1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ ------------ ------------------- Commission file number 0-26058 ROMAC INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) FLORIDA 59-3264661 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 120 WEST HYDE PARK PLACE SUITE 150 TAMPA, FLORIDA 33606 (Address of principal executive offices) (zip-code) Registrant's telephone number, including area code: (813) 251-1700 ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) had been subject to such filing requirements for the past 90 days. YES X NO ----- ----- As of August 11, 1998, the registrant had 45,938,614 shares of common stock, $.01 par value per share, issued and outstanding. ================================================================================ 2 ITEM 1. FINANCIAL STATEMENTS ROMAC INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS) JUNE 30, DECEMBER 31, 1998 1997 ----------- ------------ (UNAUDITED) Assets: Current Assets: Cash and cash equivalents $ 95,147 $101,669 Short-term investments 5,065 1,953 Trade receivables, net of allowance for doubtful accounts of $6,762 and $5,423 respectively 101,368 84,729 Income tax receivable 1,669 -- Notes receivable from franchisees, current 56 109 Receivables from related parties, current 503 233 Deferred tax asset, current 3,138 3,141 Prepaid expenses and other current assets 3,136 2,519 -------- -------- Total current assets 210,082 194,353 Note receivable from franchisees, less current portion -- 4 Receivables from related parties, less current portion 1,325 1,290 Deferred tax asset, less current portion 310 310 Furniture and equipment, net 20,778 15,921 Goodwill, net of accumulated amortization of $3,950 and $2,578, respectively 82,438 66,652 Other assets, net 4,147 4,878 -------- -------- Total assets $319,080 $283,408 ======== ======== Liabilities and Shareholders' Equity: Current Liabilities: Accounts payable and other accrued liabilities $ 24,088 $ 8,031 Accrued payroll costs 29,711 28,138 Income taxes payable -- 3,729 Current portion of capital lease obligations 743 731 Current portion of payables to related parties 13,883 4,265 Accrued merger and integration expenses 8,405 -- Total current liabilities 76,830 44,894 Capital lease obligations, less current portion 870 1,260 Payables to related parties, less current portion -- 1,375 Other long-term liabilities, less current portion 3,339 3,175 -------- -------- Total liabilities 81,039 50,704 -------- -------- Commitments and contingencies -- -- Shareholders' Equity: Preferred stock, par value $.01; 15,000 shares authorized, none issued and outstanding -- -- Common stock, par value $.01; 250,000 shares authorized, 45,928 and 45,475 issued, respectively 459 455 Additional paid-in-capital 181,305 178,494 Retained earnings 57,284 54,723 Cumulative translation adjustment (82) (42) Less reacquired stock at cost; 677 shares, respectively (925) (925) -------- -------- Total shareholders' equity 238,041 232,704 -------- -------- Total liabilities and shareholders' equity $319.080 $283,408 ======== ======== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 3 ROMAC INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) Net service revenues $166,321 $110,609 $321,723 $210,954 Direct costs of service 93,337 58,223 181,638 110,664 -------- -------- -------- -------- Gross profit 72,984 52,386 140,085 100,290 Selling, general and administrative expenses 56,796 43,302 110,628 84,192 Depreciation and amortization expense 2,060 1,114 4,072 2,221 Merger, restructuring, and integration expenses 18,476 - 20,221 - Other (income) expense (1,064) (502) (2,397) (1,281) -------- -------- -------- -------- Income (loss) before income taxes (3,284) 8,472 7,561 15,158 Provision for income taxes 404 3,605 5,000 6,371 -------- -------- -------- -------- Net income (loss) $(3,688) $4,867 $2,561 $8,787 ======== ======== ======== ======== Net income (loss) per share - Basic $(0.08) $0.12 $0.06 $0.22 ======== ======== ======== ======== Weighted average shares outstanding - Basic 45,225 39,944 45,170 40,002 ======== ======== ======== ======== Net income (loss) per share - Diluted $(0.08) $0.12 $0.05 $0.21 ======== ======== ======== ======== Weighted average shares outstanding - Diluted 45,225 41,768 47,619 41,371 ======== ======== ======== ======== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 4 ROMAC INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) SIX MONTHS ENDED JUNE 30, JUNE 30, 1998 1997 ----------- ----------- (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net income $ 2,561 $ 8,787 Adjustments to reconcile net income to net cash provided by Operating activities: Depreciation and amortization 4,072 2,472 Provision for losses on accounts and notes receivable 2,871 (36) Deferred taxes 3 90 Loss on asset sales 59 (Increase) decrease in operating assets: Trade receivables, net (19,510) (12,753) Notes receivable from franchisees, current 53 (40) Prepaid expenses and other current assets (617) (182) Notes receivable from franchisees, less current portion 4 4 Other assets, net 1,618 (1,351) Increase (decrease) in operating liabilities: Accounts payable and other accrued liabilities 16,057 52 Accrued payroll costs 1,573 5,222 Income taxes payable (4,963) 1,462 Other long-term liabilities 164 583 ------- ------- Cash provided by (used in) operating activities 3,886 4,369 ------- ------- Cash flows from investing activities: Capital expenditures (7,598) (4,964) Acquisitions (8,914) (11,507) Accrued merger, restructuring and integration expense 8,405 -- Proceeds from the sale of fixed assets -- 1,690 Increase in cash surrender value of life insurance policies (887) -- Payments for the purchase of short-term investments (3,112) (3,023) Cash (used in) provided by investing activities (12,106) (17,804) ------- ------- Cash flows from financing activities: Payments on notes receivable from stock subscriptions 13 Payments on capital lease obligations (378) Payments on receivables from related parties 13 56 Issuance of payables to related parties -- 2,917 Expenses from issuance of common stock (57) -- Issuance of receivables from related parties (318) (468) Proceeds from exercise of stock options 2,438 1,242 ------- ------- Cash provided by (used in) financing activities 1,698 3,755 ------- ------- Decrease in cash and cash equivalents (6,522) (9,680) Cash and cash equivalents at beginning of period 101,669 58,404 ------- ------- Cash and cash equivalents at end of period 95,147 $48,724 ------- ------- Supplemental Cash Flows Information Cash paid during the period for: Income Taxes $9,572 $2,038 Interest -- 83 Non cash investing and financing activity: Capital lease transaction -- $2,526 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 5 ROMAC INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1998 (AMOUNTS IN THOUSANDS) (UNAUDITED) Shares Amounts COMMON STOCK: Balance at December 31, 1997 45,475 $455 Exercise of stock options 453 4 ------ -------- Balance at June 30, 1998 45,928 $ 459 ====== ======== ADDITIONAL PAID-IN CAPITAL: Balance at December 31, 1997 $178,494 Issuance of common stock (57) Exercise of stock options 2,434 Tax benefit related to employee stock options 435 -------- Balance at June 30, 1998 $181,305 ======== RETAINED EARNINGS: Balance at December 31, 1997 $54,723 Net income 2,561 ------- Balance at June 30, 1998 $57,284 ======= REACQUIRED STOCK: Balance at December 31, 1997 ($925) ----- Balance at June 30, 1998 ($925) ===== CUMULATIVE TRANSLATION ADJUSTMENT: Balance at December 31, 1997 ($42) Foreign currency translation adjustment (40) ----- Balance at June 30, 1998 ($82) ===== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 6 ROMAC INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED) NOTE A---SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The Consolidated Financial Statements include the accounts of Romac International, Inc. (the "Company") and its subsidiaries. The Company completed its merger with Source Services Corporation ("Source") on April 20, 1998. Source continues to operate as a separate division of the Company. This merger was accounted for under the pooling of interests method; accordingly all historical results have been restated to reflect the merger. All material intercompany accounts and transactions have been eliminated in the consolidated financial statements. Interim Financial Information. The Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and, in management's opinion, include all adjustments necessary for a fair statement of results for such interim periods. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules or regulations; however, the Company believes that the disclosures made are adequate to make the information presented not misleading. Revenue Recognition. Net service revenues consist of sales, net of credits and discounts. The Company recognizes Flexible Billings based on hours worked by assigned personnel on a weekly basis. Search Fees are recognized in contingency search engagements upon the successful completion of the assignment. For the Source division, the search fee policy is that if an individual fails to continue employment for a period of time as specified in the placement agreement, generally a thirty-to-ninety day period, the Company is not entitled to collect the search fee. Revenue from search fees is shown on the Consolidated Statement of Operations net of amounts written off for adjustments due to placed candidates not remaining in employment for the guarantee period. 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 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. The Company was the legal employer 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 costs 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. Cash and Cash Equivalents. The Company classifies all highly-liquid investments with an initial maturity of three months or less as cash equivalents. Self-insurance. The Company offers an employee benefit program due to its merger with Source for which it is self-insured for a potion of the cost. The Company is liable for claims up to $100 per employee and aggregate claims up to a defined yearly payment limit. All full-time employees and salaried consultants of the Source division are eligible to participate in the program. Self-insurance 7 costs are accrued using actuarial estimates to approximate the liability for reported claims and claims incurred but not reported. Income Taxes. The Company accounts for income taxes under the principles of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires an asset and liability approach to the recognition of deferred tax assets and liabilities for the expected future tax consequences of differences between the carrying amounts and the tax bases of other assets and liabilities. The tax effects of deductions attributable to employees' disqualifying dispositions of shares obtained from incentive stock options were reflected in additional paid-in capital. Foreign Currency Translation. Foreign currency translation adjustments arise primarily from activities of the Company's Canadian operations. Results of operations are translated using the average exchange rates during the period, while assets and liabilities are translated into U.S. dollars using current rates. Resulting foreign currency translation adjustments are recorded in Stockholder's Equity. Earnings Per Share. Options to purchase 2,444 shares of common stock were outstanding during 1998 but were not included in the computation of diluted earnings per share for the three months ended June 30, 1998 because the options were anti-dilutive. Recently Issued Accounting Pronouncements In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which will require the Company 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. Comprehensive income is materially the same as reported net income. 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. In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued. This statement is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other 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 Statement of Financial Position and be measured at fair value. Romac does not believe adoption of this standard will have a material impact on the Company's financial performance or reporting and expects to adopt this standard during the year ended December 31, 2000. Reclassifications. Certain amounts related to the three and six month periods ending June 30, 1997 have been reclassified to conform with current period presentation. The amounts are not considered material to the overall financial statement presentation. 8 NOTE B---ACQUISITIONS On April 20, 1998, the Company consummated a merger whereby Source Services Corporation ("Source"), a Delaware corporation, was merged into the Company pursuant to an Agreement and Plan of Merger ("the Merger Agreement") dated February 1, 1998, as amended on February 11, 1998 and April 17, 1998. The acquisition has been accounted for using the pooling of interests method; accordingly, and historical results have been restated to reflect the merger. The following unaudited, selected income statement data has been prepared to reflect the effect on the Company as if the acquisitions (which were accounted for under the purchase method) of Uni-Quality Systems Solutions, Inc ("UQ") and Sequent Associates, Inc. ("Sequent") had been recorded as of January 1, 1997. Six Months Ended June 30, ------------------------------ 1998 Actual 1997 Pro forma (unaudited) (unaudited) Net service revenues $321,723 $230,727 Gross profit 140,085 105,511 Income before income taxes 7,561 15,489 Net income 2,561 8,984 Net income per share - Basic .06 .22 Weighted average shares outstanding - Basic 45,170 40,002 Net income per share - Diluted .05 .22 Weighted average shares outstanding - Diluted 47,619 41,371 Note C---Merger, Restructuring and Integration Related Expense Pursuant to the terms of the Merger Agreement, each issued and outstanding share of common stock, par value $.02, of Source was converted into the right to receive 1.1351 shares of common stock, par value $.01 per share of the Company's common stock. The Company issued approximately 15.6 million shares of common stock upon conversion of the shares of Source common stock. In addition, each option to purchase Source Common Stock outstanding under Source's stock option plans was converted into an option to purchase the number of shares of the Company's common stock subject to such option multiplied by the exchange ratio for the merger. In connection with the Merger, the Company recorded a $20.2 million before tax charge for restructuring and other merger and integration related costs. The charge included $8.2 million of direct merger costs, which consisted of professional fees and other transaction costs, $3.9 million of severance to be incurred in connection with anticipated staff reductions, $4.6 million of planned termination of leased office facilities, and $3.5 million of other expenses directly related to the Merger. The Company expects to incur additional merger, restructuring, and integration related costs for training, and other costs to eliminate redundant back office and other operations not to exceed $25 million. These costs will be recognized as period expenses when incurred as these costs do not qualify for immediate recognition under an existing accounting pronouncement and will be classified as merger, restructuring, and integration expenses. 9 Note D---Goodwill During the second quarter of 1998, the Company fixed the earnouts on certain acquisitions during 1997 for approximately $8.5 million and accrued an additional approximately $8.6 million for earnouts achieved for certain 1996 and 1997 acquisitions. These amounts have been recorded as additional purchase price consideration and are included in goodwill. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements, particularly with respect to the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations. Additional written or oral forward-looking statements may be made by the Company from time to time, in filings with the SEC or otherwise. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21 E of the Securities Exchange Act of 1934. Such statements may include, but not be limited to, projections of revenue, income, losses, cash flows, capital expenditures, plans for future operations, financing needs or plans, plans relating to products or services of the Company, estimates concerning the effects of litigation or other disputes, as well as assumptions to any of the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which can not be predicted. Future events and actual results could differ materially from those set forth in or underlying the forward looking statements. Results of Operations The following table sets forth certain items in Romac's consolidated statement of operations, as a percentage of net service revenues, for the indicated periods: Six months ended June 30, 1998 1997 Flexible billings 78.9% 72.8% Search Fees 21.1 27.2 Net service revenues 100.0 100.0 Gross profit 43.5 47.5 Selling, general, and administrative expenses 34.4 39.9 Merger and integration expenses 6.3 -- Income before taxes 2.4 7.2 Net income .8% 4.2% Results of Operations for the Three and Six Months Ended June 30, 1998 and 1997. Net service revenues. Net service revenues increased 50.4% and 52.5%, respectively, to $166.3 million and $321.7 million for the three and six month periods ending June 30, 1998 as compared to $110.6 and $211.0 million for the same periods in 1997. These increases were comprised of a $49.9 million and $100.2 million increase in Flexible Billings and a $5.8 million and $10.5 million increase in Search services for the three and six month periods ending June 30, 1998, as described below. Flexible billings increased 61.7% and 65.2%, respectively to $130.8 million and $253.8 million for the three and six month periods ending June 30, 1998 as compared to $80.9 million and $153.6 million for the same periods in 1997. This increase is a result of an increase in the number of hours billed in existing markets and the acquisitions of UQ and Sequent in September 1997, and to a lesser extent, an increase in the average billing rates as compared to the same periods in 1997. 11 Search services increased 19.5% and 18.3%, respectively to $35.5 million and $67.9 million for the three and six month periods ended June 30, 1998 compared to $29.7 million and $57.4 million for the same periods in 1997. The increase resulted primarily from an increase in the number of search sales consultants, which increased the number of search placements made during the three and six month periods ended June 30, 1998 as compared to the same period in 1997. The average fee for each placement made during the periods remained relatively constant. Gross profit. Gross profit increased 39.3% and 39.7%, respectively, to $73.0 million and $140.0 million during the three and six month periods ended June 30, 1998 as compared to $52.4 million and $100.3 million for the same periods in 1997. Gross profit as a percentage of net service revenues decreased to 43.9% and 43.5%, respectively, for the three and six month periods ending June 30, 1998 as compared to 47.4% and 47.5% for the same periods in 1997. This decrease was primarily result of the continuing change in the Company's business mix whereby revenues from Flexible Billings, traditionally lower gross margins than Search services, increased to 78.6% and 78.9%, respectively, of the Company's total revenues for the three and six month periods ending June 30, 1998 as compared to 73.2% and 72.8%, respectively for the same periods in 1997. Selling, general and administrative expenses. Selling, general and administrative expenses increased 31.2% and 31.4%, respectively to $56.8 million and $110.6 million for the three and six month periods ended June 30, 1998 as compared to $43.3 million and $84.2 million for the same periods in 1997. Selling, general and administrative expenses as a percentage of net service revenues decreased to 34.1% and 34.4%, respectively, for the three and six month periods ended June 30, 1998 compared to 39.1% and 39.9% for the same periods in 1997. This decrease in selling, general and administrative expense as a percentage of net service revenues in the three and six month periods ended June 30, 1998 resulted from the start of certain consolidation efforts related to the Source acquisition in the second quarter of 1998 and to a lesser extent, the continuation of operating efficiencies gained from a larger revenue base. Depreciation and amortization expense. Depreciation and amortization expense increased 90.9% and 86.4%, respectively, to approximately $2.1 million and $4.1 million for the three and six month periods ended June 30, 1998 compared to approximately $1.1 million and $2.2 million for the same periods in 1997. Depreciation and amortization expense as a percentage of net service revenues increased to 1.2% and 1.3%, respectively, for the three and six month periods ended June 30, 1998 as compared to 1.0% and 1.1% for the same periods in 1997. The increase as a percentage of net service revenues for both periods in 1998 as compared to the same periods in 1997 is due primarily to the goodwill amortization of the 1997 acquisitions of UQ and Sequent, in 1997. Merger, restructuring, and integration expenses. Merger and integration expenses for the three and six month periods ended June 30, 1998 increased 100% compared to the same periods in 1997 due to the completion of the Source merger in April 1998. Merger and integration expenses for the three and six month periods ended June 30, 1998 consisted primarily of $6.7 million and $8.2 million, respectively, of direct costs related to the acquisition and $11.8 million and $12.0 million, respectively, related to restructuring and integration related expenses. Other (income) expense. Other (income) expense increased 120.0% and 84.6% for the three and six months ended June 30, 1998 compared to the same periods in 1997. The increase in other income during both periods in 1998 as compared to 1997 was due to interest earned on the investment of the proceeds from the November 1997 stock offering. Income (Loss) Before Taxes. Income (loss) before taxes decreased 138.8% and 50.0%, respectively, to $(3.3) million and 7.6 million for the three and six month periods ended June 30, 1998 as compared to $8.5 million and $15.1 million for the same periods in 1997, primarily as a result of the merger and integration expenses explained above. 12 Provision for income taxes. Provision for income taxes decreased 88.9% and 21.9%, respectively, to $.4 million and $5.0 million for the three and six month periods ended June 30, 1998 compared to $3.6 million and $6.4 million for the same periods in 1997. The effective tax rate was 65.8% for the six months ended June 30, 1998 compared to 42.1% for the same period in 1997. The income tax expense for the three month period ended June 30, 1998 is impacted by nondeductible merger expenses incurred in 1998. Net Income (Loss). Net income (loss) decreased approximately 175.5% and 70.5% to $(3.7) million and $2.6 million as compared to the $4.9 million and $8.8 million for the same periods in 1997 primarily as a result of the merger, restructuring and integration expenses explained above. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1998, the Company's sources of liquidity included approximately $95.1 million in cash and cash equivalents, $5.1 in short-term investments, and approximately $33.1 million in additional net working capital. In addition, as of June 30, 1998, there are no amounts outstanding on the Company's line of credit and $30.0 million was available for borrowing under the Company's line of credit. The Company entered into a new Revolving Line of Credit Loan Agreement with NationsBank, N.A. (the "Line of Credit") during September 1997. The Line of Credit expires on March 31, 2000 and amounts outstanding under the line of credit accrue interest at an annual rate equal to 150 basis points above the 90-day London Interbank Offering interest rate ("LIBOR"). As of June 30, 1998, the interest rate on the Line of Credit was 6.37%. During the six months ended June 30, 1998, cash flow provided by operations was approximately $3.9 million, resulting primarily from net income, non-cash expenses (depreciation and amortization) and increases in operating payroll liabilities, offset by an increase in accounts receivable. The increase in accounts receivable reflects the increased volume of business during the six months ended June 30, 1998 from existing locations and the initial funding of the accounts receivable base in acquired operations. During the six months ended June 30, 1998, cash flow used in investing activities was appoximately $12.0 million, resulting primarily from the Company's use of approximately $7.5 million for capital expenditures and $3.1 million for purchase of short-term investments. In November and December 1997, the Company received approximately $86.5 million as net proceeds of its common stock offering, part of which was used to repay the indebtedness outstanding under the Line of Credit. The Company intends to use the remaining net proceeds for general corporate purposes, including possible acquisitions, expansion of the Company's operations and certain capital expenditures related to the Company'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. The Company believes that cash flow from operations and borrowings under the Company's Line of Credit, or other credit facilities that may become available to the Company in the future will be adequate to meet the working capital requirements of the Company's current operations for at least the next 12 months. The Company believes that the consummation of the merger with Source which was effective April 20, 1998 will not adversely affect the Company's liquidity. The Company's estimate of the period that existing resources will fund its working capital requirements is a forward-looking 13 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. YEAR 2000 CONSIDERATIONS Many computer systems in use today were designed and developed using two digits, rather than four, to specify years. As a result, such systems will recognize the year 2000 as "00." This could cause many computer applications to fail completely or to create erroneous results unless corrective measures are taken. The Company utilizes software or related computer technologies that are essential to its operations and purchases most of its software applications from third party vendors. The Company believes all such software is currently Year 2000 compliant, and therefore does not expect any material impact as a result of the Year 2000 issue. However, there can be no assurance that the Company will not be adversely affected by the failure of any third party vendors or significant customers of the Company to become Year 2000 compliant. 14 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a) The Annual Meeting of Stockholders of the Company was held on April 20, 1998. To approve the issuance of Romac International, Inc. common stock, $.01 par value in a merger with Source Services Corporation pursuant to an Agreement and Plan of Merger, dated as of February 1, 1998, as amended February 11, 1998. For: 18,824,165; Against: 1,000; Abstain: 43,650; Delivered not voted: 2,158,614. b) To approve an amendment of the Company's articles of incorporation to increase the authorized common stock from 100 million shares to 250 million shares. For: 17,712,598; Against: 3,279,915; Abstain: 9,900; and Delivered Not Voted: 5,016 ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27.1 - Financial Data Schedule for the six months ended June 30, 1998 (for SEC use only). 27.2 - Restated Financial Data Schedule for the year ended December 31, 1997 (for SEC use only). 27.3 - Restated Financial Data Schedule for the six months ended June 30, 1997 (for SEC use only). Reports: (b) Current Reports on Form 8-K filed during the quarter ended June 30, 1998 were as follows: i) Form 8-K dated April 20, 1998 (filed on May 1, 1998) regarding the consummation of the merger of Source Services Corporation. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ROMAC INTERNATIONAL, INC. (Registrant) By: /s/ Thomas M. Calcaterra ------------------------------ Thomas M. Calcaterra, Chief Financial and Accounting Officer and Secretary Date: August 14, 1998