<PAGE> 1
===============================================================================
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, 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 August 13, 1999 the registrant had 46,558,274 shares of common
stock, $.01 par value per share, issued and outstanding.
===============================================================================
<PAGE> 2
ITEM 1. FINANCIAL STATEMENTS
ROMAC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
In (000's)
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $ 41,568 $ 68,821
Short-term investments 12,000
Trade receivables, net of allowance for doubtful accounts of $6,913 and
$5,762, respectively 132,145 114,144
Notes receivable from franchisees, current 27 31
Receivables from related parties, current 370 384
Deferred tax asset, current 5,805 5,702
Prepaid expenses and other current assets 4,344 3,627
--------- ---------
Total current assets 184,259 204,709
Receivables from related parties, less current portion 1,937 1,721
Furniture and equipment, net 23,752 19,869
Goodwill, net of accumulated amortization of $7,506 and $5,790, respectively 97,151 93,510
Other assets, net 16,487 14,003
--------- ---------
Total assets $ 323,586 $ 333,812
========= =========
Liabilities and Shareholders' Equity:
Current Liabilities:
Accounts payable and other accrued liabilities $ 19,376 $ 9,260
Accrued payroll costs 30,565 41,070
Income taxes payable 492 3,213
Current portion of capital lease obligations 530 743
Current portion of payables to related parties 8,926 10,144
Accrued merger and integration expenses 1,644 4,931
--------- ---------
Total current liabilities 61,533 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 8,507 6,872
--------- ---------
Total liabilities 70,136 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,
46,680 and 46,408 issued and outstanding, respectively 467 464
Additional paid-in-capital 186,752 185,300
Retained earnings 79,622 70,162
Cumulative translation adjustment (186) 21
Less reacquired stock at cost; 2,301 and 677 shares, respectively (13,205) (925)
--------- ---------
Total shareholders' equity 253,450 255,022
--------- ---------
Total liabilities and shareholders' equity $ 323,586 $ 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 000'S, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30 JUNE 30
1999 1998 1999 1998
--------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Net service revenues $ 189,390 $ 166,321 $ 373,485 $ 321,723
Direct costs of service 108,182 93,337 213,445 181,638
--------- --------- --------- ---------
Gross profit 81,208 72,984 160,040 140,085
Selling, general and administrative expenses 77,721 56,796 139,279 110,628
Depreciation and amortization expense 2,785 2,060 5,221 4,072
Merger and acquisition related expenses -- 18,476 -- 20,221
Other (income) expense (293) (1,064) (1,058) (2,397)
--------- --------- --------- ---------
Income (loss) before income taxes 995 (3,284) 16,598 7,561
Provision for income taxes 663 404 7,138 5,000
--------- --------- --------- ---------
Net income(loss) $ 332 ($ 3,688) $ 9,460 $ 2,561
========= ========= ========= =========
Comprehensive Income:
Foreign currency translation (207) (40) (207) (40)
--------- --------- --------- ---------
Comprehensive Income $ 125 ($ 3,728) $ 9,253 $ 2,521
========= ========= ========= =========
Net income (loss) per share- Basic $ .01 ($ .08) $ .21 $ .06
========= ========= ========= =========
Weighted average shares outstanding- Basic 44,802 45,225 45,433 45,170
========= ========= ========= =========
Net income (loss) per share- Diluted $ .01 ($ .08) $ .21 $ .05
========= ========= ========= =========
Weighted average shares outstanding- Diluted 45,223 47,669 46,012 47,619
========= ========= ========= =========
</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,
1999 1998
--------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,460 $ 2,561
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 5,221 4,072
Provision for losses on accounts and notes receivable 2,183 2,871
Deferred taxes (103) 3
(Increase) decrease in operating assets:
Trade receivables, net (20,184) (19,510)
Notes receivable from franchisees 4 57
Prepaid expenses and other current assets (717) (617)
Other assets, net 821 1,618
Increase (decrease) in operating liabilities:
Accounts payable and other accrued liabilities 6,501 16,057
Accrued merger, restructuring, and integration expense (3,287) 8,405
Accrued payroll costs (10,505) 1,573
Income taxes payable (2,707) (4,963)
Other long-term liabilities 1,635 164
-------- ---------
Cash (used in) provided by operating activities (11,678) 12,291
-------- ---------
Cash flows from investing activities:
Capital expenditures (7,388) (7,558)
Acquisitions, net of cash acquired (8,575) (8,914)
Proceeds from the sale of short-term investments 12,000 (3,112)
Premiums paid for cash surrender value of life insurance policies (3,305) (887)
-------- ---------
Cash (used in) provided by investing activities (7,268) (20,471)
-------- ---------
Cash flows from financing activities:
Payments on capital lease obligations (674) (378)
Payments on notes receivable from related parties 14 13
Repurchase of common stock (8,665) --
Issuance of receivables from related parties (216) (318)
Proceeds from exercise of stock options 1,441 2,381
-------- ---------
Cash provided by (used in) financing activities (8,100) 1,698
-------- ---------
Decrease in cash and cash equivalents (27,046) (6,482)
Cumulative translation adjustment (207) (40)
-------- ---------
Cash and cash equivalents at beginning of period 68,821 101,669
-------- ---------
Cash and cash equivalents at end of period $ 41,568 $ 95,147
======== =========
Supplemental Cash Flows Information
Cash paid during the period for:
Income Taxes $ 10,003 $ 9,572
</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, 1999
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Shares Amounts
<S> <C> <C>
COMMON STOCK:
Balance at December 31, 1998 46,408 $464
Exercise of stock options 272 3
------ ---------
Balance at June 30, 1999 46,680 $467
====== =========
ADDITIONAL PAID-IN CAPITAL:
Balance at December 31, 1998 $ 185,300
Tax benefit related to employee stock options 14
Exercise of stock options 1,438
---------
Balance at June 30, 1999 $ 186,752
=========
CUMULATIVE TRANSLATION ADJUSTMENT:
Balance at December 31, 1998 $ 21
Foreign Currency translation adjustment (207)
---------
Balance at June 30, 1999 ($ 186)
=========
RETAINED EARNINGS:
Balance at December 31, 1998 $ 70,162
Net income 9,460
--------
Balance at June 30, 1999 $ 79,622
=========
REACQUIRED STOCK:
Balance at December 31, 1998 ($ 925)
Repurchase of common stock (12,280)
---------
Balance at June 30, 1999 ($ 13,205)
=========
</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, 1999
(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. 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
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. 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 Statement of Operations net of amounts
written off for the 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 with
Source through September 30, 1998 and for all eligible employees effective
October 1, 1998 for which it is self-insured for a portion of the cost. The
Company is liable for claims up to $125 per employee and aggregate claims up to
a defined yearly payment limit. All full-time employees and salaried
consultants are eligible to participate in the program. Self-insurance costs
are accrued using actuarial estimates to approximate the liability for reported
claims and claims incurred but not reported.
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.
<PAGE> 7
Earnings Per Share. Options to purchase 2,408 shares of common stock
were outstanding during the six months ended June 30, 1999, but were not
included in the computation of diluted earnings per share because the options
were anti-dilutive.
Recently Issued Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities. In June
1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued. This statement is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contractors (collectively
referred to as derivatives), and for hedging activities. It also requires that
all derivatives and hedging activities be recognized as either assets or
liabilities in the Statement of Financial Position and be measured at fair
value. The Company 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.
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
June 30, 1999, the remaining accrued expenses reserve balance associated with
the charge in 1998 were $1,644 of which $1,000 related to severance and other
termination related costs to be incurred in connection with anticipated staff
reductions and $600 costs in connection with consolidation of certain office
facilities and related equipment.
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.
<PAGE> 8
The Company only generates information on sales and gross profit on a
functional basis, as such; asset information by segment is not disclosed.
Substantially all operations and long-lived assets are located in the US.
For the three months ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Information Finance & Human Operating
Technology Accounting Resources Specialty TOTAL
---------- ---------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
1999
Sales $114,404 $ 51,886 $4,505 $18,595 $189,390
Gross Profit 45,609 28,094 1,563 5,942 81,208
1998
Sales 105,457 49,043 4,458 7,363 166,321
Gross Profit 41,638 26,664 1,496 3,186 72,984
</TABLE>
For the six months ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Information Finance & Human Operating
Technology Accounting Resources Specialty TOTAL
---------- ---------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
1999
Sales $230,439 $101,733 $9,097 $32,216 $373,485
Gross Profit 90,341 55,700 2,962 11,037 160,040
1998
Sales 204,880 94,583 8,857 13,403 321,723
Gross Profit 81,320 50,518 2,729 5,518 140,085
</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 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, 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
statement of operations, as a percentage of net service revenues, for the
indicated periods:
<TABLE>
<CAPTION>
Six months ended June 30,
1999 1998
<S> <C> <C>
Flexible billings 80.3% 78.9%
Search Fees 19.7 21.1
Net service revenues 100.0 100.0
Gross profit 42.9 43.5
Selling, general, and administrative expenses 37.3 34.4
Income before taxes 4.1 2.4
Net income 2.5% .8%
</TABLE>
Results of Operations for each of the Three and Six Months Ended June 30, 1999
and 1998.
Net service revenues. Net service revenues increased 13.9% and 16.1%,
respectively, to $189.4 million and $373.5 million for the three and six month
periods ending June 30, 1999 as compared to $166.3 and $321.7 million for the
same periods in 1998. These increases were comprised of a $20.4 million and
$46.1 million increase in Flexible Billings (Professional Temporary and
Contract Services revenues combined) and a $2.7 million and $5.7 million
increase in Search fees for the three and six month periods ending June 30,
1999, as described below.
<PAGE> 10
Flexible billings increased 15.6% and 18.2%, respectively, to $151.2
million and $299.9 million, respectively, for the three and six month periods
ending June 30, 1999 as compared to $130.8 million and $253.8 million for the
same periods in 1998. These increases are a result of an increase in average
hours billed of 9.2% and 10.9%, respectively, for the three and six month
periods in 1999 as compared to the same periods in 1998.
Search fees increased 7.6% and 8.4%, respectively, to $38.2 million
and $73.6 million, respectively, for the three and six month periods ended June
30, 1999 compared to $35.5 million and $67.9 million for the same periods in
1998. These increases resulted primarily from an increase in the average fee
for each placement made during the three and six month periods ended June 30,
1999 as compared to the same periods in 1998. The number of search placements
made in the three and six month periods ended June 30, 1999 did not vary
significantly from the same periods in 1998.
Gross profit. Gross profit increased 11.2% and 14.2%, respectively, to
$81.2 million and $160.0 million, respectively, during the three and six month
periods ended June 30, 1999 as compared to $73.0 million and $140.1 million for
the same periods in 1998. Gross profit as a percentage of net service revenues
decreased to 42.9% for both the three and six month periods ending June 30,
1999 as compared to 43.9% and 43.5%, respectively for the three and six month
periods ended June 30, 1998. This decrease 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 fees, increased to
79.9% and 80.3%, respectively, of the Company's total revenues for the three
and six months period ending June 30, 1999 as compared to 78.6% and 78.9% and
for the same periods in 1998.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 36.8% and 25.9%, respectively, to $77.7
million and $139.3 million, respectively, for the three and six month periods
ended June 30, 1999 as compared to $56.8 million and $110.6 million,
respectively, for the same periods in 1998. The increases in selling, general,
and administrative expenses during the three and six months ended June 30, 1999
as compared to the same periods in 1998 were due principally to additional
compensation for field and field management; development, deployment, and
marketing of the KnowledgeForce Network; and automation and streamlining of
operating and back office processes.
Selling, general and administrative expenses as a percentage of net
service revenues increased to 41.0% and 37.3%, respectively, for the three and
six month periods ended June 30, 1999 compared to 34.2% and 34.4%,respectively,
for the same periods in 1998. These increases in selling, general and
administrative expenses as a percentage of net service revenues resulted
primarily from the increases in compensation expense as described above.
Depreciation and amortization expense. Depreciation and amortization
expense increased 33.3% and 26.8%, respectively, to approximately $2.8 million
and $5.2 million, respectively, for the three and six month periods ended June
30, 1999 compared to approximately $2.1 million and $4.1 million, respectively,
for the same periods in 1998. Depreciation and amortization expense as a
percentage of net service revenues remained constant. The increase in
depreciation and amortization expense in the three and six months ended June
30, 1999 as compared to the same periods in 1998 is due to the goodwill
amortization related to the settlement of earnout provisions completed during
the second half of 1998 and the final earnout settlement with Uni-Quality
Systems Solutions, Inc. in 1999. The additional depreciation expense in the
three and six months ended June 30, 1999 is the result of the new technology
platform implemented at certain Source locations in the second half of 1998.
Merger, restructuring, and integration expenses. Merger and
integration expenses for the three and six months ended June 30, 1999 decreased
100% compared to the same periods in 1998 is due to the completion of the
integration of the Source operations.
Other (income) expense. Other (income) expense decreased 72.7% and
54.2%, respectively, for the three and six months ended June 30, 1999 compared
to the same periods in 1998. The decrease in
<PAGE> 11
other income during the three and six months ended June 30, 1999 was due to
less interest income as cash declined as it was used to repurchase common
stock, fund payments of earnout provisions, and operating cash requirements.
Income Before Taxes. Income before taxes increased 130.3% and
118.4%,respectively, to $1.0 million and $16.6 million, respectively, for the
three and six month periods ended June 30, 1999 as compared to ($3.3) million
and $7.6 million for the same periods in 1998, primarily as a result of the
above factors.
Provision for income taxes. Provision for income taxes increased 75.0%
and 42.0% to $.7 million and $7.1 million, respectively, for the three and six
month periods ended June 30, 1999 compared to $.4 and $5.0 million for the same
periods in 1998. The effective tax rate comparison for the three months ended
June 30, is not meaningful due to the nondeductible merger expenses incurred in
the second quarter of 1998. The effective tax rate was 42.8% for the six months
ended June 30, 1999 compared to 66.1%, for the same period in 1998. The change
reflects the impact of revising earnings projected for 1999 in
the second quarter which effects the effective rate calculation for the year and
the reduction in 1999 of non-deductible merger-related expenses.
Net Income (Loss). Net income (loss) increased approximately 108.1%
and 265.4%,respectively, to $.3 million and $9.5 million in the three and six
months ended June 30, 1999, as compared to the ($3.7) million and $2.6 million
for the same periods in 1998. This increase is a result of the completion of
the merger, restructuring, and integration expenses in 1998 offset by the
increase in selling, general, and administrative expenses during the three
months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company's sources of liquidity included
approximately $41.6 million in cash and cash equivalents, and approximately
$81.2 million in additional net working capital. In addition, as of June 30,
1999, there were no amounts outstanding on the line of credit and $30.0 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 six months ended June 30, 1999, cash flow used by
operations was approximately $11.7 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 six months of 1999 from existing locations and an increase in
the days sales outstanding. The decrease in the operating payroll is due to an
change in the timing of the commission payroll payments of the former Source
employees from quarterly to monthly.
During the six months ended June 30, 1999, cash flow used in investing
activities was approximately $7.3 million, resulting primarily from the
Company's use of approximately $8.6 million for the acquisition of two
companies and earnout payments and $7.4 million for capital expenditures.
Proceeds from investing activities of $12.0 million were received in the six
months ended June 30, 1999 from the sale of short term investments.
During the six months ended June 30, 1999, cash flow used in financing
activities was approximately $8.1 million primarily from the Company's use of
approximately $8.7 million to repurchase common stock as discussed below.
<PAGE> 12
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 August 13, 1999, the Company has repurchased 1,625,000
shares for approximately $12.3 million. 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 estimate of the period
that existing resources will fund its working capital requirements and the
amount of stock that the Company will actually be able to repurchase in the next
12 months are forward-looking statements that 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 risk faced by the
Company's Internal Systems are the hardware system that operates the telephone
voicemail systems at certain locations and the Wizard NT operating system
software that must be upgraded from 3.51 to 4.01 Service Pak 4. As of June 30,
1999, the Company 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, although 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 customer's may use to correct the effect of
Year 2000 disruptions in their business. The Company will continue to monitor
the status of its customers and key strategic partners as a means of
determining risks and alteratives. 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.
<PAGE> 13
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 June 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.
<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
May 28, 1999.
To amend the Stock Incentive Plan to increase the number of shares
authorized Pursuant to the plan from 9,000, shares to 12,000 shares,
which increases the number of shares available for issuance from 2,024
to 5,024. For: 22,965; Against: 13,066; Abstain: 39; Delivered not
voted: 6,463.
b) To adopt the 1999 Romac International, Inc. Employee Stock
Purchase Plan.
For: 27,398; Against: 15,485; Abstain: 1,044.
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, 1999 (for SEC use only).
(b) Reports:
Romac filed no reports on Form 8-K during the quarter ended
June 30, 1999.
<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/ William L. Sanders
---------------------------------------
William L. Sanders, Vice President,
Chief Financial and Accounting Officer
Date: August 13, 1999
<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, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 41,068
<SECURITIES> 0
<RECEIVABLES> 139,058
<ALLOWANCES> 6,913
<INVENTORY> 0
<CURRENT-ASSETS> 184,259
<PP&E> 23,752
<DEPRECIATION> (16,695)
<TOTAL-ASSETS> 323,586
<CURRENT-LIABILITIES> 61,533
<BONDS> 0
0
0
<COMMON> 467
<OTHER-SE> 252,983
<TOTAL-LIABILITY-AND-EQUITY> 323,586
<SALES> 373,485
<TOTAL-REVENUES> 373,485
<CGS> 213,445
<TOTAL-COSTS> 213,445
<OTHER-EXPENSES> 139,279
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 16,598
<INCOME-TAX> 7,138
<INCOME-CONTINUING> 9,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,460
<EPS-BASIC> .21
<EPS-DILUTED> .21
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