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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
______________________________
Commission file number 0-26058
ROMAC INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-3264661
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
120 West Hyde Park Place
Suite 150
Tampa, Florida 33606
(Address of principal executive offices) (zip-code)
Registrant's telephone number, including area code: (813) 251-1700
______________________________
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) had been subject to
such filing requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of July 31, 1997.
12,267,421 shares of $.01 par value Common Stock
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<PAGE>
PART I --- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENT
ROMAC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
June December
30 31
1997 1996
------ ------
(unaudited)
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $30,352 $39,555
Short-term investments 3,903 880
Trade receivables, net of allowance for doubtful
accounts of $581 and $617 respectively 23,327 17,061
Notes receivable from franchisees, current 233 193
Receivables from related parties, current 525 100
Deferred tax asset 243 243
Prepaid expenses and other current assets 1,273 1,214
------ ------
Total current assets 59,856 59,246
Note receivable from franchisees, less current portion 71 75
Receivables from related parties, less current portion 849 862
Deferred tax asset 209 209
Furniture and equipment, net 8,242 5,346
Goodwill, net of accumulated amortization of
$1,629 and $1,108, respectively 21,927 10,915
Other assets, net 2,257 906
------- -------
Total assets $93,411 $77,559
======= =======
Liabilities and Shareholders' Equity:
Current Liabilities:
Accounts payable and other accrued liabilities $ 2,268 $ 1,723
Accrued payroll costs 4,871 2,976
Current portion of notes payable and
capital lease obligations 891 --
Current portion of payables to related parties 1,360 23
Income taxes payable 940 304
------ ------
Total current liabilities 10,330 5,026
Notes payable and capital lease obligations,
less current portion 1,636 --
Payables to related parties, less current portion 1,575 --
Other long-term liabilities, less current portion 1,829 1,249
------ ------
Total liabilities 15,370 6,275
Commitment and contingencies -- --
Shareholders' Equity:
Preferred stock, par value $.01; 15,000 shares
authorized, none issued and outstanding -- --
Common stock, par value $.01; 100,000 shares authorized,
12,445 and 12,134 issued, respectively 124 121
Additional paid-in-capital 63,762 61,526
Stock subscriptions receivable (1) (13)
Retained earnings 15,081 10,575
Less reacquired stock at cost; 338 shares,
respectively (925) (925)
------ ------
Total shareholders' equity 78,041 71,284
------ ------
Total liabilities and shareholders' equity $93,411 $77,559
======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
1
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<PAGE>
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June June June June
30 30 30 30
1997 1996 1997 1996
------ ------ ------ ------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net service revenues $39,640 $21,466 $74,592 $38,355
Direct costs of service 23,577 12,029 44,581 21,748
------ ------ ------ ------
Gross profit 16,063 9,437 30,011 16,607
Selling, general and
administrative expenses 11,855 7,082 22,387 12,455
Depreciation and amortization 627 538 1,286 775
Other (income) expense (454) (315) (1,063) (463)
------ ------ ------ ------
Income before income taxes 4,035 2,132 7,401 3,840
Provision for income taxes 1,608 844 2,895 1,527
------ ------ ------ ------
Net income $ 2,427 $ 1,288 $ 4,506 $ 2,313
======= ======= ======= =======
Net income per share-Primary $0.19 $0.12 $0.36 $0.21
===== ===== ===== =====
Weighted average shares
outstanding-Primary 12,743 11,182 12,671 10,760
======= ======= ======= =======
Net income per share-
Fully Diluted $0.19 $0.11 $0.35 $0.21
===== ===== ===== =====
Weighted average shares
outstanding-Fully Diluted 12,982 11,307 12,791 10,822
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
2
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<PAGE>
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Shares Amounts
<S> <C> <C>
COMMON STOCK:
Balance at December 31, 1996 12,134 $ 121
Exercise of stock options 311 3
------ ------
Balance at June 30, 1997 12,445 $ 124
====== ======
ADDITIONAL PAID-IN CAPITAL:
Balance at December 31, 1996 $61,526
Exercise of stock options 1,239
Tax benefit related to employee
stock options 997
------
Balance at June 30, 1997 $63,762
=======
STOCK SUBSCRIPTIONS RECEIVABLE:
Balance at December 31, 1996 $ (13)
Payments 12
------
Balance at June 30, 1997 $ (1)
=======
RETAINED EARNINGS:
Balance at December 31, 1996 $10,575
Net income 4,506
------
Balance at June 30, 1997 $15,081
=======
REAQUIRED STOCK:
Balance at December 31, 1996 $ (925)
------
Balance at June 30, 1997 $ (925)
=======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
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<PAGE>
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
June June
30 30
1997 1996
------ ------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,506 $ 2,313
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,286 775
Provision for losses on accounts and
notes receivable (36) (98)
(Increase) decrease in operating assets:
Trade receivables, net (6,230) (5,510)
Notes receivable from franchisees, current (40) (96)
Prepaid expenses and other current assets (59) (736)
Notes receivable from franchisees,
less current portion 4 (61)
Other assets, net (1,351) (109)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued
liabilities 545 (89)
Accrued payroll costs 1,895 1,232
Income taxes payable 1,633 935
Other long-term liabilities 580 35
------ ------
Cash (used in) provided by
operating activities 2,733 (1,409)
Cash flows from investing activities:
Capital expenditures (2,835) (892)
Acquisitions (11,507) (11,159)
Payments for the purchase of short-term
investments (3,023) --
Proceeds from the sale of fixed assets 1,674 --
Proceeds from the sale of short-term
investments -- 7,806
------ ------
Cash (used in) provided by
investing activities (15,691) (4,245)
Cash flows from financing activities:
Payments on notes receivable from
stock subscriptions 13 4
Payments on notes payable -- (127)
Payments on payable to related parties -- (6)
Issuance of payables to related parties 2,912 647
Payments on receivables from related parties 56 103
Net proceeds from secondary offering -- 47,510
Issuance of receivables from related parties (468) (205)
Proceeds from exercise of stock options 1,242 203
------ ------
Cash provided by (used in)
financing activities 3,755 48,129
------ ------
Decrease in cash and cash equivalents (9,203) 42,475
Cash and cash equivalents at beginning of period 39,555 620
------ ------
Cash and cash equivalents at end of period $30,352 $43,095
======= =======
Supplemental Cash Flows Information
Cash paid during the period for:
Interest -- $ 21
Income Taxes $ 1,444 $ 618
Non cash investing and financing activity:
Capital lease transaction $ 2,526 --
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
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<PAGE>
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
Note A --- Summary of Significant Accounting Policies
Principles of Consolidation. The Consolidated Financial Statements
include the accounts of Romac International, Inc. (the "Company") and its
subsidiaries. All material intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
Interim Financial Information. The Consolidated Financial Statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and, in management's opinion, include all
adjustments necessary for a fair statement of results for such interim
periods. Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to SEC rules or
regulations; however, the Company believes that the disclosures made are
adequate to make the information presented not misleading.
Revenue Recognition. Net service revenues consist of sales from
Company-owned and licensed offices, and royalties received from franchised
operations, less credits and discounts. The Company recognizes revenue for
Flexible Billings (Professional Temporary and Contract Services) 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. In a retained search engagement the initial retainer is
recognized upon execution of the agreement, with the balance recognized on
completion of the search. Reserves are established to estimate losses due
to placed candidates not remaining in employment for the Company's guarantee
period, typically 90 days.
Franchise fees are determined based upon a contractual percentage of the
revenue billed by franchisees. Costs relating to the support of franchised
operations are included in the Company's selling, general and administrative
expenses. The Company includes revenues and related direct costs of licensed
offices in its net service revenues and direct costs of services,
respectively. Commissions paid to licensees is based upon a percentage of
the gross profit generated, and is included in the company's direct cost
of services. As of June 30, 1997, there are no frachisees or licensees with
the Company.
Cash and Cash Equivalents. The Company classifies all highly-liquid
investments with a maturity of three months or less as cash equivalents.
Income Taxes. The Company accounts for income taxes under the principles of
FAS 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 were reflected
in additional paid-in capital.
Earnings Per Share. In March 1997, Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" ("SFAS 128") was issued which requires
disclosure of basic earnings per share and modifies existing guidance for
computing fully dilulted earnings per share. Under the new standard, basic
earnings per share is computed as earnings divided by weighted average shares
excluding the dilutive effects of stock options and other potentially
dilutive securities. The effective date of SFAS 128 is December 15, 1997
and early adoption is not permitted. The pro forma impact of adoption of
SFAS 128 had no impact on the period ended June 30, 1997, however the Company
expects that this pronouncement could have a material impact on Earnings Per
Share for the year ended December 31, 1997.
5
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements,
particularly with respect to the Liquidity and Capital Resources section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Additional written or oral forward-looking statements may be made
by the Company from time to time, in filings with the Securities and Exchange
Commission or otherwise. Such forward-looking statements are within the
meaning of that term in Section 27A of the Securities Act of 1933 (the
"Securities Act') and Section 21 E of the Securities Exchange Act of 1934
(the "Exchange Act"). Such statements may include, but not be limited to,
projections of revenue, income, losses, cash flows, capital expenditures,
plans for future operations, financing needs or plans, plans relating to
products or services of the Company, estimates concerning the effects of
litigation or other disputes, as well as assumptions to any of the foregoing.
Forward-Looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted. Future events and actual results could
differ materially from those set forth in or underlying the forward-looking
statements.
Results of Operations for each of the Three and Six Months Ended June 30,
1997 and 1996.
Revenues. Net service revenues increased 84.2% and 94.3% respectively,
to $39.6 million and $74.6 Million for the three and six month periods ending
June 30, 1997 as compared to $21.5 million and $38.4 million for the same
periods in 1996. These increases were compriseed of a $16.3 million and
$32.0 million increase in Flexible Billings (Professional Temporary and
Contract Services revenues combined) and a $1.8 million and $4.2 million
increase in Search Fees for the three and six month periods ending June 30,
1997, as described below.
Professional Temporary revenues increased 42.4% and 55.4% respectively,
to $12.1 million and $24.4 million for the three and six month periods ending
June 30, 1997 as compared to $8.5 million and $15.7 million for the same
periods in 1996. This increase resulted from an increase in the number of
hours billed by Company-owned operations compared to the same periods in 1996.
The average hourly bill rate for the six month period ended June 30, 1997
increased 14.8% over the prior year due to a continued demand for the
Company's knowledge workers and the Company's ability to pass on increased
wage costs of its knowledge workers to its customers.
Contract Services revenues increased 152.4% and 156.8% respectively, to
$21.2 million and $38.0 million for the three and six month periods ending
June 30, 1997 as compared to $8.4 million and $14.8 for the same periods in
1996. This increase resulted from an increase in the number of hours billed
during the three months and six month periods ended June 30, 1997 as compared
to the same periods in 1996. The average hourly bill rate for Company-owned
operations increased 13.9% for the six month period ended June 30, 1997 due
to the continued penetration into existing markets where hourly bill rates
are higher such as Boston and San Francisco, as well as the increased
expansion of the Company's Emerging Technologies initiative which
concentrates on placing knowledge workers in highly skilled technologies
with the greatest demand.
Search fees increased 40.1% and 53.1% respectively, to $6.4 million and
$12.1 million during the three and six month periods ended June 30, 1997
compared to $4.5 million and $7.9 million for the same periods in 1996.
The increase resulted primarily from an increase in the number of search sales
consultants, which increased the number of placements made during the three
and six month periods ending June 30, 1997 as compared to the same periods
in 1996. The average fee for each placement made during the periods remained
relatively constant.
6
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<PAGE>
Franchise and licensee revenues, which are included in the aforementioned
revenues, decreased 66.8% and 58.3% to approximately $332,000 and
$793,000 for the three and six month periods ending June 30, 1997 from
approximately $1.0 million and $1.9 million for the same periods in 1996.
The decrease was primarily due to the effects of discontinued franchisee and
licensee operations in Minneapolis, St. Louis, and Portland during 1996, the
acquisition of the San Francisco franchisee in June 1996 and the
discontinuance of franchisee and licensee operations in Raleigh on March 31,
1997.
Gross Profit. Gross profit increased 71.3% and 80.7% respectively, to $16.1
million and $30.0 million for the three and six month periods ending June 30,
1997 as compared to $9.4 and $16.6 million for the same periods in 1996.
Gross profit as a percentage of net service revenues decreased to 40.1% and
40.2% respectively, for the three and six month periods ending June 30, 1997
as compared to 43.7% and 43.2% for the same periods in 1996. This decrease
was result of the continuing change in the Company's business mix whereby
revenues from Flexible Billings, traditionally lower gross margins than
Search Fees, increased to 84.1% and 83.6% of the Company's total revenues
for the three and six month periods ending June 30, 1997 as compared to 78.6%
and 79.4% for the same periods in 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 67.6% and 79.2% respectively, to $11.9 and
$22.4 million for the three and six month periods ended June 30, 1997 as
compared to $7.1 million and $12.5 million for the same periods in 1996.
Selling, general and administrative expenses as a percentage of net service
revenues decreased to 30.1% and 30.0% respectively, for the three and six
month periods ended June 30 1997 compared to 33.0% and 32.6% in 1996.
This decrease in selling, general and administrative expense as a percentage
of net service revenues resulted from greater operating efficiencies and
economies of scale gained from a larger revenue base.
Depreciation and amortization expense. Depreciation and amortization
expense increased 16.5% and 67.7% respectively, to approximately $627,000 and
$1.3 million for the three and six month periods ended June 30, 1997 compared
to approximately $538,000 and $775,000 for the same periods in 1996.
Depreciation and amortization expense as a percentage of net service revenues
decreased to 1.6% and 1.7% for the three and six month periods ended June 30,
1997 as compared to 2.5% and 2.0% for the same periods in 1996. This
decrease as a percentage of net service revenues is due to a change in
accounting estimate of the amortization period for goodwill related to
certain acquisitions from 15 to 30 years of approximately $160,000 which
reduced expense during the quarter. This decrease was offset by increased
depreciation of approximately $114,000 on computer equipment for new
locations and additional employees.
Other (income) expense. Other (income) expense increased 44.1% and 138.1%
respectively, to approximately $454,000 and $1.1 million for the three and
six month periods ended June 30, 1997 compared to approximately $315,000 and
$462,000 respectively, for the same periods in 1996. This increase was
primarily due to interest earned on the investment of the proceeds from the
May 1996 secondary offering.
Income Before Taxes. Income before taxes increased 90.5% and 94.7%
respectively, to $4.0 million and $7.4 million for the three and six month
periods ended June 30, 1997 as compared to $2.1 million and $3.8 million for
the same periods in 1996, primarily as a result of the above factors.
Income Taxes. The effective tax rate was 39.9% and 39.1% for the three
and six month period ended June 30, 1997 compared to 40.0% for all periods in
1996.
Net Income. Net income increased to $2.4 million and $4.5 million for the
three and six month periods ended June 30, 1997 compared to $1.3 million and
$2.3 million for the same periods in 1996, primarily as a result of the above
factors.
Liquidity and Capital Resources
As of June 30, 1997 the Company's sources of liquidity included
approximately $30.4 million in cash and cash equivalents, approximately
$3.9 million in short-term investments, and approximately $15.3 million in
additional net working capital. In addition, as of June 30, 1997, $5.0
million was available for borrowing under the Company's line of credit.
The Company is currently negotiating with various lending institutions to
expand its line of credit facilities.
8
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<PAGE>
During the first six months of 1997, cash flow provided by operations was
approximately $2.7 million, resulting primarily from net income, non-cash
expenses (depreciation and amortization) and increases in operationg payroll
liabilities, offset by a significant increase in accounts receivable. The
increase in accounts receivable reflects the increased volume of business
during the first six months of 1997 from Company-owned locations and the
initial funding of the accounts receivable base in acquired operations.
During the first six months of 1997, cash flow used in investing
activities was approximately $15.7 million, resulting primarily from the
Company's use of approximately $11.5 million in cash for acquisitions.
The Company believes its cash balance, short-term investments and available
line of credit borrowings will be sufficient to meet it's anticipated cash
requirements for at least the next twelve months unless it uses a substantial
portion of it's cash balances to fund additional acquisitions. In the event
that the Company does complete significant acquisitions, the Company beleives
it has the ability to raise additional funds through its available line of
credit and through other financing vehicles.
9
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<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) April 25, 1997 Annual Meeting of Stockholders of Romac
International, Inc.
(c) 1) To approve an amendment to the Company's Articles of
Incorporation increasing the Company's authorized common stock
from 15 million shares to 100 million shares; Votes Cast For
5,281,147; Votes Cast Against 3,073,467; Votes Abstained
2,500;
2) To amend the Romac International, Inc. Amended and Restated
Incentive Stock Option Plan to increase the number of shares
available to 4,500,000 from 3,000,000; Votes Cast For
6,180,007; Votes Cast Against 2,093,597; Votes Abstained 83,510;
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports:
None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ROMAC INTERNATIONAL, INC.
(Registrant)
/s/ Thomas Calcaterra
_______________________________________
Thomas Calcaterra, Chief Financial Officer
and Secretary
Date: August 14, 1997
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<PAGE>
<TABLE> <S> <C>
<PAGE>
<S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10-Q REPORT FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 30,352 39,555
<SECURITIES> 3,903 880
<RECEIVABLES> 23,908 17,678
<ALLOWANCES> 581 617
<INVENTORY> 0 0
<CURRENT-ASSETS> 59,856 59,246
<PP&E> 11,946 8,181
<DEPRECIATION> 3,704 2,834
<TOTAL-ASSETS> 93,411 77,559
<CURRENT-LIABILITIES> 10,330 5,026
<BONDS> 0 0
0 0
0 0
<COMMON> 124 121
<OTHER-SE> 77,917 71,163
<TOTAL-LIABILITY-AND-EQUITY> 93,411 77,559
<SALES> 0 0
<TOTAL-REVENUES> 74,592 94,210
<CGS> 0 0
<TOTAL-COSTS> 44,581 53,839
<OTHER-EXPENSES> (1,063) (350)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 78
<INCOME-PRETAX> 7,401 9,946
<INCOME-TAX> 2,895 3,965
<INCOME-CONTINUING> 4,506 5,981
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,506 5,981
<EPS-PRIMARY> .36 .51
<EPS-DILUTED> .35 .51
</TABLE>
