<PAGE> 1
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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, 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 (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
----- -----
As of August 11, 1998, the registrant had 45,938,614 shares of common
stock, $.01 par value per share, issued and outstanding.
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<PAGE> 2
ITEM 1. FINANCIAL STATEMENTS
ROMAC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $ 95,147 $101,669
Short-term investments 5,065 1,953
Trade receivables, net of allowance for doubtful accounts
of $6,762 and $5,423 respectively 101,368 84,729
Income tax receivable 1,669 --
Notes receivable from franchisees, current 56 109
Receivables from related parties, current 503 233
Deferred tax asset, current 3,138 3,141
Prepaid expenses and other current assets 3,136 2,519
-------- --------
Total current assets 210,082 194,353
Note receivable from franchisees, less current portion -- 4
Receivables from related parties, less current portion 1,325 1,290
Deferred tax asset, less current portion 310 310
Furniture and equipment, net 20,778 15,921
Goodwill, net of accumulated amortization of $3,950
and $2,578, respectively 82,438 66,652
Other assets, net 4,147 4,878
-------- --------
Total assets $319,080 $283,408
======== ========
Liabilities and Shareholders' Equity:
Current Liabilities:
Accounts payable and other accrued liabilities $ 24,088 $ 8,031
Accrued payroll costs 29,711 28,138
Income taxes payable -- 3,729
Current portion of capital lease obligations 743 731
Current portion of payables to related parties 13,883 4,265
Accrued merger and integration expenses 8,405 --
Total current liabilities 76,830 44,894
Capital lease obligations, less current portion 870 1,260
Payables to related parties, less current portion -- 1,375
Other long-term liabilities, less current portion 3,339 3,175
-------- --------
Total liabilities 81,039 50,704
-------- --------
Commitments and contingencies -- --
Shareholders' Equity:
Preferred stock, par value $.01; 15,000 shares authorized, none
issued and outstanding -- --
Common stock, par value $.01; 250,000 shares authorized,
45,928 and 45,475 issued, respectively 459 455
Additional paid-in-capital 181,305 178,494
Retained earnings 57,284 54,723
Cumulative translation adjustment (82) (42)
Less reacquired stock at cost; 677 shares, respectively (925) (925)
-------- --------
Total shareholders' equity 238,041 232,704
-------- --------
Total liabilities and shareholders' equity $319.080 $283,408
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 3
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net service revenues $166,321 $110,609 $321,723 $210,954
Direct costs of service 93,337 58,223 181,638 110,664
-------- -------- -------- --------
Gross profit 72,984 52,386 140,085 100,290
Selling, general and administrative expenses 56,796 43,302 110,628 84,192
Depreciation and amortization expense 2,060 1,114 4,072 2,221
Merger, restructuring, and integration expenses 18,476 - 20,221 -
Other (income) expense (1,064) (502) (2,397) (1,281)
-------- -------- -------- --------
Income (loss) before income taxes (3,284) 8,472 7,561 15,158
Provision for income taxes 404 3,605 5,000 6,371
-------- -------- -------- --------
Net income (loss) $(3,688) $4,867 $2,561 $8,787
======== ======== ======== ========
Net income (loss) per share - Basic $(0.08) $0.12 $0.06 $0.22
======== ======== ======== ========
Weighted average shares outstanding - Basic 45,225 39,944 45,170 40,002
======== ======== ======== ========
Net income (loss) per share - Diluted $(0.08) $0.12 $0.05 $0.21
======== ======== ======== ========
Weighted average shares outstanding - Diluted 45,225 41,768 47,619 41,371
======== ======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 4
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,561 $ 8,787
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 4,072 2,472
Provision for losses on accounts and notes receivable 2,871 (36)
Deferred taxes 3 90
Loss on asset sales 59
(Increase) decrease in operating assets:
Trade receivables, net (19,510) (12,753)
Notes receivable from franchisees, current 53 (40)
Prepaid expenses and other current assets (617) (182)
Notes receivable from franchisees, less current portion 4 4
Other assets, net 1,618 (1,351)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued liabilities 16,057 52
Accrued payroll costs 1,573 5,222
Income taxes payable (4,963) 1,462
Other long-term liabilities 164 583
------- -------
Cash provided by (used in) operating activities 3,886 4,369
------- -------
Cash flows from investing activities:
Capital expenditures (7,598) (4,964)
Acquisitions (8,914) (11,507)
Accrued merger, restructuring and integration expense 8,405 --
Proceeds from the sale of fixed assets -- 1,690
Increase in cash surrender value of life insurance policies (887) --
Payments for the purchase of short-term investments (3,112) (3,023)
Cash (used in) provided by investing activities (12,106) (17,804)
------- -------
Cash flows from financing activities:
Payments on notes receivable from stock subscriptions 13
Payments on capital lease obligations (378)
Payments on receivables from related parties 13 56
Issuance of payables to related parties -- 2,917
Expenses from issuance of common stock (57) --
Issuance of receivables from related parties (318) (468)
Proceeds from exercise of stock options 2,438 1,242
------- -------
Cash provided by (used in) financing activities 1,698 3,755
------- -------
Decrease in cash and cash equivalents (6,522) (9,680)
Cash and cash equivalents at beginning of period 101,669 58,404
------- -------
Cash and cash equivalents at end of period 95,147 $48,724
------- -------
Supplemental Cash Flows Information
Cash paid during the period for:
Income Taxes $9,572 $2,038
Interest -- 83
Non cash investing and financing activity:
Capital lease transaction -- $2,526
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 5
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Shares Amounts
<S> <C> <C>
COMMON STOCK:
Balance at December 31, 1997 45,475 $455
Exercise of stock options 453 4
------ --------
Balance at June 30, 1998 45,928 $ 459
====== ========
ADDITIONAL PAID-IN CAPITAL:
Balance at December 31, 1997 $178,494
Issuance of common stock (57)
Exercise of stock options 2,434
Tax benefit related to employee stock options 435
--------
Balance at June 30, 1998 $181,305
========
RETAINED EARNINGS:
Balance at December 31, 1997 $54,723
Net income 2,561
-------
Balance at June 30, 1998 $57,284
=======
REACQUIRED STOCK:
Balance at December 31, 1997 ($925)
-----
Balance at June 30, 1998 ($925)
=====
CUMULATIVE TRANSLATION ADJUSTMENT:
Balance at December 31, 1997 ($42)
Foreign currency translation adjustment (40)
-----
Balance at June 30, 1998 ($82)
=====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 6
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(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. The Company completed its merger with Source Services Corporation
("Source") on April 20, 1998. 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.
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, net of
credits and discounts. The Company recognizes Flexible Billings based on hours
worked by assigned personnel on a weekly basis. Search Fees are recognized in
contingency search engagements upon the successful completion of the
assignment. For the Source division, the search fee policy is that if an
individual fails to continue employment for a period of time as specified in
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
adjustments due to placed candidates not remaining in employment for the
guarantee period.
Franchise fees were determined based upon a contractual percentage of
the revenue billed by franchisees. Costs relating to the support of franchised
operations were included in the Company's selling, general and administrative
expenses. The last remaining franchisee and licensee agreement was terminated
at the end of the second quarter of 1997. The Company was the legal employer
of flexible personnel under its licensing arrangements, and accordingly,
included revenues and related direct costs of licensed offices in its net
service revenues and direct costs of services, respectively. Commissions paid
to licensees were based upon a percentage of the gross profit generated, and
were included in the Company's direct cost of services.
Cash and Cash Equivalents. The Company classifies all highly-liquid
investments with an initial maturity of three months or less as cash
equivalents.
Self-insurance. The Company offers an employee benefit program due
to its merger with Source for which it is self-insured for a potion of the
cost. The Company is liable for claims up to $100 per employee and aggregate
claims up to a defined yearly payment limit. All full-time employees and
salaried consultants of the Source division are eligible to participate in the
program. Self-insurance
<PAGE> 7
costs are accrued using actuarial estimates to approximate the liability for
reported claims and claims incurred but not reported.
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 were reflected in additional paid-in
capital.
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 Stockholder's Equity.
Earnings Per Share. Options to purchase 2,444 shares of common stock
were outstanding during 1998 but were not included in the computation of diluted
earnings per share for the three months ended June 30, 1998 because the options
were anti-dilutive.
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which will require the Company 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. Comprehensive income is materially the same as reported net income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes standards for
reporting information about operating segments in annual financial statements
and interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for fiscal years beginning after December 15, 1997
and requires presentation of prior period financial statements for comparability
purposes. Romac is currently evaluating its required disclosures under SFAS No.
131 and expects to adopt this standard during the year ended December 31, 1998.
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 contracts
(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.
Reclassifications. Certain amounts related to the three and six month
periods ending June 30, 1997 have been reclassified to conform with current
period presentation. The amounts are not considered material to the overall
financial statement presentation.
<PAGE> 8
NOTE B---ACQUISITIONS
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;
accordingly, and historical results have been restated to reflect the merger.
The following unaudited, selected income statement data has been
prepared to reflect the effect on the Company as if the acquisitions (which were
accounted for under the purchase method) of Uni-Quality Systems Solutions, Inc
("UQ") and Sequent Associates, Inc. ("Sequent") had been recorded as of January
1, 1997.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1998 Actual 1997 Pro forma
(unaudited) (unaudited)
<S> <C> <C>
Net service revenues $321,723 $230,727
Gross profit 140,085 105,511
Income before income taxes 7,561 15,489
Net income 2,561 8,984
Net income per share - Basic .06 .22
Weighted average shares outstanding - Basic 45,170 40,002
Net income per share - Diluted .05 .22
Weighted average shares outstanding - Diluted 47,619 41,371
</TABLE>
Note C---Merger, Restructuring and Integration Related Expense
Pursuant to the terms of the Merger Agreement, each issued and outstanding share
of common stock, par value $.02, of Source was converted into the right to
receive 1.1351 shares of common stock, par value $.01 per share of the Company's
common stock. The Company issued approximately 15.6 million shares of common
stock upon conversion of the shares of Source common stock. In addition, each
option to purchase Source Common Stock outstanding under Source's stock option
plans was converted into an option to purchase the number of shares of the
Company's common stock subject to such option multiplied by the exchange ratio
for the merger.
In connection with the Merger, the Company recorded a $20.2 million before tax
charge for restructuring and other merger and integration related costs. The
charge included $8.2 million of direct merger costs, which consisted of
professional fees and other transaction costs, $3.9 million of severance to be
incurred in connection with anticipated staff reductions, $4.6 million of
planned termination of leased office facilities, and $3.5 million of other
expenses directly related to the Merger.
The Company expects to incur additional merger, restructuring, and integration
related costs for training, and other costs to eliminate redundant back office
and other operations not to exceed $25 million. These costs will be recognized
as period expenses when incurred as these costs do not qualify for immediate
recognition under an existing accounting pronouncement and will be classified as
merger, restructuring, and integration expenses.
<PAGE> 9
Note D---Goodwill
During the second quarter of 1998, the Company fixed the earnouts on certain
acquisitions during 1997 for approximately $8.5 million and accrued an
additional approximately $8.6 million for earnouts achieved for certain 1996 and
1997 acquisitions. These amounts have been recorded as additional purchase
price consideration and are included in goodwill.
<PAGE> 10
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 SEC or otherwise. Such
forward-looking statements are within the meaning of that term in Section 27A
of the Securities Act of 1933 and Section 21 E of the Securities Exchange Act
of 1934. 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 can not be predicted. Future events and actual
results could differ materially from those set forth in or underlying the
forward looking statements.
Results of Operations
The following table sets forth certain items in Romac's consolidated
statement of operations, as a percentage of net service revenues, for the
indicated periods:
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
<S> <C> <C>
Flexible billings 78.9% 72.8%
Search Fees 21.1 27.2
Net service revenues 100.0 100.0
Gross profit 43.5 47.5
Selling, general, and administrative expenses 34.4 39.9
Merger and integration expenses 6.3 --
Income before taxes 2.4 7.2
Net income .8% 4.2%
</TABLE>
Results of Operations for the Three and Six Months Ended June 30, 1998 and
1997.
Net service revenues. Net service revenues increased 50.4% and 52.5%,
respectively, to $166.3 million and $321.7 million for the three and six month
periods ending June 30, 1998 as compared to $110.6 and $211.0 million for the
same periods in 1997. These increases were comprised of a $49.9 million and
$100.2 million increase in Flexible Billings and a $5.8 million and $10.5
million increase in Search services for the three and six month periods ending
June 30, 1998, as described below.
Flexible billings increased 61.7% and 65.2%, respectively to $130.8 million
and $253.8 million for the three and six month periods ending June 30, 1998 as
compared to $80.9 million and $153.6 million for the same periods in 1997. This
increase is a result of an increase in the number of hours billed in existing
markets and the acquisitions of UQ and Sequent in September 1997, and to a
lesser extent, an increase in the average billing rates as compared to the same
periods in 1997.
<PAGE> 11
Search services increased 19.5% and 18.3%, respectively to $35.5 million
and $67.9 million for the three and six month periods ended June 30, 1998
compared to $29.7 million and $57.4 million for the same periods in 1997. The
increase resulted primarily from an increase in the number of search sales
consultants, which increased the number of search placements made during
the three and six month periods ended June 30, 1998 as compared to the same
period in 1997. The average fee for each placement made during the periods
remained relatively constant.
Gross profit. Gross profit increased 39.3% and 39.7%, respectively,
to $73.0 million and $140.0 million during the three and six month periods
ended June 30, 1998 as compared to $52.4 million and $100.3 million for the same
periods in 1997. Gross profit as a percentage of net service revenues decreased
to 43.9% and 43.5%, respectively, for the three and six month periods ending
June 30, 1998 as compared to 47.4% and 47.5% for the same periods in 1997.
This decrease was primarily result of the continuing change in the Company's
business mix whereby revenues from Flexible Billings, traditionally lower gross
margins than Search services, increased to 78.6% and 78.9%, respectively, of the
Company's total revenues for the three and six month periods ending June 30,
1998 as compared to 73.2% and 72.8%, respectively for the same periods in 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 31.2% and 31.4%, respectively to $56.8 million
and $110.6 million for the three and six month periods ended June 30, 1998 as
compared to $43.3 million and $84.2 million for the same periods in 1997.
Selling, general and administrative expenses as a percentage of net service
revenues decreased to 34.1% and 34.4%, respectively, for the three and six
month periods ended June 30, 1998 compared to 39.1% and 39.9% for the same
periods in 1997. This decrease in selling, general and administrative expense
as a percentage of net service revenues in the three and six month periods ended
June 30, 1998 resulted from the start of certain consolidation efforts related
to the Source acquisition in the second quarter of 1998 and to a lesser extent,
the continuation of operating efficiencies gained from a larger revenue base.
Depreciation and amortization expense. Depreciation and amortization
expense increased 90.9% and 86.4%, respectively, to approximately $2.1 million
and $4.1 million for the three and six month periods ended June 30, 1998
compared to approximately $1.1 million and $2.2 million for the same periods in
1997. Depreciation and amortization expense as a percentage of net service
revenues increased to 1.2% and 1.3%, respectively, for the three and six month
periods ended June 30, 1998 as compared to 1.0% and 1.1% for the same periods
in 1997. The increase as a percentage of net service revenues for both periods
in 1998 as compared to the same periods in 1997 is due primarily to the goodwill
amortization of the 1997 acquisitions of UQ and Sequent, in 1997.
Merger, restructuring, and integration expenses. Merger and integration
expenses for the three and six month periods ended June 30, 1998 increased 100%
compared to the same periods in 1997 due to the completion of the Source merger
in April 1998. Merger and integration expenses for the three and six month
periods ended June 30, 1998 consisted primarily of $6.7 million and $8.2
million, respectively, of direct costs related to the acquisition and $11.8
million and $12.0 million, respectively, related to restructuring and
integration related expenses.
Other (income) expense. Other (income) expense increased 120.0% and
84.6% for the three and six months ended June 30, 1998 compared to the same
periods in 1997. The increase in other income during both periods in 1998 as
compared to 1997 was due to interest earned on the investment of the proceeds
from the November 1997 stock offering.
Income (Loss) Before Taxes. Income (loss) before taxes decreased 138.8%
and 50.0%, respectively, to $(3.3) million and 7.6 million for the three and six
month periods ended June 30, 1998 as compared to $8.5 million and $15.1 million
for the same periods in 1997, primarily as a result of the merger and
integration expenses explained above.
<PAGE> 12
Provision for income taxes. Provision for income taxes decreased 88.9%
and 21.9%, respectively, to $.4 million and $5.0 million for the three and six
month periods ended June 30, 1998 compared to $3.6 million and $6.4 million for
the same periods in 1997. The effective tax rate was 65.8% for the six months
ended June 30, 1998 compared to 42.1% for the same period in 1997. The income
tax expense for the three month period ended June 30, 1998 is impacted by
nondeductible merger expenses incurred in 1998.
Net Income (Loss). Net income (loss) decreased approximately 175.5% and
70.5% to $(3.7) million and $2.6 million as compared to the $4.9 million and
$8.8 million for the same periods in 1997 primarily as a result of the merger,
restructuring and integration expenses explained above.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company's sources of liquidity included
approximately $95.1 million in cash and cash equivalents, $5.1 in short-term
investments, and approximately $33.1 million in additional net working capital.
In addition, as of June 30, 1998, there are no amounts outstanding on the
Company's line of credit and $30.0 million was available for borrowing under the
Company's line of credit. The Company entered into a new Revolving Line of
Credit Loan Agreement with NationsBank, N.A. (the "Line of Credit") during
September 1997. The Line of Credit expires on March 31, 2000 and amounts
outstanding under the line of credit accrue interest at an annual rate equal to
150 basis points above the 90-day London Interbank Offering interest rate
("LIBOR"). As of June 30, 1998, the interest rate on the Line of Credit
was 6.37%.
During the six months ended June 30, 1998, cash flow provided by
operations was approximately $3.9 million, resulting primarily from net income,
non-cash expenses (depreciation and amortization) and increases in operating
payroll liabilities, offset by an increase in accounts receivable. The increase
in accounts receivable reflects the increased volume of business during the six
months ended June 30, 1998 from existing locations and the initial funding of
the accounts receivable base in acquired operations.
During the six months ended June 30, 1998, cash flow used in investing
activities was appoximately $12.0 million, resulting primarily from the
Company's use of approximately $7.5 million for capital expenditures and $3.1
million for purchase of short-term investments.
In November and December 1997, the Company received approximately $86.5
million as net proceeds of its common stock offering, part of which was used to
repay the indebtedness outstanding under the Line of Credit. The Company
intends to use the remaining net proceeds for general corporate purposes,
including possible acquisitions, expansion of the Company's operations and
certain capital expenditures related to the Company's expansion. Pending such
uses, the net proceeds will be invested in short term, investment grade
securities, certificates of deposit, or direct or guaranteed obligations of the
United States government.
The Company believes that cash flow from operations and borrowings under
the Company's Line of Credit, or other credit facilities that may become
available to the Company in the future will be adequate to meet the working
capital requirements of the Company's current operations for at least the next
12 months. The Company believes that the consummation of the merger with Source
which was effective April 20, 1998 will not adversely affect the Company's
liquidity. The Company's estimate of the period that existing resources will
fund its working capital requirements is a forward-looking
<PAGE> 13
statement that is subject to risks and uncertainties. Actual results could
differ from those indicated as a result of a number of factors, including the
use of such resources for possible acquisitions.
YEAR 2000 CONSIDERATIONS
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify years. As a result, such systems will
recognize the year 2000 as "00." This could cause many computer applications to
fail completely or to create erroneous results unless corrective measures are
taken. The Company utilizes software or related computer technologies that are
essential to its operations and purchases most of its software applications from
third party vendors. The Company believes all such software is currently Year
2000 compliant, and therefore does not expect any material impact as a result of
the Year 2000 issue. However, there can be no assurance that the Company will
not be adversely affected by the failure of any third party vendors or
significant customers of the Company to become Year 2000 compliant.
<PAGE> 14
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) The Annual Meeting of Stockholders of the Company was held
on April 20, 1998.
To approve the issuance of Romac International, Inc. common
stock, $.01 par value in a merger with Source Services
Corporation pursuant to an Agreement and Plan of Merger,
dated as of February 1, 1998, as amended February 11, 1998.
For: 18,824,165; Against: 1,000; Abstain: 43,650;
Delivered not voted: 2,158,614.
b) To approve an amendment of the Company's articles of
incorporation to increase the authorized common stock from
100 million shares to 250 million shares.
For: 17,712,598; Against: 3,279,915; Abstain: 9,900;
and Delivered Not Voted: 5,016
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 - Financial Data Schedule for the six
months ended June 30, 1998 (for SEC use only).
27.2 - Restated Financial Data Schedule for the year
ended December 31, 1997 (for SEC use only).
27.3 - Restated Financial Data Schedule for the six
months ended June 30, 1997 (for SEC use only).
Reports:
(b) Current Reports on Form 8-K filed during the quarter ended
June 30, 1998 were as follows:
i) Form 8-K dated April 20, 1998 (filed on May 1, 1998)
regarding the consummation of the merger of Source
Services Corporation.
<PAGE> 15
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)
By: /s/ Thomas M. Calcaterra
------------------------------
Thomas M. Calcaterra,
Chief Financial and Accounting
Officer and Secretary
Date: August 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ROMAC INTERNATIONAL, INC. FOR THE SIX MONTHS ENDED JUNE
30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 95,147
<SECURITIES> 0
<RECEIVABLES> 101,368
<ALLOWANCES> 6,762
<INVENTORY> 0
<CURRENT-ASSETS> 210,082
<PP&E> 20,778
<DEPRECIATION> 14,212
<TOTAL-ASSETS> 319,080
<CURRENT-LIABILITIES> 76,830
<BONDS> 0
0
0
<COMMON> 459
<OTHER-SE> 237,582
<TOTAL-LIABILITY-AND-EQUITY> 319,080
<SALES> 321,723
<TOTAL-REVENUES> 321,723
<CGS> 181,638
<TOTAL-COSTS> 181,638
<OTHER-EXPENSES> 110,628
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,561
<INCOME-TAX> 5,000
<INCOME-CONTINUING> 2,561
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,561
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ROMAC INTERNATIONAL, INC. FOR THE YEAR ENDED DECEMBER
31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 101,669
<SECURITIES> 0
<RECEIVABLES> 84,729
<ALLOWANCES> 5,423
<INVENTORY> 0
<CURRENT-ASSETS> 194,353
<PP&E> 15,921
<DEPRECIATION> 11,568
<TOTAL-ASSETS> 283,408
<CURRENT-LIABILITIES> 44,894
<BONDS> 0
0
0
<COMMON> 455
<OTHER-SE> 232,249
<TOTAL-LIABILITY-AND-EQUITY> 283,408
<SALES> 476,110
<TOTAL-REVENUES> 476,110
<CGS> 254,132
<TOTAL-COSTS> 254,132
<OTHER-EXPENSES> 182,067
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 308
<INCOME-PRETAX> 37,616
<INCOME-TAX> 15,545
<INCOME-CONTINUING> 22,071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,071
<EPS-PRIMARY> .54
<EPS-DILUTED> .52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ROMAC INTERNATIONAL, INC. FOR THE SIX MONTHS ENDED JUNE
30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 48,724
<SECURITIES> 0
<RECEIVABLES> 66,868
<ALLOWANCES> 4,029
<INVENTORY> 0
<CURRENT-ASSETS> 124,179
<PP&E> 15,917
<DEPRECIATION> 0
<TOTAL-ASSETS> 165,409
<CURRENT-LIABILITIES> 29,400
<BONDS> 0
0
0
<COMMON> 228
<OTHER-SE> 83,036
<TOTAL-LIABILITY-AND-EQUITY> 165,409
<SALES> 210,954
<TOTAL-REVENUES> 210,954
<CGS> 110,664
<TOTAL-COSTS> 110,664
<OTHER-EXPENSES> 84,192
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,158
<INCOME-TAX> 6,371
<INCOME-CONTINUING> 8,787
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,787
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
</TABLE>
