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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 19992000
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,KFORCE.COM, INC.
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(Exact name of Registrant as specified in its charter)
FLORIDA 59-3264661
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(State or other jurisdiction of (IRS Employer
incorporation or organization) (IRS Employer Identification No.)
120 WEST HYDE PARK PLACE, SUITE 150, TAMPA, FLORIDA 33606
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(address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 251-1700
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.01 par value
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(Title of Class)
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) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. ( )[ ]
The aggregate market value of Registrant's voting and non-voting stock
held by nonaffiliates of Registrant, as of March 20, 2000,23, 2001, was $552,448,063.$130,118,560.
The number of shares outstanding of Registrant's Common Stock as of
March 20, 2000,23, 2001, was 44,195,845.32,529,640.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts of the Company's definitive proxy statement for the Annual
Meeting of the Company's Shareholders to be held on May 5, 2000,June 18, 2001, are
incorporated by reference into Part III of this Form.
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TABLE OF CONTENTS
ITEM PAGE
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Item 1. Business ........................................................ 3
Item 2. Properties ...................................................... 11
Item 3. Legal Proceedings ............................................... 11
Item 4. Submission of Matters to a Vote of Security Holders ............. 11
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ............................................. 11
Item 6. Selected Financial Data ......................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 12
Item 8. Financial Statements and Supplementary Data ..................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ........................................ 17
Item 10. Directors and Executive Officers of the Registrant ITEM PAGE
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Item 1. Business.................................................... 3
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 10
Item 6. Selected Financial Data..................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
Item 7a. Quantitative and Qualitative Disclosures about Market Risk.. 16
Item 8. Financial Statements and Supplementary Data................. 16
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 17
Item 10. Directors and Executive Officers of the Registrant.......... 17
Item 11. Executive Compensation...................................... 17
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 17
Item 13. Certain Relationships and Related Transactions.............. 17
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
10-K........................................................ 17
Index to Consolidated Financial Statements (Pages 22-40).............. 18
Item 11. Executive Compensation .......................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management ...................................................... 18
Item 13. Certain Relationships and Related Transactions .................. 18
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
10-K ............................................................ 19
Index to Consolidated Financial Statements (Pages 21-40)................... 20
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PART I
ITEM 1. BUSINESS
This document contains certain forward-looking statements regarding future
financial condition and results of operations and the Company's business
operations. The words "expect," "estimate," "anticipate," "predict," "believe,"
"plans" and similar expressions are intended to identify forward-looking
statements. Such statements involve risks, uncertainties and assumptions,
including industry and economic conditions, customer actions and other factors
discussed in this and Romac International,kforce.com, Inc.'s ("Romac"kforce" or the "Company") other
filings with the Securities and Exchange Commission (the "Commission"). Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated.
GENERAL
Headquartered in Tampa, Florida, the Company was formed in August 1994 as a
result of the combination of Romac & Associates, Inc. and three of its largest
franchises. Following an Initial Public Offering in l995,1995, the Company grew to
31 offices in 18 major markets. On April 20, 1998, the Company consummated a
merger whereby Source Services Corporation ("Source"), a Delaware corporation, was merged into the
Company pursuant to an Agreement and Plan of Merger ("the Merger Agreement")
dated February 1, 1998, as amended on February 11, 1998 and April 17, 1998. The
acquisition has beenwas accounted for using the pooling of interests method of
accounting; accordingly, all historical results have been restated to reflect
the merger. This merger combined the strength of two organizations that shared
common visions, strategies and business practices. The Company now operates
through more than 9597 locations in 45 markets and serves primarily clients from
Fortune 1000 companies with the top ten clients representing less thanapproximately 8%
of revenue in 1999.
Subject to shareholder approval,2000.
On May 5, 2000, the Company intends tostockholders approved a name change its name from Romac
International, Inc. ("Romac") to kforce.com, Inc. to be consistent with its
long-term goals to focus its efforts as a web-based company. During 1999, the
Company launched its kforce.com website and a major advertising campaign to
promote kforce.com. Effective January 31, 2000, the Company began doing
business under the name kforce.com in all the markets in which it operates. The Company believes these changes have been well received by both employersintends to
request shareholder approval to remove the ".com" from its name in 2001 and
candidates.operate as Kforce Inc.
INDUSTRY OVERVIEW
The flexible employment service industry has experienced significant growth
over the last ten years in response to the changing work environment in the
United States. Fundamental changes in the employer-employee relationship
continue to occur, with employers developing increasingly stringent criteria
for permanent employees, while moving toward project-oriented flexible hiring.
This trend has been advanced by increasing automation that has resulted in
shorter technological cycles and by global competitive pressures. Many
employers have responded to these challenges by turning to flexible personnel
to keep labor costs variable, to achieve maximum flexibility, to outsourceobtain highly
specialized skills, and to avoid the negative effects of layoffs.
Rapidly changing regulations concerning employee benefits, health insurance,
retirement plans, and the highly competitive business climate have also
prompted many employers to take advantage of the flexibility offered through
flexible staffing. Additionally, Internal Revenue Service and Department of
Labor regulations concerning the classification of employees and independent
contractors have significantly increased demand by prompting many independent contractors to
affiliate with employers like the Company.
The temporary staffing industry has grown rapidly in recent years as companies
have utilized temporary employees to manage personnel costs, while meeting
specialized or fluctuating staffing requirements. The National Association of
Temporary and Staffing Services has estimated that more than 80% of all U.S.
businesses utilize temporary staffing services. According to the Staffing
Industry Report,Selected industry reports
indicate the United States temporary staffing industry grew from approximately $102 billion in revenue
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in 1998 to an estimated
$117$76.8 billion in revenue in 1999. One of the fastest
growing sectors for the Company, as well as the industry, is information
technology services. Revenue for this sector has grown from an estimated $181999 to $85.9 billion in 1998 to an estimated $22 billion in 1999 or a 22% growth over the
one year period.2000. The Company believes
that professional and technical staffing within the temporary staffing industry
requires longer-term, more highly-skilled personnel services and offers the
opportunity for higher profitability than the clerical and light industrial
staffing segments, because of the value-added nature of professional and
technical personnel.
Further, the speed of communications and an increasingly competitive
environment demand that companies look for methods to streamline and accelerate
their hiring process for temporary positions. While Internet job posting sites
have provided an immediate database pool of applicants, increasingly both
individual job seekers and corporations are looking for a web-based menu of
complete staffing transaction solutions that utilize the Internet to its full
power and capability.3
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BUSINESS STRATEGY
The Company's objectiveCompany is to be aone of the nationally recognized leaderleaders in providing
web-based
professional specialty staffing services. The key elements of the Company's
business strategy in seeking to achieve this objective include the following:
- BUILD THE BRAND. Build and develop its kforce.com brand while
educating and migrating both existing and new customers, as
well as operating personnel, to an integrated web-based
"hi-tech hi-touch" staffing model, utilizing kforce.com
Interactive as a unique and increasingly necessary tool to be
employed by its core client base. As the staffing industry
evolution continues, the move toward further integration and
utilization of the Internet has accelerated. Both companies
and individuals are looking for on-line availability and
staffing transactions. By building brand awareness through
advertising and marketing initiatives for kforce.com and
identifying it as the destination for web-based staffing
solutions, the Company intends to foster that recognition
across all the markets it serves.
- DEVELOP A WEB-BASED STAFFING SOLUTION. The Company believes
that the speed and rapid deployment and acceptance of the
Internet as a competitive business tool help make it a
perfect complement to professional staffing. The vast
majority of professional/managerial/ technical employees as
well as human resource department professionals are regular
Internet users. Accordingly, the Company believes that many
of its corporate customers are predisposed to employ a
web-based staffing model, thereby gaining greater control
over the recruitment and hiring process. With these market
dynamics in place, the Company expects to allocate increasing
resources toward the education and implementation of its
Internet based staffing model across all of the primary
markets the Company serves through its four functional
business units.
- FOCUS ON VALUE-ADDED SERVICES. The Company focuses exclusively on
providing specialty staffing services to its clients, specifically in
the areas of information technology, human resources, finance and
accounting and operating specialties. The Company believes that providing these
specialty services to its clients offers greater
profitability than the clerical and light industrial sectors
of the temporary staffing industry. In addition, the Company
believes, based upon data published by the U.S. Bureau of Labor
Statistics and other sources, that employment growth will be
greatersignificant in the Company's sectors than in the
traditional clerical and light industrial sectors. The placement of highly skilled
personnel requires a distinct operational and technical knowledge to
effectively recruit and screen personnel, match them to client needs,
and develop and manage the resulting relationships. The Company
believes its historical focus in this market, combined with management'sits
staff's operating expertise, provideprovides it with a competitive advantage.
- BUILD LONG-TERM, CONSULTATIVE RELATIONSHIPS. The Company believes it
has developed long-term relationships with its clients by providing
integrated solutions to their specialty staffing requirements. The
Company strives to differentiate itself by working closely with its
clients to maximize their return on human
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Company's ability to offer a broad range of flexible personnel
services, coupled with its permanent placement capability, offers the
client a single-source provider of specialty staffing services. This
ability enables the Company to emphasize consultative rather than
transactional client relationships.
- ACHIEVE EXTENSIVE CLIENT PENETRATION. The Company's client development
process focuses on repeated contacts with client employees responsible
for staffing decisions. Contacts are made within numerous functional
departments and at many different organizational levels within the
client. The Company's operating employees are trained to develop a
thorough understanding of each client's total staffing requirements.
In addition, although the Company is organized functionally, its
operating employees are trained and incentivizedprovided incentives to recognize
cross-selling opportunities for all of the Company's other services.
- RECRUIT HIGH-QUALITY PROFESSIONALS. The Company places great emphasis
on recruiting qualified personnel. The Company believes it has a
recruiting advantage over those of its competitors that lack the
ability to offer personnel flexible and permanent opportunities.
Personnel seeking permanent employment frequently accept flexible
assignments through the Company until a permanent position becomes
available.
- ENCOURAGE OPERATING EMPLOYEE ACHIEVEMENT. The Company's
managementCompany promotes a
quality-focused, results-oriented culture. Operating employees are selected based on their
willingness to assume responsibility and promote the
Company's philosophy. All operating employees are
given
numerous incentives to encourage the achievement of corporate goals. The
Company fosters a team-oriented and high energyhigh-energy environment,
celebrates the successes of its operating employees, and attempts to
create a "spirited" work environment.
GROWTH STRATEGY
The Company has a two-tier growth strategy to expand its services in existing markets,
increasing the reach of its full range of functional services, while providing
its four functional business units with integrated web-based staffing services through kforce.com Interactive. Externally, the Company will primarily
utilize its web-based staffing solutions to both enter markets where it does
not have a physical presence as well as enhance existing operations.solutions. The key
elements of the Company's growth strategy are as follows:
- WEBIFY OUR STAFFING PROCESS. Integrate the kforce.com
web-based staffing levels of service within each of the
Company's four functional business units increasing overall
transactions, while positioning the Company's capabilities to
offer a full range of web-based staffing solutions to expand
into new markets of opportunity. Corporations are seeking
greater speed, efficiency and flexibility to meet their
staffing requirements. The Company, through its web-based
staffing solutions, can provide a fully integrated staffing
approach, offering a full menu of unbundled services. The
Company believes this approach will initially complement its
more traditional staffing services providing reduced cost per
hire for its corporate clients, while streamlining the
overall process. At the same time, the Company believes that
increasing the utilization of a web-based approach will
broaden its markets, offering a value-added service to the
Company's vertical business groups. This, the Company
believes, will help grow overall transactions in its core
markets and lead to greater overall efficiencies while
providing a vehicle for brand expansion.
- INTRODUCE FUNCTIONAL SERVICE OFFERINGS TO EXISTING MARKETS. The
Company believes that a substantial opportunity exists to increase the
number of service offerings within its existing markets.
Further, the Company believes that through the use
of kforce.com Interactive, it can now accelerate the
availability of these services in many geographic markets
where the Company does not have a physical presence.
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- LEVERAGE EXISTING CLIENT RELATIONSHIPS AND DEVELOP NEW CLIENTS. The
Company continually identifies additional growth opportunities within
existing and new clients as a result of the interrelationshipsinter-relationships among
its service offerings. The Company has established goals for
cross-selling and has trained and incentivizedprovided incentives for its
operating employees to actively sell its full range of services, in an
effort to maximize its reach into the marketplace.
- ACQUIRE STRATEGIC BUSINESSES. The Company intends to continue
to pursue the acquisition of complementary specialty staffing
businesses. The Company's preference is to acquire businesses
in markets in which it currently has a location or formerly
maintained a franchised or licensed location, although other
markets will also be explored, including markets outside the
United States. The Company's primary acquisition candidates
are local or regional Internet companies that offer plug-in
or complementary services.
- EXPAND MAJOR AND NATIONAL ACCOUNTS PROGRAM. The Company will continue
to market its full range of services to existing and new clients in
order to position itself as the preferred vendor for web-basedweb-enabled
staffing services. We particularly feel
that our national account strategy is well suited for our
interactive initiative. The Company believes the major accounts program
enables it to further penetrate its clients by giving it greater
access to key staffing decision makers, including the support of the
client's purchasing and procurement team. This increased access allows
the Company to achieve greater operating leverage through improved
efficiencies in the marketing process. The Company has successfully
secured several national agreements for professional and technical
specialty staffing services. The Company intends to aggressively
pursue such agreements to facilitate geographic expansion and existing
market penetration.
FUNCTIONAL ORGANIZATION
Organized by function, the Company provides services in the specialty areas of
information technology, finance and accounting, human resources and operating
specialties. The Company has also set up a separate business unit, kforce.com
Interactive, which supports(See Note 13 to the four functional groups, and works independently
to manage and enhance the Company's web-based staffing technology, as well as
the development of content and strategic alliances. The organization also
focuses on the expansion of the Company's database of candidates, and on
introducing and marketing the Company's range of services into geographic
markets not fully served by the functional groups.
The combination of a growing number of available software applications, the
increased complexity of such software applications, and the short supply of
qualified software expertise contributedNotes to the Company's decision to create
kforce Consulting (formerly Emerging Technologies) in mid-1995. kforce
Consulting retrains skilled information technology professionals in cutting
edge technology solutions, particularly e-services and business-to-business,
and then offers the services of those highly trained individuals to its
clients. The Company believes the sophistication of these technologies, coupled
with the significant unmet demand, provide an attractive opportunity for it to
generate new, higher margin business, and to add value to its clients.Consolidated Financial
Statements.)
The functional areas are defined as:
- INFORMATION TECHNOLOGY. Computer and Data Processing Services heads
the Bureau of Labor Statistics' list of the fastest growing
industries. The shortage of technical expertise to operate the
advanced systems that businesses have acquired over the last decade is
a major catalyst contributing to the growth of this segment. The
Company's Information Technology services focuses on more
sophisticated areas of the
information technologies (i.e.,
systems/applications programmers, systems analysts, e-business and
networking technicians), where the shortage of personnel is the most
acute.
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- FINANCE & ACCOUNTING. In its markets, theThe Company believes it has built a strong
reputation for providing qualified finance and accounting
professionals to businesses. The Company believes this reputation
facilitates its recruiting and placement efforts. The Company's
Finance & Accounting personnel are experienced in areas such as
corporate taxation, budget preparation and analysis, financial
reporting, cost analysis, and audit services. Finance & Accounting
also offers its Executive Solutions service line which provides chief
financial officers, controllers and other higher-level financial
professionals on a contract basis for assignment lengths generally
ranging from three to six months. Our accounting support group
provides placement of entry level accounting positions such as
bookkeepers.
- HUMAN RESOURCES. The non-core functions of a business, such as human
resources, are the most likely to be outsourced. With increasing
employment regulations, the administrative burden on employers is
becoming more complex and more time-consuming than ever before. The
Company offers flexible and permanent staffing of human resource
professionals in the areas of recruiting, benefits administration,
training and generalists. In addition, the Company provides
outplacement, outsourcing and consulting services in this field.
- OPERATING SPECIALTIES. This segment consists of professionals skilled
in the pharmaceutical, engineering, health care, legal, life insurancescientific and investmentlegal
industries. Examples of the types of positions that would be
classified in these categories are: research and regulatory personnelclinical trial professionals
(CRAs) for pharmaceutical clients, quality engineers and assurance
personnel for manufacturing companies, hospital
administrationhealth care information
management professionals and management personnelnurses for health care companies, and
management personnelparalegals and attorneys for life insurance
companies.law firms and corporate clients. The
Scientific Group works with lab professionals, research and
development, quality assurance and quality control professionals.
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Supporting these four functional groups isin 2000 was a new business unit, formed
in 1999, kforce.com Interactive, which providesprovided the technical management and
operational expertise for the Company's web-basedweb-enabled staffing solutions. The unit
worksworked closely with the functional units to integrate unbundled web-basedweb-enabled
services into existing accounts, to grow and manage the database of the
Company's job candidates and to serve, through the national business center, as
the primary point of sales into secondary or tertiary markets and geographic
regions where itthe Company does not have a physical presence. In the latter part
of 2000, the Company rolled out its "localized" web sites to each of its major
markets. Subsequently, the Company believes that the "high tech - high touch"
strategy behind its web initiative has evolved to the point where the
operations of the Company, through the localization strategy, have internalized
the operational aspects of the web. The "localization" strategy, deployed in
the second half of 2000, enabled each kforce market to significantly tailor the
content of the website to its particular needs. Each market can post job
openings specific to the region as well as content specific to that market's
clients and candidates. Subsequently, in late 2000, the Interactive group
ceased to operate as a business unit.
In February 2001, the Company modified its operating structure by consolidating
kforce Consulting, the Company's e-services project driven solutions practice,
into its existing Information Technology division. In 2000, kforce Consulting
lost $7.9 million on $17.6 million in revenue. The Company has no certainty
that any of the kforce Consulting revenue stream will continue in the future.
In realigning both the Interactive and kforce Consulting groups, the Company
believes it has strengthened its focus on its core staffing business.
STAFFING SERVICES
Once the functional challenges of the client have been identified, the Company
can then consult with the client to determine its staffing and time duration
requirements. The Company offers its staffing services in one of two categories:
Flexible Staffing Services or Search Services.
FLEXIBLE STAFFING
SERVICES
Flexible Staffing servicesServices are offered by the Company to provide personnel in
the fields of information technology, finance and accounting, human resources
and operating specialties. Flexible Staffing Services entail placing skilled
workers in the client environment on a contractual basis. Assignments typically
run from three months to one year in duration. The Company currently offers
flexible staffing
servicesFlexible Staffing Services in allmost large metropolitan market areas of
information technology, finance and accounting, human resources and operating
specialties and human resources.specialties.
FINANCE AND ACCOUNTING. Flexible staffing offers its clients a
reliable and cost-effective means of handling uneven or peak workloads
caused by events such as periodic financial reporting deadlines, tax
deadlines, special projects, systems conversions, and unplanned
staffing fluctuations. Flexible staffing for finance and accounting
meets such clients' needs with personnel who have an extensive range
of accounting and financial experience, including corporate taxation,
budget preparation and analysis, financial reporting, regulatory
filings, payroll preparation, cost analysis, and audit services.
Through the use of the Company's services, clients are able to avoid
the cost and inconvenience of hiring and terminating permanent
employees. Typically, the duration of assignments in the Professional
Temporary Services is six to twelve weeks.
INFORMATION TECHNOLOGY. Flexible serviceStaffing Services in information
technology provides personnel on a contractual basis, which typically
averages six to nine months in duration. Flexible Information
Technology Services has traditionally focused on providing information
systems personnel to assist clients whose - 7 -
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needs range from mainframe
environments to single work stations.workstations. Flexible information technology
personnel perform a wide range of services, including software
development, database design and management, system administration,
end-user training and acceptance, network design and integration,
information strategy development,
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business and systems plans, and standardization of technology and
business procedures. The size and growth of the information services
industry in recent years have been driven largely by rapid
technological advances. These advances have included the availability
of increased computing power at lower costs and the emergence of new
information systems capabilities. As a result, the ability of
businesses to benefit from the application of computer technology has
been greatly enhanced and has been accompanied by a dramatic increase
in the number of end-users. At the same time, the sophistication and
complexity of the systems needed to serve these businesses and to
deliver the desired benefits have greatly increased. Additionally, the need to contain costs has
caused many businesses to reduce the number of personnel resulting in
increased dependence upon information systems to support important
functions and to improve productivity.
The Company's basedatabase of skilled technical personnel is integral to
its success. Because technical needs are diverse and technology
advances occur frequently, technical talent is in high demand. As a
result, flexible information technology focuses heavily on its
recruiting efforts. In addition, the Company focuses on training its Information
Systems personnel in sophisticated technology applications. The Company believes that building a base of
skilled technical personnel who are available for assignment is as
integral to its success as are its client relationships.
OPERATING SPECIALITIES AND HUMAN RESOURCES.SPECIALTIES. The Company has expanded its Flexible Staffing
Services functions to include pharmaceutical, engineering, health
care, scientific and legal life insurance and investment
industries and human resources personnel. Within engineering services,industries. Examples of the Company provides a wide rangetypes of
positions classified in these categories are: clinical trial
professionals (CRAs) for pharmaceutical clients, quality engineers and
assurance personnel for manufacturing companies, health care
information management professionals and nurses for health care
companies, and paralegals and attorneys for law firms and corporate
clients. The Scientific Group works with lab professionals, research
and development, quality assurance personnel. Health care flexible services provides hospital
administration and management personnel. Pharmaceutical flexible
services provides pharmaceutical industry clients with research and
regulatory personnel. Human resources provides primary contract
recruiters and human resources managementquality control professionals.
The Company's operating employees develop and maintain an active personnelcandidate
inventory designed to meet the needs of its clients. To recruit qualified
personnel,candidates, the Company uses targeted telephone and Internet recruiting,
obtains referrals from its existing personnel and clients, and places newspaper
advertisements. The Search Services' recruiting efforts complement those of
Flexible Staffing Services, and the Company believes that this combination
distinguishes it from many of its competitors. To foster loyalty and commitment
from its existing personnel, the Company maintains frequent contact and offerswith them
as well as providing competitive wages, benefits, flexible schedules, and
exposure to a variety of working environments. The Company currently maintains
a database of approximately 1.5 million candidates.
Flexible Staffing Services targets Fortune 1000 companies and other large
organizations, with a primary focus on organizations determined to have the
potential need for the Company's full range of services. In order to maximize
its marketing effectiveness, the Company provides extensive training to its operating
employees, which emphasizes the consulting nature of its business. The Company's
operating employees develop marketing plans composed of multiple visits, frequent
telemarketing activity, monthly
mailings, and other actions supported through the use of the front endfront-end systems
and daily staff meetings. The Company believes that these techniques and processes
provide the opportunity to expand its business within its clients'
organizations, solidify client relationships, and develop new clients. The
Company recognizes that in some cases Flexible Staffing Services personnel will
be offered permanent positions. If a client requests that personnel become
permanent employees, the Company typically charges a "conversion" fee that is
calculated as a percentage of the initial annual compensation.
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SEARCH SERVICES
The Company provides extensive search servicesSearch Services (permanent placement) for
professional and technical personnel. The professional skills offered by the Search Servicesplacement opportunities are in the
areas of information technology, finance and accounting, financial services,
pharmaceutical research, health care, human resources, insurance, legal and
manufacturing.
The Company performs both contingency and retained searches. A contingency
search results in payment to the Company only when personnel are actually hired
by a client. The Company's strategy is to perform contingency searches only for
skills it targets as its "core-businesses."core-businesses. Client searches that are outside a
core-business area typically are at a management or executive level and require
a targeted research and recruiting effort. The Company typically performs these
searches as retained searches where the client pays a part of the search fee in
advance and the remainder upon completion of the search. The Company's fee is
typically structured as a percentage of the placed individual's first-year
annual compensation.
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An active database of personnelcandidates is maintained as the result of the Company's
continuous recruiting efforts and reputation in the industry. In addition,
operating employees locate many potential personnel as the result of referrals
from the Flexible Staffing Services activities.
The Company believes that it has developed a reputation for quality search work
and that it is recognized as a leader in its search specialties. To minimize
the risk of changes in skill demand, the Company's marketing plan incorporates
a continual review of client recruitment plans for future periods to allow for
rapid changes to "in-demand" skills. The quality of the relationship with
client personnel is a key component of the strategy, and the Company seeks to
use consultative relationships to obtain insight into emerging growth areas.
The clients targeted by the Search Services are typically the same as those
targeted by the Flexible Staffing Services. This common focus is intended to
contribute to the Company's objective of providing integrated solutions to its
clients' personnel needs.
The Company's search business is highly specialized. Certain skills, such as
finance and accounting, information technology and human resources, may be
served by local offices, while other, more highly specialized operating
specialtiesniches require a
regional or national focus.
TECHNOLOGY
kforce.com continues to invest in its technology infrastructure. During 2000,
the Company outsourced the corporate headquarters data center and had its
servers placed in a bunkered facility. We believe this facility will greatly
reduce the threat to the Company from a potential major outage due to the
forces of nature.
The Company's Enterprise Resource Planning ("ERP") application was also
upgraded in 2000. This project improved many internal and external customer
related business processes. The continued integration between the ERP and
Customer Service related proprietary systems ("PROS" and "WIZARD") improve the
transfer of data and simplification of business processes.
Also in 2000, the kforce.com Internet web site had two major releases. One
supported the Company's branding initiative, which included the Super Bowl
advertising campaign. The second major release supported the localization
market strategy. The Company believes that a
trend toward greater selectivity in its clients' hiring processes has
contributed to an increased demand for its Search Services. This emphasis on
quality fits well with the Company's inventory of personnel. The Company
expects that the Search Services will continue to add operating specialties in
the majority of markets served.
MARKETS
The Company serves 45 metropolitan markets with more than 95 locations and
management of the operations is coordinated from its headquarters in Tampa. The
Company's headquarters provides its offices with administrative, marketing,
accounting, training, legal, and information systems support, particularly as
it relates to the standardization of the operating processes of the offices.
TECHNOLOGY
The Company and Source had each developed a proprietary integrated system
designed to maximize productivity and to aid in the management of its business.
These systems are called "PROS" and "Wizard", respectively. PROS and Wizard are
designed to be a comprehensive approach to the operation and management of a
specialty staffing firm. Each system has links that update each office
location's information through the use of a private network to corporate
headquarters servers in Tampa and Dallas. Through the use of PROS and Wizard,
market information concerning target customers is tracked and prioritized to
focus marketing and development efforts. Readily available management reports
indicate the frequency and nature of contact with the targeted customers to
support marketing plans. By using these reports, managers provide direction and
support to operating employees to ensure that customers are properly served.
- 9 -
10
Finally, PROS and Wizard help the Company manage information by passing data
from the operating divisions software to the accounting software. This approach
increases productivity, as data have a single point of entry and can be readily
accessed by all functional areas within the Company. During 1998, the Company
developed a front end browser connection to PROS and Wizard to standardize the
desktop for its operating employees. The Company intends to continue to enhance
its systems capabilities to streamline processes in ordercontinues to improve customer
servicing.system interfaces that
support internal and external business processes.
COMPETITION
The specialty staffing services industry is very competitive and fragmented.
There are relatively limitedfew barriers to entry and new competitors frequently enter
the market. A number of the Company's competitors possess substantially greater
resources than the Company. The Company faces substantial competition from
large national firms and local specialty staffing firms. The local firms are
typically operator-owned, and each market generally has one or more significant
competitors. The Company also faces competition from national clerical and
light industrial staffing firms and national and regional accounting firms that
also offer certain specialty staffing services. Additionally, there are a
number of "born on the web" job boards that are offering traditional staffing
services as well as traditional staffing companies developing a significant web
component.
The Company believes that the availability and quality of its personnel, the
level of service, the effective monitoring of job performance, scope of
geographic service and the price of service are the principal elements of
competition. The Company believes that availability of quality personnel is an
especially important facet of competition. In order to attract personnel,candidates, the
Company places emphasis upon its ability to provide permanent placement
opportunities, competitive compensation and benefits, quality and varied
assignments, and scheduling flexibility. Because personnel pursue other
employment opportunities on a regular basis, it is important that the Company
respond to market conditions affecting these individuals. Additionally, in
certain markets and in response to economic softening, the Company has
experienced significant pricing pressure from some of its competitors. Although
the Company believes it
8
9
competes favorably with respect to these factors, it expects competition and
pricing pressure to increase, and there can be no assurance that it will remain
competitive.
INSURANCE
The Company maintains a fidelity bond and a number of insurance policies
including general liability and automobile liability, (each with excess
liability coverage), professional liability, errors and omissions, employment
practices liability, worker'sworkers' compensation and employers' liability. Each of
these policies, with aggregate coverage of up to $5.0 million, covercovers certain
liabilities that may arise from the actions or omissions of its operating
employees and personnel. There can be no assurance that any of the above
coverages will be adequate for the Company's needs.
OPERATING EMPLOYEES AND PERSONNEL
As of December 31, 1999,2000, the Company and its subsidiaries employed
approximately 2,5002,400 operating employees. Additionally, as of that date, the
Company had approximately 6,8007,100 personnel on assignment providing flexible
staffing services to its clients. As the employer, the Company is responsible
for the operating employees and personnel payrolls and employer's share of
social security taxes (FICA), federal and state unemployment taxes, workers'
compensation insurance, and other direct labor costs relating to its operating
employees and personnel. The Company offers access to various insurance
programs and other benefits for its operating employees and personnel. The
Company has no collective bargaining agreements covering any of its operating
employees or personnel, has never experienced any material labor disruption,
and is unaware of any current efforts or plans to organize its operating
employees or personnel.
- 10 -
11
ITEM 2. PROPERTIES
The Company owns no real estate. It leases its corporate headquarters in Tampa, Florida, as well as
space for its other locations. The aggregate area of office space under leases
for locations is approximately 560,000534,700 square feet. The leases generally run
from month-to-month to five years and the aggregate annual rent paid by the
Company in 19992000 was approximately $12.2$11.4 million. The Company believes that whenafter
relocation to its planned expansion of itsnew corporate headquarters is
completedin 2001, that its facilities wouldwill
be adequate for its needs and does not
expect difficulty replacing such facilities or locating additional facilities,
if needed, inneeds. The Company owns a parcel of vacant land adjacent to
the interim.site of its new corporate headquarters for which it has no current plans to
develop.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is, from time to time,
threatened with or named as a defendant in various lawsuits, including
discrimination and harassment and other similar claims. The Company maintains
insurance in such amounts and with such coverages and deductibles as management
believes are reasonable. The principal risks that the Company insures against
are workers' compensation, personal injury, bodily injury, property damage,
professional malpractice, errors and omissions, employment practices liability
and fidelity losses. The Company isdoes not currentlybelieve that it is involved in any
litigation which it believes iswould reasonably be expected to have a material to the Company'sadverse effect
on its results of operation or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1999 covered by this
Annual Report on Form 10-K.2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market(SM), formerly under the symbol "ROMC" and now under the
symbol "KFRC". The following table sets forth, for the periods indicated, the
range of high and low closing sale prices for the Common Stock, as reported on
the Nasdaq National Market.
FISCAL YEAR HIGH LOW
- ----------- ------- -------
1998:
First Quarter...................................... $29.750 $19.375
Second Quarter..................................... $32.250 $23.125
Third Quarter...................................... $31.125 $16.125
Fourth Quarter..................................... $22.750 $11.750
1999:
First Quarter...................................... $24.250 $ 6.875
Second Quarter..................................... $15.438 $ 6.906
Third Quarter...................................... $ 9.750 $ 7.000
Fourth Quarter..................................... $15.625 $ 5.875
2000:
First Quarter (through March 20)................... $18.250 $10.375
CALENDAR YEAR HIGH LOW
------- -------
1998:
First Quarter..................................... $29.750 $19.375
Second Quarter................................. $32.250 $23.125
Third Quarter.................................... $31.125 $16.125
Fourth Quarter.................................. $22.750 $11.750
1999:
First Quarter..................................... $24.250 $ 6.875
Second Quarter.................................... $15.438 $ 6.906
Third Quarter..................................... $ 9.750 $ 7.000
Fourth Quarter.................................... $15.625 $ 5.875
2000:
First Quarter..................................... $18.250 $ 8.875
Second quarter.................................... $13.250 $ 4.438
Third Quarter..................................... $ 7.563 $ 3.500
Fourth Quarter.................................... $ 5.063 $ 2.063
2001:
First Quarter (through March 23) $ 4.125 $ 2.281
On March 20, 2000,23, 2001, the last reported sale for the Company's Common Stock was at
$12.50.$4.00. On March 20, 200023, 2001 there were approximately 171164 holders of
record.
Since the Company's initial public offering, the Company has not paid any cash
dividends on its common stock. -The Company is currently prohibited from making
such dividend distributions under the terms of its Credit Facility.
10
11 -
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ITEM 6. SELECTED FINANCIAL DATA
The information set forth below is not necessarily indicative of the results of
future operations and should be read in conjunction with Consolidated Financial
Statements and the related Notes thereto incorporated into Item 8 of this
report.
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1995----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net service revenues ............ $188,374revenues......... $301,588 $479,743 $680,086 $746,632 $794,997
Direct costs of services ........ 88,512services..... 145,881 254,132 388,505 424,001 433,441
-------- -------- -------- -------- --------
Gross profit .................... 99,862profit................. 155,707 225,611 291,581 322,631 361,556
Selling, general and
administrative expenses ...... 87,038expenses... 133,084 184,876 224,790 346,452 341,812
Depreciation and
amortization ................. 1,111amortization.............. 3,238 5,794 9,507 14,514 18,440
Merger, restructuring, and
integration expense .......... -- -- --expense....... - - 26,122 --- -
Other (income) expense,
net .......................... (30)net....................... (1,773) (2,675) (4,985) (942) 113
-------- -------- -------- -------- --------
Income (loss) before taxes ...... 11,743income
taxes..................... 21,158 37,616 36,147 (37,393) 1,191
(Provision) benefit for
taxes ... (4,555)income taxes.............. (8,706) (15,545) (20,708) 13,877 (1,474)
-------- -------- -------- -------- --------
Net income (loss) ............... $ 7,188............ $ 12,452 $ 22,071 $ 15,439 $(23,516) $ (283)
======== ======== ======== ======== ========
Net income (loss)
per share-basic ............... $ .25share-basic............ $ .35 $ .55 $ .34 $ (.53) $ (.01)
======== ======== ======== ======== ========
Weighted average shares
outstanding-basic ............... 28,309outstanding-basic............ 35,312 40,471 45,410 44,781 42,886
Net income (loss) per
share-diluted ................ $ .25share-diluted............. $ .34 $ .52 $ .33 $ (.53) $ (.01)
======== ======== ======== ======== ========
Weighted average shares
outstanding-diluted .......... 29,265outstanding-diluted....... 36,996 42,264 47,318 44,781 42,886
DECEMBER 31,
----------------------------------------------------------------------
1995----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital ................. $ 28,537capital.............. $ 95,557 $149,459 $135,348 $ 86,310 $ 70,885
Total assets .................... $ 51,576assets................. $142,112 $283,098 $333,812 $296,187 $278,018
Total long-term debt ............debt......... $ 500 $ --- $ 1,260 $ 461 $ --
Shareholders' equity ............- $ 34,21845,000
Stockholders' equity......... $119,221 $232,704 $255,022 $218,205 $155,037
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in connection with the Company's
Consolidated Financial Statements and the related Notes thereto incorporated
into Item 8 of this report.
- 12 -
13
OVERVIEW
The Company is a provider of professional and technical specialty staffing
services in 4445 markets in the United States and one international market
(Toronto, Canada). The Company provides its customers staffing services in the
following specialties: information technology, finance and accounting, human
resources and operating specialties. These services are provided through both
traditional staffing channels and the Company's web-based kforce.com
Interactive staffing solution. The Company believes its broad range of
highly specialized services provides clients with integrated solutions to their
staffing needs, allowing it to develop long-term, consultative relationships.
This range of services includes search services and flexible staffing services,
both professional temporary and contract. Contract services for information
technology services are provided through the Company's kforce Consulting group.
The Company believes its functional focus and range of service offerings
generate increased placement opportunities and enhance its ability to identify,
attract, retain, develop and motivate personnel and operating employees. The
Company principally serves Fortune 1000 clients, with its top ten clients
representing less thanapproximately 8% of its revenue for 1999.
REVENUE RECOGNITION2000.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net service revenues,
certain items in the Company's consolidated statements of operations for the
indicated periods:
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999 2000
----- ----- -----
Flexible Billings............................ 80.1% 80.6% 77.5%
Search Fees.................................. 19.9 19.4 22.5
----- ----- -----
Net service revenues......................... 100.0 100.0 100.0
Gross profit................................. 42.9 43.2 45.5
Selling, general, and administrative
expenses................................... 33.1 46.4 43.0
Income (loss) before income taxes............ 5.3 (5.0) 0.1
Net income (loss) ........................... 2.3% (3.1)% 0.0%
2000 COMPARED TO 1999
NET SERVICE REVENUES. Net service revenues consistincreased 6.5% to $795.0 million in
2000 compared to $746.6 million for the same period in 1999. This increase was
composed of sales, net of credits and discounts. The
Company recognizesa $14.6 million increase in Flexible Billings based on hours worked by assigned
personnel onand a weekly basis.$33.8 million
increase in Search Fees are recognized in contingency search
engagements upon the successful completion of the assignment. The Company's
policy is to replace individuals who fail to continue employment for the year ended December 31, 2000. The reasons for
such increases are set forth below.
FLEXIBLE BILLINGS. Flexible billings increased 2.4% to $616.0 million in 2000
compared to $601.5 million for the same period of time specifiedin 1999. Hours billed for the
year remained relatively consistent year-to-year between 2000 and 1999. The
increase in flexible billings was primarily attributable to an increase in the
agreements for search assignments, generally thirtyaverage billing rate in 2000.
SEARCH FEES. Search fees increased 23.3% to ninety days. Revenue from Search Fees is shown on the Consolidated Statement of
Operations net of a reserve for candidates not remaining$178.9 million in employment2000 compared to
$145.1 million for the guaranteesame period including estimatesin 1999. Approximately $16.0 million of future deferrals related tothis
increase was the result of an increased number of search placements made during
2000 as compared to 1999. The remaining increase, approximately $17.8 million,
was primarily the result of an increase in 1999.the average fee for each search
placement.
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13
GROSS PROFITPROFIT. Gross profit on Flexible Billings is determined by deducting the
direct cost of services (primarily flexible personnel payroll wages, payroll
taxes, payroll-related insurance, and subcontract costs) from net service
revenues. Consistent with industry practices, all costs related to Search Fees
are classified as selling, general, and administrative expense. RESULTS OF OPERATIONS
The following table sets forth,Gross profit
increased 12.1% to $361.6 million in 2000 as compared to $322.6 million in
1999. Gross profit as a percentage of net service revenues certain itemsincreased to 45.5%
in 2000 compared to 43.2% for the same period in 1999. The increase in gross
profit percentage was a result of both the improvement in margins on Flexible
Billings, attributable to higher average billing rates, and a shift in business
mix to more Search Fees, which have traditionally higher margins than Flex
Billings, in 2000 compared to 1999. Search Fees accounted for 22.5% of 2000 net
service revenues as compared to 19.4% in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 1.3% to $341.8 million in 2000 as compared to
$346.5 million for the same period in 1999. Selling, general and administrative
expenses as a percentage of net service revenues decreased to 43.0% in 2000
compared to 46.4% for the same period in 1999. The decrease as a percentage of
net service revenues resulted primarily from the continuation of strategic
initiatives undertaken by management in 1999 to re-engineer and streamline back
office operations, and a reduction in advertising after the launch of the
Company's new name.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
27.0% to $18.4 million for 2000 compared to $14.5 million for the same period
in 1999. Depreciation and amortization expense as a percentage of net service
revenue increased to 2.3% for 2000 compared 1.9% for the same period in 1999.
The increase as a percentage of net service revenues for 2000 as compared to
the same period in 1999 was primarily due to increased amortization of computer
software utilized to increase back office efficiency.
OTHER (INCOME) EXPENSE. Other (income) expense decreased 112.0% in 2000 to $0.1
million as compared to $(0.9) million for the same period in 1999. The decrease
in 2000 compared to 1999 was primarily due to a reduction of interest income in
2000 compared to 1999 related to the use of available cash to make stock
repurchases throughout 2000.
INCOME (LOSS) BEFORE INCOME TAXES. The income before income taxes was $1.2
million for 2000 as compared to loss before taxes of $(37.4) million for the
same period in 1999, primarily as a result of increased net service revenues
and gross margin and reduced selling, general, and administrative expenses
discussed above.
PROVISION (BENEFIT) FOR INCOME TAXES. The income tax provision for 2000 was
$1.5 million compared to a benefit of $(13.9) million for the same period in
1999. The effective tax rate was 124% in 2000 as compared to an effective tax
benefit rate of 37.1% in 1999. The increase in the effective tax rate in 2000
as compared to 1999 was primarily due to the benefit resulting from Company's
consolidated statementnet loss position in 1999. The effective tax rate in 2000 was abnormally high
due to non-deductibility of operationsamortization of goodwill and 50% of meals and
entertainment expenses.
NET INCOME (LOSS). The net loss was $(0.3) million for 2000 and $(23.5) million
for 1999. This reduction in loss in 2000 compared to 1999 was the indicated periods:
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -----
Flexible Billings............................ 74.9% 80.1% 80.6%
Search Fees.................................. 25.1 19.9 19.4
----- ----- -----
Net service revenues......................... 100.0 100.0 100.0
Gross profit................................. 47.0 42.9 43.2
Selling, general, and administrative
expenses................................... 38.5 33.1 46.4
Income (loss) before taxes................... 7.8 5.3 (5.0)
Net income (loss) ........................... 4.6% 2.3% (3.1)%
-result of
increased net service revenue and gross margin and reduced selling, general,
and administrative expenses discussed above.
13 -
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1999 COMPARED TO 1998
Net service revenues.NET SERVICE REVENUES. Net service revenues increased 9.8% to $746.6 million in
1999 as compared to $680.1 million for the same period in 1998. This increase was
composed of a $56.9 million increase in Flexible Billings and a $9.6 million
increase in Search Fees for the year ended December 31, 1999 as
described1999. The reasons for
such increases are set forth below.
Flexible BillingsFLEXIBLE BILLINGS increased 10.4% to $601.5 million in 1999 as compared to
$544.6 million for the same period in 1998. Approximately $41 million of this
increase iswas a result of an increase in the number of hours billed by
operations as compared to the same periods in 1998 due to the Company's
continued emphasis on expanding the number of service offerings in all markets.
The remaining increase, approximately $16 million, iswas primarily attributable
to an increase in the average billing rate for 1999.
Search feesSEARCH FEES increased 7.1% to $145.1 million in 1999 as compared to $135.5 million
for the same period in 1998. This increase resulted primarily from an increase
in the average fee for each search placement made during 1999 as
compared to the
same period in 1998. The number of search placements made in 1999 remained
relatively constant compared to 1998.
Gross profit.GROSS PROFIT. Gross profit increased 10.6% to $322.6 million in 1999 as compared
to $291.6 million in 1998. Gross profit as a percentage of net service revenues
increased to 43.2% in 1999 as compared to 42.9% for the same period in 1998. The
increase in gross profit percentage was primarily a result of the improvement
in margins on Flexible Billings attributable to higher average billing rates.
This increase was partially offset by the continuing change in the Company's
business mix between Flexible Billings and Search Fees. Revenues from Flexible
Billings, which have traditionally lower gross margins than Search Fees,
increased to 80.6% of the Company's net service revenues in 1999 as compared to
80.1% for the same period in 1998.
Selling, general and administrative expenses.SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 54.1% to $346.5 million in 1999 as compared to
$224.8 million for the same period in 1998. Selling, general and administrative
expenses as a percentage of net service revenues increased to 46.4% in 1999
compared to 33.1% for the same period in 1998. The increase as a percentage of
net service revenues resulted primarily from several strategic initiatives
adopted by management during the first half of 1999. These included: i) the
development, deployment, advertising and other related expenses for the
Company's online interactive career management and recruitment resource,
kforce.com Interactive, ii) activities to re-engineer and streamline back
office operations, and iii) investments in future growth, including leadership
development, increasing the number of sales consultants, buildout of a national
service center, and further development of educational services, kforce
Consulting and operating specialties.
Merger, restructuring and integration expense.MERGER, RESTRUCTURING AND INTEGRATION EXPENSE. There was no merger,
restructuring and integration expense in 1999, compared to $26.1 million in
1998. The 1998 expenses were related to the merger with Source in April 1998
and the restructuring charges incurred in connection with the merger. Merger,
restructuring and integration expenses consisted of $8.2 million of direct
costs related to the merger and $17.9 million related to restructuring and
integration.
Depreciation and amortization expense.DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
52.7%, to $14.5 million for 1999 as compared to $9.5 million for the same period
in 1998. Depreciation and amortization expense as a percentage of net service
revenue increased to 1.9% for 1999 as compared to 1.4% for the same period in 1998.
The increase as a percentage of net service revenues for 1999 as compared to the
same period in 1998 iswas primarily due to additional depreciation on the new
technology platform implemented at certain Source locations in the second half
of 1998 and to additional goodwill amortization due to earnout buyouts
negotiated in 1999.
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Other (income) expense.OTHER (INCOME) EXPENSE. Other (income) expense decreased 81.1% in 1999 to $0.9
million as compared to $5.0 million for the same period in
14
15
1998. The decrease during 1999 compared to the same period in 1998 iswas due to a
decrease in investment income resulting from increased cash requirements for
funding operations and for the Company's repurchase of common stock.
Income (loss) before taxes.INCOME (LOSS) BEFORE INCOME TAXES. The loss before income taxes was $37.4
million for 1999 as compared to income before taxes of $36.1 million for the same
period in 1998, primarily as a result of the increase in selling, general and
administrative expenses discussed above.
Provision for (benefit from) income taxes.PROVISION (BENEFIT) FOR INCOME TAXES. The income tax benefit for 1999 was $13.9
million compared to a provision of $20.7 million for the same period in 1998.
The effective tax benefit rate was 37.1% in 1999 as compared to an effective
provision rate of 57.3% in 1998. The decrease in the effective tax rate in 1999 as
compared to 1998 was primarily due to the Company's net loss position in 1999
and to certain non-deductible merger related expenses in 1998 which were not
present in 1999.
Net income (loss)NET INCOME (LOSS). The net loss was $23.5 million for 1999 compared to net
income of $15.4 million for the same period in 1998. This decrease was
primarily due to the increase in selling, general and administrative expenses
discussed above, which were partially offset by the 1998 merger, restructuring,
and integration expenses and the decrease in the effective tax rate as a result
of the non-deductible merger related expenses in 1998.
1998 COMPARED TO 1997
Net service revenues. Net service revenues increased 41.8% to $680.1 million in
1998 as compared to $479.7 million for the same period in 1997. This increase
was composed of a $185.1 million increase in Flexible Billings and a $15.3
million increase in Search Fees for the year ended December 31, 1998 as
described below.
Flexible billings increased 51.5% to $544.6 million in 1998 as compared to
$359.5 million for the same period in 1997. This increase is a result of an
increase in the number of hours billed by operations as compared to the same
periods in 1997 due to the Company's continued emphasis on expanding the number
of service offerings in all markets and, to a lesser extent, an increase in the
average billing rates.
Search fees increased 12.7% to $135.5 million in 1998 as compared to $120.2
million for the same period in 1997. This increase resulted primarily from an
increase in the number of search sales consultants, which increased the number
of search placements made in 1998 as compared to the same period in 1997. The
average fee for each search placement made during the periods remained
relatively constant.
Gross profit. Gross profit increased 29.3% to $291.6 million in 1998 as
compared to $225.6 million in 1997. Gross profit as a percentage of net service
revenues decreased to 42.9% in 1998 as compared to 47.0% for the same period in
1997. This decrease was a result of the continuing change in the Company's
business mix whereby revenues from Flexible Billings, which have traditionally
lower gross margins than Search Fees, increased to 80.1% of the Company's net
service revenues in 1998 as compared to 74.9% for the same period in 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 21.6% to $224.8 million in 1998 as compared
to $184.9 million for the same period in 1997. Selling, general and
administrative expenses as a percentage of net service revenues decreased to
33.1% in 1998 compared to 38.5% for the same period in 1997. This decrease in
selling, general and administrative expense as a percentage of net service
revenues resulted from synergies and operating efficiencies obtained from the
merger such as elimination of duplicate back office costs.
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Merger, restructuring and integration expense. Merger, restructuring and
integration expense were $26.1 million in 1998. There was no merger,
restructuring and integration expense for 1997. The 1998 expense was related to
the merger with Source in April 1998, and associated restructuring charges
incurred as a result of the merger. Merger, restructuring and integration
expenses consisted of $8.2 million of direct costs related to the merger and
$17.9 million related to restructuring and integration.
Depreciation and amortization expense. Depreciation and amortization expense
increased 63.8%, to $9.5 million for 1998 as compared to $5.8 million for the
same period in 1997. Depreciation and amortization expense as a percentage of
net service revenue increased to 1.4% for 1998 as compared 1.2% for the same
period in 1997. The increase as a percentage of net service revenues for 1998
as compared to the same period in 1997 is primarily due to additional goodwill
amortization due to the earnout buyouts negotiated in 1998, full year of
amortization of the acquisitions of Uni-Quality Systems Solutions, Inc. and
Sequent Associates, Inc. in 1998 compared to four months in 1997, and
additional depreciation on the new technology platform implemented at certain
Source locations in the second half of 1998.
Other (income) expense. Other (income) expense increased 85.2% in 1998 to $5.0
million as compared to approximately $2.7 million for the same period in 1997.
The increase during 1998 is due to interest earned on the investment of the
proceeds from the November 1997 stock offering.
Income before taxes. Income before taxes decreased 4.0% to $36.1 million for
1998 as compared to $37.6 million for the same period in 1997, primarily as a
result of the merger, restructuring and integration expenses discussed above.
Provision for income taxes. The provision for income taxes increased 33.5% to
$20.7 million for 1998 compared to $15.5 million for the same period in 1997.
The effective tax rate was 57.3% in 1998 as compared to approximately 41.2% in
1997. The increase in the effective tax rates in 1998 as compared to 1997 was
due to certain non-deductible merger related expenses.
Net income. Net income decreased 30.3% to $15.4 million for 1998 compared to
$22.1 million for the same period in 1997. This decrease was primarily due to
the merger, restructuring and integration expenses explained above and the
increase in the effective tax rate as a result of non-deductible merger related
expense.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, theThe Company's sources of liquidity includedinclude approximately $7.9$1.9 million in cash
and cash equivalents and approximately $78.4$69.0 million in additional net working
capital. In addition, as of December 31,
1999, there were no amountsthe Company has approximately $45 million outstanding
under its $90 million Amended and Restated Credit Facility with Bank of America
(the "Credit Facility"). This Credit Facility, which was entered into on
November 3, 2000, has an initial term of three years. The Credit Facility
provides for a maximum revolving credit facility of $90 million (not to exceed
85% of the Company's $30 million
Revolving Line"Eligible Receivables" as such term is defined in the
Credit Facility).
The Credit Facility contains a provision that limits the dollar amount of
Credit Loan Agreement (the "Line of Credit"), althoughcommon stock the Company did borrow againstmay repurchase subsequent November 3, 2000 to $55
million. On February 12, 2001, the LineCredit Facility was amended to increase the
maximum amount of Credit at various times during 1999. The
Line of Credit expires on March 31, 2000 and amounts outstanding under it
accrue interest at an annual rate equal to 65 basis points above the 90-day
London Interbank Offering Rate ("LIBOR"). The Company is currently negotiating
for a new line of credit facility in order to fund expenditures associated with
operations, additional repurchase of Companycommon stock and potential future
acquisitions. In addition, the Company is pursuing various lease financing
alternatives for the construction of its new Tampa headquarters building.may repurchase to $72 million.
During the year ended December 31, 1999,2000, cash flow used inprovided by operations was
approximately $26.7$28.3 million, resulting primarily from the net loss, thea non-cash adjustment for
depreciation and amortization, refunds of prior income tax benefit resulting from the loss,payments and an
increase in accrued payroll costs, partially offset by an increase in accounts
receivable and a decrease in operatingaccounts payable and other accrued liabilities.
The increase in accounts receivable reflects the increased volume of business
in 2000 as compared to 1999. The increase in accrued payroll liabilities. These were
partially offset by non-cash expenses (depreciation, amortizationcosts, and bad debt
provision) and an increasethe
decreases in accounts payable and other accrued liabilities are primarily due
to the timing of payment of these liabilities.
During 1999,2000, cash flow used in investing activities was approximately $11.0$10.8
million, resulting primarily from an increase of $3.2 million in the Company'svalue of
deferred compensation related assets, the use of $16.8approximately $1.2 million for
capital expenditurescontingent earn out payments on prior acquisitions and approximately $6.0$6.4 million in cash for settlement of
earnout provisions on previous acquisitions, offset by $12.0 million received
from the sale of short-term investments.
- 16 -
17capital
expenditures.
For the year of 1999,2000, cash flow used in financing activities was approximately
$23.0$23.4 million, resulting primarily from the use of $15.1$12.7 million for the
repurchase of outstanding stock through open market purchases and $55.8 million
to execute a modified Dutch Auction tender offer for the repurchase of common
stock completed in December 2000. The use of funds for stock purchases was
partially offset by proceeds from the Company's bank line of credit. As of
December 31, 2000, the Company had repaid $10.0 million of the $55.0 million of
bank line of credit proceeds used during the year. Through March 23, 2001, an
additional 285,000 shares were repurchased in 2001 for a total purchase price of
treasury stock and $10.1 million in payments on notes related to
prior years' acquisitions.$1.1 million.
15
16
On March 11, 1999, the Company announced that its boardBoard of directorsDirectors had
authorized the repurchase of up to $50 million of its common stock on the open
market, from time to time, depending on market conditions. If additionalOn October 24, 2000,
the Board of Directors authorized an increase to up to $100 million for stock
repurchases. As of December 31, 2000, the Company had repurchased approximately
14.4 million shares offor $82.7 million under this plan. Additional stock
are repurchased, thererepurchases may behave a material impact on the Company's cash flow requirements
infor the next twelve months. During 1999, a total of
approximately 1.9 million shares were repurchased at an average purchase price
of $7.78 per share. Subsequent to December 31, 1999, less than 200,000
additional shares have been repurchased.
The Company believes that cash flow from operations and borrowings under its
Line of Credit,credit facility, or other credit facilities that may become available to the
Company in the foreseeable future, will be adequate to meet the working capital
requirements of current operations for at least the next twelve months.
However, there is no assurance (i) that the Company will be able to obtain
financing in amounts sufficient to meet its operating requirements or at terms
which are satisfactory and which allow the Company to remain competitive.competitive, or
(ii) that the Company will be able to meet the financial covenants contained in
its credit facility. The Company's estimate of the period that existing
resources will fund its working capital requirements is a forward-looking
statement that is subject to risks and uncertainties. Actual results could
differ from those indicated as a result of a number of factors, including the
use of such resources for possible acquisitions and the announced stock
repurchase plan.
YEARNEW ACCOUNTING PRONOUNCEMENTS
In March 2000, FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation", which further clarifies APB Opinion
No. 25, "Accounting for Stock Issued to Employees". This interpretation did not
have a material impact on the Company's financial position or its results of
operations.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued. SFAS No. 133, as amended by SFAS Nos. 137 and 138,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It also
requires that all derivatives and hedging activities be recognized as either
assets or liabilities in the Consolidated Balance Sheets and be measured at
fair value. The Yearaccounting for changes in the fair value of the derivative
(that is, gains and losses) depends upon the intended use of the derivative and
resulting designation if used as a hedge. SFAS No. 133, as amended, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000
issue isand therefore will be effective during the result of computer programs being written using two
digits rather that four to define the applicable year. Computer programs or
hardware that fail to recognize dates beyond 1999 could result in system
failures, miscalculations and other problems.quarter ended March 31, 2001. The
Company has experienceddetermined that this standard has no problems withimpact on its computer systems since the beginningfinancial
position or results of 2000 but will
continueoperations and is not currently expected to monitor the systems to assess whether any problems develop. In
addition, the Company has not experienced any significant problemshave a
material impact in the exchange of data or the processing of transactions with business partners (both
vendors and clients) with whom it has material business relationships. The
Company incurred approximately $1.3 million in expenses related to assessing
and remedying any Year 2000 problems and upgrading computer systems, but does
not expect to incur any additional material expenses related to Year 2000
issues going forward.future.
ITEM 7a.7A. 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 effect of a
1% change in interest rates would currently have an impact of $.45 million. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and notes thereto and the
reportreports of Deloitte & Touche LLP and PricewaterhouseCoopers LLP, the Company's
independent accountants,auditors, are set forth on the pages indicated in Item 14.
16
17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- 17 -
18On August 3, 2000, the Company replaced PricewaterhouseCoopers LLP ("PWC")
with Deloitte & Touche LLP ("DT") as the Company's independent auditors. The
change was the result of a formal proposal process conducted by the Company's
Audit Committee and management with several accounting firms. The change was
approved by both the Audit Committee and the Board of Directors.
The reports of PWC on the Company's consolidated balance sheets as of December
31, 1999 and 1998 and the related consolidated statements of operations and
comprehensive income, stockholders equity and cash flows for each of the years
in the three-year period ended December 31, 1999, did not contain an adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles.
There were no disagreements between the Company and PWC as to any matter of
accounting principles or practices, financial statement disclosure, or audit
scope or procedure, which disagreements, if not resolved to the satisfaction of
PWC, would have caused it to make a reference to the subsequent matter of the
disagreement in connection with its reports on the financial statements for
such periods within the meaning of Item 304 (a)(1)(iv) of Regulation S-K.
During the Company's two most recent fiscal years or any subsequent interim
periods prior to the engagement of DT, neither the Company nor anyone on its
behalf consulted with DT concerning: (i) the application of accounting
principles to any transaction or the type of audit opinion that might be
rendered on the Company's financial statements; or (ii) any matter that was
either the subject of a disagreement or an event required to be reported
pursuant to Item 304(a)(1)(iv) of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 relating to executive officers and
directors of the registrant is incorporated herein by reference to the
registrant's definitive proxy statement for the Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 relating to executive compensation is
incorporated herein by reference to the registrant's definitive proxy statement
for the Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 relating to security ownership of certain
beneficial owners and management is incorporated herein by reference to the
registrant's definitive proxy statement for the Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 relating to certain relationships and
related transactions is incorporated herein by reference to the registrant's
definitive proxy statement for the Annual Meeting of Shareholders.
- 18 -
19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
17
18
1. FINANCIAL STATEMENTS. The consolidated financial statements,
and related notes thereto, of the Company with the independent
auditors' reportreports thereon are included in Part IV of this report on
the pages indicated by the Index to Consolidated Financial Statements
and Schedule as presented on page 2019 of this report.
2. FINANCIAL STATEMENT SCHEDULE. The financial statement
schedule of the Company is included in Part IV of this report on the
page indicated by the Index to Consolidated Financial Statements and
Schedule as presented on page 2019 of this report. The independent
auditors' reportreports as presented on pagepages 20, 21 and 41 of this report
appliesapply to the financial statement schedule. This financial statement
schedule should be read in conjunction with the consolidated financial
statements, and related notes thereto of the Company.
Schedules not listed in the Index to Consolidated Financial Statements
and Schedules have been omitted because they are not applicable, not
required, or the information required to be set forth therein is
included in the consolidated financial statements or notes thereto.
3. EXHIBITS. See Item 14(c) below.
(b) REPORTS ON FORM 8-K.
(i) Report on Form 8-K, filed November 19,1999, relating to the
proposed name change of the Company to kforce.com, Inc.None.
(c) EXHIBITS. The exhibits listed on the Exhibits Index are filed as part
of, or incorporated by reference into, this report.
(d) FINANCIAL STATEMENT SCHEDULES. See Item 14(a) above.
-18
19
-
20
ROMAC INTERNATIONAL,KFORCE.COM, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Independent Auditors' Report ........................................................ 21
Consolidated Financial Statements:
Consolidated Balance Sheets - December 31, 1999 and 1998 .......................... 22
Consolidated Statements of Operations and Comprehensive Income - Years ended
December 31, 1999, 1998 and 1997 ................................................ 23
Consolidated Statements of Cash Flows - Years ended
December 31, 1999, 1998 and 1997 ................................................ 24
Consolidated Statements of Changes in Shareholders' Equity - Years ended
December 31, 1999, 1998 and 1997 ................................................ 25
Notes to Consolidated Financial Statements ........................................ 27
Financial Statement Schedule:
Schedule II - Calculation and Qualifying Accounts .................................Page
Independent Auditors' Reports............................................ 20
Consolidated Financial Statements:
Consolidated Balance Sheets - December 31, 2000 and 1999............... 22
Consolidated Statements of Operations and Other Comprehensive Income
(Loss)-Years ended December 31, 2000, 1999 and 1998.................. 23
Consolidated Statements of Cash Flows - Years ended
December 31, 2000, 1999 and 1998..................................... 24
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 2000, 1999 and 1998..................................... 25
Notes to Consolidated Financial Statements............................. 27
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts.... ................... 42
-19
20
-INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of kforce.com, Inc.:
We have audited the accompanying consolidated balance sheet of kforce.com, Inc.
and subsidiaries (the "Company"), formerly known as Romac International, Inc.,
as of December 31, 2000, and the related consolidated statements of operations
and comprehensive income (loss), stockholders' equity, and cash flows for the
year then ended. Our audit also included the accompanying financial statement
schedule.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
2000, and the results of their operations and their cash flows for the year
then ended, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
January 30, 2001
20
21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and ShareholdersStockholders of Romac International, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive income, of
stockholders' equity and of cash flows present fairly, in all material
respects, the financial position of Romac International, Inc., and its
subsidiaries ("the Company") at December 31, 1999, and 1998, and the results of their
operations and their cash flows for each of the threetwo years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Tampa, Florida
February 8, 2000
-21-21
22
ROMAC INTERNATIONAL,KFORCE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------------------------------
2000 1999 1998
--------- ---------
(IN 000'S)
ASSETS
Current Assets:
Cash and cash equivalents ................................ $ 7,9191,865 $ 68,821
Short-term investments ................................... -- 12,0007,919
Trade receivables, net of allowance for doubtful accounts
of $4,417$6,649 and $5,762,$4,417, respectively .................... 125,931 112,545 114,144
Receivables from related parties, current ................ -- 384
Income tax refund receivables ............................................................... -- 23,038 --
Deferred tax asset ....................................... 4,872 3,546 5,702
Prepaid expenses and other current assets ................ 3,682 3,669 3,658
--------- ---------
Total current assets ............................. 136,350 150,717 204,709
Receivables from officers and related parties less current portion ................... 1,058 960 1,721
Furniture and equipment, net ............................... 23,115 27,758
19,869Deferred tax asset, non current ............................ 1,250 1,711
Other assets, net .......................................... 21,060 14,00323,481 19,349
Goodwill, net of accumulated amortization of $9,452$13,135 and
$5,790,$9,452, respectively .................................. 92,764 95,692 93,510
--------- ---------
Total assets ..................................... $ 296,187278,018 $ 333,812296,187
========= =========
LIABILITIES AND SHAREHOLDERS'STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued liabilities ........... $ 24,18017,464 $ 9,26024,180
Accrued payroll costs .................................... 37,778 31,922 41,070
Bank overdrafts .......................................... 8,083 5,824
--
Current portion of capitalCapital lease obligations ............................................. -- 481
743
Current portion of payablesNotes payable to related parties .................................... -- 2,000 10,144
Accrued merger, restructuring, and integration ........... -- 4,931
Income taxes payable ..................................... 2,140 -- 3,213
--------- ---------
Total current liabilities ........................ 65,465 64,407
69,361
Capital lease obligations, less current portion ............Long term debt ............................................. 45,000 -- 461
Deferred tax liability, non current ........................ -- 96
Payables to related parties, less current portion .......... -- 2,000
Other long-term liabilities ................................ 12,516 13,575 6,872
--------- ---------
Total liabilities ................................ 122,981 77,982 78,790
Commitments and contingencies Shareholders'(Note 11)
Stockholders' Equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none
issued and outstanding ................................ -- --
Common stock, $0.01 par; 250,000 shares authorized, 46,68746,959
and 46,40846,687 issued, respectively ....................... 470 467 464
Additional paid-in capital ............................... 191,007 187,262
185,300
Cumulative translation adjustment ........................Accumulated other comprehensive (loss) income ............ (267) (170) 21
Retained earnings ........................................ 46,363 46,646 70,162
Less reacquired shares at cost; 2,61314,802 and 6772,613 shares,
respectively ............................................................................. (82,536) (16,000) (925)
--------- ---------
Total shareholders'stockholders' equity ....................... 155,037 218,205 255,022
--------- ---------
Total liabilities and shareholders'stockholders' equity ....... $ 296,187278,018 $ 333,812296,187
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
-22-22
23
ROMAC INTERNATIONAL,KFORCE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
2000 1999 1998 1997
--------- --------- ---------
(IN 000'S, EXCEPT PER SHARE DATA)
Net service revenues............................. $746,632 $680,086 $479,743revenues ........................ $ 794,997 $ 746,632 $ 680,086
Direct costs of services.........................services .................... 433,441 424,001 388,505
254,132
-------- -------- ----------------- --------- ---------
Gross profit.....................................profit ................................ 361,556 322,631 291,581 225,611
Selling, general and administrative expenses.....expenses 341,812 346,452 224,790 184,876
Merger, restructuring and integration expense....expense -- -- 26,122
--
Depreciation and amortization....................amortization ............... 18,440 14,514 9,507 5,794
Other (income) expense:
Dividend and interest income...................income .............. (288) (1,639) (5,224)
(3,077)
Interest expense...............................expense .......................... 734 423 216 308
Other (income) expense, net....................net ............... (333) 274 23
94
-------- -------- --------
(Loss) income--------- --------- ---------
Income (loss) before income taxes................taxes ........... 1,191 (37,393) 36,147
37,616
Benefit (provision)(Provision) benefit for income taxes.............taxes ........ (1,474) 13,877 (20,708)
(15,545)
-------- -------- ----------------- --------- ---------
Net (loss) income................................ $(23,516) $15,439income ........................... $ 22,071
======== ======== ========
Comprehensive(283) $ (23,516) $ 15,439
Other comprehensive (loss) income:
Foreign currency translation...................translation .............. (97) (191) 63
(21)
-------- -------- ----------------- --------- ---------
Comprehensive (loss) income...................... $(23,707)income ................. $ (380) $ (23,707) $ 15,502
$ 22,050
======== ======== ================= ========= =========
Net (loss) income per share:
Basic.......................................Basic .................................. $ (.01) $ (.53) $ .34
========= ========= =========
Diluted ................................ $ .55
======== ======== ========
Diluted.....................................(.01) $ (.53) $ .33
$ .52
======== ======== ================= ========= =========
Weighted average shares:
Basic.......................................Basic .................................. 42,886 44,781 45,410
40,471
======== ======== ========
Diluted.....................................========= ========= =========
Diluted ................................ 42,886 44,781 47,318
42,264
======== ======== ================= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
-23-23
24
ROMAC INTERNATIONAL,KFORCE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
2000 1999 1998
1997
-------- ----------------- ---------
(IN 000'S)
Cash flows from operating activities:
Net (loss) income ................................................................ $ (283) $(23,516) $ 15,439 $ 22,071
Adjustments to reconcile net (loss) income to
net
cash provided by (used in) operating activities:
Depreciation and amortization .................................. 18,440 14,514 9,507 5,794
Provision for fallouts and lossesbad debts on accounts
and notes receivable ................................................ 7,106 9,768 4,049
4,271
Deferred income taxes ......................................................... (865) 347 (2,742) (891)
Loss on asset sales/disposals .................................. 830 419 1,604 --
(Increase) decrease in operating assets:
Trade receivables, net ................................................ (20,491) (8,169) (33,464) (34,921)
Notes receivable from franchisees ............ -- 82 155
Prepaid expenses and other current assets .......... (13) (43) (1,108) (1,037)
Other assets, net .......................................................... (5,088) (7,281) (5,833) (2,487)(5,751)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued
liabilities .................................................................. (6,716) 14,920 1,229 2,512
Accrued payroll costs .................................................. 8,016 (9,148) 12,932
13,048
Bank overdrafts .............................................................. 2,260 5,824 -- --
Accrued merger, restructuring, and integration
expense .......................................................................... -- (4,931) 4,931
--
Income taxes .................................tax refund (payable) .................... 26,174 (26,129) 29 4,621
Other long-term liabilities ...................................... (1,059) 6,703 4,284
1,201-------- -------- ---------
---------
Cash provided by (used in) provided by operating
activities .......................................................... 28,311 (26,722) 10,939
14,337
-------- ----------------- ---------
Cash flows from investing activities:
Capital expenditures, net .................... (16,779)...................... (6,408) (16,603) (11,820) (6,690)
Acquisitions, net of cash acquired and including
payment on earnout provisions ...................................... (1,221) (6,039) (23,593) (52,127)
Proceeds from sale of furniture and equipment 176 -- 1,706
Proceeds from the sale of short-term
investments .................................................................. -- 12,000 -- 833
Premiums paid for cash surrender value of life
insuranceInsurance policies .................................................... (3,213) (391) (3,292) (1,485)
Purchase of short-term investments ........................ -- -- (10,047)
(1,906)
-------- ----------------- ---------
Cash used in investing activities ................ (10,842) (11,033) (48,752)
(59,669)
-------- ----------------- ---------
Cash flows from financing activities:
Proceeds from bank line of credit .............. 55,000 -- --
Repayments on bank line of credit .............. (10,000) -- --
Payments on capital lease obligations .................. (481) (723) (787) (535)
Payments on notes payable to related parties .... (2,000) (10,144) --
(23)
Payments on (issuance of) notes receivable from
related parties .................................................................. -- 1,143 164 52
Issuance of notes receivable from related
parties .................................... -- (746) (600)
Proceeds from issuance of common stock ....... -- -- 86,515(582)
Proceeds from exercise of stock options .............. 2,513 1,843 6,271
3,210Repurchases of treasury stock .................. (12,699) (15,075) --
Repurchase of treasury stock Plan ............ (15,075)in tender offer
transaction ................................ (55,759) -- (1)--
-------- ----------------- ---------
Cash (used in) provided by
financing activities .................................. (23,426) (22,956) 4,902
88,618
-------- ----------------- ---------
Increase(decrease) in cash and cash equivalents ........ (5,957) (60,711) (32,911) 43,286
Cumulative translation adjustment .................................... (97) (191) 63 (21)
-------- --------- ---------
Cash and cash equivalents at beginning of year .......... 7,919 68,821 101,669
58,404
-------- ----------------- ---------
Cash and cash equivalents at end of year ...................... $ 1,865 $ 7,919 $ 68,821
$ 101,669
======== ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
-24-
25
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN 000'S)
COMMON ADDITIONAL CUMULATIVE STOCK
STOCK PAID-IN TRANSLATION SUBSCRIPTION
CAPITAL ADJUSTMENT RECEIVABLE
Shares Amounts
SHAREHOLDERS' EQUITY:
Balance at December 31, 1996 ............ 34,635 $ 346 $ 87,182 $ (21) $ (13)
Issuance of common stock ................ 4,577 46 86,468 -- --
3-for-2 stock split ..................... 5,184 52 (52) -- --
Exercise of stock options ............... 1,079 11 3,199 -- --
Tax benefit of employee stock options ... -- -- 1,696 -- --
Payments on stock subscription receivable -- -- -- -- 13
Foreign currency translation adjustment . -- -- -- (21) --
Net income .............................. -- -- -- -- --
------ ----- --------- ------ -----
Balance at December 31, 1997 ............ 45,475 455 178,493 (42) --
Exercise of stock options ............... 933 9 6,262 -- --
Tax benefit of employee stock options ... -- -- 545 -- --
Foreign currency translation adjustment . -- -- -- 63 --
Net income .............................. -- -- -- -- --
------ ----- --------- ------ -----
Balance at December 31, 1998 ............ 46,408 464 185,300 21 --
Exercise of stock options ............... 279 3 1,840 -- --
Tax benefit of employee stock options ... -- -- 122 -- --
Foreign currency translation adjustment . -- -- -- (191) --
Net income (loss) ....................... -- -- -- -- --
Repurchase of common stock .............. -- -- -- -- --
------ ----- --------- ------ -----
Balance at December 31, 1999 ............ 46,687 $ 467 $ 187,262 $ (170) $ --
====== ===== ========= ====== =====
The accompanying notes are an integral part of these consolidated financial
statements.
-25-
26
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
CONTINUED (IN 000'S)
RETAINED REACQUIRED
EARNINGS STOCK TOTAL
Shares Amounts
SHAREHOLDERS' EQUITY:
Balance at December 31, 1996 ............ $ 32,652 677 $ (925) $ 119,221
Issuance of common stock ................ -- -- -- 86,514
3-for-2 stock split ..................... -- -- -- --
Exercise of stock options ............... -- -- -- 3,210
Tax benefit of employee stock options ... -- -- -- 1,696
Payments on stock subscription receivable -- -- -- 13
Foreign currency translation adjustment . -- -- -- (21)
Net income .............................. 22,071 -- -- 22,071
-------- ----- -------- ---------
Balance at December 31, 1997 ............ 54,723 677 (925) 232,704
Exercise of stock options ............... -- -- -- 6,271
Tax benefit of employee stock options ... -- -- -- 545
Foreign currency translation adjustment . -- -- -- 63
Net income .............................. 15,439 -- -- 15,439
-------- ----- -------- ---------
Balance at December 31, 1998 ............ 70,162 677 (925) 255,022
Exercise of stock options ............... -- -- -- 1,843
Tax benefit of employee stock options ... -- -- -- 122
Foreign currency translation adjustment . -- -- -- (191)
Net income (loss) ....................... (23,516) -- -- (23,516)
Repurchase of common stock .............. -- 1,936 (15,075) (15,075)
-------- ----- -------- ---------
Balance at December 31, 1999 ............ $ 46,646 2,613 $(16,000) $ 218,205
======== ===== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
-26-24
25
KFORCE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN 000'S)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
---------------- PAID-IN COMPREHENSIVE
Shares Amounts CAPITAL INCOME
------ ------- --------- -------------
STOCKHOLDERS' EQUITY:
Balance at December 31, 1997 ............ 45,475 $455 $ 178,493 $ (42)
Exercise of stock options ............... 933 9 6,262 --
Tax benefit of employee stock options ... -- -- 545 --
Foreign currency translation adjustment . -- -- -- 63
Net income .............................. -- -- -- --
------ ---- --------- -----
Balance at December 31, 1998 ............ 46,408 464 185,300 21
Exercise of stock options ............... 279 3 1,840 --
Tax benefit of employee stock options ... -- -- 122 --
Foreign currency translation adjustment . -- -- -- (191)
Net loss ................................ -- -- -- --
Repurchase of common stock .............. -- -- -- --
------ ---- --------- -----
Balance at December 31, 1999 ............ 46,687 467 187,262 (170)
Exercise of stock options ............... 272 3 2,510 --
Tax benefit of employee stock options ... -- -- 995 --
401(k) matching contribution ............ -- -- 406 --
Employee stock purchase plan contribution -- -- (166) --
Foreign currency translation adjustment . -- -- -- (97)
Net loss ................................ -- -- -- --
Repurchase of common stock .............. -- -- -- --
------ ---- --------- -----
Balance at December 31, 2000 ............ 46,959 $470 $ 191,007 $(267)
====== ==== ========= =====
The accompanying notes are an integral part of these consolidated financial
statements.
25
26
KFORCE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
CONTINUED (IN 000'S)
REACQUIRED STOCK
RETAINED --------------------
EARNINGS Shares Amounts TOTAL
-------- ------- -------- ---------
STOCKHOLDERS' EQUITY:
Balance at December 31, 1997 ............. $ 54,723 677 $ (925) $ 232,704
Exercise of stock options ................ -- -- -- 6,271
Tax benefit of employee stock options .... -- -- -- 545
Foreign currency translation adjustment .. -- -- -- 63
Net income ............................... 15,439 -- -- 15,439
-------- ------- -------- ---------
Balance at December 31, 1998 ............. 70,162 677 (925) 255,022
Exercise of stock options ................ -- -- -- 1,843
Tax benefit of employee stock options .... -- -- -- 122
Foreign currency translation adjustment .. -- -- -- (191)
Net loss ................................. (23,516) -- -- (23,516)
Repurchase of common stock ............... -- 1,936 (15,075) (15,075)
-------- ------- -------- ---------
Balance at December 31, 1999 ............. 46,646 2,613 (16,000) 218,205
Exercise of stock options ................ -- -- -- 2,513
Tax benefit of employee stock options .... -- -- -- 995
401(k) matching contribution ............. -- (72) 479 885
Employee stock purchase plan contribution -- (217) 1,443 1,277
Foreign currency translation adjustment .. -- -- -- (97)
Net loss ................................. (283) -- -- (283)
Repurchase of common stock ............... -- 12,478 (68,458) (68,458)
-------- ------- -------- ---------
Balance at December 31, 2000 ............. $ 46,363 14,802 $(82,536) $ 155,037
======== ======= ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
26
27
ROMAC INTERNATIONAL,KFORCE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN 000'S EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
ROMAC International,kforce.com, Inc. and subsidiaries (the "Company") is a provider of professional
and technical specialty staffing services in more than 9597 locations in 45
markets in the United States.States and Canada. The Company provides its customers value-added
staffing services in the following specialties: Information Technology, Finance
and Accounting, Human Resources and Operating Specialties. These services are
provided through both traditional staffing channels and the Company's web-based
kforce Interactive staffing solution. The Company provides
flexible staffing services on both a professional temporary and contract basis
and provides search services on both a contingency and retained basis. The
Company principally serves Fortune 1000 clients.
On November 17, 1999,May 5, 2000 the Board of DirectorsStockholders approved a resolution toname change the Company's name to kforce.com, Inc., subject to approval by the Company's
shareholders at the next annual meeting. Effective January 31, 2000, the
Company is operating asfrom Romac
International, Inc. d/b/a kforce.com.("Romac") to kforce.com, Inc.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Romac
International,kforce.com, Inc.
and its subsidiaries. All material intercompany accounts and transactions have
been eliminated in the consolidated financial statements.
STOCK SPLIT/DIVIDEND
The Company declared a two-for-one stock split effected as a 100% stock
dividend on its common stock on October 3, 1997. All share-related data in
these consolidated financial statements have been adjusted retroactively to
give effect to these events as if they had occurred at the beginning of the
earliest period presented.
PUBLIC OFFERINGS
The Company completed a secondary offering of 4,577 shares of common stock on
October 17, 1997. The proceeds of $86,515, net of underwriters' discounts and
other offering costs, were being used to finance business acquisitions and for
general working capital purposes.consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company classifies all highly liquid investments with an original maturity
of three months or less as cash equivalents.
INVESTMENTS
Investments in mutual funds and common stock have been classified as available
for sale and, as a result, are stated at fair market value. Mutual funds
available for current operations are classified in the balance sheet as
short-term investments while investments in common stock are included in other
assets. Unrealized holding gains and losses are included as a component of
shareholders' equity until realized. At December 31, 1999 and 1998, there were
no unrealized gains or losses.
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28
FURNITURE AND EQUIPMENT
Furniture and equipment are carried at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. The cost of leasehold improvements is amortized
using the straight-line method over the terms of the related leases which range
from three to seven years.
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. The Company's
policy is to replace individuals who fail to continue employment for the period
of time specified in the agreements for search assignments, generally thirty to
ninety days. Revenue from Search Fees is shown on the Consolidated Statement of
Operations net of a reserve for candidates not remaining in employment for the
guarantee period, including estimatesperiod.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements". This
pronouncement summarizes certain of future deferrals relatedthe SEC staff's views on applying generally
accepted accounting principles to placements
maderevenue recognition. The Company is
27
28
required to be in 1999.compliance with SAB 101 for our fiscal year ending December
31, 2000. The adherence to SAB 101 requirements did not have a material impact
on our results of operations, financial position or cash flows.
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 effectsbenefits of deductions attributable to employees'
disqualifying dispositions of shares obtained from incentive stock options are
reflected in additional paid-in capital.
STOCK BASED COMPENSATION
The Company has elected to continue accounting for stock based compensation
under the intrinsic value method of accounting for stock based compensation as
provided under APB No. 25 and has disclosed pro forma net income and earnings
(loss) per share amounts using the fair value based method prescribed by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" ("SFAS 123").
SELF-INSURANCE
The Company offered an employee benefit program for certain employees through
September 30, 1998, and offers a program 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$150 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.
FOREIGN CURRENCY TRANSLATION
ForeignOTHER COMPREHENSIVE INCOME
Other comprehensive income includes foreign currency translation adjustments
which 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.or historical rates depending upon the related assets. Resulting
foreign currency translation adjustments are recorded in stockholders' equity.
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
-28-
29
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 its financial performance or
reporting and expects to adopt this standard during the year ending December 31,
2000.
EARNINGS PER SHARE
Under Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), basic
earnings (loss) per share is computed as earnings divided by weighted average
shares outstanding. Diluted earnings (loss) per share includes the dilutive
effects of stock options and other potentially dilutive securities.
Options that were outstanding, but were antidilutive, and therefore were
excluded from the computation of diluted shares, totaled 5,751, 5,289, 1,207 and
1581,207 shares of common stock, for 2000, 1999, 1998 and 1997,1998, respectively, at option
prices per share ranging from $0.980 to $28.125, $ 0.980 to $30.063, share in 1999,and
$24.125 to $30.063 per share in 2000, 1999 and 1998, and $16.13 to $20.63 per share in 1997.respectively. The options, which
expire on various dates ranging from July 2004January 2005 to October 2009 were still
outstanding at December 31, 1999.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial statements
to conform with the 1999 presentation.2000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required
28
29
in interpreting data to develop the estimates of fair value. The fair values of
the Company's financial instruments are estimated based on current market rates
and instruments with the same risk and maturities. The fair values of cash and
cash equivalents, accounts receivable, short-term investments, accounts
payable, notes payablelong term debt, other non-current liabilities and payables to related
parties approximate the carrying values of these financial instruments.
GOODWILL
Goodwill, net of accumulated depreciation, totaled $92,764 and $95,692 at
December 31, 2000 and 1999, respectively. Goodwill is amortized on a
straight-line basis over a fifteen to thirty year period. Goodwill amortization
expense was $4,231, $3,857 and $3,212 for the years ended December 31, 2000,
1999 and 1998, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
Management periodically reviews the carrying value of goodwill and other
long-lived assets to determine if an impairment has occurred. Any impairment
loss would have been recorded in the period identified. No such losses were
recorded in the accompanying Consolidated Statements of Operations and Other
Comprehensive Income (Loss).
CAPITALIZED SOFTWARE
During 1997, the Company began the development and implementation of new
computer software to enhance performance of the accounting and operating
systems. The Company accounts for direct internal and external costs subsequent
to the preliminary stage of this project under the principles of SOP 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". Software development costs are being capitalized and classified
as other assets and amortized over the estimated useful life of the software
(typically three years) using the straight-line method. The Company continues
development and enhancements to its accounting and operating computer software.
Direct internal and external costs subsequent to the preliminary stage of each
of these projects are being capitalized and classified as capitalized software,
a component of other assets.
DEFERRED LOAN COSTS
Costs incurred to secure the Company's Credit Facilities have been capitalized
and are being amortized over the terms of the related agreements.
NON-COMPETE AGREEMENTS
Payments made to enter into non-compete agreements have been capitalized and
are being amortized on a straight-line basis over the terms of the related
agreements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 2000, FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation", which further clarifies APB Opinion
No. 25, "Accounting for Stock Issued to Employees". This interpretation did not
have a material impact on the Company's financial position or its results of
operations.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued. SFAS No. 133, as amended by SFAS Nos. 137 and 138,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It also
requires that all derivatives and hedging activities be recognized as either
assets or liabilities in the Consolidated Balance Sheets and be measured at
fair value. The accounting for changes in the fair value of the derivative
(that is, gains and
29
30
losses) depends upon the intended use of the derivative and resulting
designation if used as a hedge. SFAS No. 133, as amended, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000 and therefore
will be effective during the quarter ended March 31, 2001. The Company has
determined that this standard has no impact on its financial position or
results of operations and is not currently expected to have a material impact
in the future.
2. FURNITURE AND EQUIPMENT
Major classifications of furniture and equipment and related asset lives are
summarized as follows:
DECEMBER 31,
-----------------
USEFUL LIFE 2000 1999 1998
----------- ------- -------
Furniture and equipment.................... 5-7 years $20,436 $14,058
Computer equipment......................... 3-5 years 24,342 16,450
Airplane................................... 5 years 1,889 1,746
Leasehold improvements..................... lease term 2,746 1,559
------- -------
49,413 33,813
Less accumulated depreciation and
amortization............................. 21,655 13,944 ------- -------
Furniture and equipment.................... 5-7 years $17,679 $20,436
Computer equipment......................... 3-5 years 20,834 24,342
Airplane................................... 5 years 1,889 1,889
Leasehold improvements..................... lease term 4,997 2,746
Land....................................... 1,310 -
------- -------
46,709 49,413
Less accumulated depreciation ............. 23,594 21,655
------- -------
$23,115 $27,758 $19,869
======= =======
IncludedIn 2000, the Company purchased land in computer equipment is approximately $2,600 subjectTampa, FL. The Company subsequently sold
the portion of this land on which its new headquarters facility will be built
to a noncancelable capitalreal estate developer. The Company will lease commitment with a three-year term commencing on
July 1, 1997.
-29-
30the facility for 15 years
from the developer once construction is complete in late 2001. Leasehold
improvements includes approximately $1,865 in improvements related to the
headquarters facility. Depreciation of the improvements will begin upon the
commencement of the lease. Land consists of $1,310 for the remaining parcel of
property not sold to the developer.
3. ACQUISITIONS
GoodwillFOR THE YEAR ENDED DECEMBER 31, 2000
During 2000, the Company had no acquisitions. During 2000, the Company settled
earnout provisions on certain prior acquisitions for approximately $1,221.
These amounts have been recorded as purchase price consideration and intangible assets totaled $95,692 and $93,510 at December 31, 1999
and 1998, respectively. Goodwill is amortized on a straight-line basis over a
fifteen to thirty year period and intangible assets are
amortized over the life
of the employment agreement (five to eight years). Management periodically
reviews the potential impairment of goodwillincluded in order to determine the proper
carrying value of goodwill as of each balance sheet date presented. Goodwill
amortization expense was $3,857, $3,212 and $1,469 for the years ended December
31, 1999, 1998 and 1997, respectively.goodwill.
FOR THE YEAR ENDED DECEMBER 31, 1999
In January 1999, the Company acquired substantially all of the assets of
Network Training Solutions, Science Solutions, Inc. and Technology Consulting
Group for an aggregate purchase price of approximately $5,100. During 1999, the
Company also settled earnout provisions on certain prior acquisitions for
approximately $1,300. These amounts have been recorded as purchase price
consideration and are included in goodwill.
FOR THE YEAR ENDED DECEMBER 31, 1998
The Company completed its merger with Source Services Corporation ("Source") on
April 20, 1998, in a transaction accounted for as a pooling of interests.
Accordingly, all historical results have been restated to reflect the combined
results for the Company and Source for all periods presented. The common stock
of Source was converted to shares of the Company using a 1.1351 ratio.
30
31
There were no purchasedpurchase acquisitions by the Company during the year ended
December 31, 1998. However, the Company settled the earnout provisions on
certain prior acquisitions for $18,500 (see also Note 9). Duringduring 1998, approximately $23,593 of earnout
provisions related to prior acquisitions were paid. These amounts have been
recorded as additional purchase price consideration and are included in
goodwill.
FOR THE YEAR ENDED DECEMBER 31, 1997
In January 1997, the Company acquired substantially all of the assets of Career
Enhancement International of Massachusetts (CEIM), a provider of permanent
placement and contract services for information technology personnel. The
purchase price was approximately $4,400, subject to adjustment upon attainment
of certain operating results.
In March 1997, the Company acquired all of the outstanding capital stock of
Professional Application Resources Incorporated (PAR), a provider of
information technology contract personnel. The purchase price was approximately
$4,700.
In September 1997, the Company acquired all of the outstanding capital stock of
Uni*Quality Systems Solutions, Inc. (UQ), a provider of contract services for
information technology personnel. The purchase price was approximately $19,600,
subject to adjustment upon attainment of certain operating results. Also in
September 1997, the Company acquired substantially all of the assets of Sequent
Associates, Inc. (Sequent), a provider of supplemental contract personnel
staffing specializing in information technology and engineering professionals.
The purchase price was approximately $20,300, subject to adjustment upon
attainment of certain operating results.
In November 1997, the Company acquired the fixed assets of DP Specialists of
Colorado, Inc. (DPSE), a provider of permanent placement and staff augmentation
contract services for information technology personnel. The purchase price,
including a non-compete agreement, was approximately $3,300.
In December 1997, the Company acquired substantially all of the assets of The
Center For Recruiting Effectiveness, Inc. (CRE), a provider of human resources
personnel on a permanent and contract basis. The purchase price was
approximately $2,100, subject to adjustment upon attainment of certain
operating results.
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31
The Company has accounted for all acquisitions, except for the Source
transaction, using the purchase method of accounting. The results of these
purchased companies' operations have been included with those of the Company
from the dates of the respective acquisitions.
The pro forma results of
operations listed below reflect purchase accounting and pro forma adjustments
as if the transactions occurred as of the beginning of 1997. The unaudited pro
forma consolidated financial statements are not necessarily indicative of the
results that would have occurred if the assumed transaction had occurred on the
dates indicated or the expected financial position or results of operations in
the future.
1997
-----------
(UNAUDITED)
Net service revenue........................................ $514,850
Gross profit............................................... 235,067
Income before income taxes................................. 37,793
Net income................................................. 22,060
Earnings per share -- Basic................................ $ .55
-- Diluted.............................. $ .52
4. OTHER ASSETS
DECEMBER 31,
----------------
1999 1998
------- ------
Cash surrender value of life insurance policies............. $10,435 $ 5,572
Capitalized software, net of amortization................... 8,294 7,128
Deferred tax asset - Noncurrent portion..................... 1,711 --
Other....................................................... 620 1,303
------- ------
$21,060 $14,003DECEMBER 31,
----------------
2000 1999
------- ------
Cash surrender value of life insurance policies............. $13,648 $10,435
Capitalized software, net of amortization................... 7,914 8,294
Deferred loan cost, net of amortization..................... 1,431 -
Other....................................................... 488 620
------- ------
$23,481 $19,349
======= ======
The cashCash surrender value of life insurance policies relates to policies maintained
on key employeesby the Company that will be used to fund deferred compensation agreementsobligations in the Deferred
Compensation Plan (Note 9) with
a cash surrender valuevalues of $10,435$13,648 and $5,114$10,435 at
December 31, 2000 and 1999, respectively.
Amortization expense of capitalized software was $3,331 and 1998,
respectively,$2,915, in December
31, 2000 and key man life insurance on officers with a cash surrender1999 respectively.
Amortization expense of deferred loan costs was $659 in December 31, 2000.
The Company has included the value of $458non-compete agreements totaling $187 and
$270 at December 31, 1998.
During 1997,2000 and 1999, respectively, in Other. The non-compete
agreements are being amortized on a straight-line basis over the Company began the development and implementation of new
computer software to enhance performancelives of the
accounting and operating
systems. Direct internal and external costs subsequent to the preliminary stagerelated employment agreements. Amortization expense of this project are being capitalized and classified as other assets.
Capitalized software development costs are amortized over the estimated useful
lifenon-compete agreements
was $83 for each of the years ended December 31, 2000, 1999, and 1998. In
addition, Other includes $223 of prepaid software (typically three years) using the straight-line method.license costs.
5. LINE OF CREDIT AND CAPITAL LEASE OBLIGATION
DECEMBER 31,
---------------
1999 1998
------ ------
Obligation under capital lease with quarterly payments of
principal and interest at 8.3% through June 2000.......... $ 481 $1,204
Less current maturities..................................... 481 743
------ ------
$ -- $ 461
====== ======
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32
TheDECEMBER 31,
----------------
2000 1999
------- ----
Bank line of credit ..................................... $45,000 $ --
Obligation under capital lease with quarterly payments of
principal and interest at 8.3% through June 2000 ...... -- 481
------- ----
45,000 481
Less current maturities ................................. -- 481
------- ----
$45,000 $ --
======= ====
During 1999, the Company hashad an unsecured line of credit agreement that provides for up toin the
amount of $30,000 of working capital to the Company for general corporate purposes. This
agreement matures("Old Credit Facility") which matured on March 31, 2000 and bears2000. The
interest atrate on the Old Credit Facility was up to
150 basis
points31
32
1.5% above the average rate at which deposits in U.S. dollars were offered in
the London Interbank Market. This agreement contains restrictive covenants
which require the maintenance of certain financial ratios. No amounts were outstanding under the lineOld Credit
Facility at either December 31, 1999 or 1998.1999.
On May 4, 2000, the Company entered into a $35 million Revolving Line of
Credit Agreement with Bank of America, N.A. (the "Line of Credit"). The Line of
Credit provided for a maximum revolving credit facility of $35 million (based
on the Company's eligible receivables). Under its terms, prepayments on the
Line of Credit were allowed at any time, with any remaining unpaid balance due
two years from closing. Borrowings under the Line of Credit are secured by all
of the assets of the Company and its subsidiaries. Interest rates on the
outstanding balance are to be calculated based on: (i) the London Interbank
Offered Rate ("LIBOR") plus (ii) from 1.75% to 3.00% based on certain financial
ratios of the Company. Fees payable by the Company in connection with the Line
of Credit also varied with these financial ratios. The terms of the Line of
Credit also included certain financial covenants related to quarterly minimum
requirements for EBITDA, fixed charge coverage ratio and tangible net worth and
maximum requirements for leverage ratio. There were also certain limitations on
investments and acquisitions, dividends and repurchases of the Company's stock.
The Company is currently negotiatingentered into an Amended and Restated Credit Agreement (the "Credit
Facility") on November 3, 2000, with Bank of America, N.A. ("BA"). As of
December 31, 2000, there was $45,000 outstanding on the Credit Facility. The
Credit Facility provides for a new linemaximum revolving credit facility of credit.$90 million
(not to exceed 85% of the Company's Eligible Receivables, as defined in the New
Credit Facility). Under its terms, prepayments on the Credit Facility are
allowed at any time, with any remaining unpaid balance due November 3, 2003.
Borrowings under the Credit Facility are secured by all of the assets of the
Company and its subsidiaries. Amounts borrowed under the Credit Facility will
bear interest during the period beginning on November 3, 2000 until the bank's
receipt of the Company's financial statements for the fiscal quarter ended
March 31, 2001 at a rate per annum equal either to 0.50% plus BA's Prime Rate
("Prime") or to reserve adjusted LIBOR (as defined in the Credit Facility) plus
2.70% adjusted monthly. Following delivery of the Company's financial
statements for the fiscal quarter ended March 31, 2001, performance pricing
will be available, ranging from Prime to Prime plus 0.75% and LIBOR plus 1.75%
to LIBOR plus 3.25%, pursuant to certain financial performance targets as set
forth in the Credit Facility. Pricing will thereafter be changed quarterly
based on the previous four quarters' performance. The terms of the Credit
Facility also include certain financial covenants only if the total amount
borrowed under the Credit Facility exceeds specified amounts. These financial
covenants relate to quarterly EBITDA as compared to the Company's EBITDA
projections. There are also certain limitations on investments and
acquisitions, and repurchases of the Company's stock. Under the terms of this
Agreement, the Company is prohibited from making any dividend distributions.
The Credit Facility contains a provision that limits the dollar amount of
common stock the Company may repurchase subsequent to November 3, 2000 to $55
million. In February 2001, the Credit Facility was amended to increase the
maximum amount of common stock the Company may repurchase to $72 million.
6. MERGER, RESTRUCTURING AND INTEGRATION EXPENSES
In connection with the 1998 Source merger, $26,122 of one-time merger,
restructuring, and integration related expenses were identified and recorded in
1998. These charges included direct merger costs of approximately $8,265, which
consisted of professional fees and other transaction costs associated with the
merger, approximately $4,606 of severance and other termination-related costs
to be incurred in connection with anticipated staff reductions, $5,885 costs in
connection with consolidation of certain office facilities and related
equipment, and approximately $7,366 in other merger and integration related
expenses.
At December 31, 1999 and 1998, the remaining accrued expenses balance associated with
the above charge were $-0- andwas $4,931, respectively, of which approximately $2,744 related to severance
and other termination-related costs, approximately $1,631 related to the
consolidation of certain office facilities and related equipment and
approximately $556 related to other merger and integration related expenses at December 31, 1998.expenses.
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33
7. INCOME TAXES
The benefit (provision) for income taxes consists of the following:
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------- --------- ---------
Current:
Federal................................... $13,252 $(19,156) $(13,156)
State..................................... 972 (4,294) (3,281)
Deferred.................................. (347) 2,742 892
------- ------- -------
$13,877YEARS ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
-------- -------- --------
Current:
Federal ............... $ (2,025) $ 13,252 $(19,156)
State ................. (314) 972 (4,294)
Deferred .............. 865 (347) 2,742
-------- -------- --------
$ (1,474) $ 13,877 $(20,708) $(15,545)
=======
======== ========
========
The benefit (provision) for income taxes shown above varied from the statutory
federal income tax rates for those periods as follows:
YEARS ENDED
DECEMBER 31,
------------------
1999 1998 1997
---- ---- ----
% % %
Federal income tax rate............................. (35.0) 35.0 35.0
State income taxes, net of federal tax benefit...... (5.0) 5.0 5.5
Non-deductible items................................ 1.8 16.1 1.0
Goodwill amortization............................... 1.0 1.2 .3
Other............................................... .1 - (.5)
---- ---- ----
Effective tax rate.................................. (37.1) 57.3 41.3
YEARS ENDED
DECEMBER 31,
-----------------------
2000 1999 1998
----- ---- -----
% % %
Federal income tax rate ............................ (34.0) 35.0 (35.0)
State income taxes, net of federal tax benefit ..... (3.3) 5.0 (5.0)
Non-deductible items ............................... (56.6) (1.8) (16.1)
Goodwill amortization .............................. (30.4) (1.0) (1.2)
Other .............................................. .6 (.1) --
----- ---- -----
Effective tax rate ................................. (123.7) 37.1 (57.3)
====== ==== =====
Nondeductible items consist primarily of the direct costs of the Source merger
and the portion of meals and entertainment expenses which are not deductible
for tax purposes.
-32-33
3334
Deferred income tax assets and liabilities shown on the balance sheet are
comprised of the following:
DECEMBER 31,
-----------------------
1999 1998
------- -------
Deferred taxes, current:
Assets
Allowance for bad debts ................ $ 1,426 $ 2,270
Accrued liabilities .................... 2,154 3,432
------- -------
3,580 5,702
Liabilities
Accrued liabilities .................... (34) --
------- -------
Net deferred tax asset, current ........ $ 3,546 $ 5,702DECEMBER 31,
--------------------
2000 1999
------- -------
Deferred taxes, current:
Assets
Allowance for bad debts ...................... $ 2,261 $ 1,426
Accrued liabilities .......................... 2,612 2,154
Charitable contribution deduction carryforward 32 --
------- -------
4,905 3,580
Liabilities
Accrued liabilities .......................... (33) (33)
------- -------
Net deferred tax asset ....................... $ 4,872 $ 3,546
======= =======
Deferred taxes, non-current:
Assets
Deferred compensation ........................ $ 5,057 $ 5,600
State net operating loss carryforward ........ 718 968
------- -------
5,775 6,568
Liabilities
Depreciation and amortization ................ (4,525) (4,857)
------- -------
Net deferred tax asset ....................... $ 1,250 $ 1,711
======= =======
Deferred taxes, non-current:
Assets
Deferred compensation .................. $ 5,600 $ 2,710
Deferred rent .......................... 968 --
------- -------
6,568 2,710
Liabilities
Depreciation and amortization .......... (4,857) (2,806)
------- -------
Net deferred tax asset (liability),
non-current ............................ $ 1,711 $ (96)
======= =======
A valuation allowance on the net deferred tax assets has not been recorded due
to the presence of taxable income in years available for carryback and
management's expectation that it is more likely than not that deferred tax
assets will be realized in future periods.
At December 31, 1999,2000, the Company had approximately a $6,700 state tax net
operating loss of approximately
$32,900. It is expected that the entire net operating loss will be carried back
to prior years for refund of income taxes paid in those years. Further, the
Company had state net operating losses of approximately $34,700. Of this
amount, approximately $14,800 is expected to be carried back to prior years for
refund of income taxes paid in those years, and approximately $19,900which will be carried forward to be offset against future state
taxable income. The amount of the state tax net operating loss carryforward
expires in varying amounts through 2014.
8. RELATED PARTIES
RECEIVABLES FROM RELATED PARTIES
Receivables from related parties are summarized as follows:
DECEMBER 31,
----------------------
1999 1998
------- -------
Receivables from officers and shareholders ..... $ 960 $ 1,644
Other related party receivables ................ -- 461
------- -------
960 2,105
Less current maturities ........................ -- 384
------- -------
$ 960 $ 1,721
======= =======
- 33 -
34
Receivables from officers and shareholdersstockholders include non interestnon-interest bearing
receivables for premiums paid on split dollar life insurance policies.policies and other
notes receivable. Repayment terms on the remaining unsecuredother notes receivables range from one
to two years at rates of 8%6% to 9%8%.
PAYABLESNOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties include the following:
DECEMBER 31,
----------------------
1999 1998
------- ------
Notes payable due in annual installments through March
2000 relating to contingent purchase price
adjustments on previous acquisitions (see Note 3) ........ $ 2,000 $12,144
Less current maturities .................................... 2,000 10,144
------- -------
$ -- $ 2,000
======= =======
RELATED PARTY TRANSACTIONS
In March 1999, the Company guaranteed a note payable by oneAs of its officers. At December 31, 1999, the balanceCompany had $2,000 of this notenotes payable outstanding to
a related party relating to contingent purchase price adjustments on previous
acquisitions (see Note 3). This obligation was approximately $1,779. During
1999, consultingretired in 2000.
RELATED PARTY TRANSACTIONS
Consulting services totaling $371 and $595 for 2000 and 1999, respectively, were
provided to the Company by a company owned by the spouse of the Chairman of the
Board. Also during 1999,On July 1, 2000, the consulting contract was cancelled. In addition, an
aircraft charter company owned 100% by the Chairman of the Board provided
charter services to the Company in the amount of $125.$125 in both 2000 and 1999. The
Company billed the aircraft charter company $22 and $35 for the use of the
Company's airplane in 1999.2000 and 1999, respectively. Similar agreements for
consulting services and aircraft
34
35
usage have been entered into for 2000. During 1998, the Company purchased an airplane at cost for
$1,746 from the Chairman's charter company. The Company also had a consulting
agreement with a company affiliated with one of its outside board members.
Services under this agreement were completed by December 1998 at an aggregate
cost of approximately $187.2001. The Company has operating leases with
related parties as discussed in Note 12.11.
9. EMPLOYEE BENEFIT PLANS
401(k) SAVINGS PLAN
The Company has a qualified defined contribution 401(k) plan covering
substantially all full-time employees. The plan offers a savings feature and
Company matching contributions. Employer matching contributions are
discretionary and are funded annually as approved by the Board of Directors.
The match has been made in the Company's stock for 1999 and 2000. Assets of
this plan are held in trust for the sole benefit of employees.
Prior to the merger, Source merged its profit sharing plan and 401(k) plan
("Source plan"Plan") effective October 1, 1997. The Source planPlan covered all active
participants who were participating in either the previous 401(k) plan or
profit sharing plan or those employees who met the Source Plan's requirements
for eligibility. This planThe Source Plan was merged with the Company's 401(k) plan
("the Plan") effective July 1, 1998. At December 31, 2000, 1999 and 1998, the
Plan held 1,615, 1,772 and 2,303 shares, respectively, of the Company's stock,
representing approximately 5.0%, 4.0% and 5.0%, respectively of the Company's
outstanding shares. Employer contributions to the 401(k) plans totaled $1,165,
$892 and $1,609 in 2000, 1999 and $2,084 in
1999, 1998, and 1997, respectively.
Prior to their mergers into the Company, certain franchisees had separate
qualified defined contribution 401(k) plans covering substantially all
full-time employees of the subsidiaries. No employer matching contributions
were made for these plans for the years ended December 31, 1999, 1998 and 1997.
Employees of these franchisees are now covered under the Company's plan
described above.
- 34 -
35
EMPLOYEE STOCK PURCHASE PLAN
During 1996, Source enacted an Employee Stock Purchase Plan. This plan allowed
employees to purchase stock at the current market price through payroll
deductions, without paying commissions on purchases. Only Source employees
hired prior to April 20, 1998 were eligible to participate in the Employee
Stock Purchase Plan. There was no waiting period for enrollment prior to April
20, 1998.
Subsequent to December 31, 1999Effective January 1, 2000, the Company placed into effect a new Employee Stock
Purchase Plan which had been approved during 1999 and which allows all
employees to purchase stock at a 15% discount from market prices and without
commissions on the purchases. Employees are eligible to participate in the plan
as of the next plan enrollment date following their date of hire. This plan
replaces the prior Source plan.Employee Stock Purchase Plan. For the year ended
December 31, 2000, the Company issued 632 shares of common stock, at an average
purchase price of $3.73 per share, pursuant to the Employee Stock Purchase
Plan. These shares were transferred to the plan from the Company's treasury
stock. Of the 632 shares issued, the Company issued 217 of the shares at an
average price of $5.90 during the year and 415 shares at an average price of
$2.60 subsequent to year-end. The shares issued subsequent to year-end related
to employee contributions made during the year.
DEFERRED COMPENSATION PLAN
The Company has a non-qualified deferred compensation plan pursuant to which
eligible officers and highly compensated key employees may elect to defer part
of their compensation to later years. The Company accrues interest and
discretionary Company
matching contributions. These amounts, which are classified as other long-term
liabilities, are payable upon retirement or termination of employment, and at
December 31, 2000 and 1999, aggregated $12,966 and 1998, aggregated
$14,001, and $6,773, respectively. The
Company has insured the lives of the participants in the deferred compensation
programplan to assist in the funding of the deferred compensation liability. The cash
surrender value of these Company-owned life insurance policies, $10,435$13,648 and
$5,114$10,435 at December 31, 19992000 and 1998,1999, respectively, is included in other
assets. Compensation expense of $439, $1,938, $825 and $234$825 was recognized for the
plan for the years ended December 31, 2000, 1999, and 1998, and 1997, respectively.
35
36
SPLIT DOLLAR LIFE INSURANCE
In 1995, the Company entered into split dollar and cross-purchase split dollar
life insurance agreements with several officers and their estates whereby the
Company pays a portion of the life insurance premiums on behalf of the officers
and their estates. The Company has been granted a security interest in the cash
value and death benefit of each policy equal to the amount of the cumulative
premium payments made by the Company. The intent of these agreements was to, in
the event of an officer's death, provide liquidity to pay estate taxes and to
provide surviving officers with the ability to purchase shares from a deceased
officer's estate, minimizing the possibility of a large block of the Company's
common shares being put on the open market to the potential detriment of the
Company's market price and to allow the Company to maintain a concentration of
voting power among its officers.
During 1999, the Company decided to cancel
these policies.
Premiums paid to date that have not been recovered from policy cancellations
and which are included in related party receivables were $760$758 and $1,298$760 at
December 31, 19992000 and 1998,1999, respectively.
10. STOCK OPTION PLANS
During 1994, the Company established an employee incentive stock option plan
which authorized the issuance to employees of options to purchase common stock.
During 1996, this plan was amended to increase the number of shares of common
stock that may be issued under the plan to 6,000 to allow persons other than
employees to participate in the plan, to allow incentives in the form of
Nonqualified Stock Options, Stock Appreciation Rights and Restricted Stock to
be awarded under the plan and to effect a change in the plan name to the Romac
International, Inc. Stock Incentive Plan. During 1997, the Plan was amended to
increase the number of shares of common stock that may be issued under the Plan
to 9,000. The Plan was again amended in 1999 to increase the number of shares
authorized for issuance to 12,000.
During 1995, the Company established a non-employee director stock option plan
which authorized the issuance to non-employee directors of options to purchase
common stock. The maximum number of shares of common stock that can be issued
under this plan is 400.
- 35 -
36
Prior to the merger, Source had an incentive stock option plan for eligible
employees of Source and a non-employee director option plan. Effective with the
merger, all stock options previously granted and outstanding under these plans
were exchanged for approximately 638 of the Company's stock options.
A summary of the Company's stock option activity is as follows:
NON- WEIGHTED WEIGHTED
EMPLOYEE EMPLOYEE AVERAGE AVERAGE
INCENTIVE DIRECTOR EXERCISE FAIR VALUE
STOCK OPTION STOCK OPTION PRICE PER OF OPTIONS
PLAN PLAN TOTAL SHARE GRANTED
------------ ------------ ----------- --------- ----------
Outstanding as of
December 31, 1996 .......... 4,299 120 4,419 $ 6.74
Granted .................... 1,279 71 1,350 $13.05 $ 5.88
Exercised .................. (1,078) -- (1,078) $ 2.98
Forfeited .................. (304) -- (304) $10.91
------ ---- ------
Outstanding as of
December 31, 1997 ............ 4,196 191 4,387 $ 9.36
Granted ................................ 1,899 101 2,000 $25.71 $10.86
Exercised ............................ (933) -- (933) $ 6.75
Forfeited ............................ (587) -- (587) $15.54
------ ---- ----------- --- -----
Outstanding as of
December 31, 1998 ............ 4,575 292 4,867 $15.84
Granted ................................ 2,353 60 2,413 $ 7.68 $ 7.73
Exercised ............................ (342) -- (342) $ 5.26
Forfeited ............................ (1,522) (127) (1,649) $19.19
------ ---- ----------- --- -----
Outstanding as of
December 31, 1999 ............ 5,064 225 5,289 $11.76
====== ==== ======
Exercisable atGranted ............ 2,204 94 2,298 $10.77 $ 4.89
Exercised .......... (283) -- (283) $ 8.93
Forfeited .......... (1,528) (25) (1,553) $12.75
----- --- -----
Outstanding as of
December 31:
1999 .................... 1,535 127 1,66231, 2000 .................... 847 42 889
2001 .................... 1,322 38 1,360
2002 .................... 1,321 18 1,339
2003 .................... 39 -- 39.. 5,457 294 5,751 $11.04
===== === =====
36
37
Employee Non-Employee
Incentive Director
Exercisable at Stock Option Stock Option
December 31: Plan Plan Total
------------------- ------------ ------------ -----
2000............ 1,797 213 2,010
2001............ 1,356 62 1,418
2002............ 1,422 19 1,441
2003............ 876 -- 876
2004............ 6 -- 6
Options granted during each of the three years ended December 31, 19992000 have
vesting requirements ranging from three to four years. Options expire at the
end of ten years from the date of grant.
The following table summarizes information about employee and director stock
options :
OPTIONS OUTSTANDING
--------------------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED
OUTSTANDING AT REMAINING AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES 1999 (SHARES) LIFE (YEARS) PRICE ($)
------------------------ -------------- ------------ ---------
$ 0.980 - $ 1.490 ....... 66 5.2 $ 1.33
$ 4.188 - $ 8.845 ....... 2,897 8.5 $ 7.03
$ 9.565 - $12.180 ....... 737 5.9 $11.34
$12.875 - $18.060 ....... 571 7.5 $14.08
$18.938 - $24.375 ....... 529 7.7 $22.29
$26.125 - $31.500 ....... 489 7.8 $27.72
-----
5,289 7.9 $11.76options:
OPTIONS OUTSTANDING
-----------------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED
OUTSTANDING AT REMAINING AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES 2000 (SHARES) LIFE (YEARS) PRICE ($)
------------------------ -------------- ------------ ---------
$ 0.980 - $ 1.490 ................. 58 4.2 $ 1.32
$ 1.500 - $ 8.6875 ................ 3,010 8.0 $ 6.40
$ 9.565 - $12.180 ................. 526 5.9 $ 11.34
$12.181 - $18.060 ................. 1,469 8.3 $ 14.39
$18.061 - $24.375 ................. 374 6.9 $ 22.31
$24.376 - $28.1250 ................ 314 7.0 $ 27.75
-----
5,751 7.7 $ 11.04
=====
OPTIONS EXERCISABLE
--------------------------
NUMBER WEIGHTED
EXERCISABLE AT AVERAGE
DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 2000 (SHARES) PRICE ($)
------------------------ -------------- ---------
$ 0.980 - 36$ 1.490 ................. 58 $ 1.32
$ 1.500 - $ 8.6875 ................ 840 $ 6.74
$ 9.565 - $12.180 ................. 426 $ 11.44
$12.181 - $18.060 ................. 332 $ 14.16
$18.061 - $24.375 ................. 192 $ 22.24
$24.376 - $28.1250 ................ 162 $ 27.76
-----
2,010 $ 11.98
=====
37
37
OPTIONS EXERCISABLE
-------------------------------
NUMBER WEIGHTED
EXERCISABLE AT AVERAGE
DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1999 (SHARES) PRICE ($)
------------------------ -------------- ---------
$ 0.980 - $ 1.490 ............... 66 $ 1.34
$ 4.188 - $ 8.845 ............... 556 $ 5.77
$ 9.565 - $12.180 ............... 569 $ 11.50
$12.875 - $18.060 ............... 248 $ 14.18
$18.938 - $24.375 ............... 115 $ 22.13
$26.125 - $31.500 ............... 108 $ 27.74
-----
1,662 $ 11.37
=====
38
Had compensation cost for the Company's option plans been determined based on
the fair value at the grant dates, as prescribed by SFAS 123, the Company's net
incomeincome(loss) and net income (loss) per share would have been as follows:
YEARS ENDED
DECEMBER 31,
-----------------------------
1999 1998 1997
-------- ------- -------
Net income:
As Reported .......................... $(23,516) $15,439 $22,071
Compensation expense per SFAS
123 ............................. (11,113) (6,100) (3,786)
Tax benefit, pro forma ............ 890 532 456
-------- ------- -------
$(33,739) $ 9,871 $18,741
======== ======= =======
Net income per share:
Basic:
As Reported ....................... $ (.53) $ .34 $ .55
Pro forma ......................... $ (.75) $ .22 $ .46
Diluted:
As reported .......................YEARS ENDED
DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
Net income (loss):
As Reported........................... $ (283) $(23,516) $15,439
Compensation expense per SFAS
123.............................. (19,715) (11,113) (6,100)
Tax benefit, pro forma............. 363 890 532
-------- ------- -------
$(19,635) $(33,739) $ 9,871
======== ======= =======
Net income (loss) per share:
Basic:
As Reported........................ $ (.01) $ (.53) $ .34
Pro forma.......................... $ (.46) $ (.75) $ .22
Diluted:
As reported........................ $ (.01) $ (.53) $ .33 $ .52
Pro forma $ (.46) $ (.75) $ .21 $ .44
The fair value of each option is estimated on the date of grant using the
minimum value methodBlack-Scholes option pricing model with the following assumptions used for
grants during the applicable period: dividend yield of 0.0% for all three
periods; risk-free interest rates of 5.66%-6.75% for options granted during the
year ended December 31, 2000, 4.95%-5.74% for options granted during the year
ended December 31, 1999 and 4.77%-5.71% for options granted during the year
ended December 31, 1998 and 5.85%-7.03% for options granted during the year ended
December 31, 1997;1998; a weighted average expected option term of 5 - 64-7 years
for 2000, 5-6 years for 1999 and 4-7 years for 1998 and 4-10 years for 1997;1998; and a volatility factor of
50.00% for 2000, 45.59% for 1999 and 40.69% for 1998 and 35.12% for 1997.1998.
Tax benefits resulting from the disqualifying dispositions of shares acquired
under the Company's employee incentive stock option plan reduced taxes
currently payable by $828 and $122 in 2000 and $545 in 1999, and 1998, respectively. These tax
benefits are credited to additional paid-in-capital.
- 37 -
38
11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
TheDuring 2000, the office space the Company leases office space for use as its headquarters
under an operating
lease with monthly payments of $31 expiring in 2001 from a related party. The
Company also leases office space for one of its operating locations fromthat was previously owned by a related party, at an annual rentalwas sold to independent
investors. Rent in the amount of $74 subject$121, $312 and $286 was paid to adjustment as defined
through December 31, 2000.the related
party in 2000, 1999 and 1998, respectively. The Company leases other space and
various equipment under operating leases expiring at various dates with some
leases cancelable upon 30 to 90 days notice. The leases require payment of
taxes, insurance and maintenance costs in addition to rental payments.
Future minimum lease payments under noncancellable operating leases are
summarized as follows: 2000, $12,911; 2001, $9,519;$9,651; 2002, $5,730;$6,946; 2003, $4,214;$5,903; 2004, $1,950; $1,313$3,285;
2005, 821; $1,066 thereafter.
Rental expense under all operating leases was $11,415, $12,187 and $10,226 for
2000, 1999, and $7,155 for
1999, 1998, and 1997, respectively.
NONCANCELABLE PROCESSING COMMITMENT
The Company has an agreement with a third party processor ("Processor") who
previously provided certain services for some of the Company's franchised and
licensed temporary placement operations. The cost of such services was a
percentage of gross billings as defined within the agreement. Pursuant to
certain contract termination provisions, the Company would have been required
to pay $500 in the event of early termination of such agreement. The agreement
continues in effect until the aggregate of all amounts actually collected and
paid to the Processor from September 1, 1985 exceeds $5,000. Since the Company
no longer uses the services provided under the agreement, the remaining balance
due was accrued at December 31, 1999. The cumulative amounts accrued under the
agreement were $5,000, $4,482 and $4,373 as of December 31, 1999, 1998 and
1997, respectively.38
39
LITIGATION
The Company is involved in litigation inIn the ordinary course of its business, the Company is, from time to time,
threatened with or named as a defendant in various lawsuits, including
discrimination and harassment and other similar claims. The Company maintains
insurance in such amounts and with such coverages and deductibles as management
believes are reasonable. The principal risks that the Company insures against
are workers' compensation, personal injury, bodily injury, property damage,
professional malpractice, errors and omissions, employment practices liability
and fidelity losses. The Company does not believe that it is involved in any
litigation which will not, in the opinion of management,would reasonably be expected to have a material adverse effect
on theits results of operationsoperation or financial condition of the Company.condition.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain executive
officers which provide for minimum compensation, salary and continuation of
certain benefits for a twoone to three year period under certain circumstances.
The agreements also provide for a payment of twoone to three times their annual
salary and average annual bonus if a change in control (as defined) of the
Company occurs and include a covenant against competition with the Company that
extends for one year after termination for any reason. In addition, the Company
has entered into employment agreements with certain key employees which provide
for a payment of one to two times their annual salary and average annual bonus
if a change in control (as defined) of the Company occurs and include a
covenant against competition with the Company that extends for one year after
termination for any reason. The Company's liability at December 31, 19992000, would
have been approximately $1,870$8,230 in the event of a change in control or $2,795 if
all of the employees under contract were to be terminated by the Company
without good cause (as defined) under these contracts.
- 38 -
39NOTE PAYABLE GUARANTEE
In March 1999, the Company guaranteed a note payable by one of its former
officers. At December 31, 2000 and 1999, the balance of this note was
approximately $1,849 and $1,779, respectively. The note matured on December 31,
2000 and is currently unpaid.
12. SUPPLEMENTAL CASH FLOWSFLOW INFORMATION
The Company's non-cash investing and financing activities and cash payments for
interest and income taxes were as follows:
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------- ------- ------
Notes payable issued in settlement of
contingent purchase price of previous
Acquisitions ............................. $ -- $11,100 $ 5,640
Capital lease transaction .................. $ -- $ -- $ 2,526
Cash paid during the year for:
Interest ................................. $ 423 $ 216 $ 308
Income taxes .............................YEARS ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- ------
Notes payable issued in settlement of
contingent purchase price of previous
Acquisitions.............................. $ -- $ -- $11,100
Employer matching :
Contribution of treasury stock to
401(k) Plan............................. $ 406 $ -- $ --
Contribution of treasury stock to Employee
Stock Purchase Plan..................... $ 631 $ -- $ --
Cash paid during the year for:
Interest.................................. $ 508 $ 423 $ 216
Income taxes.............................. $(23,083) $12,027 $19,905 $12,862
13. SEGMENT ANALYSIS
(UNAUDITED)
In 1998, theThe Company adopteddiscloses its business segments in accordance with Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of
Enterprise and Related Information" ("SFAS 131"). SFAS 131 supercedes 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 theCompany's internal
organizationinformation that is used by management for making operationoperational decisions and
addressing performance asis the source of determining the Company's reportable
segments. Beginning in 1997,
Romac revised its organizational structure to provide internal reporting
following itsThe Company has four functional service offerings, including:
Information Technology, Finance and Accounting, Human Resources and Operating
Specialties.
39
40
The Company only generates information on sales and gross profit on a
functional basis,basis; as such;such, asset information by segment is not disclosed.
Substantially all operations and long-lived assets are located in the US.
Information concerning operations in these segments of business is as follows:
INFORMATION FINANCE & HUMAN OPERATING
TECHNOLOGY ACCOUNTING RESOURCES SPECIALTYSPECIALTIES TOTAL
----------- ---------- --------- -------------------- --------
2000
Sales....................... $442,833 $226,737 $22,712 $102,715 $794,997
Gross Profit................ 182,993 132,023 7,700 38,840 361,556
1999
Sales ......................Sales....................... $448,640 $205,646 $18,317 $74,029 $746,632
Gross Profit ...............Profit................ 175,117 114,321 6,191 27,002 322,631
1998
Sales ......................Sales....................... $431,921 $191,086 $17,575 $39,504 $680,086
Gross Profit ...............Profit................ 169,429 104,765 5,672 11,715 291,581
1997
Sales ...................... $296,914 $154,594 $11,524 $16,711 $479,743
Gross Profit* ..............
* Due to the Company's 1998 merger with Source Services and due to the fiscal
1997 change to a functional based organization, it is impracticable to recreate
comparable data for this period.
- 39 -
40
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED
----------------------------------------------------------------------------------------
MAR 31 JUN 30 SEPT 30 DEC 31
--------- -------- -------- -------- -----------------
Fiscal 2000
Net service revenues .............. $ 195,063 $197,661 $202,193 $ 200,080
Gross profit ...................... 88,201 91,618 93,627 88,110
Net income (loss) ................. (2,395) 1,807 295 10
Net income (loss) per share-basic.. $ (.05) $ .04 $ .01 $ .00
Net income (loss) per
share-diluted .................. $ (.05) $ .04 $ .01 $ .00
Fiscal 1999
Net service revenues ................ $184,095.............. $ 184,095 $189,390 $191,707 $181,440$ 181,440
Gross profit .............................................. 78,832 81,208 82,215 80,376
Net income (loss) .................................... 9,128 332 904 (33,880)
Net income (loss) per share-basic ...share-basic.. $ .20 $ .01 $ .02 $ (.77)
Net income (loss) per
share-diluted ...................................... $ .20 $ .20.01 $ .01.02 $ .02 $ (.77)
Fiscal 1998
Net service revenues ................ $155,402 $166,321 $174,361 $184,002
Gross profit ........................ 67,101 72,984 74,179 77,317
Net income .......................... 6,249 (3,688) 6,192 6,686
Net income per share-basic........... $ .14 $ (.08) $ .14 $ .15
Net income per share-diluted......... $ .13 $ (.08) $ .13 $ .15
15. TENDER OFFER - STOCK REPURCHASE
On November 6, 2000, the Company announced a modified Dutch Auction tender
offer, consisting of an offer to purchase up to 10,000 shares of its common
stock at a purchase price between $5.50 and $4.75 per share net to the seller
in cash, without interest. The tender offer concluded on December 5, 2000,
whereby the Company purchased approximately 10,000 shares at $5.50 per share.
This repurchase was funded by cash and approximately $55,000 of debt from
existing bank lines of which $10,000 was repaid as of December 31, 2000. Costs
incurred to effect the transaction were $759.
16. SUBSEQUENT EVENTS
The Company has announced that the management structure of kforce Consulting,
its e-business consulting group, is being consolidated into the management
structure of its existing Information Technology business unit. The financial
results of kforce Consulting have previously been reported as a part of the
Information Technology business segment. In 2000, kforce Consulting lost $7.9
million on $17.6 million in revenue.
40 -
41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and ShareholdersStockholders of
Romac International, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 8, 2000 appearing in this Form 10-K of Romac International, Inc.
also included an audit of the Financial Statement Schedule listed in Item 14 of
this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Tampa, Florida
February 8, 2000
- 41 -
42
SCHEDULE II
ROMAC INTERNATIONAL,KFORCE.COM, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
SUPPLEMENTAL SCHEDULE
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------- ----------------------- ---------- -------------
CHARGED TO CHARGED TO
BALANCE AT COSTS AND OTHER BALANCE AT
DESCRIPTION BEGINNING OF EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
----------- ------------- ---------- ---------- ---------- -------------
Allowance Reserve...... 1997 3,207 4,271 2,0551998 $ 5,423 1998 5,423$ 4,049 $ 3,710 $ 5,762
1999 5,762 1999 5,762 9,768 11,113 4,417
2000 4,417 7,106 4,874 6,649
- 42 -
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROMAC INTERNATIONAL,KFORCE.COM, INC.
Date: March 28, 20002001 By: /s/ DAVID L. DUNKEL
---------------------------------------------------------------
David L. Dunkel
Chairman of the Board,
Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 28, 20002001 By: /s/ DAVID L. DUNKEL
-------------------------------------------------------------------------------------------
David L. Dunkel
Director and Chief Executive Officer
Date: March 28, 20002001 By: /s/ WILLIAM L. SANDERS
-------------------------------------------------------------------------------------------
William L. Sanders
Sr. Vice President, Chief Financial
Officer
Date: March 28, 20002001 By: /s/ JOHN N. ALLRED
-------------------------------------------------------------------------------------------
John N. Allred
Director
Date: March 28, 20002001 By: /s/ W.R. CAREY, JR.
-------------------------------------------------------------------------------------------
W.R. Carey, Jr.
Director
Date: March 28, 20002001 By: /s/ RICHARD M. COCCHIARO
-------------------------------------------------------------------------------------------
Richard M. Cocchiaro
Vice President and Director
Date: March 28, 2000 By: /s/ WAYNE EMIGH
----------------------------------------------------
Wayne Emigh
Director
Date: March 28, 20002001 By: /s/ TODD MANSFIELD
-------------------------------------------------------------------------------------------
Todd Mansfield
Director
Date: March 28, 20002001 By: /s/ RALPH STRUZZIERO
---------------------------------------
Ralph Struzziero
Director
Date: March 28, 200 By: /s/ HOWARD W. SUTTER
-------------------------------------------------------------------------------------------
Howard W. Sutter
Vice President and Director
Date: March 28, 20002001 By: /s/ GORDON TUNSTALL
-------------------------------------------------------------------------------------------
Gordon Tunstall
Director
Date: March 28, 20002001 By: /s/ KARL VOGELER
-------------------------------------------------------------------------------------------
Karl Vogeler
Director
- 43 -
44
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NO. DESCRIPTION
PAGE
- ----------- -----------
----
3.1 Amended and Restated Articles of Incorporation(1)
--
3.2 Amended and Restated Bylaws(1)
--
4.1 $30,000,000 Revolving Line ofAmended and Restated Credit Agreement between
NationsBank, National Associationamong Certain
Financial Institutions, Bank of America NA (as the
Administrative Agent) and Romac International,kforce.com, Inc. dated
September 11, 1997(2) --November 3, 2000
4.2 Second Amendment to Amended and Restated Credit
Agreement dated as of February 12, 2001
4.3 Rights Agreement, dated October 28, 1998, between Romac
International, Inc. and State Street Bank and Trust Company
as Rights Agent(3) --
10.1 EmploymentAgent(2)
4.4 Amendment to Rights Agreement dated as of March 1, 1997, between the
Company and David L. Dunkel(4) --
10.2 Employment Agreement, dated as of March 1, 1997, between the
Company and Howard W. Sutter(4) --
10.3 Employment Agreement, dated as of March 1, 1997, between the
Company and Peter Dominici(4) --
10.4October 24, 2000(3)
10.1 Employment Agreement, dated as of March 1, 2000, between the
Company and David L. Dunkel 45
10.5Dunkel(4)
10.2 Employment Agreement, dated as of March 1, 2000, between the
Company and William L. Sanders 62Sanders(4)
10.3 Employment Agreement, dated as of March 1, 2000, between
the Company and Joseph J. Liberatore
10.4 Employment Agreement, dated as of March 1, 2000, between
the Company and Ken W. Pierce
10.5 Employment Agreement, dated as of March 1, 2000, between
the Company and Lawrence J. Stanczak
10.6 1999 Romac International, Inc. Employee Stock Purchase Plan 79
21.1 List of subsidiaries of the Company 86Plan(4)
23.1 Consent of PricewaterhouseCoopers LLP
87
27.1 Financial Data Schedule (for SEC use only) 8823.2 Consent of Deloitte & Touche LLP
- ----------------------------------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-91738) filed May 9, 1996.
(2) Incorporated by reference to the Company's AnnualCurrent Report on Form 10-K8-K
(File No. 0-26058), filed March 17,October 29, 1998.
(3) Incorporated by reference to the Company's Current Report on Form 8-K
(File No. 0-26058), dated October 29, 1998.filed on November 3, 2000.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
(File No. 0-26058), filed March 28, 1997.
-29, 2000.
44
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