-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WUEMGxCz/2XWseC9P3uQF8KuNqTEatmlVA3rqhzf1WlnvJ+uAolhN1qncfc3aLgt upyOMfiTe2bTrdhb/ko7dA== 0000950144-99-012813.txt : 19991115 0000950144-99-012813.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950144-99-012813 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROMAC INTERNATIONAL INC CENTRAL INDEX KEY: 0000930420 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 593264661 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26058 FILM NUMBER: 99747535 BUSINESS ADDRESS: STREET 1: 120 W HYDE PARK PL STREET 2: SUITE 150 CITY: TAMPA STATE: FL ZIP: 33606 BUSINESS PHONE: 8132297600 MAIL ADDRESS: STREET 1: 120 W HYDE PARK PLACE STREET 2: SUITE 150 CITY: TAMPA STATE: FL ZIP: 33606 10-Q 1 ROMAC INTERNATIONAL, INC. 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 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. =============================================================================== 2 ITEM 1. FINANCIAL STATEMENTS ROMAC INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ (UNAUDITED) Assets: 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 ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 3 ROMAC INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1999 1998 ---- ---- ---- ---- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) 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 ========= ========= ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 4 ROMAC INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 ---- ---- (UNAUDITED) (UNAUDITED) 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
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 5 ROMAC INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (AMOUNTS IN THOUSANDS) (UNAUDITED)
COMMON ADDITIONAL CUMULATIVE RETAINED REACQUIRED STOCK PAID-IN TRANSLATION EARNINGS STOCK TOTAL CAPITAL ADJUSTMENT Shares Amounts Shares Amounts 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 ======= ======== ========= ======= ======= ===== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 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. 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 8
Information Finance & Human Operating Technology Accounting Resources Specialty TOTAL ---------- ---------- --------- --------- ----- 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
For the nine months ended September 30, 1999 and 1998
Information Finance & Human Operating Technology Accounting Resources Specialty TOTAL ---------- ---------- --------- --------- ----- 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
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:
Three months ended September 30, Nine months ended September 30, 1999 1998 1999 1998 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
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 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. 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 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 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 EX-27.1 2 FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY)
5 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. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 22,887 0 142,812 8,806 0 180,108 24,844 (19,029) 320,810 57,085 0 0 0 467 254,423 320,810 565,192 565,192 322,937 322,937 216,171 0 0 16,662 6,298 10,364 0 0 0 10,364 .23 .23
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