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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 are you saying to investors about the human resources outsourcing companies? Is this a sector in the space that should be overweighted?

Mr. Allen: I think I’d pretty much second Adam’s comments there. An excellent example is Administaff (NYSE:ASF), a company that we both cover. Administaff basically provides human resource services for small businesses. Their average customer is a small business that has around 14 employees, and they provide payroll processing, benefits administration, and worker compensation risk management. It has all of the elements that Adam described, including a very high recurring revenue base year over year, which is a very stable platform to build on. Their growth strategy has been completely organic, and it has been a geographic rollout strategy. Their addressable market is essentially the payrolls of all the small businesses in the United States. It’s a very vast addressable market. They probably have penetrated less than 1% of that addressable market, and they have a very good execution formula. So I think that’s a stock that has outperformed the market fairly significantly since the company came public. Again, it encapsulates a lot of the elements that Adam was just describing.

TWST: Mark, how do you read the sentiment surrounding these stocks today? What are some of the fears that investors express?

Mr. Allen: I would say, and this has been echoed by several of my colleagues on the panel here, the concern at this point is that some of these stocks have appreciated in price over recent months. We think that is clearly from investors trying to forward discount the prospect of a strong-growth economy. I think the investor concern at this point is that the stocks are fully, or close to fully, discounting that recovery. And if the recovery is not forthcoming, as has been discussed (whether a U or a V) with something positive happening by the middle of the year, we could have significant downside price risk off these levels.

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.