|
3,545
|
|
Other assets
|
|
|
5,376
|
|
Non-compete agreements
|
|
|
1,075
|
|
Trademarks and trade names
|
|
|
24,500
|
|
Customer relationships
|
|
|
24,480
|
|
Goodwill
|
|
|
78,947
|
|
Accounts payable
|
|
|
(11,805
|
)
|
Workers compensation
|
|
|
(34,786
|
)
|
Settlement reserve
|
|
|
(6,600
|
)
|
Accrued expenses
|
|
|
(25,591
|
)
|
|
|
|
|
|
|
|
$
|
133,811
|
|
|
|
|
|
|
The results of operations of Staffmark are included with results
of operations of the Company beginning January 21, 2008.
F-20
Notes to
consolidated financial statements
The unaudited pro-forma financial information as if Staffmark
had been acquired at the beginning of fiscal 2008 is as follows
(amounts in thousands):
|
|
|
|
|
|
|
2008
|
|
|
|
|
Net revenues
|
|
$
|
1,037,418
|
|
Net income
|
|
$
|
4,214
|
|
The unaudited pro-forma financial information includes
amortization of intangibles related to debt incurred to finance
the acquisition. The information is provided for illustrative
purposes only and is not necessarily indicative of what actually
would have occurred if the acquisition had been completed as of
the beginning of the fiscal period presented, nor is it
necessarily indicative of future consolidated results.
The Company has evaluated subsequent events through the issuance
of these financial statements on March 31, 2011, and
determined there have not been any events that would require
additional disclosure in or adjustment to the audited
consolidated financial statements, except as disclosed below.
Retirement of
companys chief executive officer
(CEO)
Effective with his retirement, on March 19, 2011, Fred
Kohnke has entered into a consulting agreement with the Company
through March 31, 2012 to assist the Company with
transition and other matters. For these services,
Mr. Kohnke will receive quarterly payments in advance,
beginning April 15, 2011 and ending December 31, 2011,
totaling $1,091,797 for the year. Additionally, the vesting of
Mr. Kohnkes stock options was accelerated, resulting
in the acceleration of stock option expense to the Company of
approximately $560,000, which was recognized in the first
quarter of 2011.
F-21
Staffmark
Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
2011Unaudited
|
|
|
2010
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
14,661
|
|
|
$
|
53,178
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Trade, net of allowance for doubtful accounts of $2,257,407 and
$2,519,056 at March 31, 2011 and December 31, 2010,
respectively
|
|
|
106,290,788
|
|
|
|
111,779,669
|
|
Unbilled revenue
|
|
|
18,093,065
|
|
|
|
13,736,920
|
|
Income tax receivable
|
|
|
1,881,156
|
|
|
|
406,216
|
|
Prepaid expenses and other current assets
|
|
|
4,280,256
|
|
|
|
6,298,864
|
|
Deferred tax assets
|
|
|
2,430,849
|
|
|
|
2,701,031
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
132,990,775
|
|
|
|
134,975,878
|
|
Property and equipmentnet
|
|
|
5,131,710
|
|
|
|
5,047,587
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
89,714,729
|
|
|
|
89,714,729
|
|
Loan origination feesnet
|
|
|
859,330
|
|
|
|
967,855
|
|
Other intangiblesnet
|
|
|
39,333,091
|
|
|
|
40,629,300
|
|
Deferred tax assetslong term
|
|
|
20,325,823
|
|
|
|
20,403,060
|
|
Other
|
|
|
1,714,411
|
|
|
|
1,797,590
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
290,069,869
|
|
|
$
|
293,535,999
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt with a related party
|
|
$
|
9,000,000
|
|
|
$
|
29,296,355
|
|
Accounts payable
|
|
|
6,912,034
|
|
|
|
8,710,709
|
|
Accrued expenses:
|
|
|
|
|
|
|
|
|
Accrued payroll, bonuses and commissions
|
|
|
30,124,401
|
|
|
|
20,397,963
|
|
Payroll taxes and other withholdings
|
|
|
20,011,009
|
|
|
|
11,402,328
|
|
Current portion of workers compensation obligation
|
|
|
17,942,922
|
|
|
|
18,170,008
|
|
Other
|
|
|
9,793,543
|
|
|
|
7,517,804
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
93,783,909
|
|
|
|
95,495,167
|
|
Long-term debt with a related party
|
|
|
43,739,265
|
|
|
|
46,089,264
|
|
Workers compensation obligation
|
|
|
40,901,603
|
|
|
|
40,588,282
|
|
Other
|
|
|
1,781,616
|
|
|
|
1,358,867
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
180,206,393
|
|
|
|
183,531,580
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
Class A, $0.001 par value, 5,000,000 shares
authorized; issued and outstanding 3,741,511 at March 31,
2011 and December 31, 2010
|
|
|
3,741
|
|
|
|
3,741
|
|
Class B, $0.001 par value, 5,000,000 shares
authorized; issued and outstanding 2,436,750 at March 31,
2011 and December 31, 2010
|
|
|
2,437
|
|
|
|
2,437
|
|
Class C, $0.001 par value, 2,000,000 shares
authorized; issued and outstanding 258,483 and
250,483 shares at March 31, 2011 and December 31,
2010, respectively
|
|
|
259
|
|
|
|
251
|
|
Class D, $0.001 par value, 10,000,000 shares
authorized; issued and outstanding 6,588,029 shares at
March 31, 2011 and December 31, 2010
|
|
|
6,588
|
|
|
|
6,588
|
|
Additional paid-in capital
|
|
|
103,262,439
|
|
|
|
102,194,763
|
|
Accumulated earnings
|
|
|
6,588,012
|
|
|
|
7,796,639
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
109,863,476
|
|
|
|
110,004,419
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
290,069,869
|
|
|
$
|
293,535,999
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-22
Staffmark
Holdings, Inc.
Consolidated
statements of operations
For the three months ended
March 31, 2011 and 2010 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Revenues
|
|
$
|
246,799,275
|
|
|
$
|
217,402,299
|
|
Cost of revenues
|
|
|
214,850,274
|
|
|
|
188,525,646
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
31,949,001
|
|
|
|
28,876,653
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
31,148,544
|
|
|
|
28,483,022
|
|
Amortization
|
|
|
1,136,472
|
|
|
|
1,225,896
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(336,015
|
)
|
|
|
(832,265
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense to a related party
|
|
|
(1,330,962
|
)
|
|
|
(1,792,933
|
)
|
Other income
|
|
|
261,053
|
|
|
|
179,750
|
|
|
|
|
|
|
|
|
|
|
Loss before benefit for income taxes
|
|
|
(1,405,924
|
)
|
|
|
(2,445,448
|
)
|
Benefit for income taxes
|
|
|
(197,296
|
)
|
|
|
(3,790,449
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,208,628
|
)
|
|
$
|
1,345,001
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.09
|
)
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.09
|
)
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
13,019,973
|
|
|
|
13,016,773
|
|
Incremental shares from the assumed exercise of dilutive stock
options
|
|
|
|
|
|
|
315,850
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
13,019,973
|
|
|
|
13,332,623
|
|
|
|
|
|
|
|
|
|
|
Stock options not included in the computation of diluted
earnings (loss) per share as their effect would have been
antidilutive
|
|
|
1,447,568
|
|
|
|
467,901
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-23
Staffmark
Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,208,628
|
)
|
|
|
1,345,001
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,991,045
|
|
|
|
2,020,484
|
|
Loss on disposal of property and equipment
|
|
|
3,838
|
|
|
|
547
|
|
Stock compensation expense
|
|
|
1,051,684
|
|
|
|
370,045
|
|
Loss on disposal of intangible asset
|
|
|
159,737
|
|
|
|
|
|
Deferred taxes
|
|
|
818,963
|
|
|
|
(1,257,877
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable, unbilled and tax
receivable
|
|
|
1,938,097
|
|
|
|
(8,176,964
|
)
|
(Increase) decrease in prepaid expenses and other assets
|
|
|
(178,515
|
)
|
|
|
147,394
|
|
Decrease in accounts payable
|
|
|
(1,798,676
|
)
|
|
|
(3,772,301
|
)
|
Increase in accrued expenses and other long-term liabilities
|
|
|
20,648,302
|
|
|
|
12,965,135
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
23,425,847
|
|
|
|
3,641,564
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of equipment and improvements
|
|
|
(834,009
|
)
|
|
|
(481,865
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(834,009
|
)
|
|
|
(481,865
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
16,000
|
|
|
|
|
|
Purchase of customer lists
|
|
|
|
|
|
|
(19,306
|
)
|
Proceeds from swing-line/revolver
|
|
|
71,750,000
|
|
|
|
82,950,000
|
|
Repayments of swing-line/revolver
|
|
|
(71,850,000
|
)
|
|
|
(83,750,000
|
)
|
Repayment of long-term debt
|
|
|
(22,546,355
|
)
|
|
|
(2,250,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(22,630,355
|
)
|
|
|
(3,069,306
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(38,517
|
)
|
|
|
90,393
|
|
CashBeginning of period
|
|
|
53,178
|
|
|
|
88,441
|
|
|
|
|
|
|
|
|
|
|
CashEnd of period
|
|
$
|
14,661
|
|
|
$
|
178,834
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,315,707
|
|
|
$
|
1,615,942
|
|
|
|
|
|
|
|
|
|
|
Cash paid (received) for taxes
|
|
$
|
458,680
|
|
|
$
|
(91,657
|
)
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-24
|
|
1.
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
|
Basis of
presentation
The accompanying unaudited Consolidated Financial Statements
include the accounts of Staffmark Holdings, Inc. and
subsidiaries (the Company) in accordance with
accounting principles generally accepted in the United States
(GAAP). All intercompany transactions and balances
have been eliminated.
The statements have been prepared in accordance with the
accounting policies described in the Companys
Form S-1
Registration Statement and should be read in conjunction with
the Consolidated Financial Statements for the year ended
December 31, 2010 and notes included therein. These
statements do not include all of the information and footnotes
required by GAAP for complete financial statements.
In the opinion of management all material adjustments (primarily
consisting of normal recurring accruals) considered necessary
for a fair presentation of the financial positions, results of
operations and cash flows for the periods presented have been
included and the disclosures herein are adequate. The results
for interim periods are unaudited and not necessarily indicative
of the results that can be expected for a full year.
Workers
compensation liability
Workers compensation liability represents estimated costs
of self insurance and large deductible plans. The reserves for
workers compensation are based upon actuarial assumptions
of individual case estimates and incurred but not reported
(IBNR) losses. At March 31, 2011 and
December 31, 2010, the current portion of these reserves is
included as a component of current workers compensation
obligation and the non-current portion is included as a
component of workers compensation obligation on the
consolidated balance sheets. The Company has insurance coverage
for claims over $1,000,000 per claim for all periods presented.
|
|
2.
|
LONG-TERM DEBT
WITH A RELATED PARTY
|
Following are the components of the Companys debt as of
March 31, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Senior Debt:
|
|
|
|
|
|
|
|
|
Revolving line of credit, maturing on January 21, 2014
|
|
$
|
38,500,000
|
|
|
$
|
38,600,000
|
|
Term Note A due in quarterly installments through
January 21, 2014
|
|
|
11,239,265
|
|
|
|
33,535,620
|
|
Subordinated Debt:
|
|
|
|
|
|
|
|
|
Term Note B due in quarterly installments through
January 21, 2014
|
|
|
3,000,000
|
|
|
|
3,249,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,739,265
|
|
|
|
75,385,619
|
|
Less: current maturities
|
|
|
(9,000,000
|
)
|
|
|
(29,296,355
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
43,739,265
|
|
|
$
|
46,089,264
|
|
|
|
|
|
|
|
|
|
|
F-25
Notes to
consolidated financial statements
Debt
structure
Senior Debt under the Credit Agreement bears interest equal to
LIBOR plus a margin ranging from 2.25% to 5.25%, depending on
the Companys ratio of consolidated debt to EBITDA; or the
greater of prime or the U.S. Fed Funds Rate plus a margin
ranging from 0.75% to 3.75%, depending on the Companys
ratio of consolidated debt to EBITDA. The rates on the various
Senior Debt components at March 31, 2011 ranged from 3.51%
to 5.00%.
Borrowings under the revolving
line-of-credit
are limited to a defined borrowing base equal to 85% of eligible
accounts receivable plus 75% of eligible unbilled receivables.
As of March 31, 2011 approximately $29,000,000 was
available to borrow.
The Company is required to post approximately $74,100,000 for
letters of credit, the majority of which are related to the
Companys workers compensation arrangements. The
Company has letters of credit outstanding of approximately
$68,100,000 at March 31, 2011. An entity affiliated with
the Companys largest minority shareholder has posted
$6,000,000 for the benefit of Staffmark. This is related to the
acquisition of Staffmark in January 2008.
Subordinated Debt under the Credit Agreement bears interest
equal to LIBOR plus a margin ranging from 6.50% to 10.00%,
depending on the Companys ratio of consolidated debt to
EBITDA; or the greater of prime or the U.S. Fed Funds Rate
plus a margin ranging from 5.00% to 8.50%, depending on the
Companys ratio of consolidated debt to EBITDA. The rate on
the Subordinated Debt at March 31, 2011 was 8.26%.
Stock option activity for options under the Companys stock
option plans as of March 31, 2011, and changes during the
three months then ended, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
options
|
|
|
|
Pre-1/1/2006
options
|
|
|
Post-1/1/2006
options
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
average
|
|
|
Approximate
|
|
|
|
|
|
|
average
|
|
|
|
|
|
average
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
aggregate
|
|
|
|
Number of
|
|
|
exercise
|
|
|
Number of
|
|
|
exercise
|
|
|
Number of
|
|
|
exercise
|
|
|
contractual
|
|
|
intrinsic
|
|
|
|
options
|
|
|
price
|
|
|
options
|
|
|
price
|
|
|
options
|
|
|
price
|
|
|
life
(yrs)
|
|
|
value
|
|
|
|
|
Outstanding BalanceDecember 31, 2010
|
|
|
109,167
|
|
|
$
|
6.21
|
|
|
|
1,346,401
|
|
|
$
|
11.08
|
|
|
|
1,455,568
|
|
|
$
|
10.71
|
|
|
|
7.65
|
|
|
$
|
10,581,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(8,000
|
)
|
|
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
(8,000
|
)
|
|
|
2.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding BalanceMarch 31, 2011
|
|
|
101,167
|
|
|
$
|
6.54
|
|
|
|
1,346,401
|
|
|
$
|
11.08
|
|
|
|
1,447,568
|
|
|
$
|
10.76
|
|
|
|
7.43
|
|
|
$
|
13,102,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2011
|
|
|
101,167
|
|
|
$
|
6.54
|
|
|
|
805,299
|
|
|
$
|
12.41
|
|
|
|
906,466
|
|
|
$
|
11.76
|
|
|
|
6.94
|
|
|
$
|
7,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2011 and 2010, the
amount of stock-based compensation expense reported was
approximately $1,052,000 and 370,000, respectively. As a result
of the acceleration of the vesting of stock options in
connection with the retirement of the Companys chief
executive officer in March 2011, the Company accelerated the
related stock-based compensation expense related to those
options.
F-26
Notes to
consolidated financial statements
Each fiscal quarter the Company estimates its annual effective
tax rate and applies that rate to its interim earnings. The
Company reflects the tax impact of certain unusual or
infrequently occurring items, and the effects of changes in tax
laws or rates, in the interim period in which they occur.
The computation of the annual estimated effective tax rate at
each interim period requires certain estimates and significant
judgment including the projected operating results for the year,
projections of the proportion of income earned and taxed in
other jurisdictions, permanent and temporary differences, and
the likelihood of recovering deferred tax assets generated in
the current year. The accounting estimates used to compute the
provision for income taxes may change as new events occur,
additional information is obtained or as the tax environment
changes.
Our effective income tax rate for the three months ended
March 31, 2011 was 23.33% compared with 155.66% for the
comparable three months ended March 31, 2010. At
March 31, 2010 the Company was projecting a loss for the
annual period ending December 31, 2010. Accordingly, the
estimated tax rate for the three months ended March 31,
2010 was calculated assuming there would be a net tax benefit
for the year. An effective tax rate adjustment is made every
three months to adjust the quarterly calculation to the
effective tax rate calculated for the year.
The reconciliations between the Federal Statutory Rate and the
effective income tax rate for the three months ended
March 31, 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
United States federal statutory rate
|
|
|
35.00
|
%
|
|
|
35.00
|
%
|
State and local income taxes (net of federal benefits)
|
|
|
3.92
|
|
|
|
(8.89
|
)
|
Permanent items
|
|
|
12.75
|
|
|
|
(143.18
|
)
|
Work Opportunity Tax Credit
|
|
|
(28.34
|
)
|
|
|
272.73
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
23.33
|
%
|
|
|
155.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
INTANGIBLE ASSETS
AND DEFERRED FINANCING COSTS
|
Amounts recorded to goodwill are as follows:
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
89,714,729
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011
|
|
$
|
89,714,729
|
|
|
|
|
|
|
The Company has completed its preliminary annual impairment
analysis of goodwill as of March 31, 2011 and there is no
indication of impairment.
F-27
Notes to
consolidated financial statements
Other intangible assets consisted of the following at
March 31, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Useful
lives
|
|
|
Non-compete agreements
|
|
$
|
2,075,000
|
|
|
$
|
2,075,000
|
|
|
3 to 5 years
|
Trademarks and names
|
|
|
25,705,657
|
|
|
|
25,705,657
|
|
|
4 to 15 years
|
Customer list
|
|
|
31,832,953
|
|
|
|
31,992,690
|
|
|
7 to 12 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,613,610
|
|
|
|
59,773,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreements
|
|
|
(2,075,000
|
)
|
|
|
(2,052,604
|
)
|
|
|
Trademarks and trade names
|
|
|
(6,411,907
|
)
|
|
|
(6,003,573
|
)
|
|
|
Customer lists
|
|
|
(11,793,612
|
)
|
|
|
(11,087,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,333,091
|
|
|
$
|
40,629,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan origination fees at March 31, 2011 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Useful
lives
|
|
|
Loan origination fees
|
|
$
|
2,518,750
|
|
|
$
|
2,518,750
|
|
|
Life of related loan
|
Accumulated amortization
|
|
|
(1,659,420
|
)
|
|
|
(1,550,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan origination fees
|
|
$
|
859,030
|
|
|
$
|
967,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
RELATED PARTY
TRANSACTIONS
|
Management
services agreement
At March 31, 2011 and December 31, 2010, the Company
had accrued long-term management fees totaling approximately
$1,782,000 and $1,359,000, respectively. Total management fees
to related parties of approximately $423,000 and $428,000 were
expensed for the three months ended March 31, 2011 and
2010, respectively.
Other than for the cost of providing services under the
management services agreement, which are included in the
management fee, neither the majority shareholder nor the
minority shareholder has paid any obligations nor incurred any
expenses on behalf of the Company for which it has not been
reimbursed. The Company believes that the fees paid pursuant to
this agreement represent a reasonable value for the services
rendered.
The Company has sales to Fox Factory, Inc. (Fox) and
Tridien Medical, Inc. (Tridien), entities that are
controlled by the Companys majority shareholder. Sales to
Fox were approximately $1,341,000 and $1,050,000 for the three
months ended March 31, 2011 and 2010, respectively.
Accounts receivable from Fox at March 31, 2011 and
December 31, 2010 were approximately $705,000 and $572,000,
respectively. Sales to Tridien were approximately $874,000 and
$959,000 for the three months ended March 31, 2011 and
2010, respectively. Accounts receivable from Tridien at
March 31, 2011 and December 31, 2010 were
approximately $154,600 and $352,000, respectively.
Borrowings
The Company has incurred interest expense for the three months
ended March 31, 2011 and 2010 of approximately $1,331,000
and $1,793,000, respectively (see Note 2). At
March 31, 2011 and December 31, 2010, accrued interest
payable and fees payable for letters of credit included in other
current liabilities on the balance sheets were $594,000 and
$687,000, respectively. This interest expense, interest payable,
and fees payable for letters of credit are related to a debt
facility with the Companys majority shareholder.
F-28
Schedule IIValuation
and qualifying accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charge to
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
beginning of
|
|
|
costs and
|
|
|
|
|
|
|
|
|
end of
|
|
|
|
year
|
|
|
expense
|
|
|
Other
|
|
|
Deductions(2)
|
|
|
year
|
|
|
|
|
|
(in
thousands)
|
|
|
Allowance for doubtful accounts2010
|
|
$
|
2,680
|
|
|
$
|
820
|
|
|
$
|
|
|
|
$
|
981
|
|
|
$
|
2,519
|
|
Allowance for doubtful accounts2009
|
|
$
|
2,380
|
|
|
$
|
2,529
|
|
|
$
|
|
|
|
$
|
2,229
|
|
|
$
|
2,680
|
|
Allowance for doubtful accounts2008
|
|
$
|
934
|
|
|
$
|
1,115
|
|
|
$
|
1,499
|
(1)
|
|
$
|
1,168
|
|
|
$
|
2,380
|
|
|
|
|
(1) |
|
Represents opening allowance balance related to current year
acquisition. |
|
(2) |
|
Represents write offs and adjustments. |
S-1
Through and
including ,
2011 (the 25th day after the date of this prospectus),
federal securities law may require all dealers that effect
transactions in these securities, whether or not participating
in this offering, to deliver a prospectus. This requirement is
in addition to the dealers obligation to deliver a
prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
Part II
Information not required in prospectus
ITEM 13.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses to be paid by the
registrant, other than estimated underwriting discounts and
commissions, in connection with this offering. All amounts shown
are estimates except for the SEC registration fee, the Financial
Industry Regulatory Authority, or FINRA, filing fee and the New
York Stock Exchange listing fee.
|
|
|
|
|
SEC registration fee
|
|
$
|
14,513
|
|
FINRA filing fee
|
|
|
13,000
|
|
New York Stock Exchange listing fee
|
|
|
125,000
|
|
Printing and engraving
|
|
|
|
|
Legal fees and expenses
|
|
|
|
|
Accounting fees and expenses
|
|
|
|
|
Blue sky fees and expenses (including related legal fees)
|
|
|
|
|
Transfer agent and registrar fees
|
|
|
|
|
Miscellaneous expenses
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
|
|
|
|
ITEM 14.
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law
authorizes a corporations board of directors to grant, and
authorizes a court to award, indemnity to officers, directors,
and other corporate agents.
As permitted by Section 102(b)(7) of the Delaware General
Corporation Law, the registrants certificate of
incorporation, in order to be in effect upon the closing of this
offering, includes provisions that eliminate the personal
liability of its directors for monetary damages for breach of
their fiduciary duty as directors. To the extent
Section 102(b)(7) is interpreted, or the Delaware General
Corporation Law is amended, to allow similar protections for
officers of a corporation, such provisions of the
registrants certificate of incorporation shall also extend
to those persons.
In addition, as permitted by Section 145 of the Delaware
General Corporation Law, the bylaws of the registrant to be
effective upon completion of this offering provide that:
|
|
Ø
|
The registrant shall indemnify its directors and officers for
serving the registrant in those capacities or for serving other
business enterprises at the registrants request, to the
fullest extent permitted by Delaware law. Delaware law provides
that a corporation may indemnify such person if such person
acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the
registrant and, with respect to any criminal proceeding, had no
reasonable cause to believe such persons conduct was
unlawful.
|
|
Ø
|
The registrant may, in its discretion, indemnify employees and
agents in those circumstances where indemnification is permitted
by applicable law.
|
|
Ø
|
The registrant is required to advance expenses, as incurred, to
its directors and officers in connection with defending a
proceeding, except that such director or officer shall undertake
to repay such advances if it is ultimately determined that such
person is not entitled to indemnification.
|
|
Ø
|
The registrant will not be obligated pursuant to the bylaws to
indemnify a person with respect to proceedings initiated by that
person, except with respect to proceedings authorized by the
registrants board of directors or brought to enforce a
right to indemnification.
|
II-1
Part II
Information not required in prospectus
|
|
Ø
|
The rights conferred in the bylaws are not exclusive, and the
registrant is authorized to enter into indemnification
agreements with its directors, officers, employees, and agents
and to obtain insurance to indemnify such persons.
|
|
Ø
|
The registrant may not retroactively amend the bylaw provisions
to reduce its indemnification obligations to directors,
officers, employees, and agents.
|
The registrant maintains directors and officers insurance to
insure such persons against certain liabilities.
The underwriting agreement to be filed as Exhibit 1.1 to
this registration statement provides for indemnification by the
underwriters of the registrant and its officers and directors
for certain liabilities arising under the Securities Act of 1933
and otherwise.
ITEM 15.
RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 2008, we have issued unregistered
securities to a limited number of persons, as described below:
1. In January 2008, in connection with the
acquisition of Staffing Holding, the Registrant issued
1,168,243 shares of Class A Common Stock and
760,846 shares of Class B Common Stock to Staffing
Holding for a per share price of $24.83, for aggregate
consideration of approximately $47,899,280.
2. In May 2009, the Registrant issued and sold
5,022,516 shares of Class D Common Stock to CODI
pursuant to a Subscription Agreement dated April 30, 2009
for a per share price of $6.00 for an aggregate subscription
price equal to $30,135,096.
3. In May 2009, the Registrant issued and sold
810,818 shares of Class D Common Stock to Staffing
Holding pursuant to a Subscription Agreement dated May 27,
2009 for a per share price of $6.00 for an aggregate
subscription price equal to $4,864,908.
4. Between August 2009 and October 2009, the
Registrant issued 648,652 shares of the Registrants
Class D Common Stock to CODI for a subscription price of
$6.00 per share and an aggregate purchase price of approximately
$3.9 million pursuant to the Amended and Restated
Maintenance Agreement dated May 29, 2009 among the
Registrant, CODI, and Staffing Holding. The subscription price
was wholly satisfied through an entry on the books of CODI
pursuant to which the amount of outstanding loans by CODI to the
Registrant was converted to equity.
5. Between August 2009 and October 2009, the
Registrant issued and sold 104,718 shares of Class D
Common Stock to Staffing Holding for a per share price of $6.00
and an aggregate purchase price of approximately $628,000
pursuant to the Amended and Restated Maintenance Agreement dated
May 29, 2009 among the Registrant, CODI, and Staffing
Holding and the Amended and Restated Stockholders
Agreement dated February 1, 2008.
6. Between January 1, 2008 and March 31,
2011, the Registrant granted stock options to purchase
1,140,401 shares of Class C Common Stock at exercise
prices ranging from $6.00 to $24.83 per share to employees,
consultants, and directors of the Registrant. Between
January 1, 2008 and March 31, 2011, the Registrant
issued and sold an aggregate of 103,950 shares of its
Class C Common Stock to the Registrants employees,
consultants, and directors at prices ranging from $2.00 to $7.25
per share pursuant to the exercise of options.
7. In November 2009, Madison Capital Funding
Co-Investment Fund LP subscribed for, and the Registrant
issued, 1,325 shares of Class D Common Stock to
Madison Capital Funding Co-Investment Fund LP for a per
share price of $6.00 for aggregate consideration of
approximately $7,950.
None of the foregoing transactions involved any underwriters,
underwriting discounts or commissions, or any public offering,
and the registrant believes the transactions were exempt from
the registration requirements of the Securities Act of 1933 in
reliance on Section 4(2) thereof, and the rules and
regulations promulgated thereunder, or Rule 701 thereunder,
as transactions by an issuer not involving a public offering or
transactions pursuant to compensatory benefit plans and
contracts relating to
II-2
Part II
Information not required in prospectus
compensation as provided under such Rule 701. The
recipients of securities in such transactions represented their
intention to acquire the securities for investment only and not
with a view to or for sale in connection with any distribution
thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All
recipients of securities pursuant to Items 1 through 5 and
7 above were accredited or sophisticated and either received
adequate information about the registrant or had access, through
their relationships with the registrant, to such information.
ITEM 16.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The list of exhibits set forth under
Exhibit index at the end of this registration
statement is incorporated herein by reference.
(b) Financial Statement Schedules. The financial
schedules set forth under Supplemental financial
data in the Index to Consolidated Financial Statements is
incorporated herein by reference.
ITEM 17.
UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers, and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful
defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under
the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability
under the Securities Act of 1933, each post effective amendment
that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) For the purpose of determining liability under
the Securities Act to any purchaser, each prospectus filed
pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements
relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and
included in the registration statement as of the date it is
first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is
part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or
prospectus that was part of the registration statement or made
in any such document immediately prior to such date of first use.
II-3
Part II
Information not required in prospectus
(4) In a primary offering of securities of the
undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to
the purchaser and will be considered to offer or sell such
securities to such purchaser:
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(i)
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any preliminary prospectus or prospectus of the undersigned
registrant relating to the offering required to be filed
pursuant to Rule 424;
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(ii)
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any free writing prospectus relating to the offering prepared by
or on behalf of the undersigned registrant or used or referred
to by the undersigned registrant;
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(iii)
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the portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
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(iv)
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any other communication that is an offer in the offering made by
the undersigned registrant to the purchaser.
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II-4
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 2 to
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Cincinnati, Ohio, on
the 27th day of May, 2011.
STAFFMARK HOLDINGS, INC.
Lesa J. Francis
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ Lesa
J. Francis
Lesa
J. Francis
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President, Chief Executive Officer, and Director (Principal
Executive Officer)
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May 27, 2011
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/s/ William
E. Aglinsky
William
E. Aglinsky
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Executive Vice President and Chief Financial and Administrative
Officer (Principal Accounting and Financial Officer)
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May 27, 2011
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*
D.
Eugene Ewing
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Director
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May 27, 2011
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*
Robert
Janes
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Director
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May 27, 2011
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*
Frederick
L. Kohnke
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Director
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May 27, 2011
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*
Stephen
Russell
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Director
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May 27, 2011
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*
John
LaBarca
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Director
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May 27, 2011
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*
Elias
J. Sabo
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Director
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May 27, 2011
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*By: /s/ Lesa
J. Francis
Lesa
J. Francis
Attorney in Fact
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II-5
Exhibit index
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Exhibit
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number
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Description
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1
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.1
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Form of Underwriting Agreement**
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3
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.1
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Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be in effect upon the closing of this offering*
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3
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.2
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Form of Amended and Restated Bylaws of the Registrant, to be in
effect upon the closing of this offering*
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4
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.1
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Specimen common stock certificate of the Registrant*
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4
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.2
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Amended and Restated Stockholders Agreement of CBS
Personnel Holdings, Inc., dated as of February 1, 2008***
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4
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.3
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Form of Stockholders Agreement for Optionholders***
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4
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.4
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Form of Registration Rights Agreement, among the Registrant and
Compass Group Diversified Holdings LLC, Staffing Holding LLC,
and Madison Capital Investment Fund LP.*
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5
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.1
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Form of Opinion of Squire, Sanders & Dempsey (US) LLP*
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10
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.1
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Amended and Restated Credit Agreement among the Registrant and
Compass Group Diversified Holdings LLC, dated as of
March 31, 2009***
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10
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.2
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Compass CS Inc. Amended 1999 Stock Option Plan***
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10
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.3
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2009 Stock Option Plan***
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10
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.4
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Deferred Executive Bonus Plan***
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10
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.5
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Form of 2011 Omnibus Plan, to be in effect prior to the closing
of the offering***
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10
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.6(a)
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Severance Agreement between Lesa J. Francis and the Registrant,
dated as of October 2, 2006***
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10
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.6(b)
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First Amendment to the Severance Agreement between Lesa J.
Francis and the Registrant, dated as of September 8, 2008***
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10
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.7(a)
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Severance Agreement between Suzanne Perry and the Registrant,
dated as of June 30, 2005***
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10
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.7(b)
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First Amendment to the Severance Agreement between Suzanne Perry
and the Registrant, dated as of September 9, 2008***
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10
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.8(a)
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Severance Agreement between William E. Aglinsky and the
Registrant, dated as of June 23, 2005***
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10
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.8(b)
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First Amendment to the Severance Agreement between William E.
Aglinsky and the Registrant, dated as of September 12,
2008***
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10
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.9(a)
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Severance Agreement between Kathryn S. Bernard and the
Registrant, dated as of June 30, 2005***
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10
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.9(b)
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First Amendment to the Severance Agreement between Kathryn S.
Bernard and the Registrant, dated as of September 2, 2008***
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10
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.10
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Consulting Agreement with Frederick L. Kohnke, effective as of
April 1, 2011***
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10
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.11
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Form of CBS Personnel Holdings, Inc. Stock Option Agreement***
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10
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.12
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Form of Termination of Management Services Agreement between
Compass Group Management LLC and the Registrant*
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10
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.13
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Form of Termination of Management Services Agreement between
Staffing Holding LLC and the Registrant*
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21
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.1
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List of Subsidiaries of the Registrant***
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23
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.1
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Consent of Grant Thornton LLP, Independent Registered Public
Accounting Firm*
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23
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.2
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Consent of Squire, Sanders & Dempsey (US) LLP
(included in Exhibit 5.1)*
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24
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.1
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Power of Attorney (included on signature page of
Form S-1)
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* |
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Filed herewith. |
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** |
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To be filed by amendment. |
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*** |
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Previously filed. |