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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
COMMISSION FILE NO. 0-26058
ROMAC INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Florida 59-3264661
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
120 WEST HYDE PARK PLACE, SUITE 150, TAMPA, FLORIDA 33606
- ---------------------------------------------------- -----
(address of principal executive offices) (Zip CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 251-1700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B)OF THE ACT:
Title of Each Class Name of Each Exchange
on Which Registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G)OF THE ACT:
Common Stock, $0.01 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of Registrant's voting stock held by nonaffiliates of
Registrant, as of March 20, 1997, was $174,253,758.
The number of shares outstanding of Registrant's Common Stock as of March 20,
1997, was 12,034,212.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts of the Company's definitive proxy statement for the Annual Meeting of the
Company's Shareholders to be held on April 25, 1997 are incorporated by
reference into Part III of this Form.
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TABLE OF CONTENTS
ITEM # PAGE
Item 1. Business 3
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 18
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 26
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and
Management 27
Item 13. Certain Relationships and Related Transactions 27
Audited Financial Statements (F-1 thru F-23) 28
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8K 51
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PART I
ITEM 1. BUSINESS
This document contains certain forward-looking statements regarding
future financial condition and results of operations and the Company's business
operations. The words "expect," "estimate," "anticipate," "predict," "believe,"
and similar expressions are intended to identify forward-looking statements.
Such statements involve risks, uncertainties and assumptions, including industry
and economic conditions, customer actions and other factors discussed in this
and the Company's other filings with the Securities and Exchange Commission.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual outcomes may vary materially from
those indicated.
GENERAL
Romac International, Inc., is a specialty staffing services firm
providing temporary, contract and permanent placement of professional and
technical personnel. The Company is organized into three divisions: the
Professional Temporary Division provides professional temporary personnel in the
fields of accounting and finance; the Contract Services Division provides
information technology, manufacturing services, human resources, health care,
and pharmaceutical research personnel generally on a longer-term contractual
basis; and the Search Division provides permanent placement of specialized
personnel in the fields of accounting and finance, information technology,
financial services, pharmaceutical research, health care, human resources,
insurance and manufacturing services. The Company believes its range of services
provides clients with integrated solutions to their temporary, contract and
permanent specialty staffing needs, allowing the Company to develop long-term,
consultative relationships with its clients. The Company also believes the
interaction among its three divisions generates increased placement
opportunities and enhances the Company's ability to attract and place higher
quality candidates. The Company principally serves Fortune 1000 companies in
thirteen metropolitan markets through Company-owned locations and two additional
markets through franchisees and licensees.
The Company's objective is to be the nationally recognized leader in
providing specialty staffing services. The Company strives to differentiate
itself from others in the staffing industry through innovative service
offerings, a consultative and results-oriented approach to client relationships,
and high-quality personnel placements. In pursuing its objective, the Company
focuses exclusively on providing professional and technical personnel, rather
than clerical or light industrial personnel, because of the generally higher
profitability and the opportunity for growth of this market segment. The Company
believes it has a recruiting advantage over those of its competitors that lack
the ability to offer candidates temporary, contract and permanent opportunities.
Candidates seeking permanent employment frequently accept temporary or contract
assignments through the Company until a permanent position becomes available.
The Company also believes the ROMAC(R) name recognition, coupled with its
industry expertise and innovative use of technology, provide it with competitive
benefits.
The Company's growth strategy is to increase revenue and profitability
by expanding its services in existing markets and introducing its full range of
services into new markets. In existing markets, the Company intends to further
develop existing clients and expand its client base by (i) introducing its full
range of services in all of its markets, (ii) taking advantage of the
cross-selling
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opportunities provided by the complementary services offered by its three
divisions, (iii) introducing new services, and (iv) acquiring complementary
businesses. The Company intends to enter new markets by opening new
Company-owned locations and making strategic acquisitions. In 1996, the Company
entered four new markets: two through start-ups, one through franchise
conversion to a Company-owned location, and one through acquisition. In
addition, the Company has developed a major accounts program, which encourages
large users of staffing services to "carve-out" the professional and technical
segments of staffing contracts and award such business to the Company instead of
large generalist staffing firms. As a result of this program, the Company has
signed several contracts with major national corporations for certain of the
Company's services. Management believes there is substantial opportunity for
growth through the continued implementation of this strategy.
INDUSTRY OVERVIEW
The temporary employment service industry has experienced significant
growth in response to the changing work environment in the United States.
Fundamental changes in the employer-employee relationship continue to occur,
with employers developing increasingly stringent criteria for permanent
employees while moving towards project-oriented temporary and contract hiring.
This trend has been advanced by increasing automation that has resulted in
shorter technological cycles and by global competitive pressures. Many employers
have responded to these challenges by turning to temporary and contract
employees to keep personnel costs variable, to achieve maximum flexibility, to
outsource highly specialized skills, and to avoid the negative effects of
layoffs.
Rapidly changing regulations concerning employee benefits, health
insurance, retirement plans and the highly competitive business climate have
also prompted many employers to take advantage of the flexibility offered
through temporary and contract staffing. Additionally, Internal Revenue Service
and Department of Labor regulations concerning the classification of employees
and independent contractors have significantly increased demand by prompting
many independent contractors to affiliate with employers like the Company.
The temporary staffing industry has grown rapidly in recent years as
companies have utilized temporary and contract employees to manage personnel
costs while meeting specialized or fluctuating staffing requirements.. According
to a study by the National Association of Temporary and Staffing Services
("NATSS"), the United States temporary staffing industry grew from approximately
$20.4 billion in revenue in 1991 to approximately $39.2 billion in revenue in
1995, a compound annual growth rate of 17.7%. One of the fastest growing sectors
for the Company, as well as the industry, is information technology services.
According to the Staffing Industry Report, 1995 revenue for this sector is
estimated to have been $8.9 billion, a 25.0% increase over 1994. The Company
believes that professional and technical staffing within the temporary staffing
industry requires longer-term, more highly-skilled personnel services and offers
the opportunity for higher profitability than the clerical and light industrial
staffing segments because of the value-added nature of professional and
technical staffing personnel. NATSS has estimated that more than 90% of all U.S.
business utilize temporary staffing services.
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BUSINESS STRATEGY
The Company's objective is to be a nationally recognized leader in
providing its specialty staffing services. The key elements of the Company's
business strategy in seeking to achieve this objective include:
The KnowledgeForce Resource. As the staffing industry continues to
evolve in today's economy, its impact on organizations and their ability to
attract and secure intellectual capital has been enormous. The Company believes,
and government statistics support, that the demand for and the supply of
intellectual capital is moving away from a permanent employment status towards
an increasingly fluid and flexible employment relationship through temporary and
contract staffing. The Company believes that the intellectual capital of today,
and even more so in the future, will be concentrated in highly skilled
individuals whom the Company collectively refers to as The "KnowledgeForce". In
response to its beliefs, the Company has implemented a strategy to become known
as the "KnowledgeForce Resource(SM)" in each market it serves.
Focus on Specialty Staffing. The Company focuses exclusively on
providing specialty staffing services to its clients. The Company believes
providing these specialty services to its clients offers greater profitability
than the clerical and light industrial segments of the temporary staffing
industry. In addition, the Company believes, based upon data published by the
U.S. Bureau of Labor Statistics and other sources, that employment growth will
be greater in the Company's segments than in the traditional clerical and light
industrial sectors. The placement of highly skilled personnel requires a
distinct operational knowledge to effectively recruit and screen candidates,
match them to client needs, and develop and manage client relationships. The
Company believes its historical focus in this market and name recognition,
combined with management's operating expertise, provide it with a competitive
advantage.
Build Long-Term, Consultative Relationships. The Company has developed
long-term relationships with its clients by providing integrated solutions to
their specialty staffing requirements. The Company's ability to offer a broad
range of temporary personnel services, coupled with the Company's permanent
placement capability, offers the client a single-source provider of specialty
staffing services. This ability enables the Company to develop consultative
rather than transactional client relationships.
Segment Specialty Needs. The Company has begun implementation of its
"carve-out" marketing strategy, which encourages large contractors of staffing
services to "carve-out" the professional and technical generalist staffing
contracts and award such business to specialty staffing services providers
instead of large generalist staffing firms. As a result of this strategy, the
Company has signed several contracts with major national corporations for
certain of the Company's services. Management believes there is substantial
opportunity for growth through the continued implementation of this strategy.
Achieve Extensive Client Penetration. The Company's client development
process focuses on repeated contacts with client personnel responsible for
staffing decisions. Contacts are made within numerous functional departments and
at many different organizational levels within the client. The Company's
operating employees are trained to develop a thorough understanding of each
client's total staffing requirements. In addition, although the Company's
divisional structure causes its employees to concentrate on specific fields,
they are trained to recognize cross-selling opportunities for the Company's
other divisions.
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Apply Innovative Technology. The Company utilizes proprietary
technologies and processes in the staffing, marketing and management of its
operations. The Company's Professional Recruiters Operating System ("PROS")
provides operating employees with a systematic approach to identifying,
monitoring, and serving the needs of the Company's clients. Once operating
employees obtain information regarding a client's environment, the data is
entered into the Company's integrated operating system and is coded for future
action. Operating employees are then prompted by means of an automated planner
to contact the client periodically to monitor and service the needs that have
been identified. The Company's emphasis on the utilization of technology has
resulted in the delivery of higher quality service, greater operating
efficiency, and increased employee productivity.
Recruit High-Quality Professionals. The Company places great emphasis
on recruiting qualified temporary, contract, and permanent placement candidates.
The Company believes it has a recruiting advantage over those of its competitors
that lack the ability to offer candidates temporary, contract, and permanent
opportunities. Candidates seeking permanent employment frequently accept
temporary and contract assignments through the Company until a permanent
position becomes available. Each candidate is screened by an operating employee
with a compatible technical background to determine qualifications and match
them with client needs.
Encourage Operating Employee Achievement. The Company's management
promotes a quality focused, results-oriented culture. Operating employees are
selected based on their willingness to assume responsibility and promote the
overall corporate philosophy. All marketing, staffing, and management employees
are given numerous incentives in order to encourage the achievement of corporate
goals. The Company fosters a team-oriented and high energy environment,
celebrates the successes of its employees, and attempts to create a "spirited"
work environment.
GROWTH STRATEGY
The Company's growth strategy is to expand its services in existing
markets where it does not offer its full range of services, and to enter new
markets. The key elements of the Company's growth strategy are as follows:
Introduce Full Services in Markets with Existing Company-Owned
Locations. The Company currently offers its recently expanded full range of
services, recently redefined due to the introduction of the Human Resources
function, as (1) Accounting and Finance, Information Technology and Human
Resource Search, (2) Information Technology and Human Resource Contract Service
and (3) Accounting and Finance Professional Temporary in only one of its
thirteen Company-owned locations. The Company's objective is to offer all
services in all Company-owned locations.
Open Company-Owned Locations. The Company continually
evaluates potential geographic expansion into new metropolitan areas. To
facilitate new market entry, the Company plans to transfer or recruit
experienced management for positions in new Company-owned locations as they are
opened. In 1996, the Company opened offices in Pittsburgh (February) and
Minneapolis (April).
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Leverage Existing Client Relationships and Develop New Clients. The
Company continually identifies additional growth opportunities within existing
and new clients as a result of the interrelationships among its three divisions.
The Company has established goals for cross-selling and has trained its
operating employees to actively sell the Company's full range of services, in an
effort to maximize its reach into the marketplace.
Introduce New Services. The Company continually evaluates the
introduction of new services in an effort to meet client demands. During 1996,
the Company introduced contract placement of pharmaceutical, health care, and
manufacturing services personnel to complement its existing search capabilities
in these areas. Additionally during 1996, the Company acquired a specialty
staffing business that provides search, contract, outplacement and outsourcing
services for human resource personnel and functions. To enhance the technical
capabilities and quality of its Information Technology Contract Services
personnel, the Company has formed an emerging technologies group in which
selected personnel receive extensive training in information technologies and
are assigned to client environments for periods ranging from six months to two
years. The Company is currently evaluating the introduction of additional
service offerings.
Develop Major Accounts Program. The Company will continue to market its
full range of services to existing and new clients in order to position the
Company as the preferred vendor for specialty staffing services. The Company
believes the major accounts program enables it to further penetrate its clients
by giving the Company greater access to key staffing decision makers including
the support of the client's purchasing and procurement team. This increased
access allows the Company to achieve greater operating leverage through improved
efficiencies in the marketing process. The Company has successfully secured
several national agreements for technical and professional specialty staffing
services. The Company intends to aggressively pursue such agreements to
facilitate geographic expansion and existing market penetration.
Acquire Strategic Businesses. The Company reviews from time to
time the acquisition of complementary specialty staffing businesses. The Company
has as its primary acquisition targets local or regional specialty staffing
firms with established client relationships. During 1996, the Company acquired
six separate specialty staffing businesses which were headquartered in Boston,
MA; Andover, MA; Louisville, KY; Wellesley, MA; Pittsburgh, PA; and San
Francisco, CA. In January 1997, the Company acquired a specialty staffing
business in Burlington, MA. In March 1997, the Company acquired a specialty
staffing business with operations in Dallas and Houston, TX.
THE PROFESSIONAL TEMPORARY DIVISION
The Professional Temporary Division provides professional temporary
personnel in the fields of accounting and finance. For the year ended December
31, 1996, this division accounted for approximately 39.3% of the Company's net
service revenues. The Company currently offers professional temporary services
in twelve metropolitan markets through Company-owned locations and two other
metropolitan markets through franchised and licensed locations. During 1996, the
average bill rate for the Professional Temporary Division was approximately $18
per hour.
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The Professional Temporary Division offers its clients a reliable and
cost-effective means of handling uneven or peak workloads caused by events such
as periodic financial reporting deadlines, tax deadlines, special projects,
systems conversions and unplanned staffing fluctuations. The Professional
Temporary Division meets such clients' needs with personnel who have an
extensive range of accounting and financial experience, including corporate
taxation, budget preparation and analysis, financial reporting, regulatory
filings, payroll preparation, cost analysis, and audit services. Through the use
of the Company's services, clients are able to avoid the cost and inconvenience
of hiring and terminating permanent employees. Typically, the duration of
assignments in the Professional Temporary Division is six to eight weeks.
Candidates for the Professional Temporary Division are obtained from
the Search Division, referrals from its existing personnel and clients, targeted
telephone recruiting, advertisements in local newspapers and job postings on the
Company's internet home page. The Company believes it has a competitive
advantage in attracting candidates because of the interaction between its
Professional Temporary and Search Divisions. Access by the Professional
Temporary Division to the Search Division's candidate pool provides a candidate
the opportunity to obtain permanent employment as a result of a temporary
assignment, earnings that may allow a candidate to be more selective when
evaluating permanent opportunities, and additional experience that can enhance a
candidate's skills and overall marketability. Each candidate is screened by an
operating employee with a compatible background to determine their
qualifications and to match these qualifications with individual client needs.
This screening includes an in-depth interview, skill testing, reference checks,
and, in some cases, credit checks and additional background checks.
The Professional Temporary Division targets Fortune 1000 companies and
other large organizations, with a primary focus on organizations determined to
have the potential need for the Company's full range of services. In order to
maximize its marketing effectiveness, the Company provides extensive training to
its employees which emphasizes the consulting nature of its business. The
Company's employees develop marketing plans comprised of multiple visits,
frequent telemarketing activity, monthly mailings, and other actions supported
through the use of the Professional Recruiters Operating System and daily staff
meetings. The Company believes these techniques and processes provide the
opportunity to expand its business within its clients' organizations, solidify
client relationships, and develop new clients. The Company recognizes that in
some cases Professional Temporary Division personnel will be offered permanent
positions. If a client requests that a temporary employee become a permanent
employee, the Company typically charges a "conversion" fee that is calculated as
a percentage of the candidate's initial annual compensation.
THE CONTRACT SERVICES DIVISION
The Contract Services Division provides information technology, human
resources, manufacturing services, health care and pharmaceutical personnel on a
contractual basis, which typically average six to nine months in duration. For
the year ended December 31, 1996 this division accounted for approximately 40.9%
of the Company's net service revenues. The Company currently offers the
information technology contract services function in eleven metropolitan markets
through Company-owned locations and one metropolitan market through franchised
and licensed locations.
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Manufacturing services, human resources, health care and pharmaceutical contract
service functions are currently offered by the Company in only one metropolitan
market. The Company plans to continue its introduction of these contract service
functions to its existing markets in 1997. During 1996, the average bill rate
for the Contract Services Division was approximately $52 per hour.
The Contract Services Division has traditionally focused on providing
information technology personnel to assist clients whose needs range from
mainframe environments to single work stations. These consultants perform a wide
range of services, including software development, database design and
management, system administration, end-user training and acceptance, network
design and integration, information strategy development, business and systems
plans, and standardization of technology and business procedures. The size and
growth of the information services industry in recent years have been driven
largely by rapid technological advances. These advances have included the
availability of increased computing power at lower costs and the emergence of
new information systems capabilities. As a result, the ability of companies to
benefit from the application of computer technology has been greatly enhanced
and has been accompanied by a dramatic increase in the number of end users. At
the same time, the sophistication and complexity of the systems needed to serve
these companies and to deliver the desired benefits have greatly increased.
Additionally, the need to contain costs has caused many businesses to reduce the
number of personnel resulting in increased dependence upon information systems
to support important functions to improve productivity.
The Company's base of skilled technical personnel is integral to its
success. Because technical needs are diverse and technology advances occur
frequently, technical talent is in high demand. In addition, the Company focuses
on training its information technology contract services personnel in
sophisticated technology applications. For example, the Company has formed an
emerging technologies group in which selected personnel receive extensive
training in information technologies and are assigned to client environments for
periods ranging from six months to two years. The Company believes that building
a base of skilled technical personnel who are available for assignment is as
integral to its success as are its client relationships.
The March 1996 acquisition of Strategic Outsourcing, Inc. ("SOI"),
expanded the Company's Contract Services Division functions to include human
resource personnel. SOI, which was founded in 1989 in Boston, provides its
clients with human resource personnel on a contractual basis to assist in the
development, implementation, and maintenance of a wide variety of human resource
processes. The Company currently provides the human resource contract services
function only in the Boston market. The Company plans to introduce the human
resource contract services function into its existing markets.
In addition during 1996, the Company expanded its Contract Services
Division functions to include manufacturing services, health care, and
pharmaceutical personnel. Within manufacturing services, the Company provides a
wide range of quality engineers and quality assurance personnel. Health care
contract services provides hospital administration and management personnel.
Pharmaceutical contract services provides pharmaceutical industry customers with
research and regulatory personnel. Currently, the Company services these other
functional areas on a national basis solely out of its Tampa office.
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Company recruiters develop and maintain an active personnel inventory
designed to meet the needs of the Company's clients. To recruit qualified
personnel, the Company uses targeted telephone recruiting, referrals from its
existing personnel and clients, places newspaper advertisements and posts job
openings on the Company's internet home page. The Search Division's services
complement the Contract Services Division's recruiting efforts, and the Company
believes that this combination distinguishes it from its competitors. To foster
loyalty and commitment from its existing personnel, the Company maintains
frequent and substantial contact, offers competitive wages and benefits,
incentive stock options, flexible work schedules, a variety of challenging
assignments, and exposure to diverse customer environments.
The Contract Services Division concentrates on marketing its services
to Fortune 1000 companies and other businesses with information technology,
human resources, manufacturing services, health care and pharmaceutical
personnel requirements. Marketing and Sales employees emphasize the Company's
ability to provide contract personnel who can perform a wide range of services
within each of these areas through consultative contacts with client end-users,
personal visits, mailings and telemarketing efforts.
THE SEARCH DIVISION
The Search Division provides clients with extensive search services for
professional and technical candidates. The professional skills offered by the
Search Division are in the areas of accounting and finance, information
technology, financial services, pharmaceutical research, health care, human
resources, insurance, and manufacturing services. For the year ended December
31, 1996, this division accounted for approximately 19.8% of the Company's net
service revenues. The Company currently offers Search services in thirteen of
the metropolitan markets in which it has Company-owned locations and in two
additional metropolitan markets through franchised or licensed locations.
The Company performs both contingency and retained searches. A
contingency search results in payment to the Company only when a candidate is
actually hired by a client. The Company's strategy is to perform contingency
searches only for skills the Company targets as its "core-business." Client
searches that are outside a core-business area typically are at a management or
executive level and require a targeted research and recruiting effort. The
Company typically performs these searches as retained searches where the client
pays a part of the search fee in advance and the remainder upon completion of
the search. The Company's fee is typically structured as a percentage of the
placed candidate's first-year annual compensation.
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Summarized below are the professional skills in which the Company currently
offers search services:
ACCOUNTING AND FINANCE
* Chief Financial Officers * Cost Accountants
* Treasurers * Internal Audit Personnel
* Controllers * Accounting Managers
* Public Accountants * Financial Analysts
* Tax Accountants * Budget Analysts
* Staff Accountants * Credit and Collections Personnel
INFORMATION TECHNOLOGY
* Chief Information Officers * Database Support Personnel
* Directors of Systems Development * Computer Operators
* Project Managers * Software Maintenance Personnel
* Information Engineers * Change Management Personnel
* System Designers * Database Architecture Personnel
* Project Leaders * Data Security/Disaster Recovery
* Programmer Analysts Personnel
* Data Communication Architecture * Help Desk Support and Training
* Systems Analysts Personnel
* Network Design and Administration * Data Administration Personnel
* Systems Programmers * Production Control Personnel
* Office Automation Analysts * Software Quality Assurance Personnel
* Telecommunications Analysts * Data/Voice Communications Personnel
* Hardware Technicians (local and wide-area networks)
* Application Programmers * Client Server Support Personnel
* Operating System Support Personnel
FINANCIAL SERVICES
* Large Account Commercial * Middle Mrkt Commercial Lending
Lenders Officers
* Portfolio/Relationship Managers * Real Estate Lending Officers
* Credit Analysts
PHARMACEUTICAL RESEARCH
* Clinical Research Personnel * Regulatory Affairs Personnel
* Medical Research Personnel * Medical Communications Personnel
* Analytical Chemistry Personnel
HEALTH CARE
* Senior Hospital Management * Nursing Executives and Managers
* Directors and Dept. Manager * Risk Management and Quality
* Operations Management Personnel Assurance Personnel
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INSURANCE
* Field General Managers * Sales Managers
* District Managers
MANUFACTURING SERVICES
* Quality Engineers * Quality Assurance Personnel
* Industrial Hygienists * Purchasing and Materials Management
* Quality Managers and Directors Personnel
* ISO9000 Personnel
HUMAN RESOURCES
* Health Benefit Personnel * Staffing and Generalist Personnel
* Retirement Benefit Personnel * Outplacement Specialists
* Labor Relations Personnel * Workers Compensation Specialists
* Director Level Personnel * Training and Development Personnel
The Search Division maintains an active database of placement
candidates as the result of its continuous recruiting efforts and reputation in
the industry. In addition, the Search Division consultants locate many potential
candidates as the result of referrals from the Professional Temporary and
Contract Services Divisions.
The Company believes that it has developed a reputation for quality
search work and that it is recognized as a leader in its search specialties. To
minimize the risk of changes in skill demand, the Company's marketing plan
incorporates a continual review of client recruitment plans for future periods
to allow for rapid changes to "in-demand" skills. The quality of the
relationship with client personnel is a key component of the strategy, and the
Company seeks to develop consultative relationships to obtain insight into
emerging growth areas. The clients targeted by the Search Division are typically
the same as those targeted by the Professional Temporary and the Contract
Services Divisions. This common focus is intended to contribute to the Company's
objective of providing integrated solutions to its clients' personnel needs.
The Company's search business is highly specialized. Certain skills,
such as accounting and finance, and information technology, may be served by
local offices, while other, more highly specialized areas require a regional or
national focus. The Company believes that a trend toward greater selectivity in
its clients' hiring processes has contributed to an increased demand for its
search services. This emphasis on quality fits well with the Company's inventory
of personnel. The Company expects that the Search Division will continue to add
specialties in the majority of markets served.
MARKETS AND ORGANIZATIONAL STRUCTURE
The Company serves thirteen markets through Company-owned locations and
an additional two markets through franchisees and licensees. Management of the
Company-owned operations is coordinated from its headquarters in Tampa. The
Company's headquarters provides its Company-owned offices with administrative,
marketing, accounting, training, legal, and information systems support,
particularly as it relates to the standardization of the operating processes of
its offices.
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The Company operates through a network of Company-owned locations,
franchised locations, and licensed locations. The following table lists the
services and functions offered by the Company on a market by market basis.
SERVICES OFFERED
PROFESSIONAL CONTRACT YEAR
TEMP SERVICES SEARCH OPENED
COMPANY-OWNED
Atlanta, GA AF IT AF, IT 1986
Boston, MA AF IT,HR AF,IT,MS,HR 1966
Chicago, IL AF IT AF,IT,FS 1985
Dallas, TX AF IT AF,IT 1995
Houston, TX AF IT AF,IT 1995
Louisville, KY IT IT 1992
Miami/Ftl., FL AF IT AF,IT 1982
Minneapolis, MN AF AF 1996
Orlando, FL AF IT AF,IT 1984
Philadelphia, PA AF IT AF,IT 1995
Pittsburgh, PA AF AF 1996
San Francisco, CA AF IT AF,IT 1989
Tampa, FL AF IT,PH,HC,MS AF,IT,PH,HC,MS 1980
FRANCHISED/LICENSED
New Orleans, LA AF IT AF,IT 1987
Raleigh, NC AF AF 1986
FUNCTIONS SERVED:
AF = Accounting and Finance
IT = Information Technology
FS = Financial Services
PH = Pharmaceutical
HC = Health Care
IN = Insurance
MS = Manufacturing Services
HR = Human Resources
ROMAC(R) franchisees pay a royalty in return for use of the ROMAC(R)
name based upon a contractual percentage of the revenue billed by the franchise.
Licensees enter into a joint marketing and payroll processing arrangement with
the Company. In the case of licensees, the Company collects all accounts on
behalf of the licensee and pays the licensee a percentage of gross profits
generated. The Company does not intend to grant additional franchises or
licenses in the future.
In August 1994, all franchisees and licensees were offered the
opportunity to continue operating under current agreements or to terminate their
relationship with the Company on terms that included the ability to continue in
business in their previously franchised or licensed geographic areas.
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Because current franchise and license agreements upon termination invoke
non-competition and non-solicitation provisions and require that certain assets
(such as office telephone numbers, customer lists, and candidates records) be
turned over to the Company, some franchisees and licensees paid termination fees
in order to obtain releases from non-competition and non-solicitation provisions
and to retain the rights to such assets. To date, all but two franchisees and
licensees have agreed to terminate their relationship with the Company.
PROFESSIONAL RECRUITERS OPERATING SYSTEM
The Company has developed an integrated system designed to maximize
productivity and to aid in the management of its business. This system, the
Professional Recruiters Operating System ("PROS"), is designed to be a
comprehensive approach to the operation and management of a specialty staffing
services firm. It comprises sophisticated and proprietary operating and computer
systems initially developed in 1982 and continually enhanced. The system links
each Company-owned location through the use of its private network to the
Company's corporate headquarters.
PROS offers several advantages in providing information to support the
goals of the Company. Through the use of PROS, market information concerning
target clients is tracked and prioritized to focus marketing and development
efforts. Readily available management reports indicate the frequency and nature
of contact with the targeted companies to support the marketing plans. By using
these reports, managers provide direction and support to operating employees to
ensure that priority accounts are properly served. A manager, concerned with the
status of a particular assignment at any point, can examine the detailed status
and degree of coverage on each assignment. PROS offers both detailed and summary
reports to provide a continuous view of key factors related to client service
and development and employee productivity.
In addition to client service considerations, PROS enhances the
productivity and efficiency of the operating employees. One of the primary
problems facing operating employees is the effective and productive use of
information. PROS simplifies the information recording and retrieval process and
enables operating employees in different divisions and different geographical
areas to share information and communicate more effectively.
Finally, PROS helps the Company manage information by passing data from
the operating divisions software to the accounting software. This approach
increases productivity, as data have a single point of entry and can be readily
accessed by all functional areas within the Company. The Company intends to
continue to enhance its systems capabilities and to streamline processes in
order to improve customer servicing.
COMPETITION
The specialty staffing services industry is very competitive and
fragmented. There are relatively limited barriers to entry and new competitors
frequently enter the market. A number of the Company's competitors possess
substantially greater resources than the Company. The Company faces substantial
competition from large national and local specialty staffing firms. Large
national firms that offer specialty staffing services include Robert Half
International Inc., Computer Horizons, Inc., Source Services, Inc. and
Alternative Resources Corporation. The local firms are typically operator-owned,
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and each market generally has one or more significant competitors. In addition,
the Company competes with national clerical and light industrial staffing firms
which also offer specialty staffing services. These companies include Interim
Services Inc., Norrell Corporation, AccuStaff Incorporated, and Olsten Corp.
National and regional accounting firms also offer certain specialty staffing
services.
The Company believes that the availability and quality of candidates,
the level of service, the effective monitoring of job performance and the price
of service are the principal elements of competition. The Company believes that
availability of quality candidates is an especially important facet of
competition. In order to attract temporary and contract assignment candidates,
the Company places emphasis upon its ability to provide permanent placement
opportunities, competitive compensation and benefits, incentive stock options,
quality and varied assignments, and scheduling flexibility. Because many
temporary and contract assignment candidates pursue other employment
opportunities on a regular basis, it is important that the Company respond to
market conditions affecting these candidates. Additionally, in certain markets
the Company has experienced significant pricing pressure from some of its
competitors. Although the Company believes it competes favorably with respect to
these factors, it expects competition to increase and there can be no assurance
that the Company will remain competitive.
INSURANCE
The Company maintains a number of insurance policies. Its general
liability policy has aggregate coverage of $2.0 million, with a $ 1.0 million
limit per occurrence. The Company maintains an automobile liability policy with
a combined single coverage limit of $ 1.0 million. The Company also carries an
excess liability policy, which covers liabilities that exceed the policy limits
of the above policies, with an aggregate and a per occurrence limit of $4.0
million. Additionally, the Company maintains a directors and officers liability
policy with an aggregate limit of $4.0 million.
The Company also maintains professional liability and errors and
omissions policies, each with aggregate coverage of $1.0 million, covering
certain liabilities that may arise from the actions or omissions of its
temporary, contract or permanently-placed personnel. The Company currently
maintains key man life insurance on its executive officers in an aggregate
amount of $8.0 million. There can be no assurance that any of the above coverage
will be adequate for the Company's needs.
EMPLOYEES
As of March 20, 1997, the Company and its subsidiaries employed
approximately 365 operating employees. Additionally, as of such date, the
Company had approximately 1,900 personnel on assignment providing temporary or
contract services to its clients. As the employer, the Company is responsible
for the regular and temporary payrolls and employer's share of social security
taxes (FICA), federal and state unemployment taxes, workers' compensation
insurance, and other direct labor costs relating to its temporary and contract
personnel (including temporary and contract personnel of its licensees). The
Company offers access to various insurance programs and other benefits for its
temporary and contract personnel. The Company has no collective bargaining
agreements covering any of its employees or personnel, has never experienced any
material labor disruption, and is unaware of any current efforts or plans to
organize its employees or personnel. The Company considers relations with its
employees and personnel to be good.
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RECENT ACQUISITIONS
On January 23, 1997, the Company completed the acquisition of all the
assets except for cash and accounts receivable of Career Enhancement
International of Massachusetts, Inc. and Career Concepts, Inc., businesses under
common ownership and engaged in providing search and contract services for
information technology personnel. The purchase price of approximately $4.4
million includes a non-compete agreement and is subject to adjustment upon
attainment of certain operating results.
On March 18, 1997, the Company completed the acquisition of the stock
of Professional Application Resources, Inc. ("PAR"), a business engaged in
providing contract services for information technology personnel. The purchase
price of approximately $4.7 million includes a non-compete agreement. The
acquisition of PAR will be accounted for under the purchase method of
accounting.
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ITEM 2. PROPERTIES
The Company owns no real estate. It leases its corporate headquarters
in Tampa, Florida (see "Item 8. Financial Statements and Supplementary Data"
for information concerning the terms of the lease covering this location), as
well as space for its other Company-owned locations. The aggregate square
footage of office space under leases for Company-owned locations is
approximately 86,000 at December 31, 1996. The leases generally run from
month-to- month to five years and the aggregate rent paid by the Company in 1996
was approximately $1.4 million. The Company believes that its facilities are
adequate for its need and does not expect difficulty replacing such facilities
or locating additional facilities, if needed.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is from time to
time threatened with or named as a defendant in various lawsuits, including
discrimination and harassment and other similar claims. The Company maintains
insurance in such amounts and with such coverage and deductibles as management
believes are reasonable. The principal risks that the Company insures against
are workers' compensation, personal injury, bodily injury, property damage,
professional malpractice, errors and omissions, and fidelity losses. The Company
is not currently involved in any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1996 covered by this Annual
Report on Form 10-K.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market(SM) under the symbol "ROMC". The following table sets
forth, for the periods indicated, the range of high and low closing sale prices
for the Common Stock, as reported on the Nasdaq National Market since trading
began on August 15, 1995. The table has been adjusted to reflect a two-for-one
stock split in the form of a 100% stock dividend to shareholders of record on
May 15, 1996, which was reflected on the Nasdaq National Market on May 23, 1996.
FISCAL YEAR HIGH LOW
1995:
Third Quarter (from August 15, 1995)* $8.875 $7.125
Fourth Quarter $11.750 $8.188
1996:
First Quarter $16.125 $11.500
Second Quarter $30.250 $15.000
Third Quarter $32.000 $18.750
Fourth Quarter $30.750 $21.000
1997:
First Quarter (through March 20, 1997) $27.750 $20.250
* The Company's initial public offering occurred on August 14, 1995 at a
price of $6.25 per share.
On March 20, 1997, the last reported sale for the Company's Common
Stock was at $21.50. On March 20, 1997 there were approximately 1,900 holders
of record.
The Company has paid no cash dividends in its last two fiscal years.
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ITEM 6. SELECTED FINANCIAL DATA
Years Ended December 31,
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA: 1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Net Service revenues $31,250 $40,346 $40,789 $45,655 $94,210
Direct cost of services 19,832 26,126 24,851 25,460 53,839
------- ------- ------- ------- -------
Gross Profit 11,418 14,220 15,938 20,195 40,371
Selling, general and administrative expenses 9,690 12,775 15,009 15,232 30,348
Depreciation and amortization expense 302 298 248 512 1,762
Combination expense 2,251
Other (income) expense, net 335 34 (1,157) (570) (1,685)
------- ------- ------- ------- -------
Income (loss) before taxes and minority interest 1,091 1,113 (413) 5,021 9,946
Provision (benefit) for taxes 330 448 186 2,008 3,965
------- ------- ------- ------- -------
Income (loss) before minority interest 761 665 (599) 3,013 5,981
Minority interest in subsidiary income 47 15
--- ---
Net income (loss) 714 650 (599) 3,013 5,981
======= ======= ======= ======= =======
Net income (loss) per share $ 0.11 $ 0.10 $ (0.09) $ 0.36 $ 0.51
======= ======= ======= ======= =======
Weighted average shares outstanding 6,588 6,618 7,039 8,488 11,780
======= ======= ======= ======= =======
Number of locations operated at Year End:
Company-owned 8 7 6 9 13
Franchised/licensed 23 19 15 7 2
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Working Capital $ 2,074 $ 2,579 $ 2,093 $13,895 $54,220
Total assets 5,908 6,135 6,984 20,952 77,559
Total long-term debt 314 92 24 500 0
Shareholders' equity 2,489 3,074 2,435 16,924 71,284
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
NET SERVICE REVENUES increased approximately 106.1% to $94.2 million in
1996 from $45.7 million in 1995. The overall increase in net service revenues
takes into account an approximate $1.5 million decrease in net service revenues
from franchisee and licensee operations for 1996 as compared to 1995, as several
franchisee and licensee operations were discontinued during 1996.
Professional Temporary Division revenues increased approximately 54.2%
to $37.0 million in 1996 from $24.0 million in 1995. This increase in revenues
was a result of a $8.6 million increase in revenues from existing Company-owned
operations and a $4.4 million increase in revenues attributable to acquired
operations. The increase attributable to Company-owned operations resulted from
an increase in the number of hours billed by Company-owned operations during
1996 as compared to 1995 and an increase in the average hourly bill rate for
1996 to approximately $18 per hour as compared to approximately $17 per hour in
1995. Contract Services Division revenues increased approximately 223.5% to
$38.5 million in 1996 from $11.9 million in 1995. This increase in revenues was
a result of a $16.7 million increase in revenues from existing Company-owned
operations and a $9.9 million increase in revenues attributable to acquired
operations. The increase attributable to Company-owned operations resulted from
an increase in the number of hours billed during 1996 as compared to 1995 and an
increase in the average hourly bill rate for 1996 to approximately $52 per hour
as compared to approximately $44 per hour in 1995. Search Division revenues
increased approximately 90.8% to $18.7 million in 1996 from $9.8 million in
1995. This increase in revenues was a result of a $4.3 million increase in
revenues from existing Company-owned operations and a $4.6 million increase in
revenues attributable to acquired operations. The increase in Company-owned
operations resulted primarily from an increase in the number of search sales
consultants, which increased the number of search placements made during 1996 as
compared to 1995. The average placement fee for the Search Division remained
relatively constant during the periods involved. Franchise and license revenues,
which are included in the aforementioned professional temporary and contract
services revenues, decreased approximately 31.9% to $3.2 million in 1996 from
$4.7 million in 1995. The decrease was primarily due to the effects of
discontinued franchisee and licensee operations during 1996.
After taking into account the decreases in net service revenues
attributable to discontinued franchisee and licensee operations, the net service
revenue comparisons reflect a continued improvement in the demand for the
Company's specialized staffing services. The Company opened two new
Company-owned locations during 1996 (Pittsburgh in February; Minneapolis in
April).
GROSS PROFIT increased approximately 100.0% to $40.4 million in 1996
from $20.2 million in 1995. Gross profit as a percentage of net service revenues
decreased to 42.9% in 1996 from 44.2% in
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1995. This decrease in gross profit margin as a percentage of net service
revenues was a result of the continuing changes in the Company's business mix
whereby revenues from the Professional Temporary and Contract Services
Divisions, traditionally with lower gross margins than Search Division revenues,
increased to 80.1% of the Company's net service revenues for 1996 as compared to
78.6% for 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased approximately
99.3% to $30.3 million in 1996 from $15.2 million in 1995. Selling, general and
administrative expenses as a percentage of net service revenues decreased to
32.2% in 1996 from 33.3% in 1995. This decrease in selling, general and
administrative expenses as a percentage of net service revenues resulted from
greater operating efficiencies and economies of scale gained from a larger
revenue base.
DEPRECIATION AND AMORTIZATION EXPENSE increased approximately 260.0% to
$1.8 million in 1996 from $0.5 million in 1995 as the Company incurred a full
year of depreciation expense on approximately $1.2 million of new computer and
telephone equipment that was purchased during 1995, began depreciating
approximately $1.3 million of computer and telephone equipment and approximately
$0.7 million of furniture and fixtures acquired in 1996 and incurred additional
amortization expense in 1996 related to goodwill recorded as a result of asset
acquisitions made by the Company during 1996.
DIVIDEND AND INTEREST (INCOME) increased by approximately 600.0% to
$1.4 million in 1996 from $0.2 million in 1995 as the Company invested the
proceeds from it's secondary offering in dividend and interest bearing
investments beginning in June 1996.
INTEREST EXPENSE decreased by approximately 41.3% to $78,086 in 1996
from $133,033 in 1995 as interest expense related to capital lease obligations
entered into during 1995 declined in 1996.
OTHER (INCOME) EXPENSE decreased by approximately 28.4% to $350,400 in
1996 from $489,350 in 1995 due to a decrease in franchisee termination income
received by the Company during the periods involved as $346,189 was received in
1996 as compared to $435,000 in 1995.
INCOME BEFORE TAXES increased approximately 98.0% to $9.9 million in
1996 from $5.0 million in 1995, primarily as a result of the above factors.
PROVISION FOR INCOME TAXES for 1996 was approximately $4.0 million as
compared to approximately $2.0 million for 1995. The effective income tax rate
was constant at approximately 40.0% for both periods
NET INCOME increased approximately 100.0% to $6.0 million in 1996
from $3.0 million in 1995, primarily as a result of the above factors.
1995 COMPARED TO 1994
NET SERVICE REVENUES increased approximately 12.0% to $45.7 million in
1995 from $40.8 million in 1994. The overall increase in net service revenues
takes into account an approximate $3.9 million decrease in net service revenues
from franchisee and licensee operations for 1995 as compared to 1994, as several
franchisee and licensee operations were discontinued at the end of 1994.
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Professional Temporary Division revenues decreased approximately 2.1%
to $24.0 million in 1995 from $24.5 million in 1994. This decrease takes into
account an approximate $3.7 million decrease in professional temporary revenues
from franchisee and licensee operations for 1995 as compared to 1994, as several
professional temporary franchisee and licensee operations were discontinued at
the end of 1994. This decrease in revenues was attributable to a decrease in the
number of professional temporary hours billed in 1995 as compared to 1994. The
average hourly bill rate for each period remained relatively constant. Contract
Service Division revenues increased approximately 45.1% to $11.9 million in 1995
from $8.2 million in 1994. This increase in revenues was attributable to an
increase in the number of information system contract service hours billed in
1995 as compared to 1994. The average hourly bill rate for each period remained
relatively constant. Search Division revenues increased approximately 21.0% to
$9.8 million in 1995 from $8.1 million in 1994. This increase was primarily
attributable to an increase in search sales consultants and an improved economic
environment which increased the number of search placements made in 1995 as
compared to 1994. The average fee for each placement made during the periods
involved remained relatively constant. Franchise and license revenues which are
included in the aforementioned Professional Temporary and Contract Services
Division revenues, decreased approximately 45.3% to $4.7 in 1995 from $8.6
million in 1994. The decrease was primarily attributable to the termination of
four franchise and license arrangements during the later part of 1994, offset in
part by the growth in existing service lines of continuing licensed operations.
After taking into account the decreases in net service revenues
attributable to discontinued franchisee and licensee operations, the net
service revenue comparisons reflect a continued improvement in the demand for
the Company's specialized staffing services. The Company opened three new
Company-owned locations during 1995 (Dallas-February; Philadelphia-March;
Houston-November).
GROSS PROFIT increased approximately 27.0% to $20.2 million in 1995
from $15.9 million in 1994. Gross profit as a percentage of net service revenues
increased to 44.2% in 1995 from 39.0% in 1994. The increase in gross profit
margin as a percentage of net service revenues resulted from the combined
effects of the decrease in franchisee and licensee revenue at lower margins and
the increase in search revenue at higher margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased approximately
1.3% to $15.2 million in 1995 from $15.0 million in 1994. Selling, general and
administrative expenses as a percentage of net service revenues decreased to
33.3% in 1995 from 36.8% in 1994. This decrease in selling, general and
administrative expenses as a percentage of net service revenues resulted from
greater operating efficiencies and economies of scale gained from a larger
revenue base, along with expense savings arising from the Combination.
DEPRECIATION AND AMORTIZATION EXPENSE increased approximately 106.1% to
$511,961 in 1995 from $248,428 in 1994 as the Company began depreciating
approximately $1.2 million of new computer and telephone equipment purchased in
1995 and incurred additional amortization expense in 1995 related to goodwill
recorded in the Combination.
COMBINATION EXPENSES decreased by 100.0% to $0 in 1995 from $2.3
million in 1994 as the Company did not incur any combination expenses in 1995 as
compared to approximately $2.3 million of advisory services, severance costs and
other expenses related to the Combination that were incurred in 1994.
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DIVIDEND AND INTEREST (INCOME) increased by approximately 244.9% to
$213,936 in 1995 from $62,026 in 1994 as the Company invested the proceeds from
it's initial public offering in dividend and interest bearing investments
beginning in August 1995.
INTEREST EXPENSE increased by approximately 347.6% to $133,033 in 1995
from $29,724 in 1994 as the Company incurred approximately $94,000 of additional
interest expense in 1995 related to capital lease obligations entered into
during 1995 in connection with computer equipment purchases.
OTHER (INCOME) EXPENSE decreased by approximately 56.5% to $489,350 in
1995 from $1,125,189 in 1994 due to a decrease in franchisee termination income
received by the Company during the periods involved as $435,000 was received in
1995 as compared to $560,000 in 1994. In addition, the Company received $500,000
in proceeds from a life insurance policy on an deceased Company employee in
1994.
INCOME BEFORE TAXES increased to approximately $5.0 million in
1995 from a loss of approximately $413,000 million in 1994, primarily as a
result of the above factors.
PROVISION FOR INCOME TAXES for 1995 was approximately $2 million or
40.0% of income before income taxes as compared to $186,165 for 1994. Although
the Company had an operating loss for financial reporting purposes in 1994, it
had income tax expense of $186,165 primarily due to non-deductible merger and
acquisition costs related to the Combination.
NET INCOME increased to approximately $3.0 million in 1995 from a loss
of approximately $599,000 in 1994, primarily as a result of the above factors.
1994 COMPARED TO 1993
NET SERVICE REVENUES increased approximately 1.2% to $40.8 million in
1994 from $40.3 million in 1993. In 1994, management focused its efforts on
effecting the Combination and restructuring the Company. These efforts included
the renegotiation of franchise and license agreements, the implementation of
uniform operating procedures and policies, training employees acquired in the
Combination, hiring additional employees and the consolidation of the Company's
operations. The Company did not open any Company-owned locations in new markets
in 1994.
Professional Temporary Division revenues increased approximately 0.8%
to $24.5 million in 1994 from $24.3 million in 1993. This increase in revenues
was attributable to an increase in the number of professional temporary hours
billed in 1994 as compared to 1993. The average hourly bill rate for each period
remained relatively constant. Contract Services Division revenues decreased
approximately 9.9% to $8.2 million in 1994 from $9.1 million in 1993. This
decrease resulted primarily from the reallocation of resources from one of the
Company's lower margin customers, which decreased the number of information
system contract service hours billed in 1994 as compared to 1993. The average
hourly bill rate for each period remained relatively constant. Search Division
revenues increased approximately 17.4% to $8.1 million in 1994 from $6.9 million
in 1993. This increase was primarily attributable to an increase in search sales
consultants, an expansion of services offered, and an improved economic
environment, which increased the number of search placements made in 1994 as
compared to 1993. The average fee for each placement made during the periods
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involved remained relatively constant. Franchise and license revenues which are
included in the aforementioned Professional Temporary and Contract Services
Division revenues, increased approximately 19.4% to $8.6 million in 1994 from
$7.2 million in 1993. The increase was primarily attributable to the growth in
existing service lines of licensed operations, offset by the termination of four
franchise and license arrangements.
GROSS PROFIT increased approximately 12.0% to $15.9 million in 1994
from $14.2 million in 1993, Gross profit as a percentage of net service revenues
increased to 39.1% in 1994 from 35.2% in 1993. The increase was attributable to
the increased proportion of search revenues to total revenues as search revenues
generate higher gross margins than professional temporary and information system
contract service revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased approximately
17.2% to $15.0 million in 1994 from $12.8 million in 1993. Selling, general and
administrative expenses as a percentage of net service revenues increased to
36.8% in 1994 from 31.8% in 1993. The increase in selling, general and
administrative expenses was due primarily to the hiring of additional operating
employees necessary for parallel operations during the transition period after
the Combination, an increase in commissions associated with the increase in
search revenues, and the payment of approximately $1.7 million in non-recurring
compensation expense.
DEPRECIATION AND AMORTIZATION EXPENSE decreased approximately 16.7% to
$248,428 in 1994 from $298,380 in 1993 as various fixed and intangible assets of
the Company became fully depreciated and/or fully amortized during 1994.
COMBINATION EXPENSES increased by 100.0% to approximately $2.3 million
in 1994 from $0 in 1993. The Company recorded a non-recurring charge to earnings
of $2.3 million related to advisory services, severance costs and other expenses
associated with the Combination.
DIVIDEND AND INTEREST (INCOME) increased by approximately 170.1% to
$62,026 in 1994 from $22,963 in 1993 as the Company invested more of its idle
cash in 1994 as compared to 1993.
INTEREST EXPENSE increased by approximately 152.7% to $29,724 in 1994
from $11,761 in 1993 as the Company incurred additional interest expense in 1994
related to certain interest bearing obligations entered into during the later
part of 1993.
OTHER (INCOME) EXPENSE increased to $1,125,189 of income in 1994 from
$44,973 of expense in 1993 primarily due to $560,000 of franchisee and licensee
termination income and $500,000 of income related to life insurance proceeds on
a Company employee being received in 1994.
INCOME BEFORE TAXES decreased to a loss of approximately $413,000
in 1994 from income of approximately $1.1 million in 1993, primarily as a
result of the above factors.
PROVISION FOR INCOME TAXES for 1994 was $186,165 as compared to
$447,960 or approximately 40.3% of income before income taxes for 1993. Although
the Company had an operating loss for financial reporting purposes in 1994, it
had income tax expense of $186,165 primarily due to non-deductible merger and
acquisition costs related to the Combination.
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NET INCOME decreased to a loss of approximately $599,000 in 1994 from
income of approximately $650,000 in 1993, primarily as a result of the above
factors.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996 the Company's sources of liquidity included
approximately $39.6 million in cash and cash equivalents, $0.9 million in
short-term investments, and approximately $13.7 million in additional net
working capital. In addition, as of December 31, 1996, $5.0 million was
available for borrowing under the Company's line of credit.
During 1996, cash flow provided by operations was approximately $0.6
million, resulting primarily from net income, non-cash expenses (depreciation
and amortization) and increases in operating liabilities, offset by a
significant increase in accounts receivable. The increase in accounts receivable
reflects the increased volume of business during 1996 from existing
Company-owned operations and the buildup of the accounts receivable base in
start-up and acquired operations. In addition, the Company had capital
expenditures of approximately $3.9 million to upgrade its technology platform.
On June 4, 1996, the Company received approximately $47.2 million of
net proceeds from the sale of 2,012,000 shares of its common stock in connection
with its secondary offering. During 1996, the Company used approximately $7.8
million in proceeds from the sale of its short-term investments plus an
additional $3.4 million in proceeds from its secondary offering to fund asset
acquisitions of approximately $11.2 million.
During December 1996, the Company repaid indebtedness of approximately
$470,000 related to capital lease obligations entered into by the Company during
1995 for the acquisition of computer equipment.
During March 1996, the Company entered into a line of credit
arrangement (the "Agreement") with NationsBank, N.A. This Agreement provides for
up to $5 million of working capital to the Company for general corporate
purposes. The Agreement was originally scheduled to mature on March 13, 1997.
During March 1997, the Company extended the Agreement for an additional 60 days
beyond its original maturity date. The Agreement bears interest at 150 basis
points above the average rate at which deposits in U.S. dollars were offered in
the London interbank market (LIBOR). The Company and certain of its operating
subsidiaries each guaranteed this unsecured obligation of the Company. The total
amount that may be outstanding under the Agreement is limited to specified
percentages of accounts receivable. The Agreement contains restrictive
covenants, and requires the maintenance of certain financial ratios. Prior to
entering into the Agreement, the Company terminated its existing line of credit
arrangement. The Company is currently negotiating with various lending
institutions to expand its line of credit facilities.
The Company believes its cash balance, short-term investments and
available line of credit borrowings will be sufficient to meet its anticipated
cash requirements for at least the next twelve months, unless it uses a
substantial portion of its cash balances to fund additional acquisitions. In the
event that the Company does complete significant acquisitions, the Company
believes it has the ability to raise additional funds through its available line
of credit and through other financing vehicles.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules are included in this Annual
Report on Form 10-K beginning on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 relating to executive officers and
directors of the registrant is incorporated herein by reference to the
registrant's definitive proxy statement for the Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 relating to executive compensation
is incorporated herein by reference to the registrant's definitive proxy
statement for the Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 relating to security ownership of
certain beneficial owners and management is incorporated herein by reference to
the registrant's definitive proxy statement for the Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 relating to certain relationships
and related transactions is incorporated herein by reference to the registrant's
definitive proxy statement for the Annual Meeting of Shareholders.
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
ROMAC International, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
ROMAC International, Inc., and its subsidiaries ("the Company") at December 31,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Tampa, Florida
February 7, 1997
F-1
28
29
ROMAC International, Inc.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
1996 1995
ASSETS
Current Assets:
Cash and cash equivalents $ 39,554,636 $ 619,766
Short-term investments 879,925 7,903,559
Trade receivables, net of allowance for doubtful accounts of
$616,596 and $623,150, respectively 17,061,399 7,353,790
Notes receivable from franchisees, current (Note 9) 193,222 136,464
Receivables from related parties, current (Note 8) 99,912 186,219
Deferred tax asset (Note 7) 243,322 308,374
Prepaid expenses and other current assets 1,213,904 321,276
------------- -------------
Total current assets 59,246,320 16,829,448
Notes receivable from franchisees, less current portion (Note 9) 74,395 20,000
Receivables from related parties, less current portion (Note 8) 862,218 486,513
Deferred tax asset (Note 7) 209,310 118,505
Furniture and equipment, net (Note 3) 5,346,165 2,405,284
Goodwill, net of accumulated amortization of $1,107,586 and
$455,004, respectively (Note 4) 10,914,551 574,444
Other assets, net (Notes 5 and 10) 906,041 517,500
------------- -------------
Total assets $ 77,559,000 $ 20,951,694
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued liabilities (Notes 12 and 14) $ 1,723,187 $ 673,332
Accrued payroll costs 2,975,577 1,457,901
Current portion of notes payable and capital lease obligations (Note 6) - 208,072
Current portion of payables to related parties (Note 8) 22,718 23,000
Income taxes payable (Notes 7 and 11) 304,410 572,546
------------- -------------
Total current liabilities 5,025,892 2,934,851
Notes payable and capital lease obligations, less current portion (Note 6) - 494,485
Payables to related parties, less current portion (Note 8) - 5,993
Other long-term liabilities (Notes 10 and 12) 1,248,820 592,105
------------- -------------
Total liabilities 6,274,712 4,027,434
Commitments and contingencies (Note 4 and 12)
Shareholders' Equity:
Preferred stock, $0.01 par; 15,000,000 shares authorized,
none issued and outstanding - -
Common stock, $0.01 par; 15,000,000 shares authorized, 12,133,730 and
9,966,208 issued and outstanding, respectively
(Notes 1 and 14) 121,337 99,662
Additional paid-in capital 61,526,114 13,172,415
Stock subscriptions receivable (Notes 8 and 14) (13,589) (17,589)
Retained earnings 10,575,394 4,594,740
Less reacquired stock at cost; 338,374 shares, respectively
(Note 12) (924,968) (924,968)
------------- -------------
Total shareholders' equity 71,284,288 16,924,260
------------- -------------
Total liabilities and shareholders' equity $ 77,559,000 $ 20,951,694
============= =============
The accompanying notes are an integral part
of these consolidated financial statements.
F-2
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30
ROMAC International, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
Net service revenues $ 94,210,133 $ 45,654,862 $ 40,789,352
Direct costs of services 53,839,003 25,460,019 24,851,849
---------------- ---------------- -----------------
Gross profit 40,371,130 20,194,843 15,937,503
Selling, general and administrative
expenses 30,348,063 15,231,842 15,008,803
Depreciation and amortization 1,761,967 511,961 248,428
Combination expenses (Note 14) - - 2,251,044
Other (income) expense: (Notes 9 and 12)
Dividend and interest income (1,412 606) (213,936) (62,026)
Interest expense 78,086 133,033 29,724
Other (income) expense, net (350,400) (489,350) (1,125,189)
----------------- ---------------- -----------------
Income (loss) before income taxes 9,946,020 5,021,293 (413,281)
Provision for income taxes (Note 7) 3,965,366 2,008,497 186,165
---------------- ---------------- -----------------
Net income (loss) (Note 1) $ 5,980,654 $ 3,012,796 $ (599,446)
================ ================ =================
Net income (loss) per share
(Notes 1 and 16) $ .51 $ .36 (.09)
================ ================ =================
Weighted average shares
outstanding (Note 1) 11,779,621 8,487,854 7,038,810
=========== ========== =========
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
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31
ROMAC International, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
Cash flows from operating activities:
Net income (loss) $ 5,980,654 $ 3,012,796 $ (599,446)
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,761,967 511,961 248,428
Provision for losses on accounts and notes receivable 192,708 290,250 215,362
Gain on disposal of fixed assets (95) (1,000)
Deferred taxes 25,753 (63,836) (281,201)
(Increase) decrease in operating assets:
Trade receivables, net (9,900,317) (4,423,705) (202,760)
Notes receivable from franchisees, current (56,758) (39,790) 62,923
Prepaid expenses and other current assets (892,628) 396,847 (493,172)
Notes receivable from franchisees, less current portion (54,395) 23,468 95,215
Other assets, net (7,125) (14,168) (30,297)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued liabilities 1,049,855 (922,221) 401,855
Accrued payroll costs 1,517,676 (64,842) 404,583
Income taxes payable 361,003 553,856 (72,467)
Other long-term liabilities 656,715 (681,593) 330,381
----------- ----------- -----------
Cash provided by (used for) operating activities 635,108 (1,421,072) 78,404
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (3,830,255) (1,302,068) (119,772)
Acquisitions (11,254,206) _ -
Proceeds from sale of furniture and equipment, net - 11,700 13,589
Proceeds from the sale of short-term investments 7,023,634 - 17,796
Premiums paid for cash surrender value of life
insurance policies (381,416) (241,209) (88,106)
Payments for purchase of short-term investments - (7,655,637) -
----------- ----------- -----------
Cash used in investing activities (8,442,243) (9,187,214) (176,493)
----------- ----------- -----------
Cash flows from financing activities:
Payments on notes receivable from stock subscriptions 4,000 18,593 49,825
Payments on notes payable (702,557) (570,098) (196,001)
Payments on notes payable to related parties (6,275) (18,271) (89,345)
Proceeds from issuance of notes payable - - 16,294
Payments on notes receivable from related parties 219,636 96,110 10,268
Issuance of notes receivable from related parties (519,034) (438,741) (172,199)
Proceeds from issuance of common stock 47,231,611 11,402,146 -
Proceeds from exercise of stock options 514,624 32,273 -
Repurchase of stock - 896 -
----------- ----------- -----------
Cash provided by (used in) financing activities 46,742,005 10,522,908 (381,158)
----------- ----------- -----------
Increase(decrease) in cash and cash equivalents $38,934,870 (85,378) (479,247)
Cash and cash equivalents at beginning of year 619,766 705,144 1,184,391
----------- ----------- -----------
Cash and cash equivalents at end of year $39,554,636 $ 619,766 $ 705,144
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
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32
ROMAC International, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (PAGE 1 OF 2)
SHARES AMOUNT
COMMON STOCK:
Balance at December 31, 1993 6,620,526 $ 66,206
Issuance of common stock to minority shareholders (Notes 8 and 14) 1,254,852 12,548
---------- -----------
Balance at December 31, 1994 7,875,378 78,754
Issuance of common stock 2,080,000 20,800
Exercise of stock options 10,830 108
---------- -----------
Balance at December 31, 1995 9,966,208 99,662
Issuance of common stock 2,012,000 20,120
Exercise of stock options 155,522 1,555
---------- -----------
Balance at December 31, 1996 12,133,730 $ 121,337
========== ===========
ADDITIONAL PAID-IN CAPITAL:
Balance at December 31, 1993 $ 674,937
Constructive distribution of S corporation retained earnings 469,405
Issuance of common stock to minority shareholders (Notes 8 and 14) 590,044
-----------
Balance at December 31, 1994 1,734,386
Issuance of common stock 11,381,346
Exercise of stock options 32,165
Tax benefit related to employee stock options 24,518
-----------
Balance at December 31, 1995 13,172,415
Issuance of common stock 47,211,491
Exercise of stock options 513,069
Tax benefit related to employee stock options 629,139
-----------
Balance at December 31, 1996 $61,526,114
===========
STOCK REPURCHASE OBLIGATION:
Balance at December 31, 1993 $ -
Stock repurchase obligation (Note 12) (924,072)
-----------
Balance at December 31, 1994 (924,072)
Reacquired stock (Note 12) 924,072
-----------
Balance at December 31, 1995 and 1996 $ -
===========
STOCK SUBSCRIPTIONS RECEIVABLE:
Balance at December 31, 1993 $ (1,385)
Issuance of common stock to minority shareholders (Notes 8 and 14) (36,182)
Payments on stock subscriptions receivable 1,385
-----------
Balance at December 31, 1994 (36,182)
Payments on stock subscriptions receivable 18,593
-----------
Balance at December 31, 1995 (17,589)
Payments on stock subscriptions receivable 4,000
-----------
Balance at December 31, 1996 $ (13,589)
===========
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
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33
ROMAC International, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (PAGE 2 OF 2)
SHARES AMOUNT
RETAINED EARNINGS:
Balance at December 31, 1993 $ 2,334,455
Net income of TAP prior to TAP conversion from S Corp to C Corp
(Jan.1, 1994 through Aug. 31, 1994) 81,220
Constructive distribution of S corporation retained earnings (469,405)
Issuance of common stock to minority shareholders (Notes 8 and 14) 316,340
Net loss subsequent to conversion of TAP to C Corp (Sept. 1, 1994
through Dec. 31, 1994) (680,666)
-----------
Balance at December 31, 1994 1,581,944
Net income 3,012,796
-----------
Balance at December 31, 1995 4,594,740
Net income 5,980,654
-----------
Balance at December 31, 1996 $10,575,394
===========
REACQUIRED STOCK:
Balance at December 31, 1993 and 1994
Reacquired stock (Note 12) (338,220) (924,072)
Reacquired escrow shares (154) (896)
-------- -----------
Balance at December 31, 1995 and 1996 (338,374) $ (924,968)
======== ===========
TOTAL SHAREHOLDERS' EQUITY:
Balance at December 31, 1993 $ 3,074,213
Net income of TAP prior to TAP conversion from S Corp to C Corp
(Jan.1, 1994 through Aug. 31, 1994) 81,220
Issuance of common stock to minority shareholders (Notes 8 and 14) 882,750
Net loss subsequent to conversion of TAP to C Corp (Sept. 1, 1994
through Dec. 31, 1994) (680.666)
Payments on stock subscriptions receivable 1,385
Stock repurchase obligation (Note 12) (924,072)
-----------
Balance at December 31, 1994 2,434,830
Issuance of common stock 11,402,146
Net income 3,012,796
Exercise of stock options 32,273
Payments on stock subscriptions receivable 18,593
Reacquired escrow shares (896)
Tax benefit related to employee stock options 24,518
-----------
Balance at December 31, 1995 16,924,260
Issuance of common stock 47,231,611
Exercise of stock options 514,624
Tax benefit related to employee stock options 629,139
Payments on stock subscriptions receivable 4,000
Net income 5,980,654
-----------
Balance at December 31, 1996 $71,284,288
===========
The accompanying notes are an integral part
of these consolidated financial statement.
F-6
33
34
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
ROMAC International, Inc. (the "Company") was formed on August 31, 1994 as
a result of a business combination of a specialty staffing services firm,
in operation under the ROMAC(RM) brand name since 1966, and three of its
largest franchisees, by exchanging 7,498,660 shares of its common stock
for substantially all of the outstanding stock of FMA International, Inc.
and its subsidiaries ("Romac-FMA"), Romac and Associates, Inc. and
Subsidiary ("Romac Portland"), Romac and Associates of Boston, Inc.
("Romac Boston") and by exchanging 376,718 shares of its common stock for
all of the outstanding stock of Temporary Accounting Professionals, Inc.
("TAP"). The Company is organized into three divisions: the Professional
Temporary Division provides professional temporary personnel in the fields
of accounting and finance; the Contract Services Division provides
information technology, human resource, health care, pharmaceutical
research and manufacturing services personnel generally on a longer-term
contractual basis; and the Search Division provides permanent placement of
specialized personnel in the fields of accounting and finance, information
technology, health care, pharmaceutical research, manufacturing services,
sales and marketing, insurance and human resources. The Company serves
principally Fortune 1000 companies in thirteen metropolitan markets
through Company-owned locations and two additional metropolitan markets
through franchisees and licensees:
Owned Locations
---------------
Atlanta Minneapolis
Boston Orlando
Chicago Philadelphia
Dallas Pittsburgh
Fort Lauderdale/Miami San Francisco
Houston Tampa
Louisville
Franchised/Licensed Locations
-----------------------------
New Orleans
Raleigh
Share Exchanges
The share exchanges described above were accounted for as poolings of
interests, and accordingly, the accompanying financial statements have
been restated to include the accounts and operations of the combined
companies for all dates and periods prior to the merger. Shares of the
Company were also exchanged for minority interests of the merged
subsidiaries of Romac-FMA resulting in excess fair market value of the
minority interest shares over the net book value of the minority interest
which is recorded as goodwill. The results of operations attributable to
the minority interests have been included in the Company's consolidated
financial statements beginning on the acquisition date (see Notes 4 and
14).
F-7
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35
Stock Split/Dividend
On April 21, 1995, the Company declared a 1.023-for-1 stock split on its
common stock. On May 15, 1996 the Company declared a 100% stock dividend
on its common stock. All share-related data in these consolidated
financial statements have been adjusted retroactively to give effect to
these events as if they had occurred at the beginning of the earliest
period presented.
Public Offerings
The Company completed its initial public offering of 2,080,000 shares of
common stock on August 12, 1995. The proceeds of $11,402,146, net of
underwriters' discounts and other offering costs, were used to pay down
debt, reacquire stock, general working capital purposes, and to finance
business acquisitions. The Company completed a secondary offering of
2,012,000 shares of common stock on June 4, 1996. The proceeds of
$47,231,611, net of underwriters' discounts and other offering costs, are
being used to finance business acquisitions and fund general working
capital purposes.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions
have been eliminated in the consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent 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.
Cash and Cash Equivalents
The Company classifies all highly-liquid investments with an initial
maturity of three months or less as cash equivalents.
Investments
Investments in mutual funds and common stock have been classified as
available for sale and, as a result, are stated at fair market value.
Mutual funds available for current operations are classified in the
balance sheet as short-term investments while investments in common stock
are included in other assets. Unrealized holding gains and losses are
included as a component of shareholders' equity until realized. At
December 31, 1996 and 1995, there were no unrealized gains or losses.
Furniture and Equipment
Furniture and equipment are carried at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. The cost of leasehold
improvements is amortized using the straight-line method over the terms of
the related leases which range from 3 to 7 years (see Note 3).
F-8
35
36
Revenue Recognition
Net service revenues consist of sales from Company-owned and licensed
offices, and royalties received from franchised operations, less credits
and discounts. The Company recognizes revenue for the Professional
Temporary and Information Systems Contract Services Divisions based on
hours worked by assigned personnel on a weekly basis. Search Division
revenues are recognized in contingency search engagements upon the
successful completion of the assignment. In a retained search engagement
the initial retainer is recognized upon execution of the agreement, with
the balance recognized on completion of the search. Reserves are
established to estimate losses due to placed candidates not remaining in
employment for the Company's guarantee period, typically 90 days.
Franchise fees are determined based upon a contractual percentage of the
revenue billed by franchisees. Costs relating to the support of franchised
operations are included in the Company's selling, general and
administrative expenses. The Company includes revenues and related direct
costs of licensed offices in its net service revenues and direct cost of
services, respectively. Commissions paid to licensees is based upon a
percentage of the gross profit generated, and is included in the Company's
direct cost of services.
Income Taxes
The Company accounts for income taxes under the principles of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes"("SFAS
109"). SFAS 109 requires an asset and liability approach to the
recognition of deferred tax assets and liabilities for the expected future
tax consequences of differences between the carrying amounts and the tax
bases of other assets and liabilities. The tax effects of deductions
attributable to employees' disqualifying dispositions of shares obtained
from incentive stock options are reflected in additional paid-in capital.
TAP elected under the Internal Revenue Code to be an S Corporation.
Historically, the shareholders of TAP included their pro rata share of
income or loss in their individual returns. Accordingly, these financial
statements reflect no provision for income taxes related to pre-tax
earnings of TAP through August 31, 1994. Effective with the share exchange
on August 31, 1994, TAP's S Corporation status was converted to C
Corporation status and TAP's subsequent earnings are subject to corporate
income taxes (Note 7).
Stock Based Compensation
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123") during 1996. The
Company has elected to continue accounting for stock based compensation
under the intrinsic value method of accounting for stock based
compensation and has disclosed pro forma net income and earnings per share
amounts using the fair value based method prescribed by SFAS 123
(Note 11).
Earnings Per Share
Earnings per share is computed by dividing net income (loss), by the
weighted average number of common and common stock equivalents
outstanding. Common stock equivalents consist of shares subject to stock
options.
F-9
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37
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform with the 1996 presentation.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the
Company could realize in a current market exchange. The fair value
estimates presented herein are based on pertinent information available to
management as of December 31, 1996 and 1995. Although management is not
aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for
purposes of these financial statements since that date and current
estimates of fair value may differ significantly from the amounts
presented herein. The fair values of the Company's financial instruments
are estimated based on current market rates and instruments with the same
risk and maturities. The fair values of cash and cash equivalents,
accounts receivable, short-term investments, accounts payable, notes
payable and payables to related parties approximate the carrying values of
these financial instruments.
3. FURNITURE AND EQUIPMENT
Major classifications of furniture and equipment and related asset lives
are summarized as follows:
DECEMBER 31,
1996 1995
USEFUL LIFE
Furniture and
equipment 5 years $1,864,315 $1,113,849
Computer equipment 5 years 6,124,272 1,843,533
Equipment under capital
lease lease term - 865,040
Leasehold improvements lease term 192,042 152,689
---------- ----------
8,180,629 3,975,111
Less accumulated
depreciation and amortization 2,834,464 1,569,827
---------- ----------
$5,346,165 $ 2,405,284
========== ===========
During December 1996, the Company paid $502,191 to terminate its existing
information systems capital lease commitment. During January 1997, the Company
accepted $1.2 million in equipment subject to a noncancelable capital lease
commitment with an initial term commencing on April 1, 1997.
F-10
37
38
4. ACQUISITIONS
Goodwill and intangible assets of $10,914,551 at December 31, 1996 relates
primarily to acquisitions made during 1996. In January 1996, the Company
completed the acquisition of all of the assets except for cash and
accounts receivable of Venture Network Corporation, Inc. ("Venture"), a
Company engaged in the business of providing permanent and contract
services for information systems personnel. The purchase price, including
a non-compete agreement, was approximately $1.1 million.
In February 1996, the Company acquired the intangible assets of PCS Group,
Inc., a provider of contract service information systems personnel. The
purchase price, including a non-compete agreement, was approximately $2.3
million. In March 1996, the Company acquired certain of the assets except
for cash and accounts receivable of Strategic Outsourcing, Inc. for
approximately $2.5 million in cash. In June 1996, the company acquired the
fixed assets and intangible assets of Bayshare, Inc., the former legal
entity for the Romac franchise for the San Francisco area. The purchase
price was approximately $5.0 million and is subject to adjustment upon
attainment of certain operating results. The shareholders' of the
acquisitions listed above, except for Bayshare, may earn additional
purchase price consideration up to $3.7 million in the aggregate upon
attainment of certain operating results.
Goodwill as of December 31, 1995 and 1994 relates primarily to the
exchange of the minority interests of the merged subsidiaries of Romac-FMA
(Notes 1 & 14). Goodwill is amortized on a straight-line basis over a
fifteen year period and intangible assets are amortized over the life of
the employment agreement (five to eight years). Management periodically
reviews the potential impairment of goodwill in order to determine the
proper carrying value of goodwill as of each balance sheet date presented.
Goodwill amortization expense of $652,582, $107,859 and $102,300 was
recorded for the years ended December 31, 1996, 1995 and 1994,
respectively.
Since the initial merger, the Company has accounted for all acquisitions
through December 31, 1996 using the purchase method of accounting. The
results of the acquired companies' operations have been included with
those of the Company from the dates of the respective acquisitions.
The pro forma results of operations listed below reflect purchase
accounting and proforma adjustments as if the transactions occurred as of
the beginning of 1996 and 1995. The unaudited pro forma consolidated
financial statements are not necessarily indicative of the results that
would have occurred if the assumed transaction had occurred on the dates
indicated or the expected financial position or results of operations in
the future.
1996 1995
(unaudited) (unaudited)
Net service revenue $99,830,433 $64,831,000
Gross profit 43,035,986 29,187,311
Income before taxes and minority interest 10,619,097 6,084,287
Net income 6,375,570 3,650,572
Earnings per share $ .54 $ .43
F-11
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39
5. OTHER ASSETS
Other assets consist primarily of cash surrender value of life insurance:
DECEMBER 31,
1996 1995
Cash surrender value of life insurance policies $ 795,114 $ 413,698
Investment in common stock 52,500 52,500
Other 58,427 51,302
--------- ---------
$ 906,041 $ 517,500
========= =========
The cash surrender value of life insurance policies relates to policies
maintained on key employees used to fund deferred compensation agreements
(see Note 10), an insurance policy, with a cash surrender value of $38,690
and $40,211 at December 31, 1996 and 1995, respectively, required under
the terms of a related party note payable to cover a key employee in an
amount sufficient to pay the unpaid balance of principal and interest on
the note, and key man life insurance on officers with a cash surrender
value of $233,660 and $111,095 at December 31, 1996 and 1995,
respectively.
6. NOTES PAYABLE
Notes payable are summarized as follows:
DECEMBER 31,
1996 1995
Obligation under capital lease with monthly
payments of principal and interest at 14%
through March 1998 $ - $ 303,656
Obligations under capital lease with monthly
payments of principal and interest at 15%
through March 1999 - 398,901
------- ----------
702,557
Less current maturities - 208,072
------- ----------
$ - $ 494,485
======= ==========
During 1995, the Company had a line of credit agreement of $2.0 million
bearing an interest rate of 2.9% plus the 30 day commercial paper rate
(8.71% as of December 31, 1995), expiring in March 1996. In March 1996,
the Company entered into a new unsecured line of credit agreement. This
agreement provides for up to $5.0 million of working capital to the
Company for general corporate purposes. This agreement matures on May 13,
1997 and bears interest at 150 basis points above the average rate at
which deposits in U.S. dollars were offered in the London interbank market
(LIBOR). The total amount that may be outstanding under this agreement is
limited to specified percentages of accounts receivable. This agreement
contains restrictive covenants which require the maintenance of certain
financial ratios. The Company is in compliance with all covenants as of
December 31, 1996 and 1995. No amounts were outstanding on any of these
lines of credit at December 31, 1996 and 1995. During December 1996, the
Company paid $502,191 to terminate its existing information systems
capital lease commitment.
F-12
39
40
7. INCOME TAXES
Prior to the August 31, 1994 share exchanges (see Note 1) the various
entities within the Company filed separate income tax returns. The
provision for income taxes has been calculated based upon those individual
tax reporting entities and does not represent the provision for income
taxes as if the entities filed a consolidated income tax return through
the date of the share exchanges. Subsequent to the share exchanges, the
provision is calculated on a consolidated basis.
The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31,
1996 1995 1994
Current:
Federal $ 3,239,482 $ 1,657,867 $ 418,170
State 751,637 414,466 49,196
Deferred (25,753) (63,836) (281,201)
--------------- -------------- --------------
$ 3,965,366 $ 2,008,497 $ 186,165
=============== ============== ==============
The provision for income taxes through the date of the share exchanges in
1994, does not include a provision for the income of TAP during the period
that TAP was an S Corporation. If TAP were taxable as a C Corporation at
the highest federal marginal tax rate, the provision for income taxes
would increase for 1994 by $27,615.
The provision for income taxes shown above varied from the statutory
federal income tax rates for those periods as follows:
YEARS ENDED DECEMBER 31,
1996 1995 1994
% % %
Federal income tax rate 34.0 34.0 (34.0)
TAP S Corporation Income - - (9.1)
State income taxes, net of federal tax benefit 5.0 5.3 (4.0)
Non-deductible items 1.4 1.1 140.2
Goodwill amortization (.1) .4 9.2
Life insurance items .2 .2 (47.2)
Other (.5) (1.0) ( - )
---- ---- -----
Effective tax rate 40.0 40.0 55.1
==== ==== =====
Nondeductible items consist primarily of merger and acquisition costs in
1994 and meals and entertainment expenses which are not deductible for tax
purposes, resulting in higher income tax expense.
F-13
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41
Deferred income tax assets and liabilities shown on the balance sheet are
comprised of the following:
DECEMBER 31,
1996 1995
Deferred taxes, current:
Assets
Allowance for bad debts $ 222,638 $ 244,773
Accrued liabilities 20,684 63,601
---------- -----------
Net deferred tax asset, current $ 243,322 $ 308,374
========== ===========
Deferred taxes, non-current:
Assets
Deferred compensation $ 447,508 $ 170,112
Deferred rent 34,440 50,139
---------- -----------
481,948 220,251
Liabilities
Depreciation (272,638) (101,746)
---------- -----------
Net deferred tax asset, non-current $ 209,310 $ 118,505
========== ===========
A valuation allowance on the deferred tax assets has not been recorded due
to the presence of taxable income in years available for carryback.
8. RELATED PARTIES
Receivables from Related Parties
Receivables from related parties are summarized as follows:
DECEMBER 31,
1996 1995
Receivables from officers and shareholders $ 799,730 $ 559,356
Other related party receivables 162,400 113,376
---------- ------------
962,130 672,732
Less current maturities 99,912 186,219
------ -------
$ 862,218 $ 486,513
========== ============
Receivables from officers and shareholders include non interest bearing
receivables for premiums paid on split dollar life insurance policies (see
Note 10). Repayment terms on the remaining unsecured receivables range
from one to five years at rates of 7% to 11%.
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42
Payables to Related Parties
Notes payable to related parties include the following:
DECEMBER 31,
1996 1995
Note payable to a related party, principal
and 9% interest payable in bi-monthly
installments through May, 1997 $ 22,718 $ 28,993
Less current maturities 22,718 23,000
---------- ----------
$ - $ 5,993
========== ==========
Related Party Leases
The Company has operating leases with related parties as discussed in
Note 12.
Subsidiary Stock Subscription Notes Receivable
From 1989 to August 31, 1994, certain subsidiaries of Romac-FMA issued
stock to key employees of its respective majority owned subsidiaries of
Romac-FMA in exchange for stock subscription notes receivable. At December
31, 1996 and 1995, $13,589 and $17,589, respectively, of non interest
bearing subscription notes receivable were outstanding and collateralized
by the respective shares of the subsidiaries' stock. The outstanding
balances of these notes receivable were reflected as a reduction of the
minority interest through August 31, 1994, at which time the minority
interests of certain subsidiaries of Romac-FMA were exchanged for shares
in the Company and the remaining outstanding subscription receivables are
now shown as a reduction of shareholders' equity.
Consulting Agreement
In October 1995, the Company entered into a strategic consulting agreement
with a company affiliated with one of its outside board members. Services
under this agreement were completed by December 1996 at an aggregate cost
of approximately $215,000.
9. FRANCHISE REORGANIZATION
During fiscal 1994, the Company reached an agreement with two of its
franchisees (the Philadelphia and Memphis locations) wherein the Company
agreed to terminate the remaining term of their franchise agreements in
exchange for immediate cash payments and notes receivable aggregating
$560,000 and, with respect to the Philadelphia agreement, a percentage of
gross revenue for a specified time period, in lieu of the future cash
flows anticipated under the franchise agreement.
In January 1995, the Company reached agreements with the Arlington and
Dallas franchisees to terminate their franchise agreements. The terms of
the Arlington agreement included a $260,000 note receivable at 9%
interest, payable in 18 equal monthly installments. The agreement also
includes a covenant not to compete in the Arlington market for a four
month period beginning January 1, 1995. The Dallas arrangement included a
$175,000 cash settlement and the Company retained the rights to the phone
listing and other business records at the Dallas location.
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43
In 1996, the Company reached agreements with its Minneapolis, Portland
and St. Louis franchises to terminate their franchise agreements. The
terms of the Minneapolis agreement included notes receivable totaling
$206,830 at 8% interest payable in 18 equal monthly installments. The
agreement also allowed the Company to immediately enter the Minneapolis
market. The terms of the Portland agreement included a $106,000 note
receivable at 9% interest payable in 149 equal weekly installments. The
agreement also includes a covenant not to compete in the Portland market
for a six month period beginning July 31, 1996. The St. Louis agreement
included a $58,999 note receivable at 8% interest payable in 18 equal
monthly installments. The agreement also allowed the Company to
immediately enter the St. Louis market.
The revenue from these transactions has been reflected as other income in
each respective year. Receivables related to these agreements of $246,802
and $90,475 at December 31, 1996 and 1995, respectively, are included in
notes receivable from franchisees.
Franchise royalties amounted to $450,000, $487,000 and $886,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
10. EMPLOYEE BENEFIT PLANS
401(k) Savings Plan
Effective May 1, 1993, Romac-FMA implemented a qualified defined
contribution 401(k) plan covering substantially all full-time employees,
except officers and certain highly compensated employees. The plan offers
a savings feature and Company matching contributions. Employer matching
contributions are discretionary and are funded annually as approved by the
Board of Directors. Assets of this plan are held in trust for the sole
benefit of employees. During 1996, this plan was adopted in its entirety
by Romac International, Inc. Employer contributions to this 401(k) totaled
$39,989, $22,406, and $28,236 in 1996, 1995 and 1994, respectively.
Romac Boston and Romac Portland also have qualified defined contribution
401(k) plans covering substantially all full-time employees. No employer
matching contributions were made for these plans for the years ended
December 31, 1996, 1995 and 1994.
Employee Stock Ownership Plan
Romac Boston maintains an employee stock ownership plan covering all
eligible employees meeting the length of service requirements. Effective
with the share exchange described in Note 1, the outstanding shares of the
employee stock option plan for Romac Boston were exchanged for 59,786
shares of the Company. Contributions are determined solely at the
discretion of its Board of Advisors. No contributions were made for the
three years ended December 31, 1996. All shares in the employee stock
ownership plan have been allocated to individual participants. These
shares were sold during the Company's initial public offering and the cash
proceeds were entrusted to the plan.
Deferred Compensation Plan
The Company has a non-qualified deferred compensation plan pursuant to
which eligible officers and highly compensated key employees may elect to
defer part of their compensation to later years. The Company accrues
interest and discretionary
F-16
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44
Company matching contributions. These amounts, which are classified as
other long-term liabilities, are payable upon retirement or termination of
employment, and at December 31, 1996 and 1995, aggregated $1,118,770 and
$433,075, respectively. The Company has insured the lives of the
participants in the deferred compensation program to assist in the funding
of the deferred compensation liability. The cash surrender value of these
Company-owned life insurance policies of $522,764 and $262,392 at December
31, 1995 and 1994, respectively, is included in other assets. Compensation
expense of $28,000, $45,100, and $129,200 was recognized for the plan for
the years ended December 31, 1996, 1995 and 1994, respectively.
Split Dollar Life Insurance
In 1995, the Company entered into split dollar and cross-purchase split
dollar life insurance agreements with several officers and their estates
whereby the Company pays a portion of the life insurance premiums on
behalf of the officers and their estates. The Company has been granted a
security interest in the cash value and death benefit of each policy equal
to the amount of the cumulative premium payments made by the Company. The
intent of these agreements is to, in the event of an officer's death,
provide liquidity to pay estate taxes and to provide surviving officers
with the ability to purchase shares from a deceased officer's estate,
minimizing the possibility of a large block of the Company's common shares
being put on the open market to the potential detriment of the Company's
market price and to allow the company to maintain a concentration of
voting power among its officers.
Total premiums paid to date of $742,092 and $381,300 are included in
related party receivables for the year ended December 31, 1996 and 1995,
respectively (see Note 8).
11. STOCK OPTION PLANS
During 1994, the Company established an employee incentive stock option
plan which authorized the issuance of options to purchase common stock to
employees. The maximum number of shares of common stock that could be
issued under the plan could not exceed 818,400. In 1995 the employee stock
option incentive plan was amended to increase the number of shares of
common stock that may be issued to 1,534,500. During 1996, this plan was
amended to increase the number of shares of common stock that may be
issued under the plan to 3,000,000, to allow persons other than employees
to participate in the plan, to allow incentives in the form of
Nonqualified Stock Options, Stock Appreciation Rights and Restricted Stock
to be awarded under the plan, and to effect a change in the plan name to
the Romac International, Inc. Stock Incentive Plan.
During 1995, the Company established a non-employee director stock option
plan which authorized the issue of options to purchase common stock to
non-employee directors. The maximum number of shares of common stock that
can be issued under this plan is 200,000.
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45
A summary of the Company's stock option activity is as follows:
NON- WEIGHTED WEIGHTED
EMPLOYEE EMPLOYEE AVERAGE AVERAGE
INCENTIVE DIRECTOR EXERCISE FAIR VALUE
STOCK OPTION STOCK OPTION PRICE PER OF OPTIONS
PLAN PLAN TOTAL SHARE GRANTED
Granted 275,492 - 275,492 $2.73 N/A
Exercised - - -
------ ----- ------
Outstanding as of
December 31, 1994 275,492 - 275,492 $2.73
Granted 831,706 40,000 871,706 $5.38 $1.90
Exercised (10,830) - (10,830) $2.98
-------- ------ ---------
Outstanding as of
December 31, 1995 1,096,368 40,000 1,136,368 $4.76
Granted 922,300 20,000 942,300 $21.92 $8.18
Exercised (155,522) - (155,522) $3.31
Forfeited (61,200) - (61,200) $16.50
-------- ------ ---------
Outstanding as of
December 31, 1996 1,801,946 60,000 1,861,946 $13.18
========= ======= ==========
Exercisable at December 31:
1996 490,342 20,000 510,342
1997 513,129 24,000 537,129
1998 409,081 4,000 413,081
1999 272,068 4,000 276,068
2000 50,326 4,000 54,326
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46
Options granted during each of the three years ended December 31, 1996
have vesting requirements ranging from one to seven years. Options
expire at the end of ten years from the date of grant.
The following table summaries information about employee and director
stock options:
OPTIONS OUTSTANDING
-------------------
NUMBER WEIGHTED
OUTSTANDING AVERAGE WEIGHTED
AT REMAINING AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES 1996 (SHARES) LIFE (YEARS) PRICE ($)
------------------------ ------------- ------------ ---------
$2.73 - $2.98 613,596 1.2 $ 2.90
$8.375 - $9.375 341,950 2.8 $ 8.49
$12.50 - $15.375 120,100 3.4 $12.61
$22.00 - $30.50 786,300 3.6 $23.33
---------
1,861,946
OPTIONS EXERCISABLE
-------------------
NUMBER
EXERCISABLE WEIGHTED
AT AVERAGE
DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1996 (SHARES) PRICE ($)
------------------------ ------------- ---------
$2.73 - $2.98 396,944 $ 2.91
$8.375 - $9.375 93,198 $ 8.59
$12.50 - $15.375 20,200 $12.72
-------
510,342
Had compensation cost for the Company's option plans been determined
based on the fair value at the grant dates, as prescribed by SFAS 123,
the Company's net income and net income per share would have been as
follows:
YEARS ENDED
DECEMBER 31,
1996 1995
---- ----
Net income:
As Reported $5,980,654 $3,012,796
Pro Forma $5,509,128 $2,912,047
Net income per share:
As Reported $ 0.51 $ 0.36
Pro Forma $ 0.47 $ 0.34
F-19
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47
The fair value of each option is estimated on the date of grant using the
minimum value method with the following assumptions used for grants during
the applicable period: dividend yield of 0.0% for both periods; risk-free
interest rates of 5.95% - 7.99% for options granted during the year ended
December 31, 1995 and 5.09% - 6.62% for options granted during the year
ended December 31, 1996; a weighted average expected option term of 3 - 5
years for both periods; and a volatility factor of 35.35% for both
periods.
Tax benefits resulting from the disqualifying dispositions of shares
acquired under the Company's employee incentive stock option plan reduced
taxes currently payable by $629,139 and $24,518 in 1996 and 1995,
respectively. These tax benefits are credited to additional
paid-in-capital.
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
During 1994, the Company transferred its interest in a limited partnership
to certain shareholders of the Company by assuming the Company's
subscription note payable for the limited partnership interest for an
amount of $49,000, which approximated the fair value of the limited
partnership investment. The principal asset of the partnership is an
office building in which the Company leases space for use as its
headquarters. The Company leases this space under an operating lease with
monthly payments of $26,965 expiring in 2001. The Company also leases
office space for Romac Portland from a related party at an annual rental
of $73,980 subject to adjustment as defined through December 31, 2000. The
Company leases other space and various equipment under operating leases
expiring at various dates with some leases cancelable upon 30 to 90 days
notice. The leases require payment of taxes, insurance and maintenance
costs in addition to rental payments.
Future minimum lease payments under operating leases are summarized as
follows: 1997, $1,758,365; 1998, $1,616,178; 1999, $1,494,681; 2000,
$1,406,013; and $754,391 thereafter. Minimum obligations have not been
reduced by minimum sublease rentals of $194,557 due under a noncancellable
sublease.
Rental expense under all operating leases was $1,378,749, $759,452 and
$621,696 for 1996, 1995 and 1994, respectively.
Noncancellable Processing Commitment
The Company has an agreement with a third party processor ("Processor")
who provides certain services for some of the Company's franchised and
licensed temporary placement operations; the cost of such services is a
percentage of gross billings as defined within the agreement. Pursuant to
certain contract termination provisions, the Company would be required to
pay $500,000 in the event of termination of such agreement. The agreement
continues in effect until the aggregate of all amounts actually collected
and paid to the Processor from September 1, 1985 exceeds $5,000,000. The
cumulative amounts processed were $4,279,144, $4,093,619 and $3,840,205 as
of December 31, 1996, 1995 and 1994, respectively.
F-20
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48
Stock Repurchase Agreements
Stock repurchase agreements between certain subsidiaries of the Company
(former Romac-FMA subsidiaries) and certain shareholders provided for the
purchase of their shares of the subsidiaries' stock in the event of
disability or death of the shareholder, at market value as determined by
an independent third party. The commitment under such agreements was
partially funded by term life insurance and disability policies on these
shareholders owned by the Company. In connection with these redemption
agreements, the Company had employment agreements with such key employees
until consummation of the share exchange, wherein all such employment
agreements were terminated, with the exception of those discussed below
and the repurchase agreements were amended to reflect the receipt of
shares of the Company in exchange for shares owned in the former FMA
subsidiaries. On April 26, 1995, all such agreements were amended to
convert the Company's repurchase obligation to an option to purchase, at
the discretion of the Company.
In October 1994, the Company became liable to repurchase approximately
338,220 shares under one of the stock repurchase agreements due to the
death of a shareholder. Under the terms of the repurchase agreement, the
liability was to be paid in five equal annual installments beginning March
1, 1995, with interest payable at 9%. The note was paid in full as of
December 31, 1995. The related life insurance proceeds of approximately
$500,000 is included in other income for the year ended December 31, 1994.
The amendment of the stock purchase agreements on April 26, 1995 by the
Company and its certain shareholders eliminated all contingent stock
repurchase obligations. Accordingly, the related life insurance policies
were terminated.
Indemnifications
Certain contingencies existing at the date of the share exchange
transaction as described in Note 1 have been specifically indemnified
through escrow accounts established under the share exchange agreements.
Litigation
The Company is involved in litigation in the ordinary course of business
which will not, in the opinion of management, have a material effect on
the results of operations or financial condition of the Company.
Employment Agreements
During 1995 and 1996, the Company entered into employment agreements with
certain executive officers which provide for minimum compensation and
salary and certain benefit continuation for a two year period under
certain circumstances. The agreements also provide for a payment of
amounts two times their annual salary if a change in control (as defined)
of the Company occurs and include a covenant against competition with the
Company which extends for one year after termination for any reason. The
Company's liability at December 31, 1996 would be approximately $1.2
million in the event of a change in control or if all of the employees
under contract were to be terminated by the Company without good cause (as
defined) under these contracts. Effective March 1, 1997, the Company
renewed the employment agreements of certain executive officers for
additional three year periods.
F-21
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49
13. SUPPLEMENTAL CASH FLOWS INFORMATION
The Company's non-cash investing and financing activities and cash
payments for interest and income taxes were as follows:
YEARS ENDED DECEMBER 31,
1996 1995 1994
Goodwill recorded in connection with the exchange
of 1,022,774 shares of common stock for
outstanding minority interest (Notes 1, 4, and 14) $ - $ - $602,592
Contribution of minority interest liability at
date of share exchange transaction to retained
earnings (Notes 1, 8 and 14) - - 316,340
Contribution of S Corporation retained earnings
to additional paid-in capital for change in TAP
tax status to C Corporation status (Note 1) - - 469,405
Accrued liability and long-term liability for
treasury stock repurchase obligation (Note 12) - - 924,072
Capital lease transaction - 1,206,184 -
Cash paid during the year for:
Interest $ 78,086 $ 133,033 $ 29,700
Income taxes $ 3,675,292 $ 1,514,983 $ 539,900
14. BUSINESS COMBINATION
As described in Note 1, certain minority shares exchanged under the share
exchange agreement resulted in excess fair market value of the minority interest
shares over the net book value of the minority interest being recorded as
goodwill. In connection with the share exchange agreements and related
restructuring, approximately $2,250,000 of combination expenses were incurred.
Included in this amount is approximately $1.3 million of merger and acquisition
costs, primarily related to brokerage, legal and accounting fees, which were
incurred and expensed in 1994. Additionally, in 1994 the Company announced the
decision to consolidate and restructure operations. As a result, management
closed its Portland office (former corporate headquarters) effective February
1995, and terminated eight employees at the Portland and Boston locations at an
approximate cost of $900,000 which was expensed in 1994. As of December 31, 1996
and 1995, approximately $0 and $70,000 of severance remains accrued in accounts
payable and other accrued expenses and $125,000 and $160,000 of lease costs
remain accrued in other long-term liabilities, respectively.
F-22
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50
15. SUBSEQUENT EVENTS
On January 23, 1997, the Company completed the acquisition of all of the
assets except for cash and accounts receivable of Career Enhancement
International of Massachusetts., Inc. and Career Concepts, Inc.,
businesses under common ownership and engaged in providing permanent and
contract services for information systems personnel. The purchase price of
approximately $4.4 million includes a non-compete agreement and is subject
to adjustment upon attainment of certain operating results.
Acquisition (unaudited)
On March 18, 1997, Romac completed the acquisition of the stock of
Professional Application Resources, Inc. ("PAR") a business engaged in
providing contract services for information systems personnel. The
transaction will be accounted for under the purchase method of accounting.
The purchase price of approximately $4.7 million includes a non-compete
agreement.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED
MAR. 31 JUN. 30 SEPT. 30 DEC. 31
Fiscal 1996
Net service revenues $16,889,273 $21,465,489 $26,432,923 $29,422,448
Gross profit 7,170,480 9,436,724 11,368,572 12,395,354
Net income 1,025,268 1,287,701 1,805,085 1,862,600
Net income per share-primary $. 10 $. 12 $.14 $.15
Net income per share-fully diluted $ .10 $. 11 $.14 $.15
===== ===== ==== ====
Fiscal 1995
Net service revenues $9,562,347 $10,051,649 $12,092,519 $13,948,347
Gross profit 4,203,278 4,717,960 5,325,508 5,948,097
Net income 727,195 480,778 707,225 1,097,598
Net income per share-primary $ .10 $ .07 $ .08 $ .11
Net income per share-fully diluted $ .10 $ .07 $ .08 $ .11
===== ===== ====== =====
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51
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE
3.1 Amended and Restated Articles of Incorporation**
3.2 Bylaws**
4.1 Articles of Incorporation (incorporated by reference to
Exhibit 3.1)**
4.2 Bylaws (incorporated by reference to Exhibit 3.1)**
10.1 Share Exchange Agreement, dated as of August 25, 1994
among the Company and the shareholders of Romac and
Associates, Inc., Romac & Associates of Boston, Inc.,
MA International, Inc., Romac and Associates of Tampa,
Inc., FMA and Associates of Tampa, Inc. Matthew James
& Associates, Inc., FMA Temporaries, Inc., FMA Temporaries
of Rhode Island. Inc. and FMA Consulting Services of Tampa, Inc.
(collectively, the "Constituent Corporations) **
10.2 TAP Share Exchange Agreement, dated as of August 25, 1994
among the Company and the shareholders of Temporary
Accounting Professionals, Inc. ("TAP") **
10.3 Escrow Agreement, dated as of August 25, 1994, among the
Company, the shareholders of the Constituent Corporations,
and NationsBank of Florida, N.A., as escrow agent**
10.4 Registration Rights Agreement, dated August 31, 1994, among
the Company and certain shareholders of the Constituent
Corporations and TAP**
10.5 Shareholder Registration Rights Agreement, dated as of September 5,
1994 among the Company and certain shareholders of the Company**
10.6 Shareholders' Agreement, dated as of August 31, 1994, among the
Company, David L. Dunkel, Howard W. Sutter, and Richard M.
Cocchiaro, as controlling shareholders, and certain other
shareholders and holders of options to purchase shares of the
Company's Common Stock**
* Incorporated by reference to the Company's Current Report on Form 8-K
(File No.0- 26058).
** Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-91738).
51
52
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE
10.7 Sample Form of Franchise Agreement**
10.8 Lease Agreement, dated January 8, 1991, between Hyde Park Place
Ltd. II, as lessor and FMA International, Inc., as lessee**
10.9 Form of Master Finance Agreement between the Company and
Informix Software, Inc.**
10.10 Form of Deferred Compensation Agreement between FMA
International, Inc. and certain of its officers**
10.11 Incentive Stock Option Plan and form of option agreement**
10.12 License Agreement, dated January 2, 1990, between Romac
and Associates, Inc. and Bye Enterprises, Inc., as amended**
10.13 Asset Acquisition Agreement between Romac International,
Inc. and Venture Networks Corporation, Inc.*
10.14 Asset Acquisition Agreement between Romac International,
nc. and PCS Group, Inc.*
10.15 Asset Acquisition Agreement between Romac International,
Inc. and Strategic Outsourcing, Inc.*
10.16 Promissory Note dated March 13, 1996, between the Company
and NationsBank, N.A.(South) and related guaranties and
security agreements**
10.17 Employment Agreement, dated as of February 23, 1996 , between the
Company and James D. Swartz
10.18 Employment Agreement, dated as of March 1, 1997 , between the
Company and David L. Dunkel
10.19 Employment Agreement, dated as of March 1, 1997 , between the
Company and Howard W. Sutter
10.20 Employment Agreement, dated as of March 1, 1997 , between the
Company and Peter Dominici
10.21 Asset Acquisition Agreement between Romac International,
Inc. and Bayshare, Inc.*
* Incorporated by reference to the Company's Current Report on Form 8-K
(File No.0- 26058).
** Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 33-91738).
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53
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE
10.22 Purchase Agreement dated December 30, 1996 between Romac
International, Inc. and Mon-Wal, Inc. d/b/a The Waldec Group
10.23 Master Lease Agreement, dated December 31, 1996, between Romac
International, Inc. and Comdisco, Inc.
21. List of subsidiaries of Company
23. Consent of Price Waterhouse LLP
27. Financial Data Schedule (for SEC use only)
* Incorporated by reference to the Company's Current Report on Form 8-K
(File No.0- 26058).
** Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-91738).
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54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROMAC INTERNATIONAL, INC.
Date: March 27, 1997 By: /s/ David L Dunkel
---------------------
David L. Dunkel
Chairman of the Board, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 27, 1997 By: /s/ Howard W. Sutter
---------------------
Howard W. Sutter
Director
Date: March 27, 1997 By: /s/ Peter Dominici
-------------------
Peter Dominici
Chief Financial Officer, Secretary,
Treasurer and Director
Date: March 27, 1997 By: /s/ Maureen Rorech
-------------------
Maureen Rorech
Director
Date: March 27, 1997 By: /s/ Richard M. Cocchiaro
-------------------------
Richard M. Cocchiaro
Director
Date: March 27, 1997 By: /s/ W.R. Carey, Jr.
--------------------
Director
Date: March 27, 1997 By: /s/ Gordon Tunstall
--------------------
Director
Date: March 27, 1997 By: /s/ David L. Dunkel
--------------------
Director
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55
(b) Financial Statement Schedules
Consolidated financial statement schedule for the three years ended
December 31, 1996:
Schedule II-Valuation and qualifying accounts
All other schedules are omitted because they are not applicable or the requested
information is shown in the Financial Statements of the Registrant or Notes
thereto.
55
56
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Romac International, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 7, 1997 appearing in this Form 10-K of Romac International, Inc.
also included an audit of the Financial Statement Schedule listed in Item 14 of
this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Tampa, Florida
February 7, 1997
56
57
ROMAC INTERNATIONAL, INC.
VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
SUPPLEMENTAL SCHEDULE SCHEDULE II
Column A Column B Column C Column D Column E
Description
Balance at Charged to Charged to
Beginning of period costs and other Balance at
expenses accounts Deductions end of period
Allowance Reserve 1994 $301,800 215,362 184,262 $332,900
1995 332,900 376,201 85,951 623,150
1996 623,150 192,708 199,262 616,596
57