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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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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.)
20 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 13, 1998, was $530,379,086.
The number of shares outstanding of Registrant's Common Stock as of March
13, 1998, was 29,527,818.
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 20, 1998 are incorporated by
reference into Part III of this Form.
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TABLE OF CONTENTS
ITEM NO. PAGE
- -------- ----
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 12
Item 6. Selected Financial Data..................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 8. Financial Statements and Supplementary Data................. 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 17
Item 10. Directors and Executive Officers of the Registrant.......... 18
Item 11. Executive Compensation...................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 18
Item 13. Certain Relationships and Related Transactions.............. 18
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 19
Index to Consolidated Financial Statements and Schedule............... 20
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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 Romac International, Inc.'s ("Romac" or the "Company") other filings with
the Securities and Exchange Commission (the "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 is a provider of professional specialty staffing services in 19
markets in the United States. Romac strives to shape valuable business
relationships between organizations and the knowledgeable people who make them
successful. To better serve the needs of its customers, Romac provides its
value-added services in the following specialties: Information Technology,
Finance and Accounting, Human Resources and Operating Specialties. Romac
believes its broad range of highly specialized services provides clients with
integrated solutions to their staffing needs, allowing Romac to develop
long-term, consultative relationships. Romac principally serves Fortune 1000
clients, with the top ten clients representing 10.0% of revenue in 1997. Romac's
functional focus and range of service offerings generate increased placement
opportunities and enhance Romac's ability to identify, attract, retain, develop,
and motivate personnel and operating employees (the "KnowledgeForce").
RECENT ACQUISITIONS
Since the completion of the Company's initial public offering in August
1995, the Company has completed 14 acquisitions which have expanded the
Company's geographic coverage and its service offerings. Certain information
relating to these acquisitions is summarized in the following table.
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MOST RECENT
FISCAL YEAR
DATE OF REVENUE
NAME OF COMPANY ACQUISITION IN MILLIONS(1) FUNCTIONAL SERVICE AREA PRIMARY LOCATION
--------------- ----------- -------------- ----------------------- ----------------
Temporary Accounting Professionals,
Inc. ............................... 5/1/96 $ 0.6 Finance & Accounting Pittsburgh, PA
Bayshare, Inc. ....................... 6/1/96 6.3 Finance & Accounting San Francisco, CA
Career Enhancement International of
Massachusetts, Inc. ................ 1/1/97 4.7 Information Technology Boston, MA
Career Concepts, Inc. ................ 1/1/97 0.6 Information Technology Boston, MA
Romac & Associates of Chestnut Hill... 1/1/96 0.2 Information Technology Boston, MA
Venture Networks Corporation, Inc. ... 1/1/96 2.1 Information Technology Boston, MA
PCS Group, Inc. ...................... 2/1/96 3.6 Information Technology Louisville, KY
Strategic Outsourcing, Inc. .......... 3/1/96 5.7 Human Resources Boston, MA
Professional Application Resources,
Inc. ............................... 3/1/97 8.3 Information Technology Houston, TX
The McMahon Company................... 6/1/97 0.3 Human Resources Philadelphia, PA
Uni*Quality Systems Solutions,
Inc. ............................... 9/1/97 12.4 Information Technology Naperville, IL
Sequent Associates, Inc. ............. 9/1/97 15.9 Information Technology San Jose, CA
DP Specialists of Colorado, Inc. ..... 11/1/97 3.9 Information Technology Denver, CO
The Center For Recruiting
Effectiveness, Inc. ................ 12/1/97 2.4 Human Resources Washington, DC
- ---------------
(1) Represents fiscal year revenue for the year prior to acquisition by Romac.
On February 1, 1998 (amended on February 11, 1998), the Company and Source
Services Corporation ("Source") entered into a definitive merger agreement (the
"Merger Agreement") providing for the merger of Source into the Company (the
"Source Merger"). The parties intend that the transaction will be treated as a
"pooling of interests" for accounting purposes and will qualify as a tax-free
reorganization. Under the terms of the Merger Agreement, stockholders of Source
will receive 1.1932 shares of Romac common stock, par value $.01 per share, for
each of the approximately 14.1 million outstanding shares of Source common
stock, subject to adjustment based upon the Company's market price prior to
closing and certain other conditions. Following completion of the Source Merger,
David L. Dunkel will continue as chairman and chief executive officer of the
Company and James D. Swartz will be president and chief operating officer. Les
Ward, currently Chief Executive Officer of Source, will join the board of
directors of the Company and will assist in the integration program and with
special projects. Consummation of the Source Merger is subject to certain
conditions, including effectiveness of a registration statement to be filed by
the Company with the Commission, approval by the shareholders of each company,
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, receipt of opinions from the parties'
independent accountants regarding the treatment of the Source Merger as a
"pooling of interests," and other conditions. The Source Merger is expected to
be completed during the second calendar quarter of 1998.
INDUSTRY OVERVIEW
The flexible 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
toward project-oriented flexible 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 flexible personnel to keep labor 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 flexible 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 Romac.
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The temporary staffing industry has grown rapidly in recent years as
companies have utilized temporary employees to manage personnel costs, while
meeting specialized or fluctuating staffing requirements. According to the
Staffing Industry Report, the United States temporary staffing industry grew
from approximately $20.4 billion in revenue in 1991 to approximately $47.1
billion in revenue in 1996, a compound annual growth rate of 18.2%. One of the
fastest growing sectors for Romac, as well as the industry, is information
technology services. Revenue for this sector in 1996 is estimated to have been
$11.7 billion, a 27.2% increase over 1995. Romac 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 personnel. The National
Association of Temporary and Staffing Services has estimated that more than 90%
of all U.S. businesses utilize temporary staffing services.
BUSINESS STRATEGY
Romac's objective is to be a nationally recognized leader in providing its
professional specialty staffing services. The key elements of Romac's business
strategy in seeking to achieve this objective include:
- Implement the KnowledgeForce Strategy. 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. Romac 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 flexible staffing. Romac believes that
the intellectual capital of today, and even more so in the future, will
be concentrated in highly skilled individuals who Romac collectively
refers to as the "KnowledgeForce." In response to its beliefs, Romac has
implemented a strategy to become known as the "KnowledgeForce Resource"
in each market it serves.
- Focus on Value-Added Services. Romac focuses exclusively on providing
specialty staffing services to its clients. Romac believes that providing
these specialty services to its clients offer greater profitability than
the clerical and light industrial sectors of the temporary staffing
industry. In addition, Romac believes, based upon data published by the
U.S. Bureau of Labor Statistics and other sources, that employment growth
will be greater in Romac's sectors 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 personnel, match them to client needs, and develop and manage the
resulting relationships. Romac believes its historical focus in this
market and name recognition, combined with management's operating
expertise, provide it with a competitive benefit.
- Build Long-Term, Consultative Relationships. Romac has developed
long-term relationships with its clients by providing integrated
solutions to their specialty staffing requirements. Romac strives to
differentiate itself by working closely with its clients to maximize
their return on human assets. In addition, Romac's ability to offer a
broad range of flexible personnel services, coupled with its permanent
placement capability, offers the client a single-source provider of
specialty staffing services. This ability enables Romac to emphasize
consultative rather than transactional client relationships.
- Implement Carve-Out Strategy. Romac has begun implementation of its
"carve-out" marketing strategy, which encourages large contractors of
staffing services to "carve-out" the professional and technical sectors
of staffing contracts and award such business to specialty staffing
services providers instead of large generalist staffing firms. As a
result of this strategy, Romac has signed several contracts with major
national corporations for certain of Romac's services. Management
believes there is substantial opportunity for growth through the
continued implementation of this strategy.
- Achieve Extensive Client Penetration. Romac's client development process
focuses on repeated contacts with client employees responsible for
staffing decisions. Contacts are made within numerous functional
departments and at many different organizational levels within the
client. Romac's operating employees are trained to develop a thorough
understanding of each client's total staffing requirements. In addition,
although Romac is organized functionally, its operating employees are
trained and incentivized to recognize cross-selling opportunities for all
of Romac's other services.
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- Apply Innovative Technology. Romac utilizes proprietary technologies and
processes in the staffing, marketing, and management of its operations.
Romac's Professional Recruiters Operating System ("PROS") provides
operating employees with a systematic approach to identifying,
monitoring, and serving the needs of Romac's customers (clients and
personnel). Once operating employees obtain information regarding a
customer, the data is entered into Romac's integrated operating system
and is coded for future action. Operating employees are then prompted by
means of an automated planner to contact the customer periodically to
monitor and serve the needs that have been identified. Romac believes
that its emphasis on the use of technology has resulted in the delivery
of higher quality service, greater operating efficiency, and increased
operating employee productivity.
- Recruit High-Quality Professionals. Romac places great emphasis on
recruiting qualified personnel. Romac believes it has a recruiting
advantage over those of its competitors that lack the ability to offer
personnel flexible and permanent opportunities. Personnel seeking
permanent employment frequently accept flexible assignments through Romac
until a permanent position becomes available. Personnel are screened by
an operating employee with a compatible technical background to determine
qualifications and match them with client needs.
- Encourage Operating Employee Achievement. Romac's management promotes a
quality-focused, results-oriented culture. Operating employees are
selected based on their willingness to assume responsibility and promote
Romac's philosophy. All operating employees are given numerous incentives
to encourage the achievement of corporate goals. Romac fosters a
team-oriented and high energy environment, celebrates the successes of
its operating employees, and attempts to create a "spirited" work
environment.
GROWTH STRATEGY
Romac'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 Romac's growth strategy are as follows:
- Introduce Functional Service Offerings to Existing Markets. Romac
currently offers four areas of functional services and only one of
Romac's 19 markets offers the full range of services. As a result, Romac
believes that a substantial opportunity exists to increase the number of
service offerings within its existing markets. Romac intends to offer its
recently expanded full range of functional services into each of its
existing locations.
- Open New Locations. Romac continually evaluates potential geographic
expansion into new metropolitan areas. To facilitate new market entry,
Romac plans to transfer or recruit experienced operating employees for
positions in new locations as they are opened. Romac also seeks to
leverage its national accounts to facilitate its entry into new markets.
Since February 1995, Romac has opened offices in Dallas, Houston,
Minneapolis, Philadelphia, Pittsburgh, Washington, D.C., Stamford and St.
Louis.
- Leverage Existing Client Relationships and Develop New Clients. Romac
continually identifies additional growth opportunities within existing
and new clients as a result of the interrelationships among its service
offerings. Romac has established goals for cross-selling and has trained
and incentivized its operating employees to actively sell Romac's full
range of services, in an effort to maximize its reach into the
marketplace.
- Acquire Strategic Businesses. Romac intends to continue to pursue the
acquisition of complementary specialty staffing businesses. Romac's
preference is to acquire businesses in markets in which Romac currently
has a location or formerly maintained a franchised or licensed location,
although other markets will also be explored, including markets outside
the United States. Romac's primary acquisition candidates are local or
regional specialty staffing firms with established client relationships
in markets targeted by Romac. Romac currently has no understanding or
agreement with any potential acquisition candidate, except the Merger
Agreement with Source.
- Expand Major and National Accounts Program. Romac will continue to
market its full range of services to existing and new clients in order to
position Romac as the preferred vendor for specialty
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staffing services. Romac believes the major accounts program enables it to
further penetrate its clients by giving Romac greater access to key staffing
decision makers including the support of the client's purchasing and procurement
team. This increased access allows Romac to achieve greater operating
leverage through improved efficiencies in the marketing process. Romac has
successfully obtained several national agreements for professional and
technical specialty staffing services. Romac intends to aggressively
pursue such agreements to facilitate geographic expansion and existing
market penetration.
- Introduce New Services. Romac continually evaluates the introduction of
new services in an effort to meet customer demands. Romac has introduced
flexible staffing of pharmaceutical, health care, and manufacturing
services personnel to complement its existing search capabilities in
these areas. Additionally, Romac acquired an entity that provides
outplacement services and human resource contract and outsourcing
services. To enhance the technical capabilities and perceived quality of
Romac's Information Technology Services, Romac has formed Emerging
Technologies Division ("ETD") through which selected personnel receive
extensive training in emerging information technologies and are assigned
to client environments for periods generally ranging from six months to
two years.
FUNCTIONAL ORGANIZATION
In March 1997, Romac changed the manner in which it classifies its service
offerings in order to better serve the specialty needs of its customers.
Currently, in order to align itself more closely with the organizational
structure of its clients and the skills of its personnel on assignment, and
available for assignment, Romac organizes its service offerings by function.
The functional areas are defined as:
- Information Technology. Computer and Data Processing Services heads the
Bureau of Labor Statistics' list of the fastest growing industries. The
shortage of technical expertise to operate the advanced systems that
businesses have acquired over the last decade is a major catalyst
contributing to the growth of this segment. Romac's Information
Technology services focuses on more sophisticated areas of the
information technologies (i.e., systems/applications programmers, systems
analysts, and networking technicians), where the shortage of personnel is
the most acute.
The combination of a growing number of available software applications, the
increased complexity of such software applications, and the short supply of
qualified software expertise contributed to Romac's decision to create ETD in
mid-1995. ETD retrains skilled information technology professionals in cutting
edge technology solutions and then offers the services of those highly trained
individuals to Romac's clients. Romac believes the sophistication of these
technologies, coupled with the significant unmet demand, provide an attractive
opportunity for Romac to generate a new, higher margin business, and to add
value to its clients.
- Finance & Accounting. In its markets, Romac believes it has built a
strong reputation for providing qualified finance and accounting
professionals to businesses. Romac believes this reputation facilitates
Romac's recruiting and placement efforts. Romac's Finance & Accounting
personnel are experienced in areas such as corporate taxation, budget
preparation and analysis, financial reporting, cost analysis, and audit
services. Romac recently introduced its Executive Solutions service line,
which provides chief financial officers, controllers and other
higher-level financial professionals on a contract basis for assignment
lengths generally ranging from three to six months.
- Human Resources. The non-core functions of a business, such as human
resources, are the most likely to be outsourced. With increasing
employment regulations, the administrative burden on employers is
becoming more complex and more time-consuming than ever before. Romac
offers flexible and permanent staffing of human resource professionals in
the areas of recruiting, benefits administration, training, and
generalists. In addition, Romac provides outplacement, outsourcing, and
consulting services in this field.
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- Operating Specialties. This segment consists of revenues generated by
the placement of professionals skilled in the pharmaceutical,
manufacturing, health care, life insurance, and investment industries.
Examples of the types of positions that would be classified in these
categories are: research and regulatory personnel for pharmaceutical
clients, quality engineers and assurance personnel for manufacturing
companies, hospital administration and management personnel for health
care companies, and management personnel for life insurance companies.
Once the functional challenges of the client have been identified, Romac
can then consult with the client to determine its staffing and time duration
requirements. Romac offers its staffing services in one of two categories:
Flexible Staffing Services or Search Services.
Flexible Staffing Services
Flexible Staffing Services are offered by Romac to provide personnel in the
fields of information technology, finance and accounting, human resources and
operating specialties. Romac currently offers flexible staffing services in
nineteen metropolitan markets. The two primary service offerings within Flexible
Staffing are distinguished below:
Professional Temporary Services. Professional Temporary Services are
offered by Romac to provide professional temporary personnel in the fields
of finance and accounting.
Professional Temporary Services 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.
Professional Temporary Services 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 Romac'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 Services is six to twelve weeks.
Personnel for Professional Temporary Services are obtained from Search
Services, referrals, and advertising in local newspapers and on Romac's
home page on the Internet. Romac believes it has a competitive advantage in
attracting personnel because of its ability to provide assignments ranging
from short term to permanent. Access by the Professional Temporary Services
to the Search Services' personnel pool provides personnel the opportunity
to obtain permanent employment as a result of a flexible assignment,
earnings that may allow personnel to be more selective when evaluating
permanent opportunities, and additional experience that can enhance
personnel skills and overall marketability. Personnel are 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.
Professional Temporary Services targets Fortune 1000 companies and
other large organizations, with a primary focus on organizations determined
to have the potential need for Romac's full range of services. In order to
maximize its marketing effectiveness, Romac provides extensive training to
its operating employees, which emphasizes the consulting nature of its
business. Romac's operating employees develop marketing plans composed of
multiple visits, frequent telemarketing activity, monthly mailings, and
other actions supported through the use of the PROS and daily staff
meetings. Romac believes that these techniques and processes provide the
opportunity to expand its business within its clients' organizations,
solidify client relationships, and develop new clients. Romac recognizes
that in some cases Professional Temporary Services personnel will be
offered permanent positions. If a client requests that personnel become
permanent employees, Romac typically charges a "conversion" fee that is
calculated as a percentage of the initial annual compensation.
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Contract Services. Contract Services provides personnel on a
contractual basis, which typically averages six to nine months in duration.
Contract Services has traditionally focused on providing information
systems personnel to assist clients whose needs range from mainframe
environments to single work stations. Contract Services personnel 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 businesses 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
businesses 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 and to improve
productivity.
Romac'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. As a result, Contract
Services focuses heavily on its recruiting efforts. In addition, Romac
focuses on training its Information Systems personnel in sophisticated
technology applications. For example, Romac has formed ETD, which selects
personnel to receive extensive training in emerging information
technologies and who are assigned to client environments for periods
generally ranging from six months to two years. Romac 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., which was
renamed Romac-HR ("Romac-HR"), expanded Romac's Contract Services functions
to include human resource personnel. Romac-HR, 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. Romac currently provides the
human resource contract services function in the Boston, Chicago,
Philadelphia, Tampa and Washington DC markets. Romac plans to continue to
introduce the human resource contract services function into its existing
markets.
Romac has expanded its Contract Services functions to include
manufacturing services, health care, and pharmaceutical personnel. Within
manufacturing services, Romac 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 clients with research and
regulatory personnel.
Currently, Romac services these other functional areas on a national
basis solely out of its Tampa office.
Romac's operating employees develop and maintain an active personnel
inventory designed to meet the needs of Romac's clients. To recruit
qualified personnel, Romac uses targeted telephone and internet recruiting,
obtains referrals from its existing personnel and clients, and places
newspaper advertisements. The Search Services' recruiting efforts
complement those of Contract Services, and Romac believes that this
combination distinguishes it from its competitors. To foster loyalty and
commitment from its existing personnel, Romac maintains frequent contact
and offers competitive wages, benefits, flexible schedules, and exposure to
a variety of working environments.
Contract Services concentrates on marketing its services to Fortune
1000 companies and other businesses with information systems, manufacturing
services, human resources, health care, and pharmaceutical personnel
requirements. Operating employees emphasize Romac'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.
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Search Services
Romac provides extensive search services for professional and technical
personnel. The professional skills offered by the Search Services are in the
areas of information technology, finance and accounting, financial services,
pharmaceutical research, health care, human resources, insurance, and
manufacturing.
Romac performs both contingency and retained searches. A contingency search
results in payment to Romac only when personnel are actually hired by a client.
Romac's strategy is to perform contingency searches only for skills Romac
targets as its "core-businesses." 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. Romac 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. Romac's fee is
typically structured as a percentage of the placed individual's first-year
annual compensation.
An active database of personnel is maintained as the result of its
continuous recruiting efforts and reputation in the industry. In addition,
operating employees locate many potential personnel as the result of referrals
from the Flexible Staffing Services activities.
Romac 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, Romac'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 Romac seeks to use consultative
relationships to obtain insight into emerging growth areas. The clients targeted
by the Search Services are typically the same as those targeted by the Flexible
Staffing Services. This common focus is intended to contribute to Romac's
objective of providing integrated solutions to its clients' personnel needs.
Romac's search business is highly specialized. Certain skills, such as
finance and accounting, information technology and human resources, may be
served by local offices, while other, more highly specialized operating
specialties require a regional or national focus. Romac 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 Romac's inventory of personnel. Romac expects that the Search Services will
continue to add operating specialties in the majority of markets served.
MARKETS
Romac serves 19 metropolitan markets with management of the operations
coordinated from its headquarters in Tampa. Romac's headquarters provides its
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 following table lists the services offered by Romac on a market by
market basis.
SERVICES OFFERED
--------------------------------------------------
INFORMATION FINANCE & HUMAN OPERATING YEAR
TECHNOLOGY ACCOUNTING RESOURCES SPECIALTIES OPENED/ACQUIRED
----------- ---------- --------- ----------- ---------------
Atlanta, GA......................... X X 1986
Boston, MA.......................... X X X X 1966
Chicago, IL......................... X X X 1985
Dallas, TX.......................... X X 1995
Denver, CO.......................... X 1997
Houston, TX......................... X X 1995
Louisville, KY...................... X 1992
Miami/Ft. Lauderdale, FL............ X X 1982
Minneapolis, MN..................... X 1996
Orange County, CA................... X 1997
Orlando, FL......................... X X 1984
Philadelphia, PA.................... X X X 1995
Pittsburgh, PA...................... X 1996
San Francisco, CA................... X X 1989
San Jose, CA........................ X X 1997
St. Louis, MO....................... X 1998
Stamford, CT........................ X X 1997
Tampa, FL........................... X X X X 1980
Washington, DC...................... X X 1997
PROFESSIONAL RECRUITERS OPERATING SYSTEM
Romac has developed a proprietary integrated system designed to maximize
productivity and to aid in the management of its business. PROS is designed to
be a comprehensive approach to the operation and management of a specialty
staffing firm. It comprises sophisticated and proprietary operating and computer
systems initially developed in 1982 and has been continually enhanced. The
system links each office location through the use of a private network to
Romac's corporate headquarters.
PROS offers several advantages in providing information to support the
goals of Romac. Through the use of PROS, market information concerning target
customers is tracked and prioritized to focus marketing and development efforts.
Readily available management reports indicate the frequency and nature of
contact with the targeted customers to support marketing plans. By using these
reports, managers provide direction and support to operating employees to ensure
that customers 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 customer development and
service and operating employee and personnel productivity.
In addition to customer 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 problem and
enables operating employees in different functional and geographical areas to
share information and communicate more effectively.
Finally, PROS helps Romac 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 Romac. Romac intends to continue to enhance its
systems capabilities to streamline processes in order to improve customer
servicing.
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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 Romac's competitors possess
substantially greater resources than Romac. Romac faces substantial competition
from large national firms and local specialty staffing firms. Larger national
firms that offer specialty staffing services include Robert Half International,
Computer Horizon, Inc., and Alternative Resources Corporation. The local firms
are typically operator-owned, and each market generally has one or more
significant competitors. Romac also faces competition from national clerical and
light industrial staffing firms and national and regional accounting firms that
also offer certain specialty staffing services. These companies include Interior
Services, Inc., Norrell Corporation, AccuStaff Incorporated, and Olsten Corp.
Romac believes that the availability and quality of its personnel, the
level of service, the effective monitoring of job performance, scope of
geographic service and the price of service are the principal elements of
competition. Romac believes that availability of quality personnel is an
especially important facet of competition. In order to attract personnel, Romac
places emphasis upon its ability to provide permanent placement opportunities,
competitive compensation and benefits, quality and varied assignments, and
scheduling flexibility. Because personnel pursue other employment opportunities
on a regular basis, it is important that Romac respond to market conditions
affecting these individuals. Additionally, in certain markets Romac has
experienced significant pricing pressure from some of its competitors. Although
Romac believes it competes favorably with respect to these factors, it expects
competition to increase, and there is no assurance that Romac will remain
competitive.
INSURANCE
Romac maintains a fidelity bond and a number of insurance policies
including general liability and automobile liability, (each with excess
liability coverage), professional liability, worker's compensation and
employers' liability. Romac also maintains professional liability and crime
policies, each with aggregate coverage of $1.0 million, covering certain
liabilities that may arise from the actions or omissions of its operating
employees and personnel. Romac currently maintains key man life insurance on
certain of its executive officers in an aggregate amount of $7.5 million. Romac
believes that its insurance coverages will be adequate for its needs, although
there is no assurance that these coverages will be sufficient.
OPERATING EMPLOYEES AND PERSONNEL
As of December 31, 1997, Romac and its subsidiaries employed approximately
600 operating employees. Additionally, as of that date, Romac had approximately
2,600 personnel on assignment providing flexible staffing services to its
clients. As the employer, Romac is responsible for the operating employees and
personnel 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 operating employees and personnel. Romac offers
access to various insurance programs and other benefits for its operating
employees and personnel. Romac has no collective bargaining agreements covering
any of its operating employees or personnel, has never experienced any material
labor disruption, and is unaware of any current efforts or plans to organize its
operating employees or personnel. Romac considers relations with its operating
employees and personnel to be good.
ITEM 2. PROPERTIES
Romac owns no real estate. It leases its corporate headquarters in Tampa,
Florida, as well as space for its other locations. The aggregate area of office
space under leases for locations is approximately 154,000 square feet. The
leases generally run from month-to-month to five years and the aggregate annual
rent paid by Romac in 1997 was approximately $2.1 million. Romac believes that
its facilities are adequate for its needs and does not expect difficulty
replacing such facilities or locating additional facilities, if needed.
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ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, Romac is from time to time
threatened with or named as a defendant in various lawsuits, including
discrimination and harassment and other similar claims. Romac maintains
insurance in such amounts and with such coverages and deductibles as management
believes are reasonable. The principal risks that Romac insures against are
workers' compensation, personal injury, bodily injury, property damage,
professional malpractice, errors and omissions, and fidelity losses. Romac 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, 1997 covered by this Annual Report
on Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER 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. The table has been
adjusted to reflect two-for-one stock splits, each in the form of a 100% stock
dividend reflected on the Nasdaq National Market on May 23, 1996 and October 17,
1997.
FISCAL YEAR HIGH LOW
----------- ------- -------
1996:
First Quarter............................................ $ 8.063 $ 5.750
Second Quarter........................................... $14.875 $ 7.688
Third Quarter............................................ $15.750 $10.125
Fourth Quarter........................................... $15.125 $10.625
1997:
First Quarter............................................ $13.500 $ 8.438
Second Quarter........................................... 17.375 8.313
Third Quarter............................................ 22.500 16.875
Fourth Quarter........................................... 25.125 14.500
1998:
First Quarter (through March 13, 1998)................... $24.125 $23.750
On March 13, 1998, the last reported sale for the Company's Common Stock
was at $23.750. On March 13, 1998 there were approximately 73 holders of record.
Since the Company's initial public offering, the Company has not paid any
cash dividends on its common stock.
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ITEM 6. SELECTED FINANCIAL DATA
The information set forth below is not necessarily indicative of the
results of future operations and should be read in conjunction with Consolidated
Financial Statements and the related Notes thereto incorporated into Item 8 of
this report.
YEARS ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net service revenues...................... $40,346 $40,789 $45,655 $94,210 $181,434
Direct costs of services.................. 26,126 24,851 25,460 53,839 110,550
------- ------- ------- ------- --------
Gross profit.............................. 14,220 15,938 20,195 40,371 70,884
Selling, general and administrative
expenses............................... 12,775 15,009 15,232 30,348 50,531
Depreciation and amortization............. 298 248 512 1,762 3,242
Combination expenses...................... -- 2,251 -- -- --
Other (income) expense, net(1)............ 34 (1,157) (570) (1,685) (1,932)
------- ------- ------- ------- --------
Income (loss) before taxes and minority
interest............................... 1,113 (413) 5,021 9,946 19,043
Provision for taxes....................... 448 186 2,008 3,965 7,500
------- ------- ------- ------- --------
Income (loss) before minority interest.... 665 (599) 3,013 5,981 11,543
Minority interest in subsidiary income.... 15 -- -- -- --
------- ------- ------- ------- --------
Net income (loss)(1)...................... $ 650 (599) 3,013 5,981 11,543
======= ======= ======= ======= ========
Net income (loss) per share(2) -- basic... $ 0.05 (.04) .19 0.28 .46
======= ======= ======= ======= ========
Weighted average shares
outstanding -- basic................... 13,237 14,078 16,087 21,716 24,896
Net income (loss) per share -- diluted.... 0.05 (.04) .18 .26 .44
======= ======= ======= ======= ========
Weighted average shares
outstanding -- diluted................. 13,237 14,078 16,965 23,319 26,398
DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
BALANCE SHEET DATA:
Working capital........................... $ 2,579 $ 2,093 $13,895 $54,220 $ 97,500
Total assets.............................. 6.135 6,984 20,952 77,559 197,139
Total long-term debt...................... 92 24 500 -- 1,260
Shareholders' equity...................... 3,074 2,435 16,924 71,284 173,680
- ---------------
(1) Net income (loss) for the years ended December 31, 1994, 1995, 1996, and
1997, includes franchise termination income (net of tax) of $336, $261,
$208, and $100, respectively.
(2) Net income (loss) per share for the years ended December 31, 1994, 1995,
1996, and 1997, includes franchise termination income per share of $0.02,
$0.01, $0.01, $0.00, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in connection with Romac's
Consolidated Financial Statements and the related Notes thereto incorporated
into Item 8 of this report.
OVERVIEW
Romac is a provider of professional and technical specialty staffing
services in 19 markets in the United States. Romac strives to shape valuable
business relationships between organizations and the knowledgeable people who
make them successful. To better serve the needs of its customers, Romac provides
its customers
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value-added services in the following specialties: Information Technology,
Finance and Accounting, Human Resources and Operating Specialties. Romac
believes its broad range of highly specialized services provides clients with
integrated solutions to their staffing needs, allowing Romac to develop
long-term, consultative relationships. Romac principally serves Fortune 1000
clients with its top ten clients representing 10.0% of its revenue for 1997.
Romac believes its functional focus and range of service offerings generate
increased placement opportunities and enhance Romac's ability to identify,
attract, retain, develop, and motivate personnel and operating employees.
Revenue Recognition
Net service revenues consist of sales, net of credits and discounts. Romac
recognizes Flexible Billings based on hours worked by assigned personnel on a
weekly basis. Search Fees are recognized in contingency search engagements upon
the successful completion of the assignment. Franchise fees were determined
based upon a contractual percentage of the revenue billed by franchisees. Costs
relating to the support of franchised operations were included in Romac's
selling, general and administrative expenses. The last remaining franchisee and
licensee agreement was terminated at the end of the second quarter of 1997.
Romac was the legal employer of flexible personnel under its licensing
arrangements, and accordingly included revenues and related direct costs of
licensed offices in its net service revenues and direct cost of services,
respectively. Commissions paid to licensees were based upon a percentage of the
gross profit generated, and were included in Romac's direct cost of services.
Gross Profit
Gross profit for the Flexible Billings is determined by deducting the
direct cost of services (flexible personnel payroll wages, payroll taxes,
payroll-related insurance, and licensee commissions) from net service revenues.
Consistent with industry practices, all costs related to Search Fees are
classified as selling, general, and administrative expense.
RESULTS OF OPERATIONS
The following table sets forth revenue mix and certain items in Romac's
consolidated statement of operations as a percentage of net service revenues for
the indicated periods:
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
----- ----- -----
Flexible Billings................................... 78.5% 80.2% 86.0%
Search Fees......................................... 21.5 19.8 14.0
----- ----- -----
Net service revenues................................ 100.0 100.0 100.0
===== ===== =====
Gross profit........................................ 44.2 42.9 39.1
Selling, general, and administrative expenses....... 33.4 32.2 27.9
Income before taxes................................. 11.0 10.6 10.5
Net income.......................................... 6.6% 6.3% 6.4%
1997 COMPARED TO 1996
Net service revenues. Net service revenues increased 92.6% to $181.4
million in 1997 as compared to $94.2 million for the same period in 1996. This
increase was composed of a $80.6 million increase in Flexible Billings and a
$6.7 million increase in Search Fees for the year ended December 31, 1997 as
described below.
Flexible Billings increased 106.8% to $156.0 million in 1997 as compared to
$75.5 million for the same period in 1996. This increase is a result of an
increase in the number of hours billed by Romac-owned operations as compared to
the same periods in 1996. The average hourly bill rate for the year increased to
$36.0 in 1997 from $28.0 for 1996 due to the growing mix of contract business as
a percentage of total Flexible Billings. In addition, Romac's ETD division
increased its bill rates 26% in 1997 compared to the same periods in 1996 as the
demand for these highly skilled workers continues to build.
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Search Fees increased 35.3% to $25.3 million in 1997 as compared to $18.7
million for the same period in 1996. This increase resulted primarily from an
increase in the number of search sales consultants, which increased the number
of search placements made in 1997 as compared to the same period in 1996. The
average fee for each search placement made during the periods remained
relatively constant.
Gross profit. Gross profit increased 75.5% to $70.9 million in 1997 as
compared to $40.4 million in 1996. Gross profit as a percentage of net service
revenues decreased to 39.1% in 1997 as compared to 42.9% for the same period in
1996. This decrease was a result of the continuing change in Romac's business
mix whereby revenues from Flexible Billings, traditionally lower gross margins
than Search Fees, increased to 86.0% of Romac's net service revenues in 1997 as
compared to 80.1% for the same period in 1996.
Selling, general and administrative expenses. Selling, general, and
administrative expenses increased 66.7% to $50.5 million in 1997 as compared to
$30.3 million for the same period in 1996. Selling, general, and administrative
expenses as a percentage of net service revenues decreased to 27.9% in 1997
compared to 32.2% for the same period in 1996. This decrease in selling,
general, and administrative expense 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. Depreciation and amortization
expense increased 77.8%, to $3.2 million for 1997 as compared to $1.8 million
for the same period in 1996. Depreciation and amortization expense as a
percentage of net service revenue decreased to 1.8% for 1997 as compared 1.9%
for the same period in 1996. The decrease as a percentage of net service
revenues for 1997 as compared to the same period in 1996 is primarily due to a
change in accounting estimate which increased the amortization period for
goodwill from 15 to 30 years related to certain acquisitions.
Other (income) expense. Other (income) expense increased 11.8% in 1997 to
$1.9 million as compared to approximately $1.7 million for the same period in
1996. The increase during 1997 compared to the same period in 1996 is due to
interest earned on the investment of the proceeds from the May 1996 and November
1997 stock offerings.
Income before taxes. Income before taxes increased 91.9% to $19.0 million
for 1997 as compared to $9.9 million for the same period in 1996, primarily as a
result of the above factors.
Provision for income taxes. Provision for income taxes increased 87.5% to
$7.5 million for 1997 compared to $4.0 million for the same period in 1996. The
effective tax rate was 39.4% in 1997 as compared to approximately 40.0% in 1996.
Net income. Net income increased 91.7% to $11.5 million for 1997 compared
to $6.0 million for the same period in 1996. This increase was due to the
revenue increases discussed above offset by a decrease in the gross profit as a
percentage of net service revenues due to the continuing change in the business
mix towards Flexible Billings, which has traditionally lower gross margins, and
a decrease in selling, general and administrative expenses as a percentage of
net service revenues (although selling, general, and administrative expenses
increased in absolute dollars) due to economies of scale gained from a larger
revenue base.
1996 COMPARED TO 1995
Net service revenues. Net service revenues increased 106.1% to $94.2
million in 1996 as compared to $45.7 million for the same period in 1995. This
increase was composed of a $39.6 million increase in Flexible Billings and a
$8.9 million increase in Search Fees for 1996. This increase in Flexible
Billings was partially offset by an approximate $1.5 million decrease in
Flexible Billings from franchisee and licensee operations for 1996 as compared
to 1995, as several franchisee and licensee operations were discontinued during
1996.
Flexible Billings increased 110.3% to $75.5 million for 1996 as compared to
$35.9 million in 1995. This increase in Flexible Billings includes a $25.3
million increase from existing Company-owned operations and $14.3 million
increase from acquired operations. The increase attributable to Company-owned
operations resulted primarily from an increase in the number of hours billed by
Company-owned operations during 1996
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as compared to 1995, as well as from an increase in the average hourly bill rate
for 1996 to approximately $27.0 per hour as compared to approximately $21.3 per
hour in 1995.
Search Fees increased 90.8% to $18.7 million in 1996 as compared to $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 fee for each Search placement made
remained relatively constant during the periods involved. Franchise and license
revenues, which are included in the aforementioned Flexible Billings 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 Romac's
specialized staffing services. Romac opened two new Company-owned locations
during 1996: Pittsburgh in February and Minneapolis in April.
Gross profit. Gross profit increased 100.0% to $40.4 million in 1996 as
compared to $20.2 million in 1995. Gross profit as a percentage of net service
revenues decreased to 42.9% in 1996 as compared to 44.2% in 1995. This decrease
in gross profit margin as a percentage of net service revenues was a result of
the continuing changes in Romac's business mix whereby revenues from Flexible
Billings, which has traditionally lower gross margins than Search Fees,
increased to 80.1% of Romac's net service revenues for 1996 as compared to 78.6%
for 1995.
Selling, general and administrative expenses. Selling, general, and
administrative expenses increased 99.3% to $30.3 million in 1996 as compared to
$15.2 million in 1995. Selling, general, and administrative expenses as a
percentage of net service revenues decreased to 32.2% in 1996 as compared to
33.4% 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 expenses. Depreciation and amortization
expenses increased approximately 260.0% to $1.8 million in 1996 as compared to
$500,000 in 1995, primarily because Romac 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 $700,000 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 Romac
during 1996.
Other (income) expense. Other (income) expense increased 198.2% to $1.7
million of income in 1996 as compared to $570,000 of income in 1995. This
increase was primarily due to interest earned by Romac on the investment of the
proceeds from its May 1996 Common Stock offering and expenses relating to
capital lease obligations entered into in 1995 declined in 1996. This increase
was partially offset by a decrease in franchisee termination income received by
Romac during the periods involved, as $346,189 was received in 1996 as compared
to $435,000 in 1995.
Income before taxes. Income before taxes increased 98.0% to $9.9 million
in 1996 as compared to $5.0 million in 1995, primarily as a result of the above
factors.
Provision for income taxes. Provision for income taxes increased 100% to
$4.0 million in 1996 as compared to $2.0 million in 1995. The effective income
tax rate was constant at approximately 40.0% for both periods.
Net income. Net income increased approximately 100% to $6.0 million in
1996 as compared to $3.0 million in 1995, primarily as a result of the above
factors.
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LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company's sources of liquidity included
approximately $77.9 million in cash and cash equivalents and approximately $19.6
million in additional net working capital. In addition, as of December 31, 1997,
there were no amounts outstanding on Romac's line of credit and $30.0 million
was available for borrowing under Romac's line of credit. Romac entered into a
new Revolving Line of Credit Loan Agreement with Nationsbank, N.A. (the "Line of
Credit") during September 1997. The Line of Credit expires on March 31, 2000 and
amounts outstanding under the line of credit accrue interest at an annual rate
equal to 65 basis points above the 90-day London Interbank Offering interest
rate ("LIBOR"). As of December 31, 1997, the interest rate on the Line of Credit
was 6.46%.
During the year ended December 31, 1997, cash flow provided by operations
was approximately $4.5 million, resulting primarily from net income, non-cash
expenses (depreciation and amortization) and increases in operating payroll
liabilities, offset by an increase in accounts receivable. The increase in
accounts receivable reflects the increased volume of business during 1997 from
existing locations and the initial funding of the accounts receivable base in
acquired operations.
During 1997, cash flow used in investing activities was approximately $54.3
million, resulting primarily from Romac's use of approximately $52.1 million in
cash for acquisitions.
In November and December 1997, Romac received approximately $86.5 million
as net proceeds of its common stock offering, part of which was used to repay
the indebtedness outstanding under the Line of Credit. Romac intends to use the
remaining net proceeds for general corporate purposes, including possible
acquisitions, expansion of Romac's operations and certain capital expenditures
related to Romac's expansion. Pending such uses, the net proceeds will be
invested in short term, investment grade securities, certificates of deposit, or
direct or guaranteed obligations of the United States government.
Romac believes that cash flow from operations and borrowings under Romac's
Line of Credit, or other credit facilities that may become available to Romac in
the future will be adequate to meet the working capital requirements of Romac's
current operations for at least the next 12 months. Romac believes that the
consummation of the Source Merger will not adversely affect Romac's liquidity
and capital resources. Romac's estimate of the period that existing resources
will fund its and the combined company's working capital requirements is a
forward-looking statement that is subject to risks and uncertainties. Actual
results could differ from those indicated as a result of a number of factors,
including the use of such resources for possible acquisitions.
YEAR 2000 COMPUTER ISSUES
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify years. As a result, such systems will
recognize the year 2000 as "00." This could cause many computer applications to
fail completely or to create erroneous results unless corrective measures are
taken. Romac utilizes software or related computer technologies which are
essential to its operations. The Company believes all such software is currently
Year 2000 compliant, and therein does not anticipate any material impact as a
result of the Year 2000 issue.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included on pages 22 to 47 in Item
14 of Part IV of this Report and is incorporated into this item by reference.
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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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements. The consolidated financial statements, and
related notes thereto, of the Company with independent auditors' report
thereon are included in Part IV of this Report on the pages indicated by
the Index to Consolidated Financial Statements and Schedule as presented on
page 22 of this report.
2. Financial Statement Schedule. The financial statement schedule of
the Company is included in Part IV of this Report on the page indicated by
the Index to Consolidated Financial Statements and Schedule as presented on
page 20 of this report. The independent auditors' report as presented on
page 41 of this report applies to the financial statement schedule. This
financial statement schedule should be read in conjunction with the
consolidated financial statements, and related notes thereto, of the
Company.
Schedules not listed in the Index to Consolidated Financial Statements
and Schedule have been omitted because they are not applicable, not
required, or the information required to be set forth therein is included
in the consolidated financial statements or notes thereto.
3. Exhibits. See Item 14(c) below.
(b) Reports on Form 8-K.
(i) Report on Form 8-K, filed October 9, 1997, relating to the
purchase of substantially all the assets of Sequent Associates, Inc.
(ii) Report on Form 8-K, filed October 16, 1997, announcing third
quarter operating results.
(iii) Report on Form 8-K/A, filed October 16, 1997, filing the
financial statements for Uni*Quality System Solutions, Inc., previously
omitted from the Company's Report on Form 8-K, filed September 22, 1997
(iv) Report on Form 8-K, filed December 3, 1997, relating to the
resignation of Maureen A. Rorech from the Board of Directors.
(c) Exhibits. The exhibits listed on the Exhibits Index are filed as part
of, or incorporated by reference into, this Report.
(d) Financial Statement Schedules. See Item 14(a) above.
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ROMAC INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
PAGE
----
Independent Auditors' Report................................ 21
Consolidated Financial Statements:
Consolidated Balance Sheets -- December 31, 1997 and
1996................................................... 22
Consolidated Statements of Operations -- Years ended
December 31, 1997, 1996, and 1995...................... 23
Consolidated Statements of Changes in Shareholders'
Equity -- Years ended
December 31, 1997, 1996, and 1995...................... 25
Consolidated Statements of Cash Flows -- Years ended
December 31, 1997, 1996, and 1995...................... 24
Notes to Consolidated Financial Statements................ 27
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts.......... 42
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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, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, 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 25, 1998
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ROMAC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------
1997 1996
-------- -------
(IN 000'S)
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 77,946 $39,555
Short-term investments.................................... 47 880
Trade receivables, net of allowance for doubtful accounts
of $880 and $617, respectively......................... 35,475 17,061
Notes receivable from franchisees, current................ 109 193
Receivables from related parties, current................. 233 100
Deferred tax asset, current............................... 352 243
Prepaid expenses and other current assets................. 1,637 1,214
-------- -------
Total current assets.............................. 115,799 59,246
Notes receivable from franchisees, less current portion..... 4 75
Receivables from related parties, less current portion...... 1,290 862
Deferred tax asset, less current portion.................... 310 209
Furniture and equipment, net................................ 8,206 5,346
Other assets, net........................................... 4,878 906
Goodwill, net of accumulated amortization of $2,578 and
$1,108, respectively...................................... 66,652 10,915
-------- -------
Total assets...................................... $197,139 $77,559
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued liabilities............ $ 2,680 $ 1,723
Accrued payroll costs..................................... 7,227 2,976
Current portion of capital lease obligations.............. 731 --
Current portion of payables to related parties............ 4,265 23
Income taxes payable...................................... 3,396 304
-------- -------
Total current liabilities......................... 18,299 5,026
Capital lease obligations, less current portion............. 1,260 --
Payables to related parties, less current portion........... 1,375 --
Other long-term liabilities................................. 2,525 1,249
-------- -------
Total liabilities................................. 23,459 6,275
Commitments and contingencies
Shareholders' Equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none
issued and outstanding................................. -- --
Common stock, $0.01 par; 100,000 shares authorized, 29,863
and 24,267 issued and outstanding, respectively........ 299 243
Additional paid-in capital................................ 152,188 61,404
Stock subscriptions receivable............................ -- (13)
Retained earnings......................................... 22,118 10,575
Less reacquired shares at cost; 677 shares................ (925) (925)
-------- -------
Total shareholders' equity........................ 173,680 71,284
-------- -------
Total liabilities and shareholders' equity........ $197,139 $77,559
======== =======
The accompanying notes are an integral part
of these consolidated financial statements.
22
24
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
(IN 000'S, EXCEPT PER SHARE DATA)
1997 1996 1995
-------- ------- -------
Net service revenues........................................ $181,434 $94,210 $45,655
Direct costs of services.................................... 110,550 53,839 25,460
-------- ------- -------
Gross profit................................................ 70,884 40,371 20,195
Selling, general and administrative expenses................ 50,531 30,348 15,232
Depreciation and amortization............................... 3,242 1,762 512
Other (income) expense:
Dividend and interest income.............................. (1,902) (1,413) (214)
Interest expense.......................................... 127 78 133
Other (income) expense, net............................... (157) (350) (489)
-------- ------- -------
Income before income taxes.................................. 19,043 9,946 5,021
Provision for income taxes.................................. 7,500 3,965 2,008
-------- ------- -------
Net income.................................................. $ 11,543 $ 5,981 $ 3,013
======== ======= =======
Net income per share:
Basic..................................................... $ .46 $ .28 $ .19
======== ======= =======
Diluted................................................... $ .44 $ .26 $ .18
======== ======= =======
Weighted average shares:
Basic..................................................... 24,896 21,716 16,087
======== ======= =======
Diluted................................................... 26,398 23,319 16,965
======== ======= =======
The accompanying notes are an integral part
of these consolidated financial statements.
23
25
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN 000'S)
SHARES AMOUNT
------ --------
COMMON STOCK:
Balance at December 31, 1994................................ 15,751 $ 158
Issuance of common stock.................................... 4,160 42
Exercise of stock options................................... 21 --
------ --------
Balance at December 31, 1995................................ 19,932 200
Issuance of common stock.................................... 4,024 40
Exercise of stock options................................... 311 3
------ --------
Balance at December 31, 1996................................ 24,267 243
Issuance of common stock.................................... 4,577 46
Exercise of stock options................................... 1,019 10
------ --------
Balance at December 31, 1997................................ 29,863 $ 299
====== ========
ADDITIONAL PAID-IN CAPITAL:
Balance at December 31, 1994................................ $ 1,655
Issuance of common stock.................................... 11,360
Exercise of stock options................................... 32
Tax benefit related to employee stock options............... 25
--------
Balance at December 31, 1995................................ 13,072
Issuance of common stock.................................... 47,191
Exercise of stock options................................... 512
Tax benefit related to employee stock options............... 629
--------
Balance at December 31, 1996................................ 61,404
Issuance of common stock.................................... 86,469
Exercise of stock options................................... 2,834
Tax Benefit related to employee stock options............... 1,481
--------
Balance at December 31, 1997................................ $152,188
========
STOCK REPURCHASE OBLIGATION:
Balance at December 31, 1994................................ $ (924)
Reacquired stock............................................ 924
--------
Balance at December 31, 1995, 1996 and 1997................. $ --
========
STOCK SUBSCRIPTIONS RECEIVABLE:
Balance at December 31, 1994................................ $ (36)
Payments on stock subscriptions receivable.................. 19
--------
Balance at December 31, 1995................................ (17)
Payments on stock subscriptions receivable.................. 4
--------
Balance at December 31, 1996................................ (13)
Payments on stock subscriptions receivable.................. 13
--------
Balance at December 31, 1997................................ $ --
========
24
26
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY -- (CONTINUED)
SHARES AMOUNT
------ --------
RETAINED EARNINGS:
Balance at December 31, 1994................................ $ 1,582
Net income.................................................. 3,013
--------
Balance at December 31, 1995................................ 4,595
Net income.................................................. 5,980
--------
Balance at December 31, 1996................................ 10,575
Net income.................................................. 11,543
--------
Balance at December 31, 1997................................ $ 22,118
========
REACQUIRED SHARES:
Balance at December 31, 1994................................ (676) $ (924)
Reacquired escrow shares.................................... -- (1)
------ --------
Balance at December 31, 1995, 1996 and 1997................. (676) $ (925)
====== ========
TOTAL SHAREHOLDERS' EQUITY:
Balance at December 31, 1994................................ $ 2,435
Issuance of common stock.................................... 11,402
Net income.................................................. 3,013
Exercise of stock options................................... 32
Payments on stock subscriptions receivable.................. 19
Reacquired escrow shares.................................... (1)
Tax benefit related to employee stock options............... 25
--------
Balance at December 31, 1995................................ 16,925
Issuance of common stock.................................... 47,231
Exercise of stock options................................... 515
Tax benefit related to employee stock options............... 629
Payments on stock subscriptions receivable.................. 4
Net income.................................................. 5,980
--------
Balance at December 31, 1996................................ 71,284
Issuance of common stock.................................... 86,515
Exercise of stock options................................... 2,844
Tax benefit related to employee stock options............... 1,481
Payment on stock subscriptions receivable................... 13
Net income.................................................. 11,543
--------
Balance at December 31, 1997................................ $173,680
========
The accompanying notes are an integral part
of these consolidated financial statements.
25
27
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(IN 000'S)
1997 1996 1995
-------- -------- -------
Cash flows from operating activities:
Net income................................................ $ 11,543 $ 5,981 $ 3,013
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 3,242 1,762 512
Provision for losses on accounts and notes
receivable........................................... 638 193 290
Deferred taxes......................................... (210) 26 (64)
(Increase) decrease in operating assets:
Trade receivables, net................................. (19,052) (9,900) (4,424)
Notes receivable from franchisees...................... 155 (111) (17)
Prepaid expenses and other current assets.............. (423) (895) 398
Other assets, net...................................... (2,487) (7) (14)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued liabilities......... 957 1,050 (922)
Accrued payroll costs.................................. 4,251 1,518 (65)
Income taxes payable................................... 4,572 361 554
Other long-term liabilities............................ 1,276 657 (682)
-------- -------- -------
Cash provided by (used for) operating
activities...................................... 4,462 635 (1,421)
-------- -------- -------
Cash flows from investing activities:
Capital expenditures...................................... (3,226) (3,830) (1,302)
Acquisitions, net of cash acquired........................ (52,127) (11,254) --
Proceeds from sale of furniture and equipment, net........ 1,681 -- 12
Proceeds from the sale of short-term investments, net..... 833 7,024 --
Increase in cash surrender value of life insurance
policies............................................... (1,485) (382) (241)
Payments for purchase of short-term investments, net...... -- -- (7,656)
-------- -------- -------
Cash used in investing activities................. (54,324) (8,442) (9,187)
-------- -------- -------
Cash flows from financing activities:
Payments on notes receivable from stock subscriptions..... 13 4 19
Payments on capital lease obligations..................... (535) (703) (570)
Payments on notes payable to related parties.............. (23) (6) (18)
Payments on notes receivable from related parties......... 39 220 96
Issuance of notes receivable from related parties......... (600) (520) (439)
Proceeds from issuance of common stock.................... 86,515 47,232 11,402
Proceeds from exercise of stock options................... 2,844 515 32
Repurchase of stock....................................... -- -- 1
-------- -------- -------
Cash provided by financing activities............. 88,253 46,742 10,523
-------- -------- -------
Increase (decrease) in cash and cash equivalents............ $ 38,391 $ 38,935 $ (85)
Cash and cash equivalents at beginning of year.............. 39,555 620 705
-------- -------- -------
Cash and cash equivalents at end of year.................... $ 77,946 $ 39,555 $ 620
======== ======== =======
The accompanying notes are an integral part
of these consolidated financial statements.
26
28
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN 000S, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
ROMAC International, Inc. (the "Company") is a provider of professional and
technical specialty staffing services in 18 markets in the United States as of
December 31, 1997. The Company provides its customers value-added staffing
services in the following specialties: Information Technology, Finance and
Accounting, Human Resources and Operating Specialties. The Company provides
flexible staffing services on both a professional temporary and contract basis
and provides search services on both a contingency and retained basis. The
Company principally serves Fortune 1000 clients.
Stock Split/Dividend
On April 21, 1995, the Company declared a 1.023-for-1 stock split on its
common stock. The Company declared two-for-one stock splits effected as a 100%
stock dividends on its common stock on May 15, 1996 and October 3, 1997. 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 4,160 shares of common
stock on August 12, 1995. The proceeds of $11,402, net of underwriters'
discounts and other offering costs, were used to pay down debt, to reacquire
stock, for general working capital purposes and to finance business
acquisitions. The Company completed secondary offerings of 4,024 and 4,577
shares of common stock on June 4, 1996 and October 17, 1997, respectively. The
proceeds of $47,232 and $86,515, respectively, net of underwriters' discounts
and other offering costs, are being used to finance business acquisitions and to
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
27
29
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
gains and losses are included as a component of shareholders' equity until
realized. At December 31, 1997 and 1996, 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.
Revenue Recognition
Net service revenues consist of sales, net of credits and discounts. The
Company recognizes Flexible Billings based on hours worked by assigned personnel
on a weekly basis. Search Fees are recognized in contingency search engagements
upon the successful completion of the assignment. Franchise fees were determined
based upon a contractual percentage of the revenue billed by franchisees. Costs
relating to the support of franchised operations were included in the Company's
selling, general and administrative expenses. The last remaining franchisee and
licensee agreement was terminated at the end of the second quarter of 1997. The
Company was the legal employer of flexible personnel under its licensing
arrangements, and accordingly, included revenues and related direct costs of
licensed offices in its net service revenues and direct cost of services,
respectively. Commissions paid to licensees were based upon a percentage of the
gross profit generated, and were 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.
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.
Earnings Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") during 1997, which requires disclosure of
basic and diluted earnings per share. Under the new standard, basic earnings per
share is computed as earnings divided by weighted average shares outstanding.
Diluted earnings per share includes the dilutive effects of stock options and
other potentially dilutive securities. All prior period disclosures have been
restated to conform with current year presentation.
The adoption of this new standard had a $.04 per share impact on basic
earnings per share and an immaterial impact on diluted earnings per share for
the year ending December 31, 1997. Options to purchase 158 shares of common
stock at prices ranging from $16.13 to $20.63 per share were outstanding during
1997 but were not included in the computation of diluted earnings per share
because the options were anti-dilutive.
28
30
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The options, which expire on various dates ranging from July 2, 2007 to December
11, 2007, were still outstanding at December 31, 1997.
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which will require Romac to disclose, in financial statement format,
all non-owner changes in equity. Such changes include cumulative foreign
currency translation adjustments and certain minimum pension liabilities. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997 and
requires presentation of prior period financial statements for comparability
purposes. Romac expects to adopt this standard during the year ended December
31, 1998. The adoption of this standard is not expected to have a material
impact on disclosure in Romac's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for
reporting information about operating segments in annual financial statements
and interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for fiscal years beginning after December 15, 1997 and
requires presentation of prior period financial statements for comparability
purposes. Romac is currently evaluating its required disclosures under SFAS No.
131 and expects to adopt this standard during the year ended December 31, 1998.
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,
1997 and 1996. 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,
-----------------
USEFUL LIFE 1997 1996
----------- ------- ------
Furniture and equipment.............................. 5 years $ 3,271 $1,864
Computer equipment................................... 5 years 9,546 6,124
Leasehold improvements............................... lease term 575 192
------- ------
13,392 8,180
Less accumulated depreciation and amortization.................... 5,186 2,834
------- ------
$ 8,206 $5,346
======= ======
Included in computer equipment is approximately $2,600 subject to a
noncancellable capital lease commitment with a three year term commencing on
July 1, 1997.
29
31
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITIONS
Goodwill and intangible assets of $66,652 and $10,915 at December 31, 1997
and 1996, respectively, relate primarily to acquisitions made during 1997 and
1996.
Goodwill is amortized on a straight-line basis over a fifteen or thirty
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 $1,469, $653 and $108 was recorded for the years ended December 31, 1997,
1996 and 1995, respectively.
During the second quarter of 1997, the Company revised its estimate of the
amortization period for goodwill from 15 to 30 years for certain acquisitions.
The change increased 1997 net income by $404, or $.02 per share.
For The Year Ended December 31, 1997
In January 1997, the Company acquired substantially all of the assets of
Career Enhancement International of Massachusetts ("CEIM"), a provider of
permanent placement and contract services for information technology personnel.
The purchase price was approximately $4,400, subject to adjustment upon
attainment of certain operating results.
In March 1997, the Company acquired all of the outstanding capital stock of
Professional Application Resources Incorporated ("PAR"), a provider of
information technology contract personnel. The purchase price was approximately
$4,700.
In September 1997, the Company acquired all of the outstanding capital
stock of Uni*Quality Systems Solutions, Inc. ("UQ"), a provider of contract
services for information technology personnel. The purchase price was
approximately $19,600, subject to adjustment upon attainment of certain
operating results. Also in September 1997, the Company acquired substantially
all of the assets of Sequent Associates, Inc. ("Sequent"), a provider of
supplemental contract personnel staffing specializing in information technology
and engineering professionals. The purchase price was approximately $20,300,
subject to adjustment upon attainment of certain operating results.
In November 1997, the Company acquired the fixed assets of DP Specialists
of Colorado, Inc. ("DPSE"), a provider of permanent placement and staff
augmentation contract services for information technology personnel. The
purchase price, including a non-compete agreement, was approximately $3,300.
In December 1997, the Company acquired substantially all of the assets of
The Center For Recruiting Effectiveness, Inc. ("CRE"), a provider of human
resources personnel on a permanent and contract basis. The purchase price was
approximately $2,100 subject to adjustment upon attainment of certain operating
results.
For The Year Ended December 31, 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 $1,100. In February 1996,
the Company acquired the intangible assets of PCS Group, Inc. ("PCS"), a
provider of contract service information systems personnel. The purchase price,
including a non-compete agreement, was approximately $2,300. In March 1996, the
Company acquired certain of the assets except for cash and accounts receivable
of Strategic Outsourcing, Inc. ("SOI") for approximately $2,500 in cash. In June
1996, the Company acquired the fixed assets and intangible assets of
30
32
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Bayshare, Inc. ("Bayshare"), the former legal entity for the Romac franchise for
the San Francisco area. The purchase price was approximately $5,000 and is
subject to adjustment upon attainment of certain operating results.
During fiscal 1997, approximately $1,900 was paid as additional purchase
price related to the 1996 acquisitions. The Company fixed the earnouts on
certain acquisitions during 1997 for approximately $5,600 (see Note 8). These
amounts have been recorded as additional purchase price consideration and are
included in goodwill.
The Company has accounted for all acquisitions 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 pro
forma adjustments as if the transactions occurred as of the beginning of 1996.
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.
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
Net service revenue.................................... $216,541 $147,903
Gross profit........................................... 80,340 55,780
Income before income taxes............................. 19,220 9,372
Net income............................................. 11,543 5,623
Earnings per share -- basic............................ $ .46 $ .26
Earnings per share -- diluted.......................... $ .44 $ .24
5. OTHER ASSETS
DECEMBER 31,
-------------------------
1997 1996
----------- -----------
Cash surrender value of life insurance policies........ $2,280 $795
Capitalized software................................... 1,900 --
Investment in common stock............................. 54 53
Other.................................................. 644 58
-------- --------
$4,878 $906
======== ========
The cash surrender value of life insurance policies relates to policies
maintained on key employees used to fund deferred compensation agreements with a
cash surrender value of $1,872 and $522 at December 31, 1997 and 1996,
respectively, and key man life insurance on officers with a cash surrender value
of $408 and $273 at December 31, 1997 and 1996, respectively.
During 1997, the Company began the development and implementation of new
computer software to enhance performance of the accounting and operation
systems. Direct internal and external costs subsequent to the preliminary stage
of this project are being capitalized and classified as other assets.
Capitalized software development costs were $1,900 and $0 at December 31, 1997
and 1996, respectively. Capitalized software development costs are amortized
over the estimated useful life of the software using the straight-line method
over the estimated economic life.
31
33
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LINE OF CREDIT AND CAPITAL LEASE OBLIGATION
DECEMBER 31,
--------------
1997 1996
------ ----
Obligation under capital lease with quarterly payments of
principal and interest at 8.3% through June 2000.......... $1,991 $--
Less current maturities..................................... 731 --
------ ---
$1,260 $--
====== ===
Future minimum lease payments under capital lease obligations are $731,
$782 and $478 for 1998, 1999 and 2000, respectively.
In March 1996, the Company entered into an unsecured line of credit
agreement. This agreement provided for up to $5,000 of working capital to the
Company for general corporate purposes. This agreement was renegotiated on
September 11, 1997 and the line was increased to $30,000. This agreement matures
on March 31, 2000 and bears interest at up to 150 basis points above the average
rate at which deposits in U.S. dollars were offered in the London interbank
market ("LIBOR"). 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, 1997 and 1996. No amounts were outstanding on
any of these lines of credit at December 31, 1997 or 1996.
7. INCOME TAXES
The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
Current:
Federal........................................ $6,287 $3,239 $1,658
State.......................................... 1,423 752 414
Deferred......................................... (210) (26) (64)
------ ------ ------
$7,500 $3,965 $2,008
====== ====== ======
The provision for income taxes shown above varied from the statutory
federal income tax rates for those periods as follows:
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996 1995
----- ------ ------
% % %
Federal income tax rate.............................. 35.0 34.0 34.0
State income taxes, net of federal tax benefit..... 4.9 5.0 5.3
Non-deductible items............................... .5 1.4 1.1
Goodwill amortization.............................. .6 (.1) .4
Life insurance items............................... -- .2 .2
Other.............................................. (1.6) (.5) (1.0)
---- ----- -----
Effective tax rate................................... 39.4 40.0 40.0
==== ===== =====
Nondeductible items consist primarily of the portion of meals and
entertainment expenses which are not deductible for tax purposes.
32
34
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax assets and liabilities shown on the balance sheet are
comprised of the following:
DECEMBER 31,
--------------
1997 1996
----- -----
Deferred taxes, current:
Assets
Allowance for bad debts................................ $ 352 $ 222
Accrued liabilities.................................... -- 21
----- -----
Net deferred tax asset, current........................ $ 352 $ 243
===== =====
Deferred taxes, non-current:
Assets
Deferred compensation.................................. $ 979 $ 448
Deferred rent.......................................... 78 34
----- -----
1,057 482
Liabilities
Depreciation........................................... (747) (273)
----- -----
Net deferred tax asset, non-current.................... $ 310 $ 209
===== =====
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,
--------------
1997 1996
------ ----
Receivables from officers and shareholders.................. $1,136 $800
Other related party receivables............................. 387 162
------ ----
1,523 962
Less current maturities..................................... 233 100
------ ----
$1,290 $862
====== ====
Receivables from officers and shareholders include non interest bearing
receivables for premiums paid on split dollar life insurance policies. Repayment
terms on the remaining unsecured receivables range from one to two years at
rates of 8% to 9%.
33
35
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Payables to Related Parties
Notes payable to related parties include the following:
DECEMBER 31,
--------------
1997 1996
------ ----
Notes payable due in annual installments through February
1999 relating to contingent purchase price adjustments on
previous acquisitions (see Note 4)........................ $5,640 $ --
Note payable to a related party, principal and 9% interest
payable in bi-monthly installments through May, 1997...... -- 23
Less current maturities..................................... 4,265 23
------ ----
$1,375 $ --
====== ====
Related Party Leases
The Company has operating leases with related parties as discussed in Note
12.
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,
1997 and 1996, $0 and $14, 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.
9. FRANCHISE REORGANIZATION
In 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 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 cash settlement and the Company retained the
rights to the phone listing and other business records at the Dallas location.
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 $207 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 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 $59 note receivable at 8% interest payable in 18 equal
monthly installments. The agreement also allowed the Company to immediately
enter the St. Louis market.
In 1997, the Company reached termination agreements with the last of its
two franchises. The terms of the Raleigh agreement included notes receivable
totaling $117 at 9% interest payable in 18 equal monthly installments. This
agreement allowed the Company to immediately enter the Raleigh market. The terms
of the New Orleans agreement included notes receivable totaling $50 at 9%
interest payable in 18 equal monthly installments. This agreement allowed the
Company to immediately enter the New Orleans market.
34
36
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The revenue from these transactions has been reflected as other income in
each respective year. Receivables related to these agreements of $109 and $247
at December 31, 1997 and 1996, respectively, are included in notes receivable
from franchisees. Franchise royalties amounted to $10, $450 and $487 for the
years ended December 31, 1997, 1996 and 1995, respectively. As of December 31,
1997, there were no Romac franchises remaining.
10. EMPLOYEE BENEFIT PLANS
401(k) Savings Plan
The Company has 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. Employer contributions to this 401(k)
plan totaled $47, $40 and $22 in 1997, 1996 and 1995, respectively.
Prior to their mergers into the Company, certain subsidiaries had separate
qualified defined contribution 401(k) plans covering substantially all full-time
employees of the subsidiaries. No employer matching contributions were made for
these plans for the years ended December 31, 1997, 1996 and 1995. Employees of
these subsidiaries are now covered under the Company's plan described above.
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 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, 1997 and 1996, aggregated $2,278
and $1,119, 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 $1,872 and $523, at December 31, 1997 and 1996,
respectively, is included in other assets. Compensation expense of $234, $28 and
$45 was recognized for the plan for the years ended December 31, 1997, 1996 and
1995, 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 $916 and $742 are included in related party
receivables for the years ended December 31, 1997 and 1996, respectively.
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 1,636. In 1995, the employee stock option
incentive
35
37
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plan was amended to increase the number of shares of common stock that may be
issued to 3,070. During 1996, this plan was amended to increase the number of
shares of common stock that may be issued under the plan to 6,000 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 (the "Plan"). During 1997,
the Plan was amended to increase the number of shares of common stock that may
be issued under the Plan to 9,000.
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 400.
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
------------ ------------ ------ --------- ----------
Outstanding as of
December 31, 1994..................... 552 -- 552 $ 1.37
Granted............................... 1,663 80 1,743 $ 2.69 $ .95
Exercised............................. (22) -- (22) $ 1.49
------ --- ------
Outstanding as of
December 31, 1995..................... 2,193 80 2,273 $ 2.38
Granted............................... 1,844 40 1,884 $10.96 $4.09
Exercised............................. (311) -- (311) $ 1.66
Forfeited............................. (122) -- (122) $ 8.25
------ --- ------
Outstanding as of
December 31, 1996..................... 3,604 120 3,724 $ 6.59
Granted............................... 1,139 20 1,159 $12.92 $5.59
Exercised............................. (1,019) -- (1,019) $ 2.79
Forfeited............................. (304) -- (304) $10.91
------ --- ------
Outstanding as of
December 31, 1997..................... 3,420 140 3,560 $ 9.43
====== === ====== ======
Exercisable at December 31:
1997............................... 1,060 88 1,148
1998............................... 998 12 1,010
1999............................... 725 12 737
2000............................... 296 12 308
2001............................... 123 12 135
Options granted during each of the three years ended December 31, 1997 have
vesting requirements ranging from one to seven years. Options expire at the end
of ten years from the date of grant.
36
38
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes 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 1997 (SHARES) LIFE (YEARS) PRICE ($)
------------------------ ------------- ------------ ---------
$1.365 - $1.49........................... 414 6.9 $ 1.45
$4.188 - $4.688.......................... 565 7.7 $ 4.19
$6.250 - $7.688.......................... 203 8.2 $ 6.30
$8.845 - $9.565.......................... 11 9.3 $ 9.24
$10.125 - $15.250........................ 2,209 9.0 $11.92
$16.125 - $20.625........................ 158 9.5 $17.18
-----
3,560
=====
OPTIONS EXERCISABLE
--------------------------
NUMBER
EXERCISABLE WEIGHTED
AT AVERAGE
DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1997 (SHARES) PRICE ($)
------------------------ ------------- ---------
$1.365 - 1.490....................................... 295 $ 1.48
$4.188 - $4.688...................................... 330 $ 4.19
$6.250 - $7.688...................................... 47 $ 6.39
$10.125 - $15.250.................................... 425 $11.39
$16.125 - $20.625.................................... 51 $16.94
-----
1,148
=====
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,
-----------------
1997 1996
------- ------
Net income:
As Reported............................................. $11,543 $5,981
Compensation expense per SFAS 123.................... (2,954) (786)
Tax benefit pro forma................................ 456 314
------- ------
$ 9,045 $5,509
======= ======
Net income per share:
Basic:
As Reported.......................................... $ .46 $ .28
Pro forma............................................ .36 .25
Diluted:
As reported.......................................... $ .44 $ .26
Pro forma............................................ .34 .24
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 5.85% - 7.03% for options granted during the year ended December 31,
1997 and 5.95% - 7.99% for options granted during the year ended December 31,
1996; a weighted average expected
37
39
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
option term of 4 - 7 years for 1997 and 3 - 5 years for 1996; and a volatility
factor of 37.02% for 1997 and 35.35% for 1996.
Tax benefits resulting from the disqualifying dispositions of shares
acquired under the Company's employee incentive stock option plan reduced taxes
currently payable by $1,481 and $629 in 1997 and 1996, respectively. These tax
benefits are credited to additional paid-in-capital.
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space for use as its headquarters under an
operating lease with monthly payments of $27 expiring in 2001 from a related
party. The Company also leases office space for Romac Portland from a related
party at an annual rental of $74 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: 1998, $3,107; 1999, $2,870; 2000, $1,660; 2001, $629; and $233
thereafter. Minimum obligations have not been reduced by minimum sublease
rentals of $149 due under a noncancellable sublease.
Rental expense under all operating leases was $2,329, $1,379 and $759 for
1997, 1996 and 1995, respectively.
Noncancellable Processing Commitment
The Company has an agreement with a third party processor (the "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 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. The cumulative amounts processed were $4,373,
$4,279 and $4,094 as of December 31, 1997, 1996 and 1995, respectively.
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 676
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 is included in other income for
the year ended December 31, 1994. The amendment of the stock
38
40
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Litigation
The Company is involved in litigation in the ordinary course of business
which is not, in the opinion of management, expected to have a material effect
on the results of operations or financial condition of the Company.
Employment Agreements
During 1996 and 1997, 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, 1997 would
be approximately $1,100 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.
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,
--------------------------
1997 1996 1995
------ ------ ------
Notes payable issued in settlement of contingent purchase
price of previous acquisitions......................... $5,640 $ -- $ --
Capital lease transaction................................ $2,526 $ -- $1,207
Cash paid during the year for:
Interest............................................... $ 127 $ 79 $ 133
Income taxes........................................... $4,187 $3,675 $1,515
14. SUBSEQUENT EVENTS
On February 1, 1998 and as amended on February 11, 1998, the Company
announced a definitive merger agreement (the "Merger") with Source Services
Corporation ("Source"), a flexible and permanent specialty staffing company. The
agreement provides for a stock-for-stock merger transaction whereby the
stockholders of Source will receive 1.1932 shares of Romac common stock for each
of the outstanding shares of Source common stock, subject to adjustment based on
Romac's market price prior to closing and certain other conditions. Based on
Romac's closing price of $22.375 per share on Friday, January 30, 1998, the
transaction would be valued at approximately $375,000. The consummation of the
Merger is subject to certain conditions including effectiveness of a
registration statement to be filed by the Company with the SEC, approval by the
stockholders of each company and the receipt of the opinions that the Merger may
be accounted for as a "pooling of interests" for accounting purposes and qualify
as a tax-free reorganization.
39
41
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED
-----------------------------------------
MAR. 31 JUN. 30 SEPT. 30 DEC. 31
------- ------- -------- -------
Fiscal 1997
Net service revenues...................... $34,952 $39,640 $45,915 $60,927
Gross profit.............................. 13,948 16,063 18,591 22,282
Net income................................ 2,078 2,427 3,041 3,996
Net income per share -- basic............. $ .09 $ .10 $ .12 $ .15
Net income per share -- diluted........... $ .08 $ .10 $ .12 $ .14
Fiscal 1996
Net service revenues...................... $16,889 $21,466 $26,433 $29,422
Gross profit.............................. 7,170 9,437 11,369 12,395
Net income................................ 1,025 1,288 1,805 1,863
Net income per share -- basic............. $ .06 $ .06 $ .08 $ .08
Net income per share -- diluted........... $ .05 $ .06 $ .08 $ .07
40
42
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 25, 1998 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 25, 1998
41
43
SCHEDULE II
ROMAC INTERNATIONAL, INC.
VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
SUPPLEMENTAL SCHEDULE
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------- ----------------------- ---------- -------------
CHARGED TO CHARGED TO
BALANCE AT COSTS AND OTHER BALANCE AT
DESCRIPTION BEGINNING OF EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
----------- ------------- ---------- ---------- ---------- -------------
Allowance Reserve........................ 1995 $333 $376 $ -- $ 86 $623
--
1996 623 193 199 617
--
1997 617 638 375 880
42
44
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 17, 1998 By: /s/ DAVID L. DUNKEL
------------------------------------
David L. Dunkel
Chairman of the Board
Chief Executive Officer and Director
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David L. Dunkel and James Swartz and each
of them, jointly and severally, his attorneys-in-fact, each with full power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said attorneys-in-fact
or his substitutes, may do or cause to be done by virtue hereof.
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 17, 1998 By: /s/ JAMES D. SWARTZ
----------------------------------------------------
James D. Swartz
President and Director
Date: March 17, 1998 By: /s/ HOWARD W. SUTTER
----------------------------------------------------
Howard W. Sutter
Vice President and Director
Date: March 17, 1998 By: /s/ THOMAS M. CALCATERRA
----------------------------------------------------
Thomas M. Calcaterra
Chief Financial Officer, Secretary,
and Principal Accounting Officer
Date: March 17, 1998 By: /s/ PETER DOMINICI
----------------------------------------------------
Peter Dominici
Vice President, Treasurer, and Director
Date: March 17, 1998 By: /s/ RICHARD M. COCCHIARO
----------------------------------------------------
Richard M. Cocchiaro
Vice President and Director
Date: March 17, 1998 By: /s/ W. R. CAREY, JR.
----------------------------------------------------
W. R. Carey, Jr.
Director
43
45
Date: March 17, 1998 By: /s/ GORDON TUNSTALL
----------------------------------------------------
Gordon Tunstall
Director
Date: March 17, 1998 By: /s/ TODD MANSFIELD
----------------------------------------------------
Todd Mansfield
Director
Date: March 17, 1998 By: /s/ DAVID L. DUNKEL
----------------------------------------------------
David L. Dunkel
Director
44
46
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----------
2.1 Agreement and Plan of Merger, dated February 1, 1998,
between Romac International, Inc. and Source Services
Corporation****
2.2 Amendment Number 1 to Agreement and Plan of Merger, dated
February 11, 1998, between Romac International, Inc. and
Source Services Corporation*****
3.1 Amended and Restated Articles of Incorporation*
3.2 Bylaws*
4.1 Amended and Restated Articles of Incorporation (incorporated
by reference to Exhibit 3.1)**
4.2 Bylaws (incorporated by reference to Exhibit 3.1)
10.5 Asset Purchase Agreement, effective September 1, 1997
between Romac International Inc. and the Sellers of Sequent
Associates, Inc.**
10.6 Stock Purchase Agreement, dated September 5, 1997, between
Romac International Inc. and the Sellers of Uni*Quality
Systems Solutions, Inc.***
10.7 $30,000,000 Revolving Line of Credit Agreement between
NationsBank, National Association and Romac International,
Inc. dated September 11, 1997
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******
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 Registration Statement on
Form S-1 (File No. 33-91738).
** Incorporated by reference to the Company's Current Report on Form 8-K
(File No. 0-26058), filed September 22, 1997
*** Incorporated by reference to the Company's Current Report on Form 8-K
(File No. 0-26058), filed October 9, 1997.
**** Incorporated by reference to the Company's Current Report on Form 8-K
(File No. 0-26058), filed February 2, 1998.
***** Incorporated by reference to the Company's Current Report on Form 8-K
(File No. 0-26058), filed February 19, 1998.
****** Incorporated by reference to the Company's Annual Report on Form 10-K
(File No. 0-26058), filed March 28, 1997.
45