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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: Mark, how would you characterize the performance of this sector in 2001 and how would you differentiate between the performance of the staffing companies and the staffing stocks and those of the related business service companies and stocks in your universe?

Mr. Allen: Big question. In terms of the fundamental performance of the companies, obviously, the economy was deteriorating throughout the year. My observation would be that a number of these companies, particularly on the executive search side, but also the contract staffing companies, basically spent the year chasing their revenues down and trying to adjust their infrastructure costs. They would make some cost adjustments, some headcount cuts, and then the business would drop again and they could really not get that equation right in terms of getting costs aligned with revenues. So it was greatly depressing their profitability.

TWST: Mark, one more question on 2001 before we move on. Did you find it necessary to lower earnings estimates as 2001 progressed, and what are your expectations for the fourth quarter?

Mr. Allen: We definitely backpedaled every way to Sunday on our estimates as we moved through the year. Again, basically, top-line shortfalls, margin erosion and all the likely suspects contributed to backpedaling on financial forecasts. Generally, what we are expecting to see for the fourth quarter is continued deterioration. The fourth quarter that just finished was weaker sequentially than the September quarter.

TWST: Mark, what kind of recovery is SunTrust looking for, and what kind of recovery would these companies like best?

Mr. Allen: I think our forecast at SunTrust is considerably more bullish. Our economist is actually looking for the fourth quarter to be the trough. We’re looking for 3.1% GDP growth in the first quarter, 4% in the second quarter, and we are actually looking for more of a V-shaped type snapback in the economy. For the temporary staffing companies, the best environment is an environment where there’s growth but uncertainty. The thinking on that is that corporations will feel business getting a little bit better. They know they need to add new human capital resources, but they’re reluctant to commit to hiring individuals on a full-time basis, particularly after going through some massive layoff activity. So they will essentially address their business needs by hiring contract and contingent workers. So the best environment would be one where you have some growth in the economy but also an element of uncertainty as to the slope of the recovery.

TWST: Mark, what’s at the top of your list?

Mr. Allen: I’m going to give you a name that is, again, somewhat defensive in nature. It’s in the healthcare area, a company called Cross Country (Nasdaq:CCRN). They supply traveling nurses to hospitals. It’s a very high-demand area because growth in demand for healthcare services is a function of the well-documented aging-population demographics, combined with the declining rate of nursing school graduates. So it’s creating a space in the professional area of registered nurses, which has a pretty extreme supply/demand imbalance. The company is seeing very strong pricing power. They’re seeing right now about 15% year-over-year bill-rate inflation. They are the leader in this space. They are currently seeing over 30% organic revenue growth in this poor economy, which is strong on an absolute basis, but particularly strong on a relative basis compared to many other companies in the universe. The company also has a very unusual business model. This is a company that does 500 million in revenue, and they do it out of only two brick-and-mortar locations. They operate basically a call center national sales and recruiting model. This is a business model that the market has not seen before, and it has some unusually good prospects for profit scalability, we think. The company also has a fairly high degree of forward revenue visibility through the nature of its long-term contracts. I think the risk is essentially finding nurses who are willing to relocate under their travel model. Clearly, demand is very strong, and they’re doing everything they can to hit the market with supply. So that’s my top idea, Cross Country.

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.