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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K
   (MARK ONE)                         FORM 10-K
      [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 19972000

                                       OR

      [ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE TRANSITION PERIOD FROM ____________ TO ____________

                         COMMISSION FILE NO.NUMBER 0-26058

                                ROMAC INTERNATIONAL,KFORCE.COM, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 

                    FLORIDA                                         59-3264661
        (STATE OR OTHER JURISDICTION OF                           (IRS EMPLOYER
         INCORPORATION OR ORGANIZATION)                        IDENTIFICATION NO.)
   20 WEST HYDE PARK PLACE, SUITE 150, TAMPA, FLORIDA                         33606
        (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                           (ZIP CODE)
------------------------------------------------------ (Exact name of Registrant as specified in its charter) FLORIDA 59-3264661 - ------------------------------- ------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 120 WEST HYDE PARK PLACE, SUITE 150, TAMPA, FLORIDA 33606 - --------------------------------------------------- ---------- (address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 251-1700 -------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B)12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED NONE NONE
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- None None SECURITIES REGISTERED PURSUANT TO SECTION 12(G)12(g) OF THE ACT: COMMON STOCK,Common Stock, $0.01 PAR VALUE (TITLE OF CLASS)par value ----------------------------- (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 13, 1998,23, 2001, was $530,379,086.$130,118,560. The number of shares outstanding of Registrant's Common Stock as of March 13, 1998,23, 2001, was 29,527,818.32,529,640. 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 April 20, 1998June 18, 2001, are incorporated by reference into Part III of this Form. =============================================================================================================================================================== 2 TABLE OF CONTENTS
ITEM NO. PAGE - --------ITEM PAGE ---- ---- 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).............. 19 2 Item 2. Properties.................................................. 11 Item 3. Legal Proceedings........................................... 12 Item 4. Submission of Matters to a Vote of Security Holders......... 12 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 12 Item 6. Selected Financial Data..................................... 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 13 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.......... 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 8-K......................................................... 19 Index to Consolidated Financial Statements and Schedule............... 20
1 3 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 lookingforward-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 is a provider of professional specialty staffing services in 19 markets in the United States. Romac strives to shape valuable business relationships between organizations& Associates, Inc. and the knowledgeable people who make them successful. To better serve the needsthree of its customers, Romac provides its value-added serviceslargest franchises. Following an Initial Public Offering in 1995, the following specialties: Information Technology, FinanceCompany grew to 31 offices in 18 major markets. On April 20, 1998, the Company consummated a merger whereby Source Services Corporation ("Source"), was merged into the Company pursuant to an Agreement and Accounting, Human ResourcesPlan of Merger ("the Merger Agreement") dated February 1, 1998, as amended on February 11, 1998 and Operating Specialties. Romac believes its broad rangeApril 17, 1998. The acquisition was accounted for using the pooling of highly specialized services providesinterests 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 97 locations in 45 markets and serves primarily clients with integrated solutions to their staffing needs, allowing Romac to develop long-term, consultative relationships. Romac principally servesfrom Fortune 1000 clients,companies with the top ten clients representing 10.0%approximately 8% of revenue in 1997. Romac's functional focus2000. On May 5, 2000, the stockholders approved a name change from Romac International, Inc. ("Romac") to kforce.com, Inc. The Company intends to request shareholder approval to remove the ".com" from its name in 2001 and range of service offerings generate increased placement opportunities and enhance Romac's ability to identify, attract, retain, develop, and motivate personnel and operating employees (the "KnowledgeForce"). RECENT ACQUISITIONS Since the completion of the Company's initial public offering in August 1995, the Company has completed 14 acquisitions which have expanded the Company's geographic coverage and its service offerings. Certain information relating to these acquisitions is summarized in the following table. 2 4
MOST RECENT FISCAL YEAR DATE OF REVENUE NAME OF COMPANY ACQUISITION IN MILLIONS(1) FUNCTIONAL SERVICE AREA PRIMARY LOCATION --------------- ----------- -------------- ----------------------- ---------------- Temporary Accounting Professionals,operate as Kforce Inc. ............................... 5/1/96 $ 0.6 Finance & Accounting Pittsburgh, PA Bayshare, Inc. ....................... 6/1/96 6.3 Finance & Accounting San Francisco, CA Career Enhancement International of Massachusetts, Inc. ................ 1/1/97 4.7 Information Technology Boston, MA Career Concepts, Inc. ................ 1/1/97 0.6 Information Technology Boston, MA Romac & Associates of Chestnut Hill... 1/1/96 0.2 Information Technology Boston, MA Venture Networks Corporation, Inc. ... 1/1/96 2.1 Information Technology Boston, MA PCS Group, Inc. ...................... 2/1/96 3.6 Information Technology Louisville, KY Strategic Outsourcing, Inc. .......... 3/1/96 5.7 Human Resources Boston, MA Professional Application Resources, Inc. ............................... 3/1/97 8.3 Information Technology Houston, TX The McMahon Company................... 6/1/97 0.3 Human Resources Philadelphia, PA Uni*Quality Systems Solutions, Inc. ............................... 9/1/97 12.4 Information Technology Naperville, IL Sequent Associates, Inc. ............. 9/1/97 15.9 Information Technology San Jose, CA DP Specialists of Colorado, Inc. ..... 11/1/97 3.9 Information Technology Denver, CO The Center For Recruiting Effectiveness, Inc. ................ 12/1/97 2.4 Human Resources Washington, DC
- --------------- (1) Represents fiscal year revenue for the year prior to acquisition by Romac. On February 1, 1998 (amended on February 11, 1998), the Company and Source Services Corporation ("Source") entered into a definitive merger agreement (the "Merger Agreement") providing for the merger of Source into the Company (the "Source Merger"). The parties intend that the transaction will be treated as a "pooling of interests" for accounting purposes and will qualify as a tax-free reorganization. Under the terms of the Merger Agreement, stockholders of Source will receive 1.1932 shares of Romac common stock, par value $.01 per share, for each of the approximately 14.1 million outstanding shares of Source common stock, subject to adjustment based upon the Company's market price prior to closing and certain other conditions. Following completion of the Source Merger, David L. Dunkel will continue as chairman and chief executive officer of the Company and James D. Swartz will be president and chief operating officer. Les Ward, currently Chief Executive Officer of Source, will join the board of directors of the Company and will assist in the integration program and with special projects. Consummation of the Source Merger is subject to certain conditions, including effectiveness of a registration statement to be filed by the Company with the Commission, approval by the shareholders of each company, termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, receipt of opinions from the parties' independent accountants regarding the treatment of the Source Merger as a "pooling of interests," and other conditions. The Source Merger is expected to be completed during the second calendar quarter of 1998. 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 Romac. 3 5the 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. According to theThe National Association of Temporary and Staffing Industry Report,Services has estimated that more than 80% of all U.S. businesses utilize temporary staffing services. Selected industry reports indicate the United States temporary staffing industry grew from approximately $20.4an estimated $76.8 billion in revenue in 19911999 to approximately $47.1$85.9 billion in revenue in 1996, a compound annual growth rate of 18.2%. One of the fastest growing sectors for Romac, as well as the industry, is information technology services. Revenue for this sector in 1996 is estimated to have been $11.7 billion, a 27.2% increase over 1995. Romac2000. 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. The National Association of Temporary and Staffing Services has estimated that more than 90% of all U.S. businesses utilize temporary staffing services.3 4 BUSINESS STRATEGY Romac's objectiveThe Company is to be aone of the nationally recognized leaderleaders in providing its professional specialty staffing services. The key elements of Romac'sthe Company's business strategy in seeking to achieve this objective include:include the following: - Implement the KnowledgeForce Strategy. As the staffing industry continues to evolve in today's economy, its impact on organizations and their ability to attract and secure intellectual capital has been enormous. Romac believes, and government statistics support, that the demand for and the supply of intellectual capital is moving away from a permanent employment status towards an increasingly fluid and flexible employment relationship through flexible staffing. Romac believes that the intellectual capital of today, and even more so in the future, will be concentrated in highly skilled individuals who Romac collectively refers to as the "KnowledgeForce." In response to its beliefs, Romac has implemented a strategy to become known as the "KnowledgeForce Resource" in each market it serves. - Focus on Value-Added Services. RomacFOCUS ON VALUE-ADDED SERVICES. The Company focuses exclusively on providing specialty staffing services to its clients. Romac believes that providing these specialty services to its clients, offer greater profitability thanspecifically in the clericalareas of information technology, human resources, finance and light industrial sectors of the temporary staffing industry.accounting and operating specialties. In addition, Romacthe Company believes, based upon data published by the U.S. Bureau of Labor Statistics and other sources, that employment growth will be greater in Romac's sectors thansignificant in the traditional clerical and light industrialCompany's 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. RomacThe Company believes its historical focus in this market, and name recognition, combined with management'sits staff's operating expertise, provideprovides it with a competitive benefit.advantage. - Build Long-Term, Consultative Relationships. RomacBUILD 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. RomacThe Company strives to differentiate itself by working closely with its clients to maximize their return on human assets. In addition, Romac'sthe 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 Romacthe Company to emphasize consultative rather than transactional client relationships. - Implement Carve-Out Strategy. Romac has begun implementation of its "carve-out" marketing strategy, which encourages large contractors of staffing services to "carve-out" the professional and technical sectors of staffing contracts and award such business to specialty staffing services providers instead of large generalist staffing firms. As a result of this strategy, Romac has signed several contracts with major national corporations for certain of Romac's services. Management believes there is substantial opportunity for growth through the continued implementation of this strategy. - Achieve Extensive Client Penetration. Romac'sACHIEVE 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. Romac'sThe Company's operating employees are trained to develop a thorough understanding of each client's total staffing requirements. In addition, although Romacthe Company is organized functionally, its operating employees are trained and incentivizedprovided incentives to recognize cross-selling opportunities for all of Romac'sthe Company's other services. 4 6 - Apply Innovative Technology. Romac utilizes proprietary technologies and processes in the staffing, marketing, and management of its operations. Romac's Professional Recruiters Operating System ("PROS") provides operating employees with a systematic approach to identifying, monitoring, and serving the needs of Romac's customers (clients and personnel). Once operating employees obtain information regarding a customer, the data is entered into Romac's integrated operating system and is coded for future action. Operating employees are then prompted by means of an automated planner to contact the customer periodically to monitor and serve the needs that have been identified. Romac believes that its emphasis on the use of technology has resulted in the delivery of higher quality service, greater operating efficiency, and increased operating employee productivity. - Recruit High-Quality Professionals. RomacRECRUIT HIGH-QUALITY PROFESSIONALS. The Company places great emphasis on recruiting qualified personnel. RomacThe 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 Romacthe Company until a permanent position becomes available. Personnel are screened by an operating employee with a compatible technical background to determine qualifications and match them with client needs. - Encourage Operating Employee Achievement. Romac's managementENCOURAGE OPERATING EMPLOYEE ACHIEVEMENT. The Company promotes a quality-focused, results-oriented culture. Operating employees are selected based on their willingness to assume responsibility and promote Romac's philosophy. All operating employees are given numerous incentives to encourage the achievement of corporate goals. RomacThe 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 Romac'sThe Company has a growth strategy is to expand its services in existing markets, where it does not offerincreasing the reach of its full range of functional services, and to enter new markets.while providing its four functional business units with integrated staffing solutions. The key elements of Romac'sthe Company's growth strategy are as follows: - Introduce Functional Service Offerings to Existing Markets. Romac currently offers four areas of functional services and only one of Romac's 19 markets offers the full range of services. As a result, RomacINTRODUCE 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. Romac intends to offer its recently expanded full range of functional services into each of its existing locations.4 5 - Open New Locations. Romac continually evaluates potential geographic expansion into new metropolitan areas. To facilitate new market entry, Romac plans to transfer or recruit experienced operating employees for positions in new locations as they are opened. Romac also seeks to leverage its national accounts to facilitate its entry into new markets. Since February 1995, Romac has opened offices in Dallas, Houston, Minneapolis, Philadelphia, Pittsburgh, Washington, D.C., Stamford and St. Louis. - Leverage Existing Client Relationships and Develop New Clients. RomacLEVERAGE 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. RomacThe Company has established goals for cross-selling and has trained and incentivizedprovided incentives for its operating employees to actively sell Romac'sits full range of services, in an effort to maximize its reach into the marketplace. - Acquire Strategic Businesses. Romac intends to continue to pursue the acquisition of complementary specialty staffing businesses. Romac's preference is to acquire businesses in markets in which Romac 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. Romac's primary acquisition candidates are local or regional specialty staffing firms with established client relationships in markets targeted by Romac. Romac currently has no understanding or agreement with any potential acquisition candidate, except the Merger Agreement with Source. - Expand Major and National Accounts Program. RomacEXPAND 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 Romacitself as the preferred vendor for specialty 5 7web-enabled staffing services. RomacThe Company believes the major accounts program enables it to further penetrate its clients by giving Romacit greater access to key staffing decision makers, including the support of the client's purchasing and procurement team. This increased access allows Romacthe Company to achieve greater operating leverage through improved efficiencies in the marketing process. RomacThe Company has successfully obtainedsecured several national agreements for professional and technical specialty staffing services. RomacThe Company intends to aggressively pursue such agreements to facilitate geographic expansion and existing market penetration. - Introduce New Services. Romac continually evaluatesFUNCTIONAL ORGANIZATION Organized by function, the introduction of newCompany provides services in an effort to meet customer demands. Romac has introduced flexible staffing of pharmaceutical, health care, and manufacturing services personnel to complement its existing search capabilities in these areas. Additionally, Romac acquired an entity that provides outplacement services and human resource contract and outsourcing services. To enhance the technical capabilities and perceived quality of Romac's Information Technology Services, Romac has formed Emerging Technologies Division ("ETD") through which selected personnel receive extensive training in emerging information technologies and are assigned to client environments for periods generally ranging from six months to two years. FUNCTIONAL ORGANIZATION In March 1997, Romac changed the manner in which it classifies its service offerings in order to better serve the specialty needsareas of its customers. Currently, in orderinformation technology, finance and accounting, human resources and operating specialties. (See Note 13 to align itself more closely with the organizational structure of its clients andNotes to the skills of its personnel on assignment, and available for assignment, Romac organizes its service offerings by function.Company's Consolidated Financial Statements.) The functional areas are defined as: - Information Technology.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. Romac'sThe 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.. - FINANCE & ACCOUNTING. 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 contributed to Romac's decision to create ETD in mid-1995. ETD retrains skilled information technology professionals in cutting edge technology solutions and then offers the services of those highly trained individuals to Romac's clients. Romac believes the sophistication of these technologies, coupled with the significant unmet demand, provide an attractive opportunity for Romac to generate a new, higher margin business, and to add value to its clients. - Finance & Accounting. In its markets, RomacCompany believes it has built a strong reputation for providing qualified finance and accounting professionals to businesses. RomacThe Company believes this reputation facilitates Romac'sits recruiting and placement efforts. Romac'sThe Company's Finance & Accounting personnel are experienced in areas such as corporate taxation, budget preparation and analysis, financial reporting, cost analysis, and audit services. Romac recently introducedFinance & 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.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. RomacThe Company offers flexible and permanent staffing of human resource professionals in the areas of recruiting, benefits administration, training and generalists. In addition, Romacthe Company provides outplacement, outsourcing and consulting services in this field. 6 8 - Operating Specialties.OPERATING SPECIALTIES. This segment consists of revenues generated by the placement of professionals skilled in the pharmaceutical, manufacturing,engineering, health care, life insurance,scientific 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 paralegals and attorneys for law firms and corporate clients. The Scientific Group works with lab professionals, research and development, quality assurance and quality control professionals. 5 6 Supporting these four functional groups in 2000 was a new business unit, formed in 1999, kforce.com Interactive, which provided the technical management personneland operational expertise for life insurance companies.the Company's web-enabled staffing solutions. The unit worked closely with the functional units to integrate unbundled web-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 the 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, Romacthe Company can then consult with the client to determine its staffing and time duration requirements. RomacThe Company offers its staffing services in one of two categories: Flexible Staffing Services or Search Services. Flexible Staffing ServicesFLEXIBLE STAFFING Flexible Staffing Services are offered by Romacthe Company to provide personnel in the fields of information technology, finance and accounting, human resources and operating specialties. RomacFlexible 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 services in nineteen metropolitan markets. The two primary service offerings within Flexible Staffing are distinguished below: Professional Temporary Services. Professional Temporary Services are offered by Romac to provide professional temporary personnel in the fieldsmost large metropolitan market areas of information technology, finance and accounting. Professional Temporary Servicesaccounting, human resources and operating 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. Professional Temporary ServicesFlexible 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 Romac'sthe 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. Personnel for Professional TemporaryINFORMATION TECHNOLOGY. Flexible Staffing Services are obtained from Search Services, referrals, and advertising in local newspapers and on Romac's home page on the Internet. Romac believes it has a competitive advantage in attracting personnel because of its ability to provide assignments ranging from short term to permanent. Access by the Professional Temporary Services to the Search Services' personnel pool provides personnel the opportunity to obtain permanent employment as a result of a flexible assignment, earnings that may allow personnel to be more selective when evaluating permanent opportunities, and additional experience that can enhance personnel skills and overall marketability. Personnel are screened by an operating employee with a compatible background to determine their qualifications and to match these qualifications with individual client needs. This screening includes an in-depth interview, skill testing, reference checks, and, in some cases, credit checks and additional background checks. Professional Temporary Services targets Fortune 1000 companies and other large organizations, with a primary focus on organizations determined to have the potential need for Romac's full range of services. In order to maximize its marketing effectiveness, Romac provides extensive training to its operating employees, which emphasizes the consulting nature of its business. Romac's operating employees develop marketing plans composed of multiple visits, frequent telemarketing activity, monthly mailings, and other actions supported through the use of the PROS and daily staff meetings. Romac believes that these techniques and processes provide the opportunity to expand its business within its clients' organizations, solidify client relationships, and develop new clients. Romac recognizes that in some cases Professional Temporary Services personnel will be offered permanent positions. If a client requests that personnel become permanent employees, Romac typically charges a "conversion" fee that is calculated as a percentage of the initial annual compensation. 7 9 Contract Services. Contract Servicesinformation technology provides personnel on a contractual basis, which typically averages six to nine months in duration. ContractFlexible Information Technology Services has traditionally focused on providing information systems personnel to assist clients whose needs range from mainframe environments to single work stations. Contract Servicesworkstations. 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, 6 7 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. Romac's baseThe Company's database 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, Contract Servicesflexible information technology focuses heavily on its recruiting efforts. In addition, Romac focuses on training its Information Systems personnel in sophisticated technology applications. For example, Romac has formed ETD, which selects personnel to receive extensive training in emerging information technologies and who are assigned to client environments for periods generally ranging from six months to two years. RomacThe 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 SPECIALTIES. The March 1996 acquisition of Strategic Outsourcing, Inc., which was renamed Romac-HR ("Romac-HR"),Company has expanded Romac's Contractits Flexible Staffing Services functions to include human resource personnel. Romac-HR, which was founded in 1989 in Boston, provides its clients with human resource personnel on a contractual basis to assist in the development, implementation, and maintenance of a wide variety of human resource processes. Romac currently provides the human resource contract services function in the Boston, Chicago, Philadelphia, Tampa and Washington DC markets. Romac plans to continue to introduce the human resource contract services function into its existing markets. Romac has expanded its Contract Services functions to include manufacturing services,pharmaceutical, engineering, health care, scientific and legal industries. Examples of the types of positions classified in these categories are: clinical trial professionals (CRAs) for pharmaceutical personnel. Within manufacturing services, Romac provides a wide range ofclients, 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 contract services provides hospital administration and management personnel. Pharmaceutical contract services provides pharmaceutical industry clients with research and regulatory personnel. Currently, Romac services these other functional areas on a national basis solely out of its Tampa office. Romac'squality control professionals. The Company's operating employees develop and maintain an active personnelcandidate inventory designed to meet the needs of Romac'sits clients. To recruit qualified personnel, Romaccandidates, the Company uses targeted telephone and internetInternet recruiting, obtains referrals from its existing personnel and clients, and places newspaper advertisements. The Search Services' recruiting efforts complement those of ContractFlexible Staffing Services, and Romacthe Company believes that this combination distinguishes it from many of its competitors. To foster loyalty and commitment from its existing personnel, Romacthe Company maintains frequent contact and offerswith them as well as providing competitive wages, benefits, flexible schedules, and exposure to a variety of working environments. ContractThe Company currently maintains a database of approximately 1.5 million candidates. Flexible Staffing Services concentrates on marketing its services totargets Fortune 1000 companies and other businesseslarge organizations, with information systems, manufacturing services, human resources, health care, and pharmaceutical personnel requirements. Operating employees emphasize Romac's abilitya primary focus on organizations determined to provide contract personnel who can perform a widehave the potential need for the Company's full range of services within eachservices. In order to maximize its marketing effectiveness, the Company provides training to its operating employees, which emphasizes the consulting nature of these areas through consultative contacts with client end-users, personalits business. The Company's operating employees develop marketing plans composed of multiple visits, monthly mailings, and telemarketing efforts. 8 10other actions supported through the use of the front-end systems and 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. SEARCH SERVICES The Company provides extensive Search Services Romac provides extensive search 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. RomacThe Company performs both contingency and retained searches. A contingency search results in payment to Romacthe Company only when personnel are actually hired by a client. Romac'sThe Company's strategy is to perform contingency searches only for skills Romacit 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. RomacThe 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. Romac'sThe Company's fee is typically structured as a percentage of the placed individual's first-year annual compensation. 7 8 An active database of personnelcandidates is maintained as the result of itsthe 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. RomacThe 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, Romac'sthe 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 Romacthe 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 Romac'sthe Company's objective of providing integrated solutions to its clients' personnel needs. Romac'sThe 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. Romac believes that a trend toward greater selectivityTECHNOLOGY kforce.com continues to invest in its clients' hiring processes has contributed to an increased demand fortechnology infrastructure. During 2000, the Company outsourced the corporate headquarters data center and had its Search Services. This emphasis on quality fits well with Romac's inventory of personnel. Romac expects thatservers placed in a bunkered facility. We believe this facility will greatly reduce the Search Services will continue to add operating specialties in the majority of markets served. MARKETS Romac serves 19 metropolitan markets with management of the operations coordinated from its headquarters in Tampa. Romac's headquarters provides its offices with administrative, marketing, accounting, training, legal, and information systems support, particularly as it relatesthreat to the standardization of the operating processes of its offices. 9 11 The following table lists the services offered by Romac onCompany from a market by market basis.
SERVICES OFFERED -------------------------------------------------- INFORMATION FINANCE & HUMAN OPERATING YEAR TECHNOLOGY ACCOUNTING RESOURCES SPECIALTIES OPENED/ACQUIRED ----------- ---------- --------- ----------- --------------- Atlanta, GA......................... X X 1986 Boston, MA.......................... X X X X 1966 Chicago, IL......................... X X X 1985 Dallas, TX.......................... X X 1995 Denver, CO.......................... X 1997 Houston, TX......................... X X 1995 Louisville, KY...................... X 1992 Miami/Ft. Lauderdale, FL............ X X 1982 Minneapolis, MN..................... X 1996 Orange County, CA................... X 1997 Orlando, FL......................... X X 1984 Philadelphia, PA.................... X X X 1995 Pittsburgh, PA...................... X 1996 San Francisco, CA................... X X 1989 San Jose, CA........................ X X 1997 St. Louis, MO....................... X 1998 Stamford, CT........................ X X 1997 Tampa, FL........................... X X X X 1980 Washington, DC...................... X X 1997
PROFESSIONAL RECRUITERS OPERATING SYSTEM Romac has developed a proprietary integrated system designed to maximize productivity and to aid in the management of its business. PROS is designed to be a comprehensive approachpotential major outage due to the operationforces of nature. The Company's Enterprise Resource Planning ("ERP") application was also upgraded in 2000. This project improved many internal and managementexternal customer related business processes. The continued integration between the ERP and Customer Service related proprietary systems ("PROS" and "WIZARD") improve the transfer of a specialty staffing firm. It comprises sophisticateddata and proprietary operating and computer systems initially developedsimplification of business processes. Also in 1982 and has been continually enhanced.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 system links each office location throughsecond major release supported the use of a private network to Romac's corporate headquarters. PROS offers several advantages in providing information to support the goals of Romac. Through the use of PROS,localization 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. A manager, concerned with the status of a particular assignment at any point, can examine the detailed status and degree of coverage on each assignment. PROS offers both detailed and summary reports to provide a continuous view of key factors related to customer development and service and operating employee and personnel productivity. In addition to customer service considerations, PROS enhances the productivity and efficiency of the operating employees. One of the primary problems facing operating employees is the effective and productive use of information. PROS simplifies the information recording and retrieval problem and enables operating employees in different functional and geographical areas to share information and communicate more effectively. Finally, PROS helps Romac 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 Romac. Romac intends to continue to enhance its systems capabilities to streamline processes in orderstrategy. The Company continues to improve customer servicing. 10 12system 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 Romac'sthe Company's competitors possess substantially greater resources than Romac. Romacthe Company. The Company faces substantial competition from large national firms and local specialty staffing firms. Larger national firms that offer specialty staffing services include Robert Half International, Computer Horizon, Inc., and Alternative Resources Corporation. The local firms are typically operator-owned, and each market generally has one or more significant competitors. RomacThe 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. TheseAdditionally, there are a number of "born on the web" job boards that are offering traditional staffing services as well as traditional staffing companies include Interior Services, Inc., Norrell Corporation, AccuStaff Incorporated, and Olsten Corp. Romacdeveloping 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. RomacThe Company believes that availability of quality personnel is an especially important facet of competition. In order to attract personnel, Romaccandidates, 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 Romacthe Company respond to market conditions affecting these individuals. Additionally, in certain markets Romacand in response to economic softening, the Company has experienced significant pricing pressure from some of its competitors. Although Romacthe Company believes it 8 9 competes favorably with respect to these factors, it expects competition and pricing pressure to increase, and there iscan be no assurance that Romacit will remain competitive. INSURANCE RomacThe Company maintains a fidelity bond and a number of insurance policies including general liability and automobile liability, (each with excess liability coverage), professional liability, worker'serrors and omissions, employment practices liability, workers' compensation and employers' liability. Romac also maintains professional liability and crimeEach of these policies, each with aggregate coverage of $1.0up to $5.0 million, coveringcovers certain liabilities that may arise from the actions or omissions of its operating employees and personnel. Romac currently maintains key man life insurance on certainThere can be no assurance that any of its executive officers in an aggregate amount of $7.5 million. Romac believes that its insurancethe above coverages will be adequate for its needs, although there is no assurance that these coverages will be sufficient.the Company's needs. OPERATING EMPLOYEES AND PERSONNEL As of December 31, 1997, Romac2000, the Company and its subsidiaries employed approximately 6002,400 operating employees. Additionally, as of that date, Romacthe Company had approximately 2,6007,100 personnel on assignment providing flexible staffing services to its clients. As the employer, Romacthe 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. RomacThe Company offers access to various insurance programs and other benefits for its operating employees and personnel. RomacThe 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. Romac considers relations with its operating employees and personnel to be good. ITEM 2. PROPERTIES Romac owns no real estate. ItThe Company 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 154,000534,700 square feet. The leases generally run from month-to-month to five years and the aggregate annual rent paid by Romacthe Company in 19972000 was approximately $2.1$11.4 million. RomacThe Company believes after relocation to its new corporate headquarters in 2001, that its facilities arewill be adequate for its needs and does not expect difficulty replacing such facilities or locating additional facilities, if needed. 11 13needs. The Company owns a parcel of vacant land adjacent to the 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, Romacthe Company is, from time to time, threatened with or named as a defendant in various lawsuits, including discrimination and harassment and other similar claims. RomacThe Company maintains insurance in such amounts and with such coverages and deductibles as management believes are reasonable. The principal risks that Romacthe Company insures against are workers' compensation, personal injury, bodily injury, property damage, professional malpractice, errors and omissions, employment practices liability and fidelity losses. RomacThe Company does not believe that it is not currently involved in any litigation which would reasonably be expected to have a material litigation.adverse 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, 1997 covered by this Annual Report on Form 10-K.2000. 9 10 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. The table has been adjusted to reflect two-for-one stock splits, each in the form of a 100% stock dividend reflected on the Nasdaq National Market on May 23, 1996 and October 17, 1997.
FISCAL YEAR HIGH LOW ----------- ------- ------- 1996: First Quarter............................................ $ 8.063 $ 5.750 Second Quarter........................................... $14.875 $ 7.688 Third Quarter............................................ $15.750 $10.125 Fourth Quarter........................................... $15.125 $10.625 1997: First Quarter............................................ $13.500 $ 8.438 Second Quarter........................................... 17.375 8.313 Third Quarter............................................ 22.500 16.875 Fourth Quarter........................................... 25.125 14.500 1998: First Quarter (through March 13, 1998)................... $24.125 $23.750
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 13, 1998,23, 2001, the last reported sale for the Company's Common Stock was at $23.750.$4.00. On March 13, 199823, 2001 there were approximately 73164 holders of record. Since the Company's initial public offering, the Company has not paid any cash dividends on its common stock. 12The Company is currently prohibited from making such dividend distributions under the terms of its Credit Facility. 10 1411 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, ------------------------------------------------ 1993 1994 1995---------------------------------------------------- 1996 1997 ------- ------- ------- -------1998 1999 2000 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net service revenues...................... $40,346 $40,789 $45,655 $94,210 $181,434revenues......... $301,588 $479,743 $680,086 $746,632 $794,997 Direct costs of services.................. 26,126 24,851 25,460 53,839 110,550 ------- ------- ------- -------services..... 145,881 254,132 388,505 424,001 433,441 -------- -------- -------- -------- -------- Gross profit.............................. 14,220 15,938 20,195 40,371 70,884profit................. 155,707 225,611 291,581 322,631 361,556 Selling, general and administrative expenses............................... 12,775 15,009 15,232 30,348 50,531expenses... 133,084 184,876 224,790 346,452 341,812 Depreciation and amortization............. 298 248 512 1,762 3,242 Combination expenses...................... -- 2,251 -- -- --amortization.............. 3,238 5,794 9,507 14,514 18,440 Merger, restructuring, and integration expense....... - - 26,122 - - Other (income) expense, net(1)............ 34 (1,157) (570) (1,685) (1,932) ------- ------- ------- -------net....................... (1,773) (2,675) (4,985) (942) 113 -------- -------- -------- -------- -------- Income (loss) before taxes and minority interest............................... 1,113 (413) 5,021 9,946 19,043 Provisionincome taxes..................... 21,158 37,616 36,147 (37,393) 1,191 (Provision) benefit for taxes....................... 448 186 2,008 3,965 7,500 ------- ------- ------- -------income taxes.............. (8,706) (15,545) (20,708) 13,877 (1,474) -------- Income (loss) before minority interest.... 665 (599) 3,013 5,981 11,543 Minority interest in subsidiary income.... 15 -- -- -- -- ------- ------- ------- --------------- -------- -------- -------- Net income (loss)(1).................................. $ 650 (599) 3,013 5,981 11,543 ======= ======= ======= =======12,452 $ 22,071 $ 15,439 $(23,516) $ (283) ======== ======== ======== ======== ======== Net income (loss) per share(2) -- basic...share-basic............ $ 0.05 (.04) .19 0.28 .46 ======= ======= ======= =======.35 $ .55 $ .34 $ (.53) $ (.01) ======== ======== ======== ======== ======== Weighted average shares outstanding -- basic................... 13,237 14,078 16,087 21,716 24,896outstanding-basic............ 35,312 40,471 45,410 44,781 42,886 Net income (loss) per share -- diluted.... 0.05 (.04) .18 .26 .44 ======= ======= ======= =======share-diluted............. $ .34 $ .52 $ .33 $ (.53) $ (.01) ======== ======== ======== ======== ======== Weighted average shares outstanding -- diluted................. 13,237 14,078 16,965 23,319 26,398
outstanding-diluted....... 36,996 42,264 47,318 44,781 42,886 DECEMBER 31, ------------------------------------------------ 1993 1994 1995---------------------------------------------------- 1996 1997 ------- ------- ------- -------1998 1999 2000 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Working capital...........................capital.............. $ 2,57995,557 $149,459 $135,348 $ 2,093 $13,895 $54,22086,310 $ 97,50070,885 Total assets.............................. 6.135 6,984 20,952 77,559 197,139assets................. $142,112 $283,098 $333,812 $296,187 $278,018 Total long-term debt...................... 92 24 500 --debt......... $ - $ 1,260 Shareholders' equity...................... 3,074 2,435 16,924 71,284 173,680$ 461 $ - $ 45,000 Stockholders' equity......... $119,221 $232,704 $255,022 $218,205 $155,037
- --------------- (1) Net income (loss) for the years ended December 31, 1994, 1995, 1996, and 1997, includes franchise termination income (net of tax) of $336, $261, $208, and $100, respectively. (2) Net income (loss) per share for the years ended December 31, 1994, 1995, 1996, and 1997, includes franchise termination income per share of $0.02, $0.01, $0.01, $0.00, respectively.11 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in connection with Romac'sthe Company's Consolidated Financial Statements and the related Notes thereto incorporated into Item 8 of this report. OVERVIEW RomacThe Company is a provider of professional and technical specialty staffing services in 1945 markets in the United States. Romac strives to shape valuable business relationships between organizationsStates and the knowledgeable people who make them successful. To better serve the needs of its customers, Romacone international market (Toronto, Canada). The Company provides its customers 13 15 value-addedstaffing services in the following specialties: Information Technology, Financeinformation technology, finance and Accounting, Human Resourcesaccounting, human resources and Operating Specialties. Romacoperating specialties. The Company believes its broad range of highly specialized services provides clients with integrated solutions to their staffing needs, allowing Romacit to develop long-term, consultative relationships. Romac principally serves Fortune 1000 clients with its top ten clients representing 10.0%This range of its revenueservices includes search services and flexible staffing services, both professional temporary and contract. Contract services for 1997. Romacinformation 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 Romac'sits ability to identify, attract, retain, develop and motivate personnel and operating employees. Revenue RecognitionThe Company principally serves Fortune 1000 clients, with its top ten clients representing approximately 8% of its revenue for 2000. 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. Romac 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 for the year ended December 31, 2000. The reasons for such increases are recognizedset forth below. FLEXIBLE BILLINGS. Flexible billings increased 2.4% to $616.0 million in contingency search engagements upon2000 compared to $601.5 million for the successful completionsame period in 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 average billing rate in 2000. SEARCH FEES. Search fees increased 23.3% to $178.9 million in 2000 compared to $145.1 million for the same period in 1999. Approximately $16.0 million of the assignment. Franchise fees were determined based upon a contractual percentage of the revenue billed by franchisees. Costs relating to the support of franchised operations were included in Romac's selling, general and administrative expenses. The last remaining franchisee and licensee agreement was terminated at the end of the second quarter of 1997. Romacthis increase was the legal employerresult of flexible personnel under its licensing arrangements, and accordingly included revenues and related direct costsan increased number of licensed officessearch placements made during 2000 as compared to 1999. The remaining increase, approximately $17.8 million, was primarily the result of an increase in its net service revenues and direct cost of services, respectively. Commissions paid to licensees were based upon a percentage of the gross profit generated, and were included in Romac's direct cost of services. Gross Profitaverage fee for each search placement. 12 13 GROSS PROFIT. Gross profit for theon Flexible Billings is determined by deducting the direct cost of services (flexible(primarily flexible personnel payroll wages, payroll taxes, payroll-related insurance, and licensee commissions)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 revenue mix and certain items in Romac's consolidated statement of operations as a percentage of net service revenues for the indicated periods:
YEAR ENDED DECEMBER 31, ----------------------- 1995 1996 1997 ----- ----- ----- Flexible Billings................................... 78.5% 80.2% 86.0% Search Fees......................................... 21.5 19.8 14.0 ----- ----- ----- Net service revenues................................ 100.0 100.0 100.0 ===== ===== ===== Gross profit........................................ 44.2 42.9 39.1 Selling, general, and administrative expenses....... 33.4 32.2 27.9 Income before taxes................................. 11.0 10.6 10.5 Net income.......................................... 6.6% 6.3% 6.4%
1997 COMPARED TO 1996 Net service revenues. Net service revenuesGross profit increased 92.6%12.1% to $181.4$361.6 million in 19972000 as compared to $94.2 million for the same period in 1996. This increase was composed of a $80.6 million increase in Flexible Billings and a $6.7 million increase in Search Fees for the year ended December 31, 1997 as described below. Flexible Billings increased 106.8% to $156.0$322.6 million in 1997 as compared to $75.5 million for the same period in 1996. This increase is a result of an increase in the number of hours billed by Romac-owned operations as compared to the same periods in 1996. The average hourly bill rate for the year increased to $36.0 in 1997 from $28.0 for 1996 due to the growing mix of contract business as a percentage of total Flexible Billings. In addition, Romac's ETD division increased its bill rates 26% in 1997 compared to the same periods in 1996 as the demand for these highly skilled workers continues to build. 14 16 Search Fees increased 35.3% to $25.3 million in 1997 as compared to $18.7 million for the same period in 1996. This increase resulted primarily from an increase in the number of search sales consultants, which increased the number of search placements made in 1997 as compared to the same period in 1996. The average fee for each search placement made during the periods remained relatively constant. Gross profit. Gross profit increased 75.5% to $70.9 million in 1997 as compared to $40.4 million in 1996.1999. Gross profit as a percentage of net service revenues decreasedincreased to 39.1%45.5% in 1997 as2000 compared to 42.9%43.2% for the same period in 1996. This decrease1999. The increase in gross profit percentage was a result of both the continuing changeimprovement in Romac'smargins on Flexible Billings, attributable to higher average billing rates, and a shift in business mix whereby revenues from Flexible Billings,to more Search Fees, which have traditionally lower grosshigher margins than Flex Billings, in 2000 compared to 1999. Search Fees increased to 86.0%accounted for 22.5% of Romac's2000 net service revenues in 1997 as compared to 80.1% for the same period19.4% in 1996. Selling, general and administrative expenses.1999. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 66.7%decreased 1.3% to $50.5$341.8 million in 19972000 as compared to $30.3$346.5 million for the same period in 1996.1999. Selling, general and administrative expenses as a percentage of net service revenues decreased to 27.9%43.0% in 19972000 compared to 32.2%46.4% for the same period in 1996. This1999. The decrease in selling, general, and administrative expense as a percentage of net service revenues resulted primarily from greater operating efficienciesthe continuation of strategic initiatives undertaken by management in 1999 to re-engineer and economiesstreamline back office operations, and a reduction in advertising after the launch of scale gained from a larger revenue base. Depreciation and amortization expense.the Company's new name. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased 77.8%,27.0% to $3.2$18.4 million for 1997 as2000 compared to $1.8$14.5 million for the same period in 1996.1999. Depreciation and amortization expense as a percentage of net service revenue decreasedincreased to 1.8%2.3% for 1997 as2000 compared 1.9% for the same period in 1996.1999. The decreaseincrease as a percentage of net service revenues for 19972000 as compared to the same period in 1996 is1999 was primarily due to a change in accounting estimate which increased the amortization period for goodwill from 15of computer software utilized to 30 years related to certain acquisitions. Other (income) expense.increase back office efficiency. OTHER (INCOME) EXPENSE. Other (income) expense increased 11.8%decreased 112.0% in 19972000 to $1.9$0.1 million as compared to approximately $1.7$(0.9) million for the same period in 1996.1999. The increase during 1997decrease in 2000 compared to the same period in 1996 is1999 was primarily due to a reduction of interest earned onincome in 2000 compared to 1999 related to the investmentuse of the proceeds from the May 1996 and November 1997available cash to make stock offerings. Incomerepurchases throughout 2000. INCOME (LOSS) BEFORE INCOME TAXES. The income before taxes. Income beforeincome taxes increased 91.9% to $19.0was $1.2 million for 19972000 as compared to $9.9loss before taxes of $(37.4) million for the same period in 1996,1999, primarily as a result of the above factors. Provisionincreased 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 income taxes. Provision for income taxes increased 87.5% to $7.52000 was $1.5 million for 1997 compared to $4.0a benefit of $(13.9) million for the same period in 1996.1999. The effective tax rate was 39.4%124% in 19972000 as compared to approximately 40.0%an effective tax benefit rate of 37.1% in 1996. Net income. Net income increased 91.7%1999. The increase in the effective tax rate in 2000 as compared to $11.51999 was primarily due to the benefit resulting from Company's net loss position in 1999. The effective tax rate in 2000 was abnormally high due to non-deductibility of amortization of goodwill and 50% of meals and entertainment expenses. NET INCOME (LOSS). The net loss was $(0.3) million for 19972000 and $(23.5) million for 1999. This reduction in loss in 2000 compared to $6.01999 was the result of increased net service revenue and gross margin and reduced selling, general, and administrative expenses discussed above. 13 14 1999 COMPARED TO 1998 NET SERVICE REVENUES. Net service revenues increased 9.8% to $746.6 million in 1999 compared to $680.1 million for the same period in 1996. This increase was due to the revenue increases discussed above offset by a decrease in the gross profit as a percentage of net service revenues due to the continuing change in the business mix towards Flexible Billings, which has traditionally lower gross margins, and a decrease in selling, general and administrative expenses as a percentage of net service revenues (although selling, general, and administrative expenses increased in absolute dollars) due to economies of scale gained from a larger revenue base. 1996 COMPARED TO 1995 Net service revenues. Net service revenues increased 106.1% to $94.2 million in 1996 as compared to $45.7 million for the same period in 1995.1998. This increase was composed of a $39.6$56.9 million increase in Flexible Billings and a $8.9$9.6 million increase in Search Fees for 1996. This increasethe year ended December 31, 1999. The reasons for such increases are set forth below. FLEXIBLE BILLINGS increased 10.4% to $601.5 million in Flexible Billings was partially offset by an approximate $1.5 million decrease in Flexible Billings from franchisee and licensee operations for 19961999 as compared to 1995, as several franchisee and licensee operations were discontinued during 1996. Flexible Billings increased 110.3% to $75.5$544.6 million for 1996 as compared to $35.9the same period in 1998. Approximately $41 million in 1995. Thisof this increase in Flexible Billings includeswas a $25.3 million increase from existing Company-owned operations and $14.3 million increase from acquired operations. The increase attributable to Company-owned operations resulted primarily fromresult of an increase in the number of hours billed by Company-owned operations during 1996 15 17 as compared to 1995, as well as fromthe 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, was primarily attributable to an increase in the average hourly billbilling rate for 19961999. SEARCH FEES increased 7.1% to approximately $27.0 per hour as$145.1 million in 1999 compared to approximately $21.3 per hour$135.5 million for the same period in 1995. Search Fees increased 90.8% to $18.7 million in 1996 as compared to $9.8 million in 1995.1998. This increase in revenues was a result of a $4.3 million increase in revenues from existing Company-owned operations and a $4.6 million increase in revenues attributable to acquired operations. The increase in Company-owned operations resulted primarily from an increase in the number ofaverage fee for each search sales consultants, which increasedplacement made during 1999 compared to the same period in 1998. The number of search placements made during 1996 as compared to 1995. The average fee for each Search placement madein 1999 remained relatively constant during the periods involved. Franchise and license revenues, which are included in the aforementioned Flexible Billings decreased approximately 31.9%compared to $3.2 million in 1996 from $4.7 million in 1995. The decrease was primarily due to the effects of discontinued franchisee and licensee operations during 1996. After taking into account the decreases in net service revenues attributable to discontinued franchisee and licensee operations, the net service revenue comparisons reflect a continued improvement in the demand for Romac's specialized staffing services. Romac opened two new Company-owned locations during 1996: Pittsburgh in February and Minneapolis in April. Gross profit.1998. GROSS PROFIT. Gross profit increased 100.0%10.6% to $40.4$322.6 million in 1996 as1999 compared to $20.2$291.6 million in 1995.1998. Gross profit as a percentage of net service revenues decreasedincreased to 43.2% in 1999 compared to 42.9% for the same period in 1996 as compared to 44.2% in 1995. This decrease1998. The increase in gross profit margin as a percentage of net service revenues 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 changeschange in Romac'sthe Company's business mix whereby revenuesbetween Flexible Billings and Search Fees. Revenues from Flexible Billings, which hashave traditionally lower gross margins than Search Fees, increased to 80.1%80.6% of Romac'sthe Company's net service revenues for 1996 asin 1999 compared to 78.6%80.1% for 1995. Selling, general and administrative expenses.the same period in 1998. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 99.3%54.1% to $30.3$346.5 million in 1996 as1999 compared to $15.2$224.8 million for the same period in 1995.1998. Selling, general and administrative expenses as a percentage of net service revenues decreasedincreased to 32.2%46.4% in 1996 as1999 compared to 33.4%33.1% for the same period in 1995. This decrease in selling, general, and administrative expenses1998. The increase as a percentage of net service revenues resulted primarily from greaterseveral 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 efficienciesspecialties. MERGER, RESTRUCTURING AND INTEGRATION EXPENSE. There was no merger, restructuring and economiesintegration 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 scale gained from a larger revenue base.$8.2 million of direct costs related to the merger and $17.9 million related to restructuring and integration. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses.expense increased 52.7%, to $14.5 million for 1999 compared to $9.5 million for the same period in 1998. Depreciation and amortization expensesexpense as a percentage of net service revenue increased approximately 260.0% to $1.8 million in 1996 as1.9% for 1999 compared to $500,0001.4% for the same period in 1995, primarily because Romac incurred a full year of depreciation expense on approximately $1.2 million of new computer and telephone equipment that was purchased during 1995, began depreciating approximately $1.3 million of computer and telephone equipment and approximately $700,000 of furniture and fixtures acquired in 1996, and incurred additional amortization expense in 1996 related to goodwill recorded1998. The increase as a resultpercentage of asset acquisitions made by Romac during 1996. Other (income) expense. Other (income) expense increased 198.2% to $1.7 million of income in 1996 asnet service revenues for 1999 compared to $570,000 of incomethe same period in 1995. This increase1998 was primarily due to interest earned by Romacadditional depreciation on the investmentnew technology platform implemented at certain Source locations in the second half of the proceeds from its May 1996 Common Stock offering1998 and expenses relating to capital lease obligations entered intoadditional goodwill amortization due to earnout buyouts negotiated in 1995 declined1999. OTHER (INCOME) EXPENSE. Other (income) expense decreased 81.1% in 1996. This increase was partially offset by a decrease in franchisee termination income received by Romac during the periods involved, as $346,189 was received in 1996 as compared1999 to $435,000 in 1995. Income before taxes. Income before taxes increased 98.0% to $9.9$0.9 million in 1996 as compared to $5.0 million for the same period in 1995,14 15 1998. The decrease during 1999 compared to the same period in 1998 was 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 INCOME TAXES. The loss before income taxes was $37.4 million for 1999 compared to income before taxes of $36.1 million for the same period in 1998, primarily as a result of the above factors. Provisionincrease in selling, general and administrative expenses discussed above. PROVISION (BENEFIT) FOR INCOME TAXES. The income tax benefit for income taxes. Provision for income taxes increased 100% to $4.01999 was $13.9 million in 1996 as compared to $2.0a provision of $20.7 million for the same period in 1995.1998. The effective incometax benefit rate was 37.1% in 1999 compared to an effective provision rate of 57.3% in 1998. The decrease in the effective tax rate was constant at approximately 40.0% for both periods. Net income. Net income increased approximately 100% to $6.0 million in 1996 as1999 compared to $3.01998 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). The net loss was $23.5 million for 1999 compared to net income of $15.4 million for the same period in 1995,1998. 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 above factors. 16 18non-deductible merger related expenses in 1998. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1997, theThe Company's sources of liquidity includedinclude approximately $77.9$1.9 million in cash and cash equivalents and approximately $19.6$69.0 million in additional net working capital. In addition, asthe Company has approximately $45 million outstanding under its $90 million Amended and Restated Credit Facility with Bank of December 31, 1997, there were no amounts outstanding on Romac's line of credit and $30.0 millionAmerica (the "Credit Facility"). This Credit Facility, which was available for borrowing under Romac's line of credit. Romac entered into on November 3, 2000, has an initial term of three years. The Credit Facility provides for a new Revolving Linemaximum revolving credit facility of $90 million (not to exceed 85% of the Company's "Eligible Receivables" as such term is defined in the Credit Loan Agreement with Nationsbank, N.A. (the "LineFacility). The Credit Facility contains a provision that limits the dollar amount of Credit") during September 1997. The Linecommon stock the Company may repurchase subsequent November 3, 2000 to $55 million. On February 12, 2001, the Credit Facility was amended to increase the maximum amount of Credit expires on March 31, 2000 and amounts outstanding undercommon stock the line of credit accrue interest at an annual rate equalCompany may repurchase to 65 basis points above the 90-day London Interbank Offering interest rate ("LIBOR"). As of December 31, 1997, the interest rate on the Line of Credit was 6.46%.$72 million. During the year ended December 31, 1997,2000, cash flow provided by operations was approximately $4.5$28.3 million, resulting primarily from neta non-cash adjustment for depreciation and amortization, refunds of prior income non-cash expenses (depreciationtax payments and amortization) and increasesan increase in operatingaccrued payroll liabilities,costs, partially offset by an increase in accounts receivable.receivable and a decrease in accounts payable and other accrued liabilities. The increase in accounts receivable reflects the increased volume of business during 1997 from existing locationsin 2000 as compared to 1999. The increase in accrued payroll costs, and the initial fundingdecreases in accounts payable and other accrued liabilities are primarily due to the timing of the accounts receivable base in acquired operations.payment of these liabilities. During 1997,2000, cash flow used in investing activities was approximately $54.3$10.8 million, resulting primarily from Romac'san increase of $3.2 million in the value of deferred compensation related assets, the use of approximately $52.1$1.2 million for contingent earn out payments on prior acquisitions and $6.4 million in capital expenditures. For the year 2000, cash flow used in financing activities was approximately $23.4 million, resulting primarily from the use of $12.7 million for acquisitions. In Novemberthe 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 1997, Romac received approximately $86.52000. 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 as netof 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 $1.1 million. 15 16 On March 11, 1999, the Company announced that its Board of Directors had authorized the repurchase of up to $50 million of its common stock offering, parton the open market, from time to time, depending on market conditions. On October 24, 2000, the Board of which was usedDirectors authorized an increase to repayup to $100 million for stock repurchases. As of December 31, 2000, the indebtedness outstandingCompany had repurchased approximately 14.4 million shares for $82.7 million under this plan. Additional stock repurchases may have a material impact on the Line of Credit. Romac intends to useCompany's cash flow requirements for the remaining net proceeds for general corporate purposes, including possible acquisitions, expansion of Romac's operations and certain capital expenditures related to Romac's expansion. Pending such uses, the net proceeds will be invested in short term, investment grade securities, certificates of deposit, or direct or guaranteed obligations of the United States government. Romacnext twelve months. The Company believes that cash flow from operations and borrowings under Romac's Line of Credit,its credit facility, or other credit facilities that may become available to Romacthe Company in the foreseeable future, will be adequate to meet the working capital requirements of Romac's current operations for at least the next 12twelve months. Romac believesHowever, there is no assurance (i) that the consummation ofCompany will be able to obtain financing in amounts sufficient to meet its operating requirements or at terms which are satisfactory and which allow the Source MergerCompany to remain competitive, or (ii) that the Company will not adversely affect Romac's liquidity and capital resources. Romac'sbe able to meet the financial covenants contained in its credit facility. The Company's estimate of the period that existing resources will fund its and the combined company's 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. YEARacquisitions and the announced stock repurchase plan. NEW ACCOUNTING PRONOUNCEMENTS In March 2000, COMPUTER ISSUES Many computer systemsFASB 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 losses) depends upon the intended use today were designedof the derivative and developed using two digits, rather than four,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 specify years. Ashave a result, such systems will recognizematerial impact in the year 2000 as "00." This could cause many computer applicationsfuture. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to fail completelya 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 to create erroneous results unless corrective measureshedging purposes. The Company does not believe that changes in interest rates or foreign currency are taken. Romac utilizes software or related computer technologies which are essentialmaterial to its operations. The Company believes all such software is currently Year 2000 compliant, and therein does not anticipate any material impact as a result of the Year 2000 issue. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is includedCompany's consolidated financial statements and notes thereto and the reports of Deloitte & Touche LLP and PricewaterhouseCoopers LLP, the Company's independent auditors, are set forth on the pages 22 to 47indicated in Item 14 of Part IV of this Report and is incorporated into this item by reference.14. 16 17 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 17 19On 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 20 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.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 Reportreport on the pages indicated by the Index to Consolidated Financial Statements and Schedule as presented on page 2219 of this report. 2. Financial Statement Schedule.FINANCIAL STATEMENT SCHEDULE. The financial statement schedule of the Company is included in Part IV of this Reportreport 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 ScheduleSchedules 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.EXHIBITS. See Item 14(c) below. (b) Reports on FormREPORTS ON FORM 8-K. (i) Report on Form 8-K, filed October 9, 1997, relating to the purchase of substantially all the assets of Sequent Associates, Inc. (ii) Report on Form 8-K, filed October 16, 1997, announcing third quarter operating results. (iii) Report on Form 8-K/A, filed October 16, 1997, filing the financial statements for Uni*Quality System Solutions, Inc., previously omitted from the Company's Report on Form 8-K, filed September 22, 1997 (iv) Report on Form 8-K, filed December 3, 1997, relating to the resignation of Maureen A. Rorech from the Board of Directors.None. (c) Exhibits.EXHIBITS. The exhibits listed on the Exhibits Index are filed as part of, or incorporated by reference into, this Report.report. (d) Financial Statement Schedules.FINANCIAL STATEMENT SCHEDULES. See Item 14(a) above. 18 19 21 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, 1997 and 1996................................................... 22 Consolidated Statements of Operations -- Years ended December 31, 1997, 1996, and 1995...................... 23 Consolidated Statements of Changes in Shareholders' Equity -- Years ended December 31, 1997, 1996, and 1995...................... 25 Consolidated Statements of Cash Flows -- Years ended December 31, 1997, 1996, and 1995...................... 24 Notes to Consolidated Financial Statements................ 27 Financial Statement Schedule: Schedule II -- Valuation 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 2221 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 changes in shareholders'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, 1997 and 1996,1999, and the results of their operations and their cash flows for each of the threetwo years in the period ended December 31, 1997,1999, in conformity with accounting principles generally accepted accounting principles.in the United 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 auditing standardsin the United States of America, which require that we plan and perform the auditsaudit 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/ Price WaterhousePricewaterhouseCoopers LLP PRICE WATERHOUSE- ------------------------------ PricewaterhouseCoopers LLP Tampa, Florida February 25, 19988, 2000 21 23 ROMAC INTERNATIONAL,22 KFORCE.COM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------- 1997 1996 -------- ------------------------------ 2000 1999 --------- --------- (IN 000'S) ASSETS Current Assets: Cash and cash equivalents.................................equivalents ................................ $ 77,946 $39,555 Short-term investments.................................... 47 8801,865 $ 7,919 Trade receivables, net of allowance for doubtful accounts of $880$6,649 and $617, respectively......................... 35,475 17,061 Notes receivable from franchisees, current................ 109 193 Receivables from related parties, current................. 233 100$4,417, respectively .................... 125,931 112,545 Income tax refund receivables ............................ -- 23,038 Deferred tax asset current............................... 352 243....................................... 4,872 3,546 Prepaid expenses and other current assets................. 1,637 1,214 -------- -------assets ................ 3,682 3,669 --------- --------- Total current assets.............................. 115,799 59,246 Notes receivable from franchisees, less current portion..... 4 75assets ............................. 136,350 150,717 Receivables from officers and related parties less current portion...... 1,290 862.............. 1,058 960 Furniture and equipment, net ............................... 23,115 27,758 Deferred tax asset, lessnon current portion.................... 310 209 Furniture and equipment, net................................ 8,206 5,346............................ 1,250 1,711 Other assets, net........................................... 4,878 906net .......................................... 23,481 19,349 Goodwill, net of accumulated amortization of $2,578$13,135 and $1,108, respectively...................................... 66,652 10,915 -------- -------$9,452, respectively .................................. 92,764 95,692 --------- --------- Total assets...................................... $197,139 $77,559 ======== =======assets ..................................... $ 278,018 $ 296,187 ========= ========= LIABILITIES AND SHAREHOLDERS'STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and other accrued liabilities............liabilities ........... $ 2,68017,464 $ 1,72324,180 Accrued payroll costs..................................... 7,227 2,976 Current portion of capital lease obligations.............. 731 -- Current portion of payables to related parties............ 4,265 23 Income taxes payable...................................... 3,396 304 -------- ------- Total current liabilities......................... 18,299 5,026costs .................................... 37,778 31,922 Bank overdrafts .......................................... 8,083 5,824 Capital lease obligations less current portion............. 1,260................................ -- Payables481 Notes payable to related parties less......................... -- 2,000 Income taxes payable ..................................... 2,140 -- --------- --------- Total current portion........... 1,375liabilities ........................ 65,465 64,407 Long term debt ............................................. 45,000 -- Other long-term liabilities................................. 2,525 1,249 -------- -------liabilities ................................ 12,516 13,575 --------- --------- Total liabilities................................. 23,459 6,275liabilities ................................ 122,981 77,982 Commitments and contingencies Shareholders'(Note 11) Stockholders' Equity: Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding.................................outstanding ................................ -- -- Common stock, $0.01 par; 100,000250,000 shares authorized, 29,86346,959 and 24,26746,687 issued, and outstanding, respectively........ 299 243respectively ....................... 470 467 Additional paid-in capital................................ 152,188 61,404 Stock subscriptions receivable............................ -- (13)capital ............................... 191,007 187,262 Accumulated other comprehensive (loss) income ............ (267) (170) Retained earnings......................................... 22,118 10,575earnings ........................................ 46,363 46,646 Less reacquired shares at cost; 677 shares................ (925) (925) -------- -------14,802 and 2,613 shares, respectively ....................................... (82,536) (16,000) --------- --------- Total shareholders' equity........................ 173,680 71,284 -------- -------stockholders' equity ....................... 155,037 218,205 --------- --------- Total liabilities and shareholders' equity........ $197,139 $77,559 ======== =======stockholders' equity ....... $ 278,018 $ 296,187 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 22 24 ROMAC INTERNATIONAL,23 KFORCE.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, ------------------------------------- 2000 1999 1998 --------- --------- --------- (IN 000'S, EXCEPT PER SHARE DATA)
1997 1996 1995 -------- ------- ------- Net service revenues........................................ $181,434 $94,210 $45,655revenues ........................ $ 794,997 $ 746,632 $ 680,086 Direct costs of services.................................... 110,550 53,839 25,460 -------- ------- -------services .................... 433,441 424,001 388,505 --------- --------- --------- Gross profit................................................ 70,884 40,371 20,195profit ................................ 361,556 322,631 291,581 Selling, general and administrative expenses................ 50,531 30,348 15,232expenses 341,812 346,452 224,790 Merger, restructuring and integration expense -- -- 26,122 Depreciation and amortization............................... 3,242 1,762 512amortization ............... 18,440 14,514 9,507 Other (income) expense: Dividend and interest income.............................. (1,902) (1,413) (214)income .............. (288) (1,639) (5,224) Interest expense.......................................... 127 78 133expense .......................... 734 423 216 Other (income) expense, net............................... (157) (350) (489) -------- ------- -------net ............... (333) 274 23 --------- --------- --------- Income (loss) before income taxes.................................. 19,043 9,946 5,021 Provisiontaxes ........... 1,191 (37,393) 36,147 (Provision) benefit for income taxes.................................. 7,500 3,965 2,008 -------- ------- -------taxes ........ (1,474) 13,877 (20,708) --------- --------- --------- Net income..................................................(loss) income ........................... $ 11,543(283) $ 5,981(23,516) $ 3,013 ======== ======= =======15,439 Other comprehensive (loss) income: Foreign currency translation .............. (97) (191) 63 --------- --------- --------- Comprehensive (loss) income ................. $ (380) $ (23,707) $ 15,502 ========= ========= ========= Net (loss) income per share: Basic.....................................................Basic .................................. $ .46(.01) $ .28(.53) $ .19 ======== ======= ======= Diluted....................................................34 ========= ========= ========= Diluted ................................ $ .44(.01) $ .26(.53) $ .18 ======== ======= =======.33 ========= ========= ========= Weighted average shares: Basic..................................................... 24,896 21,716 16,087 ======== ======= ======= Diluted................................................... 26,398 23,319 16,965 ======== ======= =======Basic .................................. 42,886 44,781 45,410 ========= ========= ========= Diluted ................................ 42,886 44,781 47,318 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 23 25 ROMAC INTERNATIONAL,24 KFORCE.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------------- 2000 1999 1998 -------- -------- --------- (IN 000'S) Cash flows from operating activities: Net (loss) income ................................. $ (283) $(23,516) $ 15,439 Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities: Depreciation and amortization .................. 18,440 14,514 9,507 Provision for fallouts and bad debts on accounts and notes receivable ......................... 7,106 9,768 4,049 Deferred income taxes .......................... (865) 347 (2,742) Loss on asset sales/disposals .................. 830 419 1,604 (Increase) decrease in operating assets: Trade receivables, net ......................... (20,491) (8,169) (33,464) Prepaid expenses and other current assets ...... (13) (43) (1,108) Other assets, net .............................. (5,088) (7,281) (5,751) Increase (decrease) in operating liabilities: Accounts payable and other accrued liabilities .................................. (6,716) 14,920 1,229 Accrued payroll costs .......................... 8,016 (9,148) 12,932 Bank overdrafts ................................ 2,260 5,824 -- Accrued merger, restructuring, and integration expense ...................................... -- (4,931) 4,931 Income tax refund (payable) .................... 26,174 (26,129) 29 Other long-term liabilities .................... (1,059) 6,703 4,284 -------- -------- --------- Cash provided by (used in) operating activities .............................. 28,311 (26,722) 10,939 -------- -------- --------- Cash flows from investing activities: Capital expenditures, net ...................... (6,408) (16,603) (11,820) Acquisitions, net of cash acquired and including payment on earnout provisions ................ (1,221) (6,039) (23,593) Proceeds from the sale of short-term investments .................................. -- 12,000 -- Premiums paid for cash surrender value of life Insurance policies ........................... (3,213) (391) (3,292) Purchase of short-term investments ............. -- -- (10,047) -------- -------- --------- Cash used in investing activities ......... (10,842) (11,033) (48,752) -------- -------- --------- 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) Payments on notes payable to related parties ... (2,000) (10,144) -- Payments on (issuance of) notes receivable from related parties .............................. -- 1,143 (582) Proceeds from exercise of stock options ........ 2,513 1,843 6,271 Repurchases of treasury stock .................. (12,699) (15,075) -- Repurchase of treasury stock in tender offer transaction ................................ (55,759) -- -- -------- -------- --------- Cash (used in) provided by financing activities .................. (23,426) (22,956) 4,902 -------- -------- --------- Increase(decrease) in cash and cash equivalents ..... (5,957) (60,711) (32,911) Cumulative translation adjustment ................... (97) (191) 63 Cash and cash equivalents at beginning of year ...... 7,919 68,821 101,669 -------- -------- --------- Cash and cash equivalents at end of year ............ $ 1,865 $ 7,919 $ 68,821 ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. 24 25 KFORCE.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997, 19962000, 1999 AND 19951998 (IN 000'S)
SHARES AMOUNTACCUMULATED COMMON STOCK ADDITIONAL OTHER ---------------- PAID-IN COMPREHENSIVE Shares Amounts CAPITAL INCOME ------ --------------- --------- ------------- COMMON STOCK: Balance at December 31, 1994................................ 15,751 $ 158 Issuance of common stock.................................... 4,160 42 Exercise of stock options................................... 21 -- ------ -------- Balance at December 31, 1995................................ 19,932 200 Issuance of common stock.................................... 4,024 40 Exercise of stock options................................... 311 3 ------ -------- Balance at December 31, 1996................................ 24,267 243 Issuance of common stock.................................... 4,577 46 Exercise of stock options................................... 1,019 10 ------ -------- Balance at December 31, 1997................................ 29,863 $ 299 ====== ======== ADDITIONAL PAID-IN CAPITAL: Balance at December 31, 1994................................ $ 1,655 Issuance of common stock.................................... 11,360 Exercise of stock options................................... 32 Tax benefit related to employee stock options............... 25 -------- Balance at December 31, 1995................................ 13,072 Issuance of common stock.................................... 47,191 Exercise of stock options................................... 512 Tax benefit related to employee stock options............... 629 -------- Balance at December 31, 1996................................ 61,404 Issuance of common stock.................................... 86,469 Exercise of stock options................................... 2,834 Tax Benefit related to employee stock options............... 1,481 -------- Balance at December 31, 1997................................ $152,188 ======== STOCK REPURCHASE OBLIGATION: Balance at December 31, 1994................................ $ (924) Reacquired stock............................................ 924 -------- Balance at December 31, 1995, 1996 and 1997................. $ -- ======== STOCK SUBSCRIPTIONS RECEIVABLE: Balance at December 31, 1994................................ $ (36) Payments on stock subscriptions receivable.................. 19 -------- Balance at December 31, 1995................................ (17) Payments on stock subscriptions receivable.................. 4 -------- Balance at December 31, 1996................................ (13) Payments on stock subscriptions receivable.................. 13 -------- Balance at December 31, 1997................................ $ -- ========
24 26 ROMAC INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY -- (CONTINUED)
SHARES AMOUNT ------ -------- RETAINED EARNINGS: Balance at December 31, 1994................................ $ 1,582 Net income.................................................. 3,013 -------- Balance at December 31, 1995................................ 4,595 Net income.................................................. 5,980 -------- Balance at December 31, 1996................................ 10,575 Net income.................................................. 11,543 -------- Balance at December 31, 1997................................ $ 22,118 ======== REACQUIRED SHARES: Balance at December 31, 1994................................ (676) $ (924) Reacquired escrow shares.................................... -- (1) ------ -------- Balance at December 31, 1995, 1996 and 1997................. (676) $ (925) ====== ======== TOTAL SHAREHOLDERS'STOCKHOLDERS' EQUITY: Balance at December 31, 1994................................1997 ............ 45,475 $455 $ 2,435 Issuance of common stock.................................... 11,402 Net income.................................................. 3,013178,493 $ (42) Exercise of stock options................................... 32 Payments on stock subscriptions receivable.................. 19 Reacquired escrow shares.................................... (1)options ............... 933 9 6,262 -- Tax benefit related toof employee stock options............... 25 --------options ... -- -- 545 -- Foreign currency translation adjustment . -- -- -- 63 Net income .............................. -- -- -- -- ------ ---- --------- ----- Balance at December 31, 1995................................ 16,925 Issuance of common stock.................................... 47,2311998 ............ 46,408 464 185,300 21 Exercise of stock options................................... 515options ............... 279 3 1,840 -- Tax benefit related toof employee stock options............... 629 Payments onoptions ... -- -- 122 -- Foreign currency translation adjustment . -- -- -- (191) Net loss ................................ -- -- -- -- Repurchase of common stock subscriptions receivable.................. 4 Net income.................................................. 5,980 --------.............. -- -- -- -- ------ ---- --------- ----- Balance at December 31, 1996................................ 71,284 Issuance of common stock.................................... 86,5151999 ............ 46,687 467 187,262 (170) Exercise of stock options................................... 2,844options ............... 272 3 2,510 -- Tax benefit related toof employee stock options............... 1,481 Payment onoptions ... -- -- 995 -- 401(k) matching contribution ............ -- -- 406 -- Employee stock subscriptions receivable................... 13purchase plan contribution -- -- (166) -- Foreign currency translation adjustment . -- -- -- (97) Net income.................................................. 11,543 --------loss ................................ -- -- -- -- Repurchase of common stock .............. -- -- -- -- ------ ---- --------- ----- Balance at December 31, 1997................................ $173,680 ========2000 ............ 46,959 $470 $ 191,007 $(267) ====== ==== ========= =====
The accompanying notes are an integral part of these consolidated financial statements. 25 27 ROMAC INTERNATIONAL,26 KFORCE.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 CONTINUED (IN 000'S)
1997 1996 1995REACQUIRED STOCK RETAINED -------------------- EARNINGS Shares Amounts TOTAL -------- ------- -------- ---------------- Cash flows from operating activities: 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................................................ $ 11,543 $ 5,981 $ 3,013 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 3,242 1,762 512 Provision for losses on accounts and notes receivable........................................... 638 193 290 Deferred taxes......................................... (210) 26 (64) (Increase) decrease in operating assets: Trade receivables, net................................. (19,052) (9,900) (4,424) Notes receivable from franchisees...................... 155 (111) (17) Prepaid expenses and other current assets.............. (423) (895) 398 Other assets, net...................................... (2,487) (7) (14) Increase (decrease) in operating liabilities: Accounts payable and other accrued liabilities......... 957 1,050 (922) Accrued payroll costs.................................. 4,251 1,518 (65) Income taxes payable................................... 4,572 361 554 Other long-term liabilities............................ 1,276 657 (682) --------............................... 15,439 -- -- 15,439 -------- ------- Cash provided by (used for) operating activities...................................... 4,462 635 (1,421) -------- --------- 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) -------- ------- Cash flows from investing activities: Capital expenditures...................................... (3,226) (3,830) (1,302) Acquisitions, net-------- --------- Balance at December 31, 1999 ............. 46,646 2,613 (16,000) 218,205 Exercise of cash acquired........................ (52,127) (11,254) -- Proceeds from sale of furniture and equipment, net........ 1,681 -- 12 Proceeds from the sale of short-term investments, net..... 833 7,024 -- Increase in cash surrender value of life insurance policies............................................... (1,485) (382) (241) Payments for purchase of short-term investments, net......stock options ................ -- -- (7,656) ---------- 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) -------- ------- Cash used in investing activities................. (54,324) (8,442) (9,187) -------- -------- ------- Cash flows from financing activities: Payments on notes receivable from stock subscriptions..... 13 4 19 Payments on capital lease obligations..................... (535) (703) (570) Payments on notes payable to related parties.............. (23) (6) (18) Payments on notes receivable from related parties......... 39 220 96 Issuance of notes receivable from related parties......... (600) (520) (439) Proceeds from issuance of common stock.................... 86,515 47,232 11,402 Proceeds from exercise of stock options................... 2,844 515 32 Repurchase of stock....................................... -- -- 1 -------- -------- ------- Cash provided by financing activities............. 88,253 46,742 10,523 -------- -------- ------- Increase (decrease) in cash and cash equivalents............--------- Balance at December 31, 2000 ............. $ 38,39146,363 14,802 $(82,536) $ 38,935 $ (85) Cash and cash equivalents at beginning of year.............. 39,555 620 705 -------- -------- ------- Cash and cash equivalents at end of year.................... $ 77,946 $ 39,555 $ 620 ========155,037 ======== ======= ======== =========
The accompanying notes are an integral part of these consolidated financial statements. 26 28 ROMAC INTERNATIONAL,27 KFORCE.COM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN 000S,000'S EXCEPT PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization ROMAC International,ORGANIZATION kforce.com, Inc. and subsidiaries (the "Company") is a provider of professional and technical specialty staffing services in 18more than 97 locations in 45 markets in the United States as of December 31, 1997.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. 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. Stock Split/Dividend On April 21, 1995,May 5, 2000 the Company declaredStockholders approved a 1.023-for-1 stock split on its common stock. The Company declared two-for-one stock splits effected as a 100% stock dividends on its common stock on May 15, 1996 and October 3, 1997. All share-related data in these consolidated financial statements have been adjusted retroactivelyname change from Romac International, Inc. ("Romac") to give effect to these events as if they had occurred at the beginning of the earliest period presented. Public Offerings The Company completed its initial public offering of 4,160 shares of common stock on August 12, 1995. The proceeds of $11,402, net of underwriters' discounts and other offering costs, were used to pay down debt, to reacquire stock, for general working capital purposes and to finance business acquisitions. The Company completed secondary offerings of 4,024 and 4,577 shares of common stock on June 4, 1996 and October 17, 1997, respectively. The proceeds of $47,232 and $86,515, respectively, net of underwriters' discounts and other offering costs, are being used to finance business acquisitions and to fund general working capital purposes. Principles of Consolidationkforce.com, Inc. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Companykforce.com, Inc. and its subsidiaries. All material intercompany accounts and transactions have been eliminated in the consolidated financial statements. Use of Estimatesconsolidation. 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 EquivalentsCASH AND CASH EQUIVALENTS The Company classifies all highly-liquidhighly liquid investments with an initialoriginal 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 27 29 ROMAC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) gains and losses are included as a component of shareholders' equity until realized. At December 31, 1997 and 1996, there were no unrealized gains or losses. Furniture and EquipmentFURNITURE 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 3three to 7seven years. Revenue RecognitionREVENUE 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. Franchise fees were determined based uponThe 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 contractual percentagereserve for candidates not remaining in employment for the guarantee period. In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements". This pronouncement summarizes certain of the SEC staff's views on applying generally accepted accounting principles to revenue billed by franchisees. Costs relating to the support of franchised operations were included in the Company's selling, general and administrative expenses. The last remaining franchisee and licensee agreement was terminated at the end of the second quarter of 1997.recognition. The Company was the legal employeris 27 28 required to be in 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 flexible personnel under its licensing arrangements, and accordingly, included revenues and related direct costs of licensed offices in its net service revenues and direct cost of services, respectively. Commissions paid to licensees were based upon a percentage of the gross profit generated, and were included in the Company's direct cost of services. Income Taxesoperations, 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 adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123") during 1996.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. Earnings Per Share123"). SELF-INSURANCE The Company adopted Statementoffered 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 $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. OTHER 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 or historical rates depending upon the related assets. Resulting foreign currency translation adjustments are recorded in stockholders' equity. EARNINGS PER SHARE Under Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") during 1997, which requires disclosure of, basic and diluted earnings per share. Under the new standard, 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. All prior period disclosures have been restated to conform with current year presentation. The adoptionOptions that were outstanding, but were antidilutive, and therefore were excluded from the computation of this new standard had a $.04 per share impact on basic earnings per sharediluted shares, totaled 5,751, 5,289, and an immaterial impact on diluted earnings per share for the year ending December 31, 1997. Options to purchase 1581,207 shares of common stock, for 2000, 1999, and 1998, respectively, at option prices per share ranging from $16.13$0.980 to $20.63 per share were outstanding during 1997 but were not included$28.125, $ 0.980 to $30.063, and $24.125 to $30.063 in the computation of diluted earnings per share because the options were anti-dilutive. 28 30 ROMAC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)2000, 1999 and 1998, respectively. The options, which expire on various dates ranging from July 2, 2007January 2005 to December 11, 2007,October 2009 were still outstanding at December 31, 1997. Recently Issued Accounting Pronouncements In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which will require Romac to disclose, in financial statement format, all non-owner changes in equity. Such changes include cumulative foreign currency translation adjustments and certain minimum pension liabilities. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997 and requires presentation of prior period financial statements for comparability purposes. Romac expects to adopt this standard during the year ended December 31, 1998. The adoption of this standard is not expected to have a material impact on disclosure in Romac's financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for reporting information about operating segments in annual financial statements and interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997 and requires presentation of prior period financial statements for comparability purposes. Romac is currently evaluating its required disclosures under SFAS No. 131 and expects to adopt this standard during the year ended December 31, 1998. 2.2000. 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. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 1997 and 1996. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein. 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. 3.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 1997 1996 ----------- ------- ------ Furniture and equipment.............................. 5 years $ 3,271 $1,864 Computer equipment................................... 5 years 9,546 6,124 Leasehold improvements............................... lease term 575 192 ------- ------ 13,392 8,180 Less accumulated depreciation and amortization.................... 5,186 2,834 ------- ------ $ 8,206 $5,346 ======= ======
IncludedDECEMBER 31, ----------------- USEFUL LIFE 2000 1999 ----------- ------- ------- 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 ======= ======= In 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 noncancellable capitalreal estate developer. The Company will lease commitment with a three year term commencing on July 1, 1997. 29 31 ROMAC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. ACQUISITIONS Goodwill and intangible assets of $66,652 and $10,915 at December 31, 1997 and 1996, respectively, relate primarilythe facility for 15 years from the developer once construction is complete in late 2001. Leasehold improvements includes approximately $1,865 in improvements related to acquisitions made during 1997 and 1996. Goodwill is amortized on a straight-line basis over a fifteen or thirty year period and intangible assets are amortized over the lifeheadquarters facility. Depreciation of the employment agreement (five to eight years). Management periodically reviewsimprovements will begin upon the potential impairmentcommencement of goodwill in order to determine the proper carrying valuelease. Land consists of goodwill as of each balance sheet date presented. Goodwill amortization expense of $1,469, $653 and $108 was recorded$1,310 for the years ended Decemberremaining parcel of property not sold to the developer. 3. ACQUISITIONS FOR THE YEAR ENDED DECEMBER 31, 1997, 1996 and 1995, respectively.2000 During the second quarter of 1997,2000, the Company revised its estimate ofhad no acquisitions. During 2000, the amortization periodCompany settled earnout provisions on certain prior acquisitions for goodwill from 15 to 30 years for certain acquisitions. The change increased 1997 net income by $404, or $.02 per share. For The Year Ended Decemberapproximately $1,221. These amounts have been recorded as purchase price consideration and are included in goodwill. FOR THE YEAR ENDED DECEMBER 31, 19971999 In January 1997,1999, the Company acquired substantially all of the assets of Career Enhancement International of Massachusetts ("CEIM"), a provider of permanent placementNetwork Training Solutions, Science Solutions, Inc. and contract servicesTechnology Consulting Group for information technology personnel. Thean aggregate purchase price wasof approximately $4,400, subject to adjustment upon attainment of certain operating results. In March 1997,$5,100. During 1999, the Company acquiredalso 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 outstanding capital stock of Professional Application Resources Incorporated ("PAR"),Company using a provider of information technology contract personnel. The1.1351 ratio. 30 31 There were no purchase price was approximately $4,700. In September 1997,acquisitions by the Company acquired all ofduring 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. For The Year Endedyear ended December 31, 1996 In January 1996, the Company completed the acquisition1998. However, during 1998, approximately $23,593 of all of the assets, except for cash and accounts receivable of Venture Network Corporation, Inc. ("Venture"), a Company engaged in the business of providing permanent and contract services for information systems personnel. The purchase price, including a non-compete agreement, was approximately $1,100. In February 1996, the Company acquired the intangible assets of PCS Group, Inc. ("PCS"), a provider of contract service information systems personnel. The purchase price, including a non-compete agreement, was approximately $2,300. In March 1996, the Company acquired certain of the assets except for cash and accounts receivable of Strategic Outsourcing, Inc. ("SOI") for approximately $2,500 in cash. In June 1996, the Company acquired the fixed assets and intangible assets of 30 32 ROMAC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Bayshare, Inc. ("Bayshare"), the former legal entity for the Romac franchise for the San Francisco area. The purchase price was approximately $5,000 and is subject to adjustment upon attainment of certain operating results. During fiscal 1997, approximately $1,900 was paid as additional purchase priceearnout provisions related to the 1996 acquisitions. The Company fixed the earnouts on certainprior acquisitions during 1997 for approximately $5,600 (see Note 8).were paid. These amounts have been recorded as additional purchase price consideration and are included in goodwill. The Company has accounted for all acquisitions, except for the Source transaction, using the purchase method of accounting. The results of the acquiredthese 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 1996. 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 1996 ----------- ----------- (UNAUDITED) (UNAUDITED) Net service revenue.................................... $216,541 $147,903 Gross profit........................................... 80,340 55,780 Income before income taxes............................. 19,220 9,372 Net income............................................. 11,543 5,623 Earnings per share -- basic............................ $ .46 $ .26 Earnings per share -- diluted.......................... $ .44 $ .24
5.4. OTHER ASSETS
DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- DECEMBER 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 ======= ====== Cash surrender value of life insurance policies........ $2,280 $795 Capitalized software................................... 1,900 -- Investment in common stock............................. 54 53 Other.................................................. 644 58 -------- -------- $4,878 $906 ======== ========
The cash 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 $1,872$13,648 and $522$10,435 at December 31, 19972000 and 1996, respectively,1999, respectively. Amortization expense of capitalized software was $3,331 and key man life insurance on officers with a cash surrender$2,915, in December 31, 2000 and 1999 respectively. Amortization expense of deferred loan costs was $659 in December 31, 2000. The Company has included the value of $408non-compete agreements totaling $187 and $273$270 at December 31, 19972000 and 1996, respectively. During 1997,1999, 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 operation systems. Direct internal and external costs subsequent torelated employment agreements. Amortization expense of non-compete agreements was $83 for each of the preliminary stage of this project are being capitalized and classified as other assets. Capitalized software development costs were $1,900 and $0 atyears ended December 31, 19972000, 1999, and 1996, respectively. Capitalized1998. In addition, Other includes $223 of prepaid software development costs are amortized over the estimated useful life of the software using the straight-line method over the estimated economic life. 31 33 ROMAC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6.license costs. 5. LINE OF CREDIT AND CAPITAL LEASE OBLIGATION
DECEMBER 31, -------------- 1997 1996 ------ ---- DECEMBER 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.......... $1,991 $-- Less current maturities..................................... 731 -- ------ --- $1,260 $-- ====== ===
Future minimum lease payments under capital lease obligations are $731, $782with quarterly payments of principal and $478 for 1998,interest at 8.3% through June 2000 ...... -- 481 ------- ---- 45,000 481 Less current maturities ................................. -- 481 ------- ---- $45,000 $ -- ======= ==== During 1999, and 2000, respectively. In March 1996, the Company entered intohad an unsecured line of credit agreement. This agreement provided for up to $5,000in the amount of working capital to the Company for general corporate purposes. This agreement was renegotiated on September 11, 1997 and the line was increased to $30,000. This agreement matures$30,000 ("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 ("LIBOR"). This agreement contains restrictive covenants which require the maintenance of certain financial ratios. The Company is in compliance with all covenants as of December 31, 1997 and 1996.Interbank Market. No amounts were outstanding on any of these lines of creditunder the Old Credit Facility at December 31, 19971999. 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 entered 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 maximum revolving credit facility of $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 1996.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, 1998, the remaining accrued expenses balance associated with the above charge was $4,931, 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. 32 33 7. INCOME TAXES The provisionbenefit (provision) for income taxes consists of the following:
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 1995 ------ ------ ------ Current: Federal........................................ $6,287 $3,239 $1,658 State.......................................... 1,423 752 414 Deferred......................................... (210) (26) (64) ------ ------ ------ $7,500 $3,965 $2,008 ====== ====== ======
YEARS 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) ======== ======== ======== The provisionbenefit (provision) for income taxes shown above varied from the statutory federal income tax rates for those periods as follows:
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 1995 ----- ------ ------ % % % Federal income tax rate.............................. 35.0 34.0 34.0 State income taxes, net of federal tax benefit..... 4.9 5.0 5.3 Non-deductible items............................... .5 1.4 1.1 Goodwill amortization.............................. .6 (.1) .4 Life insurance items............................... -- .2 .2 Other.............................................. (1.6) (.5) (1.0) ---- ----- ----- Effective tax rate................................... 39.4 40.0 40.0YEARS 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. 3233 34 ROMAC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income tax assets and liabilities shown on the balance sheet are comprised of the following:
DECEMBER 31, -------------- 1997 1996 ----- ----- Deferred taxes, current: Assets Allowance for bad debts................................ $ 352 $ 222 Accrued liabilities.................................... -- 21 ----- ----- Net deferred tax asset, current........................ $ 352 $ 243 ===== ===== Deferred taxes, non-current: Assets Deferred compensation.................................. $ 979 $ 448 Deferred rent.......................................... 78 34 ----- ----- 1,057 482 Liabilities Depreciation........................................... (747) (273) ----- ----- Net deferred tax asset, non-current.................... $ 310 $ 209 ===== =====
DECEMBER 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 ======= ======= 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.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, 2000, the Company had approximately a $6,700 state tax net operating loss which 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 Receivables from related parties are summarized as follows:
DECEMBER 31, -------------- 1997 1996 ------ ---- Receivables from officers and shareholders.................. $1,136 $800 Other related party receivables............................. 387 162 ------ ---- 1,523 962 Less current maturities..................................... 233 100 ------ ---- $1,290 $862 ====== ====
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%. 33NOTES PAYABLE TO RELATED PARTIES As of December 31, 1999, the Company had $2,000 of notes payable outstanding to a related party relating to contingent purchase price adjustments on previous acquisitions (see Note 3). This obligation was retired 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. 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 in both 2000 and 1999. The Company billed the aircraft charter company $22 and $35 for the use of the Company's airplane in 2000 and 1999, respectively. Similar agreements for aircraft 34 35 ROMAC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Payables to Related Parties Notes payable to related parties include the following:
DECEMBER 31, -------------- 1997 1996 ------ ---- Notes payable due in annual installments through February 1999 relating to contingent purchase price adjustments on previous acquisitions (see Note 4)........................ $5,640 $ -- Note payable to a related party, principal and 9% interest payable in bi-monthly installments through May, 1997...... -- 23 Less current maturities..................................... 4,265 23 ------ ---- $1,375 $ -- ====== ====
Related Party Leasesusage have been entered into for 2001. The Company has operating leases with related parties as discussed in Note 12. Stock Subscription Notes Receivable From 1989 to August 31, 1994, certain subsidiaries of Romac-FMA issued stock to key employees of its respective majority owned subsidiaries of Romac-FMA in exchange for stock subscription notes receivable. At December 31, 1997 and 1996, $0 and $14, respectively, of non interest bearing subscription notes receivable were outstanding and collateralized by the respective shares of the subsidiaries' stock. The outstanding balances of these notes receivable were reflected as a reduction of the minority interest through August 31, 1994, at which time the minority interests of certain subsidiaries of Romac-FMA were exchanged for shares in the Company and the remaining outstanding subscription receivables are now shown as a reduction of shareholders' equity.11. 9. FRANCHISE REORGANIZATION In 1995, the Company reached agreements with the Arlington and Dallas franchisees to terminate their franchise agreements. The terms of the Arlington agreement included a $260 note receivable at 9% interest, payable in 18 equal monthly installments. The agreement also includes a covenant not to compete in the Arlington market for a four month period beginning January 1, 1995. The Dallas arrangement included a $175 cash settlement and the Company retained the rights to the phone listing and other business records at the Dallas location. In 1996, the Company reached agreements with its Minneapolis, Portland and St. Louis franchises to terminate their franchise agreements. The terms of the Minneapolis agreement included notes receivable totaling $207 at 8% interest payable in 18 equal monthly installments. The agreement also allowed the Company to immediately enter the Minneapolis market. The terms of the Portland agreement included a $106 note receivable at 9% interest payable in 149 equal weekly installments. The agreement also includes a covenant not to compete in the Portland market for a six month period beginning July 31, 1996. The St. Louis agreement included a $59 note receivable at 8% interest payable in 18 equal monthly installments. The agreement also allowed the Company to immediately enter the St. Louis market. In 1997, the Company reached termination agreements with the last of its two franchises. The terms of the Raleigh agreement included notes receivable totaling $117 at 9% interest payable in 18 equal monthly installments. This agreement allowed the Company to immediately enter the Raleigh market. The terms of the New Orleans agreement included notes receivable totaling $50 at 9% interest payable in 18 equal monthly installments. This agreement allowed the Company to immediately enter the New Orleans market. 34 36 ROMAC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The revenue from these transactions has been reflected as other income in each respective year. Receivables related to these agreements of $109 and $247 at December 31, 1997 and 1996, respectively, are included in notes receivable from franchisees. Franchise royalties amounted to $10, $450 and $487 for the years ended December 31, 1997, 1996 and 1995, respectively. As of December 31, 1997, there were no Romac franchises remaining. 10. EMPLOYEE BENEFIT PLANS 401(k) Savings PlanSAVINGS PLAN The Company has a qualified defined contribution 401(k) plan covering substantially all full-time employees, except officers and certain highly compensated 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") effective October 1, 1997. The Source Plan 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. The 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 thisthe 401(k) plans totaled $1,165, $892 and $1,609 in 2000, 1999 and 1998, respectively. EMPLOYEE STOCK PURCHASE PLAN During 1996, Source enacted an Employee Stock Purchase Plan. This plan totaled $47, $40 and $22allowed 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 1997, 1996 and 1995, respectively. Priorthe Employee Stock Purchase Plan. There was no waiting period for enrollment prior to their mergers intoApril 20, 1998. Effective January 1, 2000, the Company certain subsidiariesplaced into effect a new Employee Stock Purchase Plan which had separate qualified defined contribution 401(k) plans covering substantiallybeen approved during 1999 and which allows all full-time 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 subsidiaries. No employer matching contributions were made for these plans fornext plan enrollment date following their date of hire. This plan replaces the yearsprior Source Employee Stock Purchase Plan. For the year ended December 31, 1997, 1996 and 1995. Employees2000, the Company issued 632 shares of these subsidiaries are now covered undercommon 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 plan described above. Deferred Compensation Plantreasury 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, 19972000 and 1996,1999, aggregated $2,278$12,966 and $1,119,$14,001, 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, of $1,872$13,648 and $523,$10,435 at December 31, 19972000 and 1996,1999, respectively, is included in other assets. Compensation expense of $234, $28$439, $1,938, and $45$825 was recognized for the plan for the years ended December 31, 1997, 19962000, 1999, and 1995,1998, respectively. Split Dollar Life Insurance35 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 iswas 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. Total premiumsPremiums paid to date of $916that have not been recovered from policy cancellations and $742which are included in related party receivables for the years endedwere $758 and $760 at December 31, 19972000 and 1996,1999, respectively. 11.10. 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 to employees. The maximum number of shares of common stock that could be issued under the plan could not exceed 1,636. In 1995, the employee stock option incentive 35 37 ROMAC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) plan was amended to increase the number of shares of common stock that may be issued to 3,070.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 (the "Plan").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 issueissuance to non-employee directors of options to purchase common stock to non-employee directors.stock. The maximum number of shares of common stock that can be issued under this plan is 400. 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, 1994..................... 5521997 .. 4,196 191 4,387 $ 9.36 Granted ............ 1,899 101 2,000 $25.71 $10.86 Exercised .......... (933) -- 552(933) $ 1.37 Granted............................... 1,663 80 1,743 $ 2.69 $ .95 Exercised............................. (22)6.75 Forfeited .......... (587) -- (22) $ 1.49 ------(587) $15.54 ----- --- ----------- Outstanding as of December 31, 1995..................... 2,193 80 2,2731998 .. 4,575 292 4,867 $15.84 Granted ............ 2,353 60 2,413 $ 2.38 Granted............................... 1,844 40 1,884 $10.96 $4.09 Exercised............................. (311)7.68 $ 7.73 Exercised .......... (342) -- (311)(342) $ 1.66 Forfeited............................. (122) -- (122) $ 8.25 ------5.26 Forfeited .......... (1,522) (127) (1,649) $19.19 ----- --- ----------- Outstanding as of December 31, 1996..................... 3,604 120 3,7241999 .. 5,064 225 5,289 $11.76 Granted ............ 2,204 94 2,298 $10.77 $ 6.59 Granted............................... 1,139 20 1,159 $12.92 $5.59 Exercised............................. (1,019)4.89 Exercised .......... (283) -- (1,019)(283) $ 2.79 Forfeited............................. (304) -- (304) $10.91 ------8.93 Forfeited .......... (1,528) (25) (1,553) $12.75 ----- --- ----------- Outstanding as of December 31, 1997..................... 3,420 140 3,560 $ 9.43 ======2000 .. 5,457 294 5,751 $11.04 ===== === ====== ====== Exercisable at December 31: 1997............................... 1,060 88 1,148 1998............................... 998 12 1,010 1999............................... 725 12 737 2000............................... 296 12 308 2001............................... 123 12 135=====
36 37 Employee Non-Employee Incentive Director Exercisable at Stock Option Stock Option December 31: Plan Plan Total ------------------- ------------ ------------ ----- 2000............ 1,797 213 2,010 2001............ 1,356 62 1,418 2002............ 1,422 19 1,441 2003............ 876 -- 876 2004............ 6 -- 6 Options granted during each of the three years ended December 31, 19972000 have vesting requirements ranging from onethree to sevenfour years. Options expire at the end of ten years from the date of grant. 36 38 ROMAC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes information about employee and director stock options:
OPTIONS OUTSTANDING ------------------------------------------ NUMBER WEIGHTED OUTSTANDING AVERAGE WEIGHTED AT REMAINING AVERAGE DECEMBER 31, CONTRACTUAL EXERCISE RANGE OF EXERCISE PRICES 1997 (SHARES) LIFE (YEARS) PRICE ($) ------------------------ ------------- ------------ --------- $1.365 - $1.49........................... 414 6.9 $ 1.45 $4.188 - $4.688.......................... 565 7.7 $ 4.19 $6.250 - $7.688.......................... 203 8.2 $ 6.30 $8.845 - $9.565.......................... 11 9.3 $ 9.24 $10.125 - $15.250........................ 2,209 9.0 $11.92 $16.125 - $20.625........................ 158 9.5 $17.18 ----- 3,560OPTIONS OUTSTANDING ----------------------------------------- WEIGHTED NUMBER AVERAGE WEIGHTED OUTSTANDING AT REMAINING AVERAGE DECEMBER 31, CONTRACTUAL EXERCISE RANGE OF EXERCISE PRICES 2000 (SHARES) LIFE (YEARS) PRICE ($) ------------------------ -------------- ------------ --------- $ 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 EXERCISABLE WEIGHTED AT AVERAGE DECEMBER 31, EXERCISE RANGE OF EXERCISE PRICES 1997 (SHARES) PRICE ($) ------------------------ ------------- --------- $1.365 - 1.490....................................... 295 $ 1.48 $4.188 - $4.688...................................... 330 $ 4.19 $6.250 - $7.688...................................... 47 $ 6.39 $10.125 - $15.250.................................... 425 $11.39 $16.125 - $20.625.................................... 51 $16.94 ----- 1,148OPTIONS EXERCISABLE -------------------------- NUMBER WEIGHTED EXERCISABLE AT AVERAGE DECEMBER 31, EXERCISE RANGE OF EXERCISE PRICES 2000 (SHARES) PRICE ($) ------------------------ -------------- --------- $ 0.980 - $ 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 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, ----------------- 1997 1996 ------- ------ Net income: As Reported............................................. $11,543 $5,981 Compensation expense per SFAS 123.................... (2,954) (786) Tax benefit pro forma................................ 456 314 ------- ------ $ 9,045 $5,509 ======= ====== Net income per share: Basic: As Reported.......................................... $ .46 $ .28 Pro forma............................................ .36 .25 Diluted: As reported.......................................... $ .44 $ .26 Pro forma............................................ .34 .24
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 Pro forma $ (.46) $ (.75) $ .21 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 bothall three periods; risk-free interest rates of 5.85% - 7.03%5.66%-6.75% for options granted during the year ended December 31, 1997 and 5.95% - 7.99%2000, 4.95%-5.74% for options granted during the year ended December 31, 1996;1999 and 4.77%-5.71% for options granted during the year ended December 31, 1998; a weighted average expected 37 39 ROMAC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) option term of 4 - 74-7 years for 1997 and 3 - 52000, 5-6 years for 1996;1999 and 4-7 years for 1998; and a volatility factor of 37.02%50.00% for 19972000, 45.59% for 1999 and 35.35%40.69% for 1996.1998. Tax benefits resulting from the disqualifying dispositions of shares acquired under the Company's employee incentive stock option plan reduced taxes currently payable by $1,481$828 and $629$122 in 19972000 and 1996,1999, respectively. These tax benefits are credited to additional paid-in-capital. 12.11. COMMITMENTS AND CONTINGENCIES Operating Leases TheOPERATING LEASES During 2000, the office space the Company leases office space for use as its headquarters under an operating lease with monthly payments of $27 expiring in 2001 from a related party. The Company also leases office space for Romac Portland 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: 1998, $3,107; 1999, $2,870; 2000, $1,660; 2001, $629; and $233$9,651; 2002, $6,946; 2003, $5,903; 2004, $3,285; 2005, 821; $1,066 thereafter. Minimum obligations have not been reduced by minimum sublease rentals of $149 due under a noncancellable sublease. Rental expense under all operating leases was $2,329, $1,379$11,415, $12,187 and $759$10,226 for 1997, 19962000, 1999, and 1995,1998, respectively. Noncancellable Processing Commitment The Company has an agreement with a third party processor (the "Processor") who provides certain services for some of the Company's franchised and licensed temporary placement operations; the cost of such services is a percentage of gross billings as defined within the agreement. Pursuant to certain contract termination provisions, the Company would be required to pay $500 in the event of 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. The cumulative amounts processed were $4,373, $4,279 and $4,094 as of December 31, 1997, 1996 and 1995, respectively. Stock Repurchase Agreements Stock repurchase agreements between certain subsidiaries of the Company (former Romac-FMA subsidiaries) and certain shareholders provided for the purchase of their shares of the subsidiaries' stock in the event of disability or death of the shareholder, at market value as determined by an independent third party. The commitment under such agreements was partially funded by term life insurance and disability policies on these shareholders owned by the Company. In connection with these redemption agreements, the Company had employment agreements with such key employees until consummation of the share exchange, wherein all such employment agreements were terminated, with the exception of those discussed below and the repurchase agreements were amended to reflect the receipt of shares of the Company in exchange for shares owned in the former FMA subsidiaries. On April 26, 1995, all such agreements were amended to convert the Company's repurchase obligation to an option to purchase, at the discretion of the Company. In October 1994, the Company became liable to repurchase approximately 676 shares under one of the stock repurchase agreements due to the death of a shareholder. Under the terms of the repurchase agreement, the liability was to be paid in five equal annual installments beginning March 1, 1995, with interest payable at 9%. The note was paid in full as of December 31, 1995. The related life insurance proceeds of approximately $500 is included in other income for the year ended December 31, 1994. The amendment of the stock 38 40 ROMAC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) purchase agreements on April 26, 1995 by the Company and its certain shareholders eliminated all contingent stock repurchase obligations. Accordingly, the related life insurance policies were terminated. Litigation The Company is involved in litigation in39 LITIGATION 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 does not believe that it is involved in any litigation which is 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. Employment Agreements During 1996 and 1997, thecondition. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with certain executive officers which provide for minimum compensation, and salary and continuation of certain benefit continuationbenefits for a twoone to three year period under certain circumstances. The agreements also provide for a payment of amounts 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, 19972000, would behave been approximately $1,100$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. 13.NOTE 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, ----------------------------- 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 13. SEGMENT ANALYSIS The Company discloses its business segments in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of Enterprise and Related Information" ("SFAS 131"). The Company's internal information that is used by management for making operational decisions and addressing performance is the source of determining the Company's reportable segments. The 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; as 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:
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 1995 ------ ------ ------INFORMATION FINANCE & HUMAN OPERATING TECHNOLOGY ACCOUNTING RESOURCES SPECIALTIES TOTAL ----------- ---------- --------- ----------- -------- Notes payable issued in settlement of contingent purchase price of previous acquisitions......................... $5,640 $ -- $ -- Capital lease transaction................................ $2,526 $ -- $1,207 Cash paid during the year for: Interest............................................... $ 127 $ 79 $ 133 Income taxes........................................... $4,187 $3,675 $1,515 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....................... $448,640 $205,646 $18,317 $74,029 $746,632 Gross Profit................ 175,117 114,321 6,191 27,002 322,631 1998 Sales....................... $431,921 $191,086 $17,575 $39,504 $680,086 Gross Profit................ 169,429 104,765 5,672 11,715 291,581
14. SUBSEQUENT EVENTS On February 1, 1998 and as amended on February 11, 1998, the Company announced a definitive merger agreement (the "Merger") with Source Services Corporation ("Source"), a flexible and permanent specialty staffing company. The agreement provides for a stock-for-stock merger transaction whereby the stockholders of Source will receive 1.1932 shares of Romac common stock for each of the outstanding shares of Source common stock, subject to adjustment based on Romac's market price prior to closing and certain other conditions. Based on Romac's closing price of $22.375 per share on Friday, January 30, 1998, the transaction would be valued at approximately $375,000. The consummation of the Merger is subject to certain conditions including effectiveness of a registration statement to be filed by the Company with the SEC, approval by the stockholders of each company and the receipt of the opinions that the Merger may be accounted for as a "pooling of interests" for accounting purposes and qualify as a tax-free reorganization. 39 41 ROMAC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED ----------------------------------------- MAR.----------------------------------------------- MAR 31 JUN.JUN 30 SEPT.SEPT 30 DEC.DEC 31 ------- ---------------- -------- --------------- --------- Fiscal 19972000 Net service revenues...................... $34,952 $39,640 $45,915 $60,927revenues .............. $ 195,063 $197,661 $202,193 $ 200,080 Gross profit.............................. 13,948 16,063 18,591 22,282 Net income................................ 2,078 2,427 3,041 3,996profit ...................... 88,201 91,618 93,627 88,110 Net income per share -- basic............. $ .09 $ .10 $ .12 $ .15(loss) ................. (2,395) 1,807 295 10 Net income (loss) per share -- diluted...........share-basic.. $ .08(.05) $ .10.04 $ .12.01 $ .14.00 Net income (loss) per share-diluted .................. $ (.05) $ .04 $ .01 $ .00 Fiscal 19961999 Net service revenues...................... $16,889 $21,466 $26,433 $29,422revenues .............. $ 184,095 $189,390 $191,707 $ 181,440 Gross profit.............................. 7,170 9,437 11,369 12,395 Net income................................ 1,025 1,288 1,805 1,863profit ...................... 78,832 81,208 82,215 80,376 Net income per share -- basic............. $ .06 $ .06 $ .08 $ .08(loss) ................. 9,128 332 904 (33,880) Net income (loss) per share -- diluted...........share-basic.. $ .05.20 $ .06.01 $ .08.02 $ .07(.77) Net income (loss) per share-diluted .................. $ .20 $ .01 $ .02 $ (.77)
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 4241 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of Romac International, Inc. Our audits of the consolidated financial statements referred to in our report dated February 25, 19988, 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/ Price WaterhousePricewaterhouseCoopers LLP Price Waterhouse- ------------------------------ PricewaterhouseCoopers LLP Tampa, Florida February 25, 19988, 2000 41 4342 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........................ 1995 $333 $376Reserve...... 1998 $ --5,423 $ 86 $623 -- 1996 623 193 199 617 -- 1997 617 638 375 8804,049 $ 3,710 $ 5,762 1999 5,762 9,768 11,113 4,417 2000 4,417 7,106 4,874 6,649
42 4443 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 17, 199828, 2001 By: /s/ DAVID L. DUNKEL -------------------------------------------------------------------- David L. Dunkel Chairman of the Board, Chief Executive Officer and Director POWER OF ATTORNEY KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David L. Dunkel and James Swartz and each of them, jointly and severally, his attorneys-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorneys-in-fact or his substitutes, may do or cause to be done by virtue hereof. 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 17, 1998 By: /s/ JAMES D. SWARTZ ---------------------------------------------------- James D. Swartz President and Director Date: March 17, 1998 By: /s/ HOWARD W. SUTTER ---------------------------------------------------- Howard W. Sutter Vice President and Director Date: March 17, 1998 By: /s/ THOMAS M. CALCATERRA ---------------------------------------------------- Thomas M. Calcaterra Chief Financial Officer, Secretary, and Principal Accounting Officer Date: March 17, 1998 By: /s/ PETER DOMINICI ---------------------------------------------------- Peter Dominici Vice President, Treasurer, and Director Date: March 17, 1998 By: /s/ RICHARD M. COCCHIARO ---------------------------------------------------- Richard M. Cocchiaro Vice President and Director Date: March 17, 1998 By: /s/ W. R. CAREY, JR. ---------------------------------------------------- W. R. Carey, Jr. Director
43 45 Date: March 17, 1998 By: /s/ GORDON TUNSTALL ---------------------------------------------------- Gordon Tunstall Director Date: March 17, 1998 By: /s/ TODD MANSFIELD ---------------------------------------------------- Todd Mansfield Director Date: March 17, 1998 By: /s/ DAVID L. DUNKEL ----------------------------------------------------Date: March 28, 2001 By: /s/ DAVID L. DUNKEL --------------------------------------- David L. Dunkel Director
and Chief Executive Officer Date: March 28, 2001 By: /s/ WILLIAM L. SANDERS --------------------------------------- William L. Sanders Sr. Vice President, Chief Financial Officer Date: March 28, 2001 By: /s/ JOHN N. ALLRED --------------------------------------- John N. Allred Director Date: March 28, 2001 By: /s/ W.R. CAREY, JR. --------------------------------------- W.R. Carey, Jr. Director Date: March 28, 2001 By: /s/ RICHARD M. COCCHIARO --------------------------------------- Richard M. Cocchiaro Vice President and Director Date: March 28, 2001 By: /s/ TODD MANSFIELD --------------------------------------- Todd Mansfield Director Date: March 28, 2001 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, 2001 By: /s/ GORDON TUNSTALL --------------------------------------- Gordon Tunstall Director Date: March 28, 2001 By: /s/ KARL VOGELER --------------------------------------- Karl Vogeler Director 43 44 46 EXHIBIT INDEX
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---------- 2.13.1 Amended and Restated Articles of Incorporation(1) 3.2 Amended and Restated Bylaws(1) 4.1 Amended and Restated Credit Agreement among Certain Financial Institutions, Bank of America NA (as the Administrative Agent) and Plankforce.com, Inc. dated November 3, 2000 4.2 Second Amendment to Amended and Restated Credit Agreement dated as of Merger,February 12, 2001 4.3 Rights Agreement, dated February 1,October 28, 1998, between Romac International, Inc. and Source Services Corporation**** 2.2State Street Bank and Trust Company as Rights Agent(2) 4.4 Amendment Number 1 to Agreement and Plan of Merger, dated February 11, 1998, between Romac International, Inc. and Source Services Corporation***** 3.1 Amended and Restated Articles of Incorporation* 3.2 Bylaws* 4.1 Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1)** 4.2 Bylaws (incorporated by reference to Exhibit 3.1) 10.5 Asset Purchase Agreement, effective September 1, 1997 between Romac International Inc. and the Sellers of Sequent Associates, Inc.** 10.6 Stock PurchaseRights Agreement dated September 5, 1997, between Romac International Inc. and the Sellersas of Uni*Quality Systems Solutions, Inc.*** 10.7 $30,000,000 Revolving Line of Credit Agreement between NationsBank, National Association and Romac International, Inc. dated September 11, 1997 10.18October 24, 2000(3) 10.1 Employment Agreement, dated as of March 1, 1997,2000, between the Company and David L. Dunkel****** 10.19Dunkel(4) 10.2 Employment Agreement, dated as of March 1, 1997,2000, between the Company and Howard W. Sutter****** 10.20William L. Sanders(4) 10.3 Employment Agreement, dated as of March 1, 1997,2000, between the Company and Peter Dominici****** 21. ListJoseph J. Liberatore 10.4 Employment Agreement, dated as of subsidiariesMarch 1, 2000, between the Company and Ken W. Pierce 10.5 Employment Agreement, dated as of March 1, 2000, between the Company 23.and Lawrence J. Stanczak 10.6 1999 Romac International, Inc. Employee Stock Purchase Plan(4) 23.1 Consent of Price WaterhousePricewaterhouseCoopers LLP 27. Financial Data Schedule (for SEC use only)23.2 Consent of Deloitte & Touche LLP
- --------------- *(1) Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-91738). ** Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-26058), filed September 22, 1997 ***May 9, 1996. (2) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-26058), filed October 9, 1997. ****29, 1998. (3) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-26058), filed February 2, 1998. ***** Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-26058), filed February 19, 1998. ******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. 4529, 2000. 44