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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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 NUMBER 0-26058
ROMAC INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 59-3264661
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
120 WEST HYDE PARK PLACE, SUITE 150, TAMPA, 33606
FLORIDA (Zip Code)
(address of principal executive offices)
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
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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 and non-voting stock held
by nonaffiliates of Registrant, as of March 26, 1999, was $394,160,868.
The number of shares outstanding of Registrant's Common Stock as of March
26, 1999, was 45,368,424.
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 May 14, 1999 are incorporated by
reference into Part III of this Form.
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TABLE OF CONTENTS
ITEM PAGE
---- ----
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 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......................................... 13
Item 6. Selected Financial Data..................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14
Item 8. Financial Statements and Supplementary Data................. 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 20
Item 10. Directors and Executive Officers of the Registrant.......... 21
Item 11. Executive Compensation...................................... 21
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 21
Item 13. Certain Relationships and Related Transactions.............. 21
Index to Consolidated Financial Statements (F-1 thru F-22)
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
10-K........................................................ 44
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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,"
"plans" 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
Headquartered in Tampa, Florida, the Company was formed in August 1994 as a
result of the combination of Romac & Associates, Inc. and three of its largest
franchises. Following an Initial Public Offering in l995, Romac grew to 31
offices in 18 major markets. On April 20, 1998, the Company consummated a merger
whereby Source Services Corporation ("Source"), a Delaware corporation, was
merged into the Company pursuant to an Agreement and Plan of Merger ("the Merger
Agreement") dated February 1, 1998, as amended on February 11, 1998 and April
17, 1998. The acquisition has been accounted for using the pooling of interests
method of accounting; accordingly, all historical results have been restated to
reflect the merger. This merger combined the strength of two organizations that
shared common visions, strategies and business practices. The company now
operates through 89 offices in 46 markets and serves primarily clients from
Fortune 1000 companies with the top ten clients representing 7.5% of revenue in
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 an estimated $62.1
billion in revenue in 1998. One of the fastest growing sectors for Romac, as
well as the industry, is information technology services. Revenue for this
sector has grown from an estimated $11.7 billion in 1996 to an estimated $18.5
billion in 1998 or a 58% growth over the 2 year period. 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 offers 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 advantage.
- 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.
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- 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.
- 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
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.
- 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
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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.
- 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 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 secured several national agreements for professional and
technical specialty staffing services. Romac intends aggressively to
pursue such agreements to facilitate geographic expansion and existing
market penetration.
FUNCTIONAL ORGANIZATION
Organized by function, Romac provides services in the specialty areas of
Information Technology, Finance and Accounting, Human Resources and Operating
Specialties. Through its Operating Specialties division, the Company serves key
industries including engineering, health care, legal, life
insurance/investments, pharmaceutical and scientific.
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 Emerging
Technologies in mid-1995. Emerging Technologies 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 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
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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.
- 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 all
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
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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 front end systems 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.
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
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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.
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.
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.
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
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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 46 metropolitan markets with 89 offices and the 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.
TECHNOLOGY
Romac and Source had each developed a proprietary integrated system
designed to maximize productivity and to aid in the management of its business.
These systems are called "PROS" and "Wizard", respectively. PROS and Wizard are
designed to be a comprehensive approach to the operation and management of a
specialty staffing firm. Each system has links that update each office location
information through the use of a private network to corporate headquarters
servers in Tampa and Dallas. Through the use of PROS and Wizard, 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.
Finally, PROS and Wizard 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. During 1998, the Company
developed a front end browser connection to PROS and Wizard to standardize the
desktop for its operating employees. Romac intends to continue to enhance its
systems capabilities to streamline processes in order to improve customer
servicing.
COMPETITION
The specialty staffing services industry is very competitive and
fragmented. There are relatively limited barriers to entry and new competitors
frequently enter the market. A number of Romac's competitors possess
substantially greater resources than Romac. Romac faces substantial competition
from large national firms and local specialty staffing firms. The local firms
are typically operator-owned, and each market generally has one or
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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.
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 can be 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, errors and omissions, worker's
compensation and employers' liability. Each of these policies with aggregate
coverage of up to $5.0 million cover 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. There can be no assurance that any of the
above coverages will be adequate for Romac's needs.
OPERATING EMPLOYEES AND PERSONNEL
As of December 31, 1998, Romac and its subsidiaries employed approximately
1,871 operating employees. Additionally, as of that date, Romac had
approximately 5,764 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.
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 500,000 square feet. The
leases generally run from month-to-month to five years and the aggregate annual
rent paid by Romac in 1998 was approximately $10.2 million. Romac believes that
when its planned expansion of its corporate headquarters is completed that its
facilities would be adequate for its needs and
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does not expect difficulty replacing such facilities or locating additional
facilities, if needed in the interim.
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, 1998 covered by this Annual Report
on Form 10-K.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED 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
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1997:
First Quarter...................................... $13.500 $ 8.438
Second Quarter..................................... $17.375 $ 8.031
Third Quarter...................................... $22.000 $16.875
Fourth Quarter..................................... $25.125 $14.500
1998:
First Quarter...................................... $29.750 $19.375
Second Quarter..................................... 32.250 23.125
Third Quarter...................................... 31.125 16.125
Fourth Quarter..................................... 22.750 11.750
1999:
First Quarter (through March 26)................... 24.25 6.875
On March 26, 1999, the last reported sale for the Company's Common Stock
was at $8.688. On March 26, 1999 there were approximately 147 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,
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1994 1995 1996 1997 1998
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net service revenues......... $130,856 $188,374 $301,588 $479,743 $680,086
Direct costs of services..... 60,262 88,512 145,881 254,132 388,505
-------- -------- -------- -------- --------
Gross profit................. 70,594 99,862 155,707 225,611 291,581
Selling, general and
administrative expenses... 63,432 87,038 133,084 184,876 224,790
Depreciation and
amortization.............. 1,067 1,111 3,238 5,794 9,507
Merger, restructuring, and
integration expense....... -- -- -- -- 26,122
Combination expenses......... 2,251 -- -- -- --
Other (income) expense,
net....................... (754) (30) (1,773) (2,675) (4,985)
-------- -------- -------- -------- --------
Income before taxes.......... 4,598 11,743 21,158 37,616 36,147
Provision for taxes.......... 1,950 4,555 8,706 15,545 20,708
-------- -------- -------- -------- --------
Net income................... $ 2,648 $ 7,188 $ 12,452 $ 22,071 $ 15,439
======== ======== ======== ======== ========
Net income per share-basic... $ 0.10 $ .25 $ .35 $ 0.55 $ .34
======== ======== ======== ======== ========
Weighted average shares
outstanding-basic............ 26,422 28,309 35,312 40,471 45,410
Net income per
share-diluted............. $ 0.10 $ .25 $ .34 $ .52 $ .33
======== ======== ======== ======== ========
Weighted average shares
outstanding-diluted....... 26,473 29,265 36,996 42,264 47,318
DECEMBER 31,
--------------------------------------------------
1994 1995 1996 1997 1998
------- ------- -------- -------- --------
BALANCE SHEET DATA:
Working capital................ $ 8,512 $28,537 $ 95,557 $149,459 $135,348
Total assets................... $29,418 $51,576 $142,112 $283,098 $333,812
Total long-term debt........... $ 24 $ 500 -- $ 1,260 $ 461
Shareholders' equity........... $10,247 $34,218 $119,221 $232,704 $255,022
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.
14
15
OVERVIEW
Romac is a provider of professional and technical specialty staffing
services in 46 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 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 7.5% of its revenue for 1998.
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. For the Source division, the search
fee policy is that if an individual fails to continue employment for a period of
time as specified the placement agreement, generally a thirty-to-ninety day
period, the Company is not entitled to collect the search fee. Revenue from
search fees is shown on the Consolidated Statement of Operations net of amounts
written off for the adjustments due to placed candidates not remaining in
employment for the guarantee period.
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.
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16
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net service revenues,
certain items in Romac's consolidated statement of operations for the indicated
periods:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
Flexible Billings............................ 68.2% 74.9 80.1%
Search Fees.................................. 31.8 25.1 19.9
----- ----- -----
Net service revenues......................... 100.0 100.0 100.0
Gross profit................................. 51.6 47.0 42.9
Selling, general, and administrative
expenses................................... 44.1 38.5 33.1
Income before taxes.......................... 7.0 7.8 5.3
Net income................................... 4.1% 4.6% 2.3%
1998 COMPARED TO 1997
Net service revenues. Net service revenues increased 41.8% to $680.1
million in 1998 as compared to $479.7 million for the same period in 1997. This
increase was composed of a $185.1 million increase in Flexible Billings and a
$15.3 million increase in Search Fees for the year ended December 31, 1998 as
described below.
Flexible Billings increased 51.5% to $544.6 million in 1998 as compared to
$359.5 million for the same period in 1997. This increase is a result of an
increase in the number of hours billed by operations as compared to the same
periods in 1997 due to the Company's continued emphasis on expanding the number
of service offerings in all markets and, to a lesser extent, an increase in the
average billing rates.
Search Fees increased 12.7% to $135.5 million in 1998 as compared to $120.2
million for the same period in 1997. This increase resulted primarily from an
increase in the number of search sales consultants, which increased the number
of search placements made in 1998 as compared to the same period in 1997. The
average fee for each search placement made during the periods remained
relatively constant.
Gross profit. Gross profit increased 29.3% to $291.6 million in 1998 as
compared to $225.6 million in 1997. Gross profit as a percentage of net service
revenues decreased to 42.9% in 1998 as compared to 47.0% for the same period in
1997. This decrease was a result of the continuing change 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 in
1998 as compared to 74.9% for the same period in 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 21.6% to $224.8 million in 1998 as compared to
$184.9 million for the same period in 1997. Selling, general and administrative
expenses as a percentage of net service revenues decreased to 33.1% in 1998
compared to 38.5% for the same period in 1997. This decrease in selling, general
and administrative expense as a percentage of net service revenues resulted from
synergies and operating efficiencies obtained from the merger such as
elimination of duplicate back office costs.
16
17
Merger, restructuring, and integration expense. Merger and integration
expense increased 100% to $26.1 million in 1998 and were related to the merger
with Source in April 1998 and associated restructuring charges incurred. Merger,
restructuring, and integration expenses consisted of $8.2 million of direct
costs related to the merger and $17.9 million related to restructuring and
integration.
Depreciation and amortization expense. Depreciation and amortization
expense increased 63.8%, to $9.5 million for 1998 as compared to $5.8 million
for the same period in 1997. Depreciation and amortization expense as a
percentage of net service revenue increased to 1.4% for 1998 as compared 1.2%
for the same period in 1997. The increase as a percentage of net service
revenues for 1998 as compared to the same period in 1997 is primarily due to
additional goodwill amortization due to the earnout buyouts negotiated in 1998,
full year of amortization of the acquisitions of Uni-Quality Systems Solutions,
Inc. and Sequent Associates, Inc. in 1998 compared to four months in 1997, and
additional depreciation on the new technology platform implemented at certain
Source locations in the second half of 1998.
Other (income) expense. Other (income) expense increased 85.2% in 1998 to
$5.0 million as compared to approximately $2.7 million, respectively for the
same period in 1997. The increase during 1998 compared to the same period in
1997 is due to interest earned on the investment of the proceeds from the
November 1997 stock offering.
Income before taxes. Income before taxes decreased 4.0% to $36.1 million
for 1998 as compared to $37.6 million for the same period in 1997, primarily as
a result of the merger, restructuring and integration expenses explained above.
Provision for income taxes. Provision for income taxes increased 33.5% to
$20.7 million for 1998 compared to $15.5 million for the same period in 1997.
The effective tax rate was 57.3% in 1998 as compared to approximately 41.2% in
1997. The increase in the effective tax rates in 1998 as compared to 1997 was
due to certain non-deductible merger related expenses.
Net income. Net income decreased 30.3% to $15.4 million for 1998 compared
to $22.1 million for the same period in 1997. This decrease was due to the
merger, restructuring, and integration expenses explained above and the increase
in the effective tax rate as a result of non-deductible merger related expense.
1997 COMPARED TO 1996
Net service revenues. Net service revenues increased 59.1% to $479.7
million in 1997 as compared to $301.6 million for the same period in 1996. This
increase was composed of a $153.9 million increase in Flexible Billings and a
$24.2 million increase in Search Fees for 1997.
Flexible Billings increased 74.9% to $359.5 million for 1997 as compared to
$205.6 million in 1996. The growth in flexible staffing net service revenue is
primarily due to an increase in the hours billed from adding additional markets
and expanding service offerings in existing markets, and to a lesser extent , an
increase in average billing rates.
Search Fees increased 25.2% to $120.2 million in 1997 as compared to $96.0
million in 1996. The increase in search fees resulted primarily from an increase
in the number of search sales consultants, which increased the number of search
placements made during
17
18
1997 as compared to 1996. The average fee for each Search placement made
remained relatively constant during the periods involved.
Gross profit. Gross profit increased 44.9% to $225.6 million in 1997 as
compared to $155.7 million in 1996. Gross profit as a percentage of net service
revenues decreased to 47.0% in 1997 as compared to 51.6% in 1996. 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, traditionally lower gross margins than Search Fees, increased to 74.9%
of Romac's net service revenues for 1997 as compared to 68.2% for 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 38.9% to $184.9 million in 1997 as compared to
$133.1 million in 1996. Selling, general and administrative expenses as a
percentage of net service revenues decreased to 38.5% in 1997 as compared to
44.1% in 1996. 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 81.3% to $5.8 million in 1997 as compared to
$3.2 million in 1996, primarily because of a full year of depreciation expense
incurred on corporate information services upgrades and additional amortization
expense in 1997 related to goodwill recorded as a result of asset acquisitions
made by Romac during 1997.
Other (income) expense. Other (income) expense increased 50.0% to $2.7
million of income in 1997 as compared to $1.8 million of income in 1996. This
increase was primarily due to an increase in interest income.
Income before taxes. Income before taxes increased 77.4% to $37.6 million
in 1997 as compared to $21.2 million in 1996, primarily as a result of the above
factors.
Provision for income taxes. Provision for income taxes increased 78.2% to
$15.5 million in 1997 as compared to $8.7 million in 1996. The effective income
tax rate was constant at approximately 41% for both periods.
Net income. Net income increased approximately 76.8% to $22.1 million in
1997 as compared to $12.5 million in 1996, primarily as a result of the above
factors.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company's sources of liquidity included
approximately $68.8 million in cash and cash equivalents and approximately $66.5
million in additional net working capital. In addition, as of December 31, 1998,
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 has a Revolving
Line of Credit Loan Agreement with Nationsbank, N.A. (the "Line of Credit"). 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").
During the year ended December 31, 1998, cash flow provided by operations
was approximately $10.9 million, resulting primarily from net income, non-cash
expenses (depreciation and amortization) and increases in operating payroll
liabilities, offset by an
18
19
increase in accounts receivable. The increase in accounts receivable reflects
the increased volume of business during 1998 from existing locations.
During 1998, cash flow used in investing activities was approximately $48.8
million, resulting primarily from Romac's use of approximately $23.6 million in
cash for earnout provisions on previous acquisitions.
On March 11, 1999, Romac announced that its board of directors has
authorized the repurchase of up to $50 million of its common stock on the open
market, from time to time, depending on market conditions. This stock repurchase
plan will impact Romac's cash flow requirements in the next twelve months. As of
March 26, 1999, a total of 1,152,500 shares at an average purchase price of
$7.52 per share have been repurchased. 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's estimate of the period that existing resources will
fund its working capital requirements and the amount of stock that the company
will actually be able to repurchase in the next 12 months are forward-looking
statements 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 and the announced stock
repurchase plan.
YEAR 2000
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" or 1900. This could cause many computer
applications to fail completely or to create erroneous results unless corrective
measures are taken.
The Company utilizes software and computer technologies that are essential
to its operations. The Company continuously evaluates the ongoing and expected
future business and industry requirements of its internally developed and
externally purchased applications. These applications and technology equipment
are updated on a regular basis. The Company has not accelerated its plans to
replace or update existing systems because of the Year 2000 issue.
The Company has implemented a four step process to address Year 2000 issues
consisting of assessment/overview (identify the issues); discovery (inventory,
categorize, and assess business impacts and risks); conversion (make program
changes, rollout new hardware, perform applications and acceptance testing, and
certification), and deployment (deploy program and hardware changes, evaluate
and apply lessons learned). After the Company completed the assessment/overview
phase, the Company hired an independent third party to perform the discovery
phase and make recommendations on assessment of business risks. This study
concluded that the greatest risk faced by the Company's Internal Systems are the
hardware system that operates the telephone voicemail systems at certain
locations and the Wizard NT operating system software that must be upgraded from
3.51 to 4.01 Service Pak 4. As of March 26, 1999, the Company had substantially
completed the assessment/overview and discovery phases and is in process of the
conversion phase. The target date of the completion of the high risk area is
expected to be June 30, 1999.
The Company is working with key third party vendors to understand their
ability to continue to provide services and products through the change to 2000.
The Company
19
20
intends to continue to partner with its key third party vendors to avoid any
business interruptions in 2000. The Company is dependent upon its customers for
sales and cash flow. The Company currently does not believe that it is subject
to significant business risks related to its customers' and suppliers' Year 2000
efforts, although if the Company's customer or vendors experience Year 2000
problems, the Company's results of operations could be materially adversely
affected.
The effect of Year 2000 interruptions on the Company and our customer's
operations is difficult to predict because flexible staffing could be a vehicle
that the Company's customer's may use to correct the effect of Year 2000
disruptions in their business. The Company will continue to monitor the status
of its customers and key strategic partners as a means of determining risks and
alternatives. The Company is also in the process of developing contingency plans
with regards to the high risk areas described above as well as areas of medium
risk have been determined to not have the impact of disruption to the business.
The Company estimates that the total cost of the project will be
approximately $1.3 million which includes both personnel costs related to
project management, programming, and hardware and software upgrades. Of this
total, approximately $1 million has been incurred as of December 31, 1998. The
cost of the project and the estimated completion dates are based upon
management's best estimates, which were derived utilizing assumptions of future
events, including the continued availability of certain resources, third-party
modification plans and other factors. There can be no assurance that these
estimates will prove accurate, and actual results could differ from those
estimated if these assumptions prove inaccurate.
The Year 2000 discussion includes forward-looking statements, therefore
there can be no assurance that the Company will not experience Year 2000
problems. However, based upon the progress to date, the Company believes that it
is unlikely that the actual results will differ significantly from those
estimated and that the Year 2000 compliance will have a material adverse effect
on the Company's financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules are included in this Annual Report
on Form 10-K beginning on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
21
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.
21
22
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, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tampa, Florida
February 26, 1999
22
23
ROMAC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN 000'S)
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 68,821 $101,669
Short-term investments.................................... 12,000 1,953
Trade receivables, net of allowance for doubtful accounts
of $5,762 and $5,423, respectively..................... 114,144 84,729
Notes receivable from franchisees, current................ 31 109
Receivables from related parties, current................. 384 233
Deferred tax asset........................................ 5,702 3,141
Prepaid expenses and other current assets................. 3,627 2,519
-------- --------
Total current assets.............................. 204,709 194,353
Notes receivable from franchisees, less current portion..... -- 4
Receivables from related parties, less current portion...... 1,721 1,290
Furniture and equipment, net................................ 19,869 15,921
Other assets, net........................................... 14,003 4,878
Goodwill, net of accumulated amortization of $5,790 and
$2,578, respectively...................................... 93,510 66,652
-------- --------
Total assets...................................... $333,812 $283,098
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued liabilities............ $ 9,260 $ 8,031
Accrued payroll costs..................................... 41,070 28,138
Current portion of capital lease obligations.............. 743 731
Current portion of payables to related parties............ 10,144 4,265
Accrued merger, restructuring, and integration............ 4,931 --
Income taxes payable...................................... 3,213 3,729
-------- --------
Total current liabilities......................... 69,361 44,894
Capital lease obligations, less current portion............. 461 1,260
Deferred tax liability, non current......................... 96 277
Payables to related parties, less current portion........... 2,000 1,375
Other long-term liabilities................................. 6,872 2,588
-------- --------
Total liabilities................................. 78,790 50,394
Commitments and contingencies
Shareholders' Equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none
issued and outstanding................................. -- --
Common stock, $0.01 par; 250,000 shares authorized, 46,408
and 45,475 issued and outstanding, respectively........ 464 455
Additional paid-in capital................................ 185,300 178,493
Cumulative translation adjustment......................... 21 (42)
Retained earnings......................................... 70,162 54,723
Less reacquired shares at cost; 677 shares................ (925) (925)
-------- --------
Total shareholders' equity........................ 255,022 232,704
-------- --------
Total liabilities and shareholders' equity........ $333,812 $283,098
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
23
24
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(IN 000'S, EXCEPT PER SHARE DATA)
Net service revenues............................. $680,086 $479,743 $301,588
Direct costs of services......................... 388,505 254,132 145,881
-------- -------- --------
Gross profit..................................... 291,581 225,611 155,707
Selling, general and administrative expenses..... 224,790 184,876 133,084
Merger, restructuring and integration expense.... 26,122 -- --
Depreciation and amortization.................... 9,507 5,794 3,238
Other (income) expense:
Dividend and interest income................... (5,224) (3,077) (1,885)
Interest expense............................... 216 308 251
Other (income) expense, net.................... 23 94 (139)
-------- -------- --------
Income before income taxes....................... 36,147 37,616 21,158
Provision for income taxes....................... 20,708 15,545 8,706
-------- -------- --------
Net income....................................... $ 15,439 $ 22,071 $ 12,452
======== ======== ========
Comprehensive Income:
Foreign currency translation................... 63 (21) 4
-------- -------- --------
Comprehensive Income............................. $ 15,502 $ 22,050 $ 12,456
======== ======== ========
Net income per share:
Basic....................................... $ .34 $ .55 $ .35
======== ======== ========
Diluted..................................... $ .33 $ .52 $ .34
======== ======== ========
Weighted average shares:
Basic....................................... 45,410 40,471 35,312
======== ======== ========
Diluted..................................... 47,318 42,264 36,996
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
24
25
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
-------- -------- -------
(IN 000'S)
Cash flows from operating activities:
Net income......................................... $ 15,439 $ 22,071 $12,452
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 9,507 5,794 3,238
Provision for losses on accounts and notes
receivable.................................... 4,049 4,271 2,815
Deferred taxes.................................. (2,742) (891) (742)
Profit Sharing Plan stock contributions......... -- -- 14
Loss on asset sales/disposals................... 1,604 -- 18
(Increase) decrease in operating assets:
Trade receivables, net.......................... (33,464) (34,921) (24,241)
Notes receivable from franchisees............... 82 155 (111)
Prepaid expenses and other current assets....... (1,108) (1,037) (758)
Other assets, net............................... (5,833) (2,487) (7)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued
liabilities................................... 1,229 2,512 1,238
Accrued payroll costs........................... 12,932 13,048 4,385
Accrued merger, restructuring, and integration
expense....................................... 4,931
Income taxes payable............................ 29 4,621 520
Other long-term liabilities..................... 4,284 1,201 642
-------- -------- -------
Cash provided by (used in) operating
activities 10,939 14,337 (537)
-------- -------- -------
Cash flows from investing activities:
Capital expenditures............................ (11,820) (6,690) (9,709)
Acquisitions, net of cash acquired.............. (23,593) (52,127) (11,254)
Proceeds from sale of furniture and equipment... -- 1,706 354
Proceeds from the sale of short-term
investments................................... -- 833 7,024
Premiums paid for cash surrender value of life
insurance policies............................ (3,292) (1,485) (382)
Purchase of short-term investments.............. (10,047) (1,906) --
-------- -------- -------
Cash used in investing activities (48,752) (59,669) (13,967)
-------- -------- -------
Cash flows from financing activities:
Payments on capital lease obligations........... (787) (535) (703)
Payments on notes payable to related parties.... -- (23) (6)
Payments on notes receivable from related
parties....................................... 164 52 224
Issuance of notes receivable from related
parties....................................... (746) (600) (520)
Proceeds from issuance of common stock.......... -- 86,515 71,322
Proceeds from exercise of stock options......... 6,271 3,210 587
Repurchase of treasury stock from Profit Sharing
Plan.......................................... -- (1) (8)
-------- -------- -------
Cash provided by financing activities 4,902 88,618 70,896
-------- -------- -------
Increase(decrease) in cash and cash equivalents...... (32,911) 43,286 56,392
Cumulative translation adjustment.................... 63 (21) 4
-------- -------- -------
Cash and cash equivalents at beginning of year....... 101,669 58,404 2,008
-------- -------- -------
Cash and cash equivalents at end of year............. $ 68,821 $101,669 $58,404
======== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
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26
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN 000'S)
SHARES AMOUNT
-------- --------
COMMON STOCK:
Balance at December 31, 1995............................... 28,051 $ 280
Issuance of common stock................................... 6,223 62
Exercise of stock options.................................. 361 4
-------- --------
Balance at December 31, 1996............................... 34,635 346
Issuance of common stock................................... 4,577 46
3-for-2 stock split........................................ 5,184 52
Exercise of stock options.................................. 1,079 11
-------- --------
Balance at December 31, 1997............................... 45,475 455
Exercise of stock options.................................. 933 9
-------- --------
Balance at December 31, 1998............................... 46,408 $ 464
========
ADDITIONAL PAID-IN CAPITAL:
Balance at December 31, 1995............................... $ 14,790
Stock contribution to profit sharing plan.................. (72)
Issuance of common stock................................... 71,251
Exercise of stock options.................................. 584
Tax benefit related to employee stock options.............. 629
--------
Balance at December 31, 1996............................... 87,182
Issuance of common stock................................... 86,468
3-for-2 stock split........................................ (52)
Exercise of stock options.................................. 3,199
Tax benefit related to employee stock options.............. 1,696
--------
Balance at December 31, 1997............................... 178,493
Exercise of stock options.................................. 6,262
Tax benefit related to employee stock options.............. 545
--------
Balance at December 31, 1998............................... $185,300
========
STOCK SUBSCRIPTIONS RECEIVABLE:
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 and 1998...................... $ --
========
CUMULATIVE TRANSLATION ADJUSTMENT:
Balance at December 31, 1995............................... $ (25)
Foreign Currency translation adjustment.................... 4
--------
Balance at December 31, 1996............................... (21)
Foreign Currency translation adjustment.................... (21)
--------
Balance at December 31, 1997............................... (42)
Foreign Currency translation adjustment.................... 63
--------
26
27
SHARES AMOUNT
-------- --------
Balance at December 31, 1998............................... $ 21
========
RETAINED EARNINGS:
Balance at December 31, 1995............................... $ 20,114
Stock contribution to profit sharing plan.................. 86
Net income................................................. 12,452
--------
Balance at December 31, 1996............................... 32,652
Net income................................................. 22,071
--------
Balance at December 31, 1997............................... 54,723
Net income................................................. 15,439
--------
Balance at December 31, 1998............................... $ 70,162
========
REACQUIRED SHARES:
Balance December 31, 1995.................................. $ (924)
Reacquired escrow shares................................... (1)
--------
Balance at December 31, 1996, 1997, and 1998............... $ (925)
========
TOTAL SHAREHOLDERS' EQUITY:
Balance at December 31, 1995............................... $ 34,218
Issuance of common stock................................... 71,313
Net income................................................. 12,452
Stock contribution to profit sharing plan.................. 14
Exercise of stock options.................................. 588
Payments on stock subscriptions receivable................. 4
Foreign currency translation............................... 4
Reacquired escrow shares................................... (1)
Tax benefit related to employee stock options.............. 629
--------
Balance at December 31, 1996............................... 119,221
Issuance of common stock................................... 86,514
Exercise of stock options.................................. 3,210
Tax benefit related to employee stock options.............. 1,696
Payments on stock subscriptions receivable................. 13
Foreign currency translation............................... (21)
Net income................................................. 22,071
--------
Balance at December 31, 1997............................... 232,704
Exercise of stock options.................................. 6,271
Tax benefit related to employee stock options.............. 545
Foreign currency translation............................... 63
Net income................................................. 15,439
--------
Balance at December 31, 1998............................... $255,022
========
The accompanying notes are an integral part of these consolidated financial
statements.
27
28
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN 000'S 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 89 offices in 46 markets in the United
States. 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Romac
International, Inc. and its subsidiaries. The Company completed its merger with
Source Services Corporation ("Source") on April 20, 1998. The common stock of
Source was converted to shares of the Company using a 1.1351 ratio. Source
continues to operate as a separate division of the Company. This merger was
accounted for under the pooling of interests method; accordingly, all historical
results have been restated to reflect the merger. All material intercompany
accounts and transactions have been eliminated in the consolidated financial
statements.
STOCK SPLIT/DIVIDEND
The Company declared two-for-one stock splits effected as 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. On October 21, 1997, Source declared
a 3 for 2 stock split of its common stock. The stock split was in the form of a
50% stock dividend.
PUBLIC OFFERINGS
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, were being used to finance business acquisitions and to fund
general working capital purposes.
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.
28
29
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company classifies all highly-liquid investments with an original
maturity of three months or less as cash equivalents.
INVESTMENTS
Investments in mutual funds and common stock have been classified as
available for sale and, as a result, are stated at fair market value. Mutual
funds available for current operations are classified in the balance sheet as
short-term investments while investments in common stock are included in other
assets. Unrealized holding gains and losses are included as a component of
shareholders' equity until realized. At December 31, 1998 and 1997, 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. 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. For the Source division, the search
fee policy is that if an individual fails to continue employment for a period of
time as specified the placement agreement, generally a thirty-to-ninety day
period, the Company is not entitled to collect the search fee. Revenue from
search fees is shown on the Consolidated Statement of Operations net of amounts
written off for the adjustments due to placed candidates not remaining in
employment for the guarantee period.
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
29
30
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has elected to continue accounting for stock based compensation under the
intrinsic value method of accounting for stock based compensation as provided
under APB No. 25 and has disclosed pro forma net income and earnings per share
amounts using the fair value based method prescribed by SFAS 123.
SELF-INSURANCE
The Company offers an employee benefit program with its Source division
through September 30, 1998 and for all eligible employees effective October 1,
1998 for which it is self-insured for a portion of the cost. The Company is
liable for claims up to $125 per employee and aggregate claims up to a defined
yearly payment limit. All full-time employees and salaried consultants are
eligible to participate in the program. Self-insurance costs are accrued using
actuarial estimates to approximate the liability for reported claims and claims
incurred but not reported.
FOREIGN CURRENCY TRANSLATION
Foreign currency translation adjustments arise primarily from activities of
the Company's Canadian operations. Results of operations are translated using
the average exchange rates during the period, while assets and liabilities are
translated into U.S. dollars using current rates. Resulting foreign currency
translation adjustments are recorded in stockholders' equity.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Reporting comprehensive income. 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 adopted this standard during the year ended
December 31, 1998 and adoption of this standard did not have a material impact
on disclosure in Romac's financial statements.
Accounting for Derivative Instruments and Hedging Activities. In June
1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued. This statement is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contractors (collectively referred to
as derivatives), and for hedging activities. It also requires that all
derivatives and hedging activities be recognized as either assets or liabilities
in the Statement of Financial Position and be measured at fair value. Romac does
not believe adoption of this standard will have a material impact on the
Company's financial performance or reporting and expects to adopt this standard
during the year ended December 31, 2000.
30
31
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Options to purchase 1,207 and 158 shares of common stock, for 1998 and
1997, respectively, at prices ranging from $24.125 to $30.063 per share in 1998
and $16.13 to $20.63 per share in 1997 were outstanding, but were not included
in the computation of diluted earnings per share because the options were
anti-dilutive. The options, which expire on various dates ranging from March 16,
2008 to July 24, 2008, were still outstanding at December 31, 1998.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform with the 1998 presentation.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting data
to develop the estimates of fair value. 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 1998 1997
----------- ------- -------
Furniture and equipment.................... 5-7 years $14,058 $10,726
Computer equipment......................... 3-5 years 16,450 15,638
Airplane................................... 5 years 1,746 --
Leasehold improvements..................... lease term 1,559 1,125
------- -------
33,813 27,489
Less accumulated depreciation and
amortization............................. 13,944 11,568
------- -------
$19,869 $15,921
======= =======
31
32
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in computer equipment is approximately $2,600 subject to a
noncancelable capital lease commitment with a three year term commencing on July
1, 1997.
4. ACQUISITIONS
Goodwill and intangible assets of $93,510 and $66,652 at December 31, 1998
and 1997, respectively, relate primarily to acquisitions made during 1997 and
1996.
Goodwill is amortized on a straight-line basis over a fifteen to 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 $3,212, $1,469 and $653 was recorded for the years ended December 31, 1998,
1997 and 1996, respectively.
SETTLEMENT OF EARNOUT PROVISIONS
There were no purchased acquisitions by the Company during the year ended
December 31, 1998. However, the Company settled the earnouts on certain
acquisitions during 1998 and 1997 for $12,900 and $5,600, respectively (see Note
9). During 1998, approximately $17,100 was paid as additional purchase price
related to prior acquisitions. These amounts have been recorded as additional
purchase price consideration and are included in goodwill.
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.
32
33
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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., 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. for approximately $2,500 in cash. In June 1996, the
Company acquired the fixed assets and intangible assets of Bayshare, Inc., the
former legal entity for the Romac franchise for the San Francisco area. The
purchase price was approximately $5,000 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 has accounted for all acquisitions except for the Source
transaction using the purchase method of accounting. The results of these
purchased 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........................................ $514,850 $355,281
Gross profit............................................... 235,067 171,116
Income before income taxes................................. 37,793 20,584
Net income................................................. 22,060 12,094
Earnings per share -- basic................................ $ .55 $ .34
-- diluted............................ $ .52 $ .33
33
34
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER ASSETS
DECEMBER 31,
----------------
1998 1997
------- ------
Cash surrender value of life insurance policies............. $ 5,572 $2,280
Capitalized software, net of amortization................... 7,128 1,900
Other....................................................... 1,303 698
------- ------
$14,003 $4,878
======= ======
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 $5,114 and $1,872 at December 31, 1998 and 1997,
respectively, and key man life insurance on officers with a cash surrender value
of $458 and $408 at December 31, 1998 and 1997, 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 $7,128 and $1,900 at December 31,
1998 and 1997, respectively. Capitalized software development costs are
amortized over the estimated useful life of the software using the straight-line
method.
6. LINE OF CREDIT AND CAPITAL LEASE OBLIGATION
DECEMBER 31,
---------------
1998 1997
------ ------
Obligation under capital lease with quarterly payments of
principal and interest at 8.3% through June 2000.......... $1,204 $1,991
Less current maturities..................................... 743 731
------ ------
$ 461 $1,260
====== ======
Future minimum lease payments under capital lease obligations are $782 and
$478 for 1999 and 2000, respectively.
The Company has an unsecured line of credit agreement that provides for up
to $30,000 of working capital to the Company for general corporate purposes.
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. No amounts
were outstanding on any of these lines of credit at December 31, 1998 or 1997.
34
35
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. MERGER, RESTRUCTURING, AND INTEGRATION EXPENSES
In connection with the Source merger, $26,122 of one-time merger,
restructuring, and integration related expenses have been identified and
recorded. This charge included direct merger costs of approximately $8,265,
which consisted of professional fees and other transaction costs associated with
the merger, approximately $4,606 of severance and other termination-related
costs to be incurred in connection with anticipated staff reductions, $5,885
costs in connection with consolidation of certain office facilities and related
equipment, and approximately $7,366 in other merger and integration related
expenses.
At December 31, 1998, the remaining accrued expenses reserve balance
associated with the above charge were $4,931 of which approximately $2,744
related to severance and other termination-related costs, approximately $1,631
related to the consolidation of certain office facilities and related equipment
and approximately $556 related to other merger and integration related expenses.
8. INCOME TAXES
The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ------- ------
Current:
Federal................................... $19,156 $13,156 $7,313
State..................................... 4,294 3,281 2,186
Deferred.................................. (2,742) (892) (793)
------- ------- ------
$20,708 $15,545 $8,706
======= ======= ======
The provision for income taxes shown above varied from the statutory
federal income tax rates for those periods as follows:
YEARS ENDED
DECEMBER 31,
------------------
1998 1997 1996
---- ---- ----
% % %
Federal income tax rate............................. 35.0 35.0 34.0
State income taxes, net of federal tax benefit...... 5.0 5.5 6.0
Non-deductible items................................ 16.1 1.0 1.1
Goodwill amortization............................... 1.2 .3 --
Other............................................... -- (.5) --
---- ---- ----
Effective tax rate.................................. 57.3 41.3 41.1
Nondeductible items consist primarily of the direct costs of the Source
merger and the portion of meals and entertainment expenses which are not
deductible for tax purposes.
35
36
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,
-----------------
1998 1997
------- -------
Deferred taxes, current:
Assets
Allowance for bad debts........................ $ 2,270 $ 2,208
Accrued liabilities............................ 3,432 933
------- -------
Net deferred tax asset, current................ $ 5,702 $ 3,141
======= =======
Deferred taxes, non-current:
Assets
Deferred compensation.......................... $ 2,710 $ 979
Deferred rent.................................. -- 78
------- -------
2,710 1,057
Liabilities
Depreciation and amortization.................. (2,806) (1,334)
------- -------
Net deferred tax liability, non-current........ $ (96) $ (277)
======= =======
A valuation allowance on the deferred tax assets has not been recorded due
to the presence of taxable income in years available for carryback.
9. RELATED PARTIES
RECEIVABLES FROM RELATED PARTIES
Receivables from related parties are summarized as follows:
DECEMBER 31,
---------------
1998 1997
------ ------
Receivables from officers and shareholders............ $1,644 $1,136
Other related party receivables....................... 461 387
------ ------
2,105 1,523
Less current maturities............................... 384 233
------ ------
$1,721 $1,290
====== ======
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%.
36
37
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PAYABLES TO RELATED PARTIES
Notes payable to related parties include the following:
DECEMBER 31,
----------------
1998 1997
------- ------
Notes payable due in annual installments through March
2000 relating to contingent purchase price
adjustments on previous acquisitions (see Note 4)... $12,144 $5,640
Less current maturities............................... 10,144 4,265
------- ------
$ 2,000 $1,375
======= ======
RELATED PARTY TRANSACTIONS
During 1998, the Company purchased an airplane at cost for $1,746 from
Shepherd's View Ranch Aircraft Charter Company, which is 100% owned by the
Chairman of the Board. The Company also had a consulting agreement with a
company affiliated with one of its outside board members. Services under this
agreement were completed by December 1998 at an aggregate cost of approximately
$187. The Company has operating leases with related parties as discussed in Note
12.
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.
Prior to the merger, Source had merged its profit sharing plan and 401(k)
plan ("Source plan") effective October 1, 1997. The Source plan covered all
active participants who were participating in either the previous 401(k) plan or
profit sharing plan or those employees who met the Source Plan's requirements
for eligibility. This plan was merged into Romac's 401(k) plan ("the Plan")
effective June 20, 1998. At December 31, 1998 and 1997, the Plan held 2,303 and
3,469, respectively, of stock and the shares held by the Plan represented
approximately 5.0% and 7.6 %, respectively of the Company's outstanding shares.
Employer contributions to 401(k) plan totaled $1,609, $2,084, and $1,648 in
1998, 1997 and 1996, respectively.
Prior to their mergers into the Company, certain franchisees 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, 1998, 1997 and 1996. Employees of
these franchisees are now covered under the Company's plan described above.
37
38
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
During 1996, Source enacted an Employee Stock Purchase Plan. This plan
allows employees to purchase stock at the current market price through payroll
deductions, without paying commissions on purchases. Currently, only the Source
employees hired prior to April 20, 1998 are eligible to participate in the
Employee Stock Purchase Plan. There was no waiting period for enrollment prior
to April 20, 1998.
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, 1998 and 1997, aggregated $6,773
and $2,278, 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 $5,114 and $1,872, at December 31, 1998 and 1997,
respectively, is included in other assets. Compensation expense of $825, $234
and $28 was recognized for the plan for the years ended December 31, 1998, 1997
and 1996, 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 $1,298 and $916 are included in related
party receivables for the year ended December 31, 1998 and 1997, 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. 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. During 1997, the Plan
38
39
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Prior to the merger, Source had an incentive stock option plan for eligible
employees of Source and a non employee director option plan. Effective with the
merger, all stock options previously granted and outstanding under these plans
were exchanged for approximately 638 of the Company's stock options.
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, 1995.. 2,193 80 2,273 $ 2.38
Granted............ 2,539 40 2,579 $10.96 $ 4.25
Exercised.......... (311) -- (311) $ 1.66
Forfeited.......... (122) -- (122) $ 8.25
------ --- ------
Outstanding as of
December 31, 1996.. 4,299 120 4,419 $ 6.74
Granted............ 1,279 71 1,350 $13.05 $ 5.88
Exercised.......... (1,078) -- (1,078) $ 2.98
Forfeited.......... (304) -- (304) $10.91
------ --- ------
Outstanding as of
December 31, 1997.. 4,196 191 4,387 $ 9.36
Granted............ 1,899 101 2,000 $25.71 $10.86
Exercised.......... (933) -- (933) $ 6.75
Forfeited.......... (587) -- (587) $15.54
------ --- ------
Outstanding as of
December 31, 1998.. 4,575 292 4,867 $15.84
====== === ====== ======
Exercisable at
December 31:
1998............ 1,497 35 1,532
1999............ 1,498 45 1,543
2000............ 1,277 53 1,330
2001............ 424 41 465
2002............ 32 4 36
39
40
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options granted during each of the three years ended December 31, 1998 have
vesting requirements ranging from one to seven years. Options expire at the end
of ten years from the date of grant.
The following table summarizes information about employee and director
stock options :
OPTIONS OUTSTANDING
-----------------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED
OUTSTANDING AT REMAINING AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES 1998 (SHARES) LIFE (YEARS) PRICE ($)
------------------------ -------------- ------------ ---------
$98-$1.49........................... 190 5.9 $ 1.36
$4.188-$8.845....................... 993 7.2 $ 6.15
$9.565-$12.180...................... 1,099 7.8 $11.30
$12.875-$18.06...................... 682 8.4 $13.78
$18.938-$24.375..................... 699 9.1 $22.27
$26.125-$31.50...................... 1,204 9.4 $27.65
----- ------
4,867
=====
OPTIONS EXERCISABLE
--------------------------
NUMBER WEIGHTED
EXERCISABLE AT AVERAGE
DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1998 (SHARES) PRICE ($)
------------------------ -------------- ---------
$.98-1.49....................................... 173 $ 1.36
$4.188-$8.845................................... 569 $ 5.32
$9.565-$12.180.................................. 533 $11.40
$12.875-$18.06.................................. 170 $14.60
$18.938-$24.315................................. 10 $20.84
-----
1,455
=====
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,
-----------------------------
1998 1997 1996
------- ------- -------
Net income:
As Reported........................... $15,439 $22,071 $12,452
Compensation expense per SFAS
123.............................. (6,100) (3,786) (1,035)
Tax benefit, pro forma............. 532 456 314
------- ------- -------
$ 9,871 $18,741 $11,731
======= ======= =======
Net income per share:
Basic:
As Reported........................ $ .34 $ .55 $ .35
40
41
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma............................... .22 .46 .33
Diluted:
As reported........................ $ .33 $ .52 .34
Pro forma .21 .44 32
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 all three periods; risk-free
interest rates of 4.77%-5.71% for options granted during the year ended December
31, 1998, 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 option term of 4-7 years for 1998 and 4-10
years for 1997; and 3-10 years for 1996; and a volatility factor of 40.69% for
1998; 35.12% for 1997; and 34.35% 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 $545 and $1,696 in 1998 and 1997, 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 $31 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: 1999, $8,314; 2000, $9,399; 2001, $6,477; 2002, $2,983, $5,371
thereafter.
Rental expense under all operating leases was $10,226, $7,155 and $5,311
for 1998, 1997 and 1996, respectively.
NONCANCELLABLE PROCESSING COMMITMENT
The Company has an agreement with a third party processor ("Processor") who
provides certain services for some of the Company's franchised and licensed
temporary placement operations; the cost of such services is a percentage of
gross billings as defined within the agreement. Pursuant to certain contract
termination provisions, the Company would be required to pay $500 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 $4,482,
$4,373 and $4,279 as of December 31, 1998, 1997 and 1996, respectively.
41
42
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LITIGATION
The Company is involved in litigation in the ordinary course of business
which will not, in the opinion of management, have a material effect on the
results of operations or financial condition of the Company.
EMPLOYMENT AGREEMENTS
During 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, 1998 would
be approximately $1,600 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,
--------------------------
1998 1997 1996
------- ------- ------
Notes payable issued in settlement of
contingent purchase price of previous
Acquisitions.............................. $11,100 $ 5,640 $ --
Capital lease transaction................... $ -- $ 2,526 $ --
Cash paid during the year for:
Interest.................................. $ 216 $ 308 $ 152
Income taxes.............................. $19,905 $12,862 $8,652
14. SEGMENT ANALYSIS (UNAUDITED)
In 1998, the Company adopted Statement of Accounting Standards No. 131,
"Disclosures about Segments of Enterprise and Related Information" ("SFAS 131").
SFAS 131 supercedes SFAS 14, "Financial Reporting for Segments of a Business
Enterprise," replacing the "industry segment" approach with the "management"
approach of determining reportable segments of an organization. The management
approach designates the internal organization that is used by management for
making operation decisions and addressing performance as the source of
determining the Company's reportable segments. Beginning in 1997, Romac revised
its organizational structure to provide internal reporting following its four
functional service offerings, including: Information Technology, Finance and
Accounting, Human Resources and Operating Specialties.
42
43
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company only generates information on sales and gross profit on a
functional basis, as such; asset information by segment is not disclosed.
Substantially all operations and long-lived assets are located in the US.
Information concerning operations in these segments of business is as
follows:
INFORMATION FINANCE & HUMAN OPERATING
TECHNOLOGY ACCOUNTING RESOURCES SPECIALTY TOTAL
----------- ---------- --------- --------- --------
1998
Sales....................... $431,921 $191,086 $17,575 $39,504 $680,086
Gross Profit................ 169,429 104,765 5,672 11,715 291,581
1997
Sales....................... 296,914 154,594 11,524 16,711 479,743
Gross Profit*...............
1996
Sales....................... 167,078 124,407 6,802 3,301 301,588
Gross Profit*...............
* Due to the Company's 1998 merger with Source Services and due to the
fiscal 1997 change to a functional based organization, it is impracticable to
recreate comparable data for this period.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED
-----------------------------------------
MAR 31 JUN 30 SEPT 30 DEC 31
-------- -------- -------- --------
Fiscal 1998
Net service revenues................. $155,402 $166,321 $174,361 $184,002
Gross profit......................... 67,101 72,984 74,179 77,317
Net income (loss).................... 6,249 (3,688) 6,192 6,686
Net income (loss) per share-basic.... $ .14 ($ .08) $ .14 $ .15
Net income (loss) per
share-diluted..................... $ .13 ($ .08) $ .13 $ .15
======== ======== ======== ========
Fiscal 1997
Net service revenues................. $100,344 $110,609 $122,326 $146,464
Gross profit......................... 47,904 52,386 57,522 67,799
Net income........................... 3,920 4,867 5,995 7,289
Net income per share-basic........... $ .10 $ .12 $ .15 $ .17
Net income per share-diluted......... $ .09 $ .12 $ .14 $ .17
16. SUBSEQUENT EVENT (UNAUDITED)
On March 11, 1999, the Board of Directors authorized the repurchase of up
to $50,000 of its common stock on the open market, from time to time, depending
on market conditions.
43
44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
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)
2.2 Amendment Number 1 to the Agreement and Plan of Merger,
dated February 11, 1998, between Romac International, Inc.
and Source Services Corporation(3)
2.3 Amendment No. 2 to the Agreement and Plan of Merger, dated
April 17, 1998, between Romac International, Inc. and Source
Services Corporation(4)
2.4 Asset Purchase Agreement, effective September 1, 1997,
between Romac International Inc. and the Sellers of Sequent
Associates, Inc.(5)
2.5 Stock Purchase Agreement, dated September 5, 1997, between
Romac International Inc. and the Sellers of Uni*Quality
Systems Solutions, Inc.(6)
3.1 Amended and Restated Articles of Incorporation(1)
3.2 Amended and Restated Bylaws(1)
4.1 $30,000,000 Revolving Line of Credit Agreement between
NationsBank, National Association and Romac International,
Inc. dated September 11, 1997(7)
4.2 Rights Agreement, dated October 28, 1998, between Romac
International, Inc. and State Street Bank and Trust Company
as Rights Agent(8)
10.1 Employment Agreement, dated as of March 1, 1997, between the
Company and David L. Dunkel(9)
10.2 Employment Agreement, dated as of March 1, 1997, between the
Company and Howard W. Sutter(9)
10.3 Employment Agreement, dated as of March 1, 1997, between the
Company and Peter Dominici(9)
21.1 List of subsidiaries of the Company
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule (for SEC use only)
- -------------------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-91738) filed May 9, 1996.
(2) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-26058), dated February 2, 1998.
44
45
(3) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-26058), dated February 19, 1998.
(4) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-26058), dated April 20, 1998.
(5) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-26058), dated October 9, 1997.
(6) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-26058), dated September 22, 1997.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K (File
No. 0-26058), filed March 17, 1998.
(8) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-26058), dated October 29, 1998.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K (File
No. 0-26058), filed March 28, 1997.
45
46
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 30, 1999 By: /s/ DAVID L. DUNKEL
--------------------------------
David L. Dunkel
Chairman of the Board,
Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 30, 1999 By: /s/ HOWARD W. SUTTER
----------------------------------------------------
Howard W. Sutter
Vice President and Director
Date: March 30, 1999 By: /s/ KARL VOEGLER
----------------------------------------------------
Karl Voegler
Director
Date: March 30, 1999 By: /s/ PETER DOMINICI
----------------------------------------------------
Peter Dominici
Vice President, Treasurer, Interim Chief Financial
Officer
Date: March 30, 1999 By: /s/ RICHARD M. COCCHIARO
----------------------------------------------------
Richard M. Cocchiaro
Vice President and Director
Date: March 30, 1999 By: W.R. CAREY, JR.
----------------------------------------------------
W.R. Carey, Jr.
Director
Date: March 30, 1999 By: /s/ GORDON TUNSTALL
----------------------------------------------------
Gordon Tunstall
Director
Date: March 30, 1999 By: /s/ DAVID L. DUNKEL
----------------------------------------------------
Director and Chief Executive Officer
46
47
Date: March 30, 1999 By: /s/ JAMES SWARTZ
----------------------------------------------------
President, Chief Operating Officer and Director
Date: March 30, 1999 By: TODD MANSFIELD
----------------------------------------------------
Director
Date: March 30, 1999 By: /s/ WAYNE EMIGH
----------------------------------------------------
Director
Date: March 30, 1999 By: /s/ JOHN ALLRED
----------------------------------------------------
Director
47
48
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of
Romac International, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 26, 1999 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tampa, Florida
February 26, 1999
48
49
(B) FINANCIAL STATEMENT SCHEDULES
Consolidated financial statement schedule for the three years ended
December 31, 1998
Schedule II -- Valuation and qualifying accounts
All other schedules are omitted because they are not applicable or the
requested information is shown in the Financial Statements of the Registrant or
Notes thereto.
49
50
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...... 1996 $1,980 $2,815 $1,588 $3,207
1997 3,207 4,271 2,055 5,423
1998 5,423 4,049 3,710 5,762
50