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Five analysts and top management from four sector firms examine the human capital management sector in this special 54-page Human Capital Management issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info483.htm.

TWST: I would like to begin today by asking each of you to look back over the past 12 months at the performance of the human capital management sector and tell us what stands out as you review the year. Randy?

Mr. Mehl: 2001 will go down as a year of extremes — volatility in the stocks, rapid deterioration of operating results, and big divergence between stock performance and company performance. At the beginning of the year, bad news — and there was plenty of it — drove our economically sensitive stocks decisively lower. By spring, bad news was good news and we saw a nice recovery. September 11 caused the group (and the market) to change course, reflecting the new political reality. But by the end of the year, we were back in a “high tolerance” market. The result of all the volatility? A 1% increase for the median stock — not bad, given the 13% decline in the S&P 500. The biggest winners were last year’s biggest losers, with the exception of the healthcare staffing area, which produced two successful IPOs during the year. While the market jumped around, operating results clearly deteriorated throughout the year. Average revenue in the group fell 11%, following a 14% increase the previous year. We saw meaningful estimate reductions for 2001 and 2002 made after each quarter of the year for most companies. Fittingly, the December BLS results produced the worst decline ever in the staffing category.

TWST: Randy, when do you buy these stocks?

Mr. Mehl: Our HCS group has many subsegments, so it is difficult to make a global call on the group. As I indicated earlier, many of the payroll/HR outsourcing stocks will prove to be very good performers over the next several years. In the short term, a steeper yield curve would be a catalyst, since many are reliant on short-term rates. We like some of the staffing stocks, but would avoid executive search. Although the staffing valuations appear to reflect a recovery, we believe that most of the companies are in front of several years of strong growth and margin expansion. Manpower (NYSE:MAN) is another interesting case. The stock is trading at a level first reached in 1996, yet we think the business mix is more attractive, management quality is higher, and the margin profile has improved. For those reasons, we consider the stock to be good value here, despite the fact that the current p/e is at the high end of the company’s historical range.

TWST: Randy, are there a couple of stocks on your buy list today?

Mr. Mehl: I like Resources Connection (Nasdaq:RECN), the only pure play in the high-end finance and accounting area, a business I discussed earlier. Manpower is another interesting pick, for reasons I discussed earlier — improved mix, management, and margin potential. The current estimates are depressed. I think Manpower can potentially do $2.50 per share in 2003, and trade at 20 times that number — and the stock is only mid-$30s today.

TWST: Are these stocks that investors should rush out and buy today?

Mr. Mehl: Few stocks on our list are worth “rushing out” and buying — we call those “trading buys” and we save that for stocks where there is a blatant short-term mismatch between the value and price of the stock today. The strong performance of the stocks since September removed those opportunities. That said, I think the biggest risk you face with sustainable, quality growth stories is missing them. We look at valuation, based on discounted cash flows over a 20-year period, and the stocks are buyable on that basis.

This special issue includes:

1) Human Capital Management - In an in-depth (16,600 words) Analyst Roundtable, Mark W. Allen, Managing Director at SunTrust Robinson Humphrey Capital Markets, Randall A. Mehl, Director at Robert W. Baird & Co., Brandt Sakakeeny, Director at Deutsche Banc Alex. Brown, Inc. and Adam Waldo, Senior Vice President at Lehman Brothers, examine the outlook for the sector including the effect of Fed rate cuts, investment approach and share specific stock recommendations.

2) Human Capital Management - In an in-depth (4,900 words) Analyst Interview, Mark S. Marcon, Analyst at Wachovia Securities, examines the outlook for the sector and shares specific stock recommendations.

3) The TWST confidential Off-The-Record survey of management performance of seventeen sector firms asked market insiders about the ability of management teams to create shareholder value.

4) CEO interviews (average 2,500 words). Top management of four sector firms examine the outlook for their firm and the sector.