<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 SEPTEMBER 30, 1999
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 [ ] NO [X]
As of November 9, 1999 the registrant had 46,500,174 shares of common stock,
$.01 par value per share, issued and outstanding.
===============================================================================
<PAGE> 2
ITEM 1. FINANCIAL STATEMENTS
ROMAC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
Assets:
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 22,887 $ 68,821
Short-term investments -- 12,000
Trade receivables, net of allowance for doubtful accounts of $8,806 and
$5,762, respectively 142,812 114,144
Income tax receivable 1,633 --
Receivables from related parties, current 365 384
Deferred tax asset, current 5,805 5,702
Prepaid expenses and other current assets 6,606 3,658
--------- ---------
Total current assets 180,108 204,709
Receivables from related parties, less current portion 1,937 1,721
Furniture and equipment, net 24,844 19,869
Other assets, net 17,843 14,003
Goodwill, net of accumulated amortization of $8,575 and $5,790, respectively 96,078 93,510
--------- ---------
Total assets $ 320,810 $ 333,812
========= =========
Liabilities and Shareholders' Equity:
Current Liabilities:
Accounts payable and other accrued liabilities $ 18,732 $ 9,260
Accrued payroll costs 33,365 41,070
Bank line of credit 735 --
Income taxes payable -- 3,213
Current portion of capital lease obligations 530 743
Current portion of payables to related parties 2,413 10,144
Accrued merger and integration expenses 1,310 4,931
--------- ---------
Total current liabilities 57,085 69,361
Capital lease obligations, less current portion -- 461
Deferred tax liability, non current 96 96
Payables to related parties, less current portion -- 2,000
Other long-term liabilities, less current portion 9,206 6,872
--------- ---------
Total liabilities 66,387 78,790
--------- ---------
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,
46,698 and 46,408 issued and outstanding, respectively 467 464
Additional paid-in-capital 186,821 185,300
Retained earnings 80,526 70,162
Cumulative translation adjustment (186) 21
Less reacquired stock at cost; 2,301 and 677 shares, respectively (13,205) (925)
--------- ---------
Total shareholders' equity 254,423 255,022
--------- ---------
Total liabilities and shareholders' equity $ 320,810 $ 333,812
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 3
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net service revenues $ 191,707 $ 174,361 $ 565,192 $ 496,084
Direct costs of services 109,492 100,182 322,937 281,820
--------- --------- --------- ---------
Gross profit 82,215 74,179 242,255 214,264
Selling, general and administrative expenses 78,892 56,278 218,171 166,906
Depreciation and amortization expense 3,462 2,353 8,683 6,425
Merger, restructuring, and integration expenses -- 3,272 -- 23,493
Other (income) expense, net (203) (1,383) (1,261) (3,780)
--------- --------- --------- ---------
Income before income taxes 64 13,659 16,662 21,220
Provision for (benefit from) income taxes (840) 7,467 6,298 12,467
--------- --------- --------- ---------
Net income $ 904 $ 6,192 $ 10,364 $ 8,753
========= ========= ========= =========
Comprehensive Income(Loss):
Foreign currency translation -- 110 (207) 70
--------- -------- --------- ---------
Comprehensive Income $ 904 $ 6,302 $ 10,157 $ 8,823
========= ========= ========= =========
Net income per share - Basic $ .02 $ 0.14 $ .23 $ 0.19
========= ========= ========= =========
Weighted average shares outstanding - Basic 44,350 45,498 44,960 45,307
========= ========= ========= =========
Net income per share - Diluted $ .02 $ 0.13 $ 0.23 $ 0.18
========= ========= ========= =========
Weighted average shares outstanding - Diluted 44,564 47,436 45,393 47,464
========= ========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 4
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,364 $ 8,753
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 8,683 6,425
Provision for losses on accounts and notes receivable 2,594 3,169
Deferred taxes (103) 3
(Increase) decrease in operating assets:
Trade receivables, net (31,262) (31,483)
Prepaid expenses and other current assets (2,954) (574)
Other assets, net (977) 1,374
Increase (decrease) in operating liabilities:
Accounts payable and other accrued liabilities 9,472 5,340
Accrued merger, restructuring and integration expense (3,621) --
Accrued payroll costs (7,705) 13,407
Income taxes payable (4,824) 1,259
Other long-term liabilities 2,334 1,657
--------- ---------
Cash (used in) provided by operating activities (17,999) 9,330
--------- ---------
Cash flows from investing activities:
Capital expenditures (10,869) (12,052)
Acquisition and earnout settlements (15,088) (19,088)
Accrued merger, restructuring and integration expenses -- 8,081
Proceeds from the sale of short-term investments 12,000 --
Increase in cash surrender value of life insurance policies (2,856) (1,843)
Payments for the purchase of short-term investments -- (12,713)
--------- ---------
Cash used in investing activities (16,813) (37,615)
--------- ---------
Cash flows from financing activities:
Proceeds from bank line of credit 735 --
Payments on capital lease obligations (674) (562)
Payments on receivables from related parties 19 234
Repurchase of common stock (12,280) --
Expenses from issuance of common stock -- (57)
Issuance of receivables from related parties (216) (818)
Proceeds from exercise of stock options 1,501 4,301
--------- ---------
Cash (used in) provided by financing activities (10,915) 3,098
--------- ---------
Decrease in cash and cash equivalents (45,727) (25,187)
Cumulative translation adjustment (207) 70
Cash and cash equivalents at beginning of period 68,821 101,669
--------- ---------
Cash and cash equivalents at end of period $ 22,887 $ 76,552
--------- ---------
Supplemental Cash Flows Information Cash paid during the period for:
Income Taxes $ 11,224 $ 1,258
</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 NINE MONTHS ENDED SEPTEMBER 30, 1999
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
COMMON ADDITIONAL CUMULATIVE RETAINED REACQUIRED
STOCK PAID-IN TRANSLATION EARNINGS STOCK TOTAL
CAPITAL ADJUSTMENT
Shares Amounts Shares Amounts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY:
Balance at December 31, 1998 46,408 $ 464 $ 185,300 $ 21 $70,162 677 ($ 925) $255,022
Exercise of stock options 290 3 1,498 1,501
Tax benefit of employee stock options 23 23
Foreign currency translation adjustment (207) (207)
Net income 10,364 10,364
Repurchase of common stock 1,624 (12,280) (12,280)
------- -------- --------- ------- ------- ----- -------- --------
Balance at September 30, 1999 46,698 $ 467 $ 186,821 ($ 186) $80,526 2,301 ($13,205) $254,423
======= ======== ========= ======= ======= ===== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 6
ROMAC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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. The common stock of Source was converted to shares of the
Company using a 1.1351 ratio. 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
Source, the search fee policy in 1998 was that if an individual failed to
continue employment for a period of time as specified in the placement
agreement, generally a thirty-to-ninety day period, the Company was not
entitled to collect the search fee. During the first quarter of 1999, the
Company changed its guarantee policy at its former Source operations. Revenue
from search fees is shown on the Consolidated Statements of Operations net of
amounts written off for adjustments due to placed candidates not remaining in
employment for the guarantee period.
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 for all eligible
employees 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 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 are 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 weighted 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 3,229 shares of common stock were not
included in the computation of diluted earnings per share during the nine
months ended September 30, 1999, because these options were anti-dilutive.
NOTE B -- MERGER, RESTRUCTURING, AND INTEGRATION EXPENSES
In connection with the Source merger, one-time merger, restructuring, and
integration related expenses were identified and recorded in 1998. As of
September 30, 1999, the remaining accrued expense balance associated with the
charge in 1998 is $1,310 consisting of $710 of accrued severance and other
termination related costs and $600 of accrued lease termination costs and
facilities consolidation costs.
<PAGE> 7
NOTE C -- SEGMENT ANALYSIS
In 1998, the Company adopted Statement of Accounting Standards No. 131,
"Disclosures about Segments of Enterprise and Related Information" ("SFAS
131"). SFAS 131 supersedes 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, the
Company revised its organizational structure to provide internal reporting
following its four functional service offerings, including: Information
Technology, Finance and Accounting, Human Resources and Operating Specialities.
The Company generates only sales and gross profit information on a functional
basis. As such, asset information by segment is not disclosed. Substantially
all operations and long-lived assets are located in the U.S.
For the three months ended September 30, 1999 and 1998
<PAGE> 8
<TABLE>
<CAPTION>
Information Finance & Human Operating
Technology Accounting Resources Specialty TOTAL
---------- ---------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
1999
Sales $114,658 $ 52,741 $4,706 $19,602 $191,707
Gross Profit 43,860 30,084 1,672 6,599 82,215
1998
Sales 114,394 47,683 4,509 7,775 174,361
Gross Profit 44,612 25,481 1,547 2,539 74,179
</TABLE>
For the nine months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Information Finance & Human Operating
Technology Accounting Resources Specialty TOTAL
---------- ---------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
1999
Sales $345,097 $154,474 $13,803 $51,818 $565,192
Gross Profit 134,201 85,784 4,634 17,636 242,255
1998
Sales 311,855 142,266 13,366 28,597 496,084
Gross Profit 125,932 75,999 4,276 8,057 214,264
</TABLE>
<PAGE> 9
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 21E 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,
potential effects of Year 2000 issues, as well as assumptions to any of the
foregoing. In addition, when used in this discussion the words "anticipate",
"estimates", "expects", "intends", "plans", and variations thereof and similar
expressions are intended to identify forward looking statements.
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. Readers are cautioned not to place undue reliance on any forward
looking statements contained in this report which speak only as of the date of
this report. The Company undertakes no obligation to publicly publish the
results of any adjustments to these forward looking statements that may be made
to reflect events on or after the date of this report or to reflect the
occurrence of unexpected events.
Results of Operations
The following table sets forth certain items in Romac's consolidated statements
of operations, as a percentage of net service revenues, for the indicated
periods:
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Flexible billings 80.7% 80.5% 80.4% 79.5%
Search Fees 19.3 19.5 19.6 20.5
Net service revenues 100.0 100.0 100.0 100.0
Gross profit 42.9 42.5 42.9 43.2
Selling, general, and administrative expenses 41.2 32.3 38.6 33.6
Income before taxes 0.0 7.8 3.0 4.3
Net income 0.5 3.6 1.8 1.8
</TABLE>
Results of Operations for each of the Three and Nine Months Ended September 30,
1999 and 1998.
Net service revenues. Net service revenues increased 9.9% and 13.9%,
respectively, to $191.7 million and $565.2 million for the three and nine month
periods ending September 30, 1999 as compared to $174.4 and $496.1 million for
the same periods in 1998. These increases were comprised of a $14.3 million and
$60.4 million increase in Flexible Billings and a $3.0 million and $8.7 million
increase in Search Services for the three and nine month periods ending
September 30, 1999, as described below.
Flexible Billings increased 10.2% and 15.3% respectively to $154.7 million and
$454.6 million for the three and nine month periods ending September 30, 1999
as compared to $140.4 million and $394.2 million for the same periods in 1998.
The increase in Flexible Billings for the three and nine month periods ended
September 30, 1999 as compared to the same periods in 1998 is primarily
attributable to increases in both the number of hours billed and average
billing rates.
Search Services increased 8.8% and 8.5%, respectively to $37.0 million and
$110.6 million for the three and nine month periods ended September 30, 1999 as
compared to $34.0 and $101.9 million for the same periods in 1998. The increase
resulted primarily from an increase in the average fee for placements made
during the three and nine month periods ended September 30, 1999 as compared to
the same period in 1998. The number of search placements made during the
periods remained relatively constant.
Gross profit. Gross profit increased 10.8% and 13.1%, respectively, to $82.2
million and $242.3 million during the three and nine month periods ended
September 30, 1999 as compared to $74.2 million and $214.3 million for the same
periods in 1998. Gross profit as a percentage of net service revenues increased
to 42.9% and decreased to 42.9%, respectively, for the three and nine month
periods ending September 30, 1999 as compared to 42.5% and 43.2% for the same
periods in 1998. The increase for the
<PAGE> 10
three months ended September 30, 1999 was primarily attributable to a slight
improvement in gross margin percentage on Flexible Billings. The decrease for
the nine months was primarily the 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 80.4% of the Company's
total revenues for 1999 as compared to 79.5% for the nine months ended
September 30, 1998.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 40.2% and 30.7%, respectively to $78.9 million
and $218.2 million for the three and nine month periods ended September 30, 1999
as compared to $56.3 million and $166.9 million for the same periods in 1998.
Selling, general and administrative expenses as a percentage of net service
revenues increased to 41.2% and 38.6%, respectively, for the three and nine
month periods ended September 30, 1999 compared to 32.3% and 33.6% for the same
periods in 1998. The increase in selling, general and administrative expense as
a percentage of net service revenues in the three and nine month periods ended
September 30, 1999 resulted from 1) development, deployment, advertising and
other related expenses for the Company's online interactive career management
and recruitment resource, kforce.com 2) activities to streamline and automate
back office operations and 3) investments in future growth, including leadership
development, increasing the number of sales consultants and development of
educational services, emerging technologies and operating specialties.
Additionally, on October 27, 1999, the Company announced that costs associated
with the development of kforce.com as well as the streamlining and automation of
back office capabilities, including sales and marketing expenses, in-house
technology investments and the build-out of the kforce.com fulfillment center
could result in additional selling, general and administrative expenses of
approximately $25 - 30 million. Costs related to the development of kforce.com,
including technology investments and build-out of the fulfillment center and
related advertising are expected to continue through the fourth quarter of 1999.
The streamlining and automation of back office capabilities is expected to be
substantially completed in the fourth quarter of 1999.
Depreciation and amortization expense. Depreciation and amortization expense
increased 47.1% and 35.1%, respectively, to $3.5 million and $8.7 million for
the three and nine month periods ended September 30, 1999 compared to $2.4
million and $6.4 million for the same periods in 1998. Depreciation and
amortization expense as a percentage of net service revenues increased to 1.8%
and 1.5%, respectively, for the three and nine month periods ended September
30, 1999 as compared to 1.3% and 1.3%, for the each of the periods in 1998. The
increase as a percentage of net service revenues for both periods in 1999 as
compared to the same periods in 1998 is due primarily to additional goodwill
amortization due to the earnout buyouts negotiated in 1999 and acquisitions in
1999 and 1998.
Merger, restructuring, and integration expenses. Merger and integration
expenses for the three and nine month periods ended September 30, 1999
decreased 100% compared to the same periods in 1998 due to the completion of
the Source merger in April 1998.
Other (income) expense, net. Other (income) expense, net, decreased 85.3% and
66.6% for the three and nine months ended September 30, 1999 compared to the
same periods in 1998. The decrease in other income during both periods in 1999
as compared to 1998 was due to a decrease in interest income caused by the
increase in cash requirements to fund operations and for the Company's
repurchases of common stock.
Income Before Taxes. Income before taxes decreased 99.5% and 21.5% for the
three and nine months ended September 30, 1999 to $0.1 million and $16.7
million, respectively, as compared to $13.7 million and $21.2 million for the
same periods in 1998, primarily as a result of the increase in selling, general
and administrative expenses, as discussed above. Income before taxes for the
fourth quarter of 1999 is expected to be adversely impacted by the additional
selling, general and administrative charges discussed above.
Provision for income taxes. Provision for income taxes decreased 111.2% and
49.5%, respectively, to ($0 .8) million and $6.3 million for the three and nine
month periods ended September 30, 1999 compared to $7.5 million and $12.5
million for the same periods in 1998. The effective tax rate was 37.8% for the
nine months ended September 30, 1999 compared to 58.8% for the same period in
1998. The decrease in the effective tax rates in 1999 as compared to 1998 was
due to certain non-deductible merger related expenses occurring in 1998 and
also reflects the impact of the revised earnings projections for fiscal 1999 as
announced on October 27, 1999.
Net Income. Net income decreased approximately 85.4% to $0.9 million in the
three months ended September 30, 1999 and increased 18.4% to $10.4 million for
the nine months ended September 30, 1999 as compared to the $6.2 million and
$8.8 million for the same periods in 1998 primarily as a result of the factors
discussed above related to selling, general and administrative expenses. As a
result of the additional selling, general and administrative charges discussed
above, the fourth quarter of 1999 could experience an after tax loss of $15 -
18 million, with an after tax loss for the year of $5 - 10 million.
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company's sources of liquidity included $22.9
million in cash and cash equivalents, and $100.1 million in additional net
working capital. In addition, as of September 30, 1999, there was $0.7 million
outstanding on the line of credit and $29.3 million was available for borrowing
under the Company's Line of Credit. The Company 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 nine months ended September 30, 1999, cash flow used by operations
was $18.0 million , resulting primarily from net income, non-cash expenses
(depreciation and amortization) and decreases in operating payroll liabilities
and an increase in accounts receivable. The increase in accounts receivable
reflects the increased volume of business during the first nine months of 1999
from existing locations and an increase in the days sales outstanding in
accounts receivable. The decrease in the operating payroll liabilities is
primarily due to a change in the timing of commission payroll payments for
former Source employees from quarterly to monthly.
During the nine months ended September 30, 1999, cash flow used in investing
activities was $16.8 million, resulting primarily from the Company's use of
approximately $15.1 million for the acquisition of two companies and contingent
earnout payments on prior acquisitions and $10.9 million for capital
expenditures. Proceeds from investing activities of $12.0 million were received
in the nine months ended September 30, 1999 from the sale of short-term
investments.
During the nine months ended September 30, 1999, cash flow used in financing
activities was $10.9 million primarily from the Company's use of approximately
$12.3 million to repurchase common stock as discussed below, offset by proceeds
of $1.5 million from the issuance of common stock.
On March 11, 1999, the Company 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 may impact the Company's cash flow requirements in the next
twelve months. As of November 9, 1999, the Company has repurchased 1,717 shares
for approximately $12.9 million.
As discussed earlier, the Company announced that costs associated with the
development of kforce.com as well as the streamlining and automation of back
office capabilities, including sales and marketing expenses, in-house technology
investments and the build-out of the kforce.com fulfillment center could result
in additional selling, general and administrative expenses of approximately
$25 - 30 million.
The Company is currently negotiating an additional Line of Credit facility in
order to fund expenditures associated with kforce.com, additional repurchase of
company stock and potential future acquisitions. While there can be no
assurances in this regard, 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's estimates 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 are 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 the assessment of business risks. This study
concluded that the greatest risks 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
<PAGE> 12
to 4.01 Service Pak 4. By June 30, 1999, the Company believed that it had
reached 100% completion of the deployment phase of all high-risk areas.
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 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; however, if the Company's customers 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 customers 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 which the Company believes do not have the potential of material
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
$1.2 million had been incurred as of September 30, 1999. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of risks, including foreign currency
fluctuations and changes in interest rates on its borrowings. The Company does
not engage in trading market risk sensitive instruments for speculative or
hedging purposes. The Company does not believe that changes in interest rates
or foreign currency are material to its operations.
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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. 1 - Financial Data Schedule for the nine months ended
<PAGE> 13
September 30, 1999 (for SEC use only).
(b) Reports:
Romac filed no reports on Form 8-K during the quarter ended
September 30, 1999.
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/ William L. Sanders
---------------------------------------
William L. Sanders, Vice President,
Chief Financial Officer
By: /s/ Jim R. Vonier
---------------------------------------
Jim R. Vonier, Chief Accounting Officer
Date: November 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ROMAC INTERNATIONAL INC FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 22,887
<SECURITIES> 0
<RECEIVABLES> 142,812
<ALLOWANCES> 8,806
<INVENTORY> 0
<CURRENT-ASSETS> 180,108
<PP&E> 24,844
<DEPRECIATION> (19,029)
<TOTAL-ASSETS> 320,810
<CURRENT-LIABILITIES> 57,085
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0
0
<COMMON> 467
<OTHER-SE> 254,423
<TOTAL-LIABILITY-AND-EQUITY> 320,810
<SALES> 565,192
<TOTAL-REVENUES> 565,192
<CGS> 322,937
<TOTAL-COSTS> 322,937
<OTHER-EXPENSES> 216,171
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 16,662
<INCOME-TAX> 6,298
<INCOME-CONTINUING> 10,364
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<NET-INCOME> 10,364
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