1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-5260
REMEDYTEMP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-2890471
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
101 ENTERPRISE
ALISO VIEJO, CALIFORNIA 92656
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 425-7600
--------------------------
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 registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of February 8, 1998 there were 7,010,024 shares of Class A Common Stock
and 1,805,539 shares of Class B Common Stock outstanding.
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REMEDYTEMP, INC.
INDEX
PAGE NO.
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of December 27, 1998 and September 27, 1998.......................... 3
Consolidated Statement of Income for the three fiscal months ended December 27, 1998
and December 28, 1997............................................................................ 4
Consolidated Statement of Cash Flows for the three fiscal months ended December 27, 1998
and December 28, 1997............................................................................ 5
Notes to Consolidated Financial Statements......................................................... 6
Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of
Operations........................................................................................ 7
Item 3. Quantitative and Qualitative Disclosure About Market Risk...................................... *
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. *
Item 2. Changes In Securities and Use of Proceeds...................................................... *
Item 3. Defaults Upon Senior Securities................................................................ *
Item 4. Submission of Matters to a Vote of Security Holders............................................ *
Item 5. Other Information.............................................................................. *
Item 6. Exhibits and Reports on Form 8-K............................................................... 11
SIGNATURES ................................................................................................... 12
* No information provided due to inapplicability of item.
2
3
REMEDYTEMP, INC.
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
DECEMBER 27, SEPTEMBER 27,
1998 1998
------------ -------------
Current assets:
Cash and cash equivalents .......................................................... $ 2,382 $ 450
Accounts receivable, net of allowance for doubtful accounts of $2,892
and $2,647, respectively ........................................................ 66,457 63,660
Prepaid expenses and other current assets .......................................... 2,623 3,401
Deferred income taxes .............................................................. 2,985 2,235
------- -------
Total current assets ....................................................... 74,447 69,746
Fixed assets, net of accumulated depreciation of $13,278 and $12,560, respectively .... 16,923 15,184
Other assets, net ..................................................................... 2,426 2,567
Deferred income taxes ................................................................. 501 501
Goodwill, net of accumulated amortization of $190 and $152, respectively .............. 1,749 1,787
------- -------
$96,046 $89,785
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................... $ 9,058 $ 3,033
Accrued workers' compensation ...................................................... 6,292 5,535
Accrued payroll, benefits and related costs ........................................ 9,229 13,604
Accrued licensees' share of gross profit ........................................... 2,818 3,194
Other accrued expenses ............................................................. 884 865
Income taxes payable ............................................................... 3,695 809
Current portion of capitalized lease obligation .................................... 209 245
------- -------
Total current liabilities .................................................. 32,185 27,285
Capitalized lease obligation .......................................................... 11 63
------- -------
32,196 27,348
------- -------
Commitments and contingent liabilities
Shareholders' equity:
Preferred Stock, $.01 par value; authorized 5,000 shares; none outstanding
Class A Common Stock, $.01 par value; authorized 50,000 shares;
7,046 and 7,206 issued and outstanding at December 27, 1998 and September 27,1998,
respectively ..................................................................... 71 72
Class B Non-Voting Common Stock, $.01 par value; authorized 4,530 shares; 1,806
issued and outstanding at December 27, 1998 and September 27, 1998, respectively . 18 18
Additional paid-in capital ............................................................ 32,461 34,732
Retained earnings ..................................................................... 31,300 27,615
------- -------
Total shareholders' equity ............................................................ 63,850 62,437
------- -------
$96,046 $89,785
======= =======
See accompanying notes to consolidated financial statements.
3
4
REMEDYTEMP, INC.
CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
DECEMBER 27, DECEMBER 28,
1998 1997
-------- --------
Direct sales ........................... $ 66,438 $ 69,431
Licensed sales ......................... 52,694 40,939
Franchise royalties .................... 660 775
Initial license and franchise fees ..... 34 --
-------- --------
Total revenues ................. 119,826 111,145
Cost of direct sales ................... 51,660 54,643
Cost of licensed sales ................. 39,146 30,657
Licensees' share of gross profit ....... 9,141 6,936
Selling and administrative expenses .... 13,175 12,634
Depreciation and amortization .......... 795 660
-------- --------
Income from operations ......... 5,909 5,615
Other income:
Interest income, net ................ 23 48
Other, net .......................... 210 346
-------- --------
Income before provision for income taxes 6,142 6,009
Provision for income taxes ............. 2,457 2,494
-------- --------
Net income ............................. $ 3,685 $ 3,515
======== ========
Net income per share, basic (Note 2) ... $ 0.41 $ 0.39
======== ========
Weighted-average number of shares ...... 8,968 8,947
======== ========
Net income per share, diluted (Note 2) . $ 0.41 $ 0.38
======== ========
Weighted-average number of shares ...... 9,053 9,221
======== ========
See accompanying notes to consolidated financial statements.
4
5
REMEDYTEMP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED
Cash flows provided by (used in) operating activities: DECEMBER 27, DECEMBER 28,
1998 1997
------- -------
Net income ......................................................................... $ 3,685 $ 3,515
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................. 795 660
Provision for losses on accounts receivable ................................... 368 388
Deferred taxes ................................................................ (750) (750)
Changes in assets and liabilities:
Accounts receivable ........................................................ (3,165) (4,705)
Prepaid expenses and other current assets .................................. 778 213
Other assets ............................................................... 141 (352)
Accounts payable ........................................................... 6,025 (1,332)
Accrued workers' compensation .............................................. 757 1,418
Accrued payroll, benefits and related costs ................................ (4,375) (3,424)
Accrued licensees' share of gross profit ................................... (376) (218)
Other accrued expenses ..................................................... 19 (369)
Income taxes payable ....................................................... 2,886 1,399
------- -------
Net cash provided by (used in) operating activities ................................ 6,788 (3,557)
------- -------
Cash flows used in investing activities:
Purchase of fixed assets ........................................................... (2,496) (1,577)
------- -------
Net cash used in investing activities .............................................. (2,496) (1,577)
------- -------
Cash flows (used in) provided by financing activities:
Borrowings under line of credit agreement .......................................... -- 1,000
Repayments under line of credit agreement .......................................... -- (1,000)
Repayments under capital lease obligation .......................................... (88) (110)
Proceeds from stock option activity ................................................ 5 108
Purchase of Company Common Stock ................................................... (2,421) --
Proceeds from Employee Stock Purchase Plan activity ................................ 144 149
------- -------
Net cash (used in) provided by financing activities ............................... (2,360) 147
------- -------
Net increase (decrease) in cash and cash equivalents ................................. 1,932 (4,987)
Cash and cash equivalents at beginning of period ..................................... 450 5,128
------- -------
Cash and cash equivalents at end of period ........................................... $ 2,382 $ 141
======= =======
Other cash flow information:
Cash paid during the period for interest ........................................... $ 23 $ 28
Cash paid during the period for income taxes ....................................... $ 321 $ 1,846
See accompanying notes to consolidated financial statements.
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REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
RemedyTemp, Inc. (the "Company") including its wholly-owned subsidiary, Remedy
Insurance Group, LTD ("RIG"). All significant intercompany transactions and
balances have been eliminated.
The accompanying consolidated balance sheet at December 27, 1998, and
the consolidated statements of income and of cash flows for the three fiscal
months ended December 27, 1998 are unaudited. These statements have been
prepared on the same basis as the Company's audited consolidated financial
statements and in the opinion of management reflect all adjustments, which are
only of a normal recurring nature, necessary for a fair presentation of the
consolidated financial position and results of operations for such periods.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements included in the Company's
Form 10-K as filed with the Securities and Exchange Commission on December 21,
1998.
2. EARNINGS PER SHARE DISCLOSURE
Earnings per share is calculated as follows:
THREE FISCAL MONTHS ENDED
----------------------------------------------------------------------------------------
DECEMBER 27, 1998 DECEMBER 28, 1997
------------------------------------------ -------------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
BASIC EPS
Income available to common
shareholders ................ $3,685 8,968 $ 0.41 $3,515 8,947 $ 0.39
======== =======
EFFECT OF DILUTIVE SECURITIES
Stock options ............... $ -- 85 $ -- 274
------ ------ ------ -----
DILUTED EPS
Income available to common
shareholders plus assumed
conversions ................. $3,685 9,053 $ 0.41 $3,515 9,221 $ 0.38
====== ====== ======== ====== ===== =======
3. STOCK OPTIONS
Under the terms of the Company's 1996 Stock Incentive Plan, as
amended, on November 3, 1998 the Company granted options to purchase 12 shares
of Class A Common Stock to a newly-hired Vice President at $19.06 per share and
on December 8, 1998 the Company granted options to purchase 225 shares of Class
A Common Stock to certain executives and employees at $14.75 per share, the
average stock price of the Class A Common Stock on such grant dates. This plan
is "non-compensatory" under APB No. 25, and accordingly, no compensation expense
was recorded in connection with these grants.
4. STOCK REPURCHASE
On October 2, 1998, the Board of Directors authorized the Company to
repurchase its outstanding Class A and/or Class B Common Stock in the open
market or in privately negotiated transactions at the prevailing market prices
not to exceed $5,000 in the aggregate. During the three fiscal months ended
December 27, 1998, the Company repurchased 166.9 Class A Common Stock shares at
prices ranging from $12.56 to $15.13, for a total of $2,421. Subsequent to
December 27, 1998, the Company repurchased 36.0 Class A Common Stock shares at
prices ranging from $14.85 to $14.94, for a total of $535.
6
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REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In addition to historical information, management's discussion and
analysis includes certain forward-looking statements, including, but not limited
to, those related to the growth and strategies, future operating results and
financial position as well as economic and market events and trends of the
Company. All forward-looking statements made by the Company, including such
statements herein, include material risks and uncertainties and are subject to
change based on factors beyond the control of the Company. Accordingly, the
Company's actual results and financial position could differ materially from
those expressed or implied in any forward-looking statement as a result of
various factors, including without limitation those factors described in the
Company's filings with the Securities and Exchange Commission regarding risks
affecting the Company's financial conditions and results of operations. The
Company does not undertake to publicly update or revise its forward-looking
statements even if experience or future changes make it clear that any projected
results expressed or implied therein will not be realized.
RESULTS OF OPERATIONS
For the Three Fiscal Months Ended December 27, 1998 Compared to the Three Fiscal
Months Ended December 28, 1997
Total revenues increased 7.8% or $8.7 million to $119.8 million for
the three fiscal months ended December 27, 1998 from $111.1 million for the
three fiscal months ended December 28, 1997. Direct revenues decreased 4.3% to
$66.4 million from $69.4 million, while licensed revenues increased 28.7% to
$52.7 million from $40.9 million for the three fiscal months ended December 27,
1998 and December 28, 1997, respectively. The expansion of business at existing
licensed offices as well as the opening of 21 new licensed offices since the
prior period account for the increase in licensed revenue. The Company's
management expects the trend of licensed revenue expanding more rapidly than
direct revenue to continue for the foreseeable future, however, the Company's
future revenue increases depend significantly on the Company's ability to
continue to attract new clients, retain existing clients, open new offices and
manage newly opened offices to maturity.
The Company recently experienced extraordinary price competition from
a national staffing provider on one of the Company's existing high volume, low
gross margin clients that was primarily serviced by the Company's direct
offices. As of December 1998, the Company discontinued providing service to this
client for various reasons, including the Company's strategic emphasis on
maintaining acceptable gross margin levels on all client accounts. Excluding
this client, revenues at the Company owned offices increased 9.0% and total
Company revenue increased 16.8% for the three fiscal months ended December 27,
1998.
In light of the significant market demand for the Company's staffing
services from clients and potential clients who accept the Company's customary
gross margin requirements, the Company believes that it should be able to
continue to maintain its gross margin requirements and to expand its business on
that basis, however, no assurance in this regard can be given.
Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, increased 6.5% or $5.5
million to $90.8 million for the three fiscal months ended December 27, 1998
from $85.3 million for the three fiscal months ended December 28, 1997, due to
increased revenues as discussed above. Total cost of direct and licensed sales
as a percentage of revenues was 75.8% for the three fiscal months ended December
27, 1998 compared to 76.7% for the three fiscal months ended December 28, 1997.
The Company's cost of licensed sales as a percentage of licensed sales decreased
to 74.3% for the three fiscal months ended December 27, 1998 compared to 74.9%
for the three fiscal months ended December 28, 1997.
Licensees' share of gross profit represents the net payments to
licensees based upon a percentage of gross profit generated by the licensed
operation. The percentage of gross profit earned by the licensee generally is
based on the number of hours billed. In general, pursuant to terms of the
Company's franchise agreement for licensed offices executed prior to March 31,
1999, the Company's share of gross profit cannot be less than 7.5% of the
licensed operation sales, with the exception of national accounts on which the
Company's fee is reduced to compensate for lower gross margins. For franchise
agreements for licensed offices executed on or after April 1, 1999, the
Company's share of gross profit cannot be less than 8.75% of the licensed
operation sales. Licensees' share of gross profit increased 31.8% or $2.2
million to $9.1 million for the three fiscal months ended December 27, 1998 from
$6.9 million for the three fiscal months ended
7
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REMEDYTEMP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
December 28, 1997 due to increased billings at existing licensed offices and to
the opening of 21 new offices. Licensees' share of gross profit as a percentage
of total revenues increased to 7.6% for the three fiscal months ended December
27, 1998 from 6.2% for the three fiscal months ended December 28, 1997 due to
increased licensed revenue as a percentage of total revenue, as discussed above.
Licensees' share of gross profit as a percentage of licensed gross profit
remained relatively constant.
Selling, general and administrative expenses (including depreciation
and amortization) increased 5.1% or $0.7 million to $14.0 million for the three
fiscal months ended December 27, 1998 from $13.3 million for the three fiscal
months ended December 28, 1997. Selling, general and administrative expenses as
a percentage of total revenues decreased to 11.7% for the three fiscal months
ended December 27, 1998 from 12.0% for the three fiscal months ended December
28, 1997. The Company has continued to control growth in selling, general and
administrative expenses by tightening cost controls through budgetary analysis
and implementing more stringent hiring and compensation guidelines. There can be
no assurance that selling, general and administrative expenses will not increase
in the future, both in absolute terms and as a percentage of total revenues, and
increases in these expenses could adversely affect the Company's profitability.
Income from operations increased 5.2% or $0.3 million to $5.9 million
for the three fiscal months ended December 27, 1998 from $5.6 million for the
three fiscal months ended December 28, 1997 due to the factors described above.
Income from operations as a percentage of revenues was 4.9% for the three fiscal
months ended December 27, 1998 compared to 5.1% for the three fiscal months
ended December 28, 1997, due to the change in business mix between licensed
revenue and direct revenue, since direct revenue generally provides better
operating margins than licensed revenue.
Net income increased 4.8% or $0.2 million to $3.7 million for the
three fiscal months ended December 27, 1998 from $3.5 million for the three
fiscal months ended December 28, 1997 due to the factors described above. As a
percentage of total revenues, income before income taxes was 3.1% in the three
fiscal months ended December 27, 1998 compared to 3.2% in the three fiscal
months ended December 28, 1997. All revenues and results were internally
generated by the Company.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $6.8 million for the three
fiscal months ended December 27, 1998 and cash used in operating activities was
$3.6 million for the three fiscal months ended December 28, 1997. Cash provided
by operating activities was significantly impacted by changes in working capital
primarily resulting from increases in business volumes.
Cash used for purchases of fixed assets was $2.5 million for the
three fiscal months ended December 27, 1998, and $1.6 million for the three
fiscal months ended December 28, 1997. The increase in fiscal 1999 primarily
resulted from expenditures associated with leasehold improvements at direct
offices and the Company's new management information system, including the
related purchases of computer hardware to support the new system. Implementation
of this system is expected to begin in early calendar year 1999. During the next
twelve months, the Company anticipates capital expenditures associated with
direct office openings, and further investments in the Company's computer-based
technologies to approximate $5.0 million.
In connection with the Company's initial public offering (the
"Offering"), the Company terminated its S corporation status and, as a result,
was required to change its overall method of accounting for tax reporting
purposes from the cash method to the accrual method, resulting in a one-time net
charge to earnings in the fourth quarter of fiscal 1996 of approximately $7.8
million. The Internal Revenue Code allows the Company to recognize the effects
of this termination in its tax returns over a four-year period. This resulted in
additional quarterly installments of $750,000 in the first fiscal quarter of
1999 and 1998, respectively.
The Company has a revolving line of credit agreement with Bank of
America providing for aggregate borrowings and letters of credit of $30.0
million. Interest on outstanding borrowings is payable monthly at the bank's
reference rate or, at the Company's discretion, LIBOR plus 1.5%. The line of
credit is unsecured and expires on February 28, 1999. Management is currently
negotiating a renewal of the line of credit facility. The principal use of the
line of credit has been to finance receivables and to provide a letter of credit
required in connection with the Company's workers' compensation self-insurance
program. The Company had no balance outstanding under its line of credit and
$6.7 million
8
9
REMEDYTEMP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
in undrawn letters of credit as of December 27, 1998. The bank agreement
governing the line of credit requires the Company to maintain certain financial
ratios and comply with certain restrictive covenants. The Company is in
compliance with these requirements.
Additionally, RIG has a letter of credit agreement with Bank of
Bermuda (New York) Limited in the amount of $80,000. The letter of credit is
unsecured, expires on July 22, 1999 and is required in connection with the
Company's workers' compensation self-insurance program.
The Company is contemplating certain strategic acquisitions. Such
acquisitions may have an impact on liquidity depending on the size of the
acquisition.
On October 2, 1998, the Board of Directors authorized the Company to
repurchase its outstanding Class A and/or Class B Common Stock in the open
market or in privately negotiated transactions at the prevailing market prices
not to exceed $5.0 million in aggregate. During the three fiscal months ended
December 27, 1998, the Company repurchased 166,900 Class A Common Stock shares
at prices ranging from $12.56 to $15.13, for a total of $2.4 million. Subsequent
to December 27, 1998, the Company has repurchased 36,000 Class A Common Stock
shares at prices ranging from $14.85 to $14.94 for a total of $535,600.
The Company believes that its current and expected levels of working
capital and line of credit are adequate to support present operations and to
fund future growth and business opportunities.
YEAR 2000 COMPLIANCE
The Company's State of Readiness
Many computer systems and other equipment with embedded chips or
processors use only two digits to represent the year and may be unable to
accurately process certain data before, during or after the Year 2000.
Consequently, business and governmental entities are at risk for possible
miscalculations or systems failures causing disruptions in their business
operation. Furthermore, the Year 2000 is a leap year, which may present
additional issues for computer systems and other equipment with embedded chips
or processors.
Year 2000 issues may affect the Company's internal systems, including
information technology ("IT") and non-IT systems. The Company is assessing the
readiness of its systems for handling the Year 2000. Although the assessment is
still underway, the Company currently believes that all material IT systems will
be compliant by the Year 2000. The Company is in the final year of a three-year
development and implementation process to replace all of its material IT systems
with a new IT system. The Company believes that the new IT system and the
computer hardware used to operate the system will be Year 2000 compliant. The
Company anticipates that implementation of the new IT system will be completed
for all "back office" systems (i.e. payroll, billing, general ledger, accounts
payable, and accounts receivable) by October of 1999. The Company plans to
implement the "front office" applications (i.e. administration, search and
retrieval of data, and coordination of temporary employees) of the new IT system
to all Company-owned offices by July of 1999 and to all independently-managed
offices by October of 1999. There can be no guarantee that these estimated dates
will be achieved and actual results could differ materially from those
anticipated.
Based on information currently available, the Company believes that
it does not have any material-specific dependencies on its non-IT systems
(devices that have imbedded microprocessors). Accordingly, the Company believes
that the Year 2000 poses no material risk to the Company's non-IT systems. The
Company is in the process of contacting its material suppliers of products and
services to determine that the suppliers' operations and the products and
services they provide are Year 2000 compliant and will monitor their progress
toward Year 2000 compliance. There can be no assurance that the Company's
material suppliers, vendors or other third parties will not suffer a Year 2000
business disruption. Such failures could have a material adverse affect on the
Company's financial condition and results of operations.
9
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REMEDYTEMP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The Costs to Address the Company's Year 2000 Issues
The Company's new IT system is being implemented for strategic
business reasons unrelated to Year 2000 issues and the implementation schedule
was not accelerated due to Year 2000 issues. Therefore, no specific costs were
incurred to address Year 2000 issues relating to the Company's new IT system.
However, the Company is in the process of implementing a contingency plan effort
to bring the Company's existing IT systems into Year 2000 compliance in the
event that the implementation of the new IT system is delayed. Currently, the
Company estimates that the total expected costs relating to this effort will be
$200,000.
The Risks to the Company of Year 2000 Issues
Although unclear at this time, the Company believes that its exposure
to Year 2000 risks are unlikely to have a material effect on the Company's
results of operations, liquidity and financial condition. The Company
anticipates that the new IT system will be implemented prior to the Year 2000
and such system is believed to be Year 2000 compliant. Although the Company
expects to implement its new IT system prior to the Year 2000, there is no
guarantee that this result will be achieved. Consequently, the Company believes
that its most reasonably likely worst case Year 2000 scenario is that the new IT
system is not implemented on time and the Company's contingency plans to address
this fail. Such a scenario could disrupt the Company's business and therefore
could have a material adverse effect on the financial condition and results of
operations. Additionally, if any third parties that provide goods or services
that are critical to the Company's business fail to appropriately address their
Year 2000 issues, there could be a material adverse effect on the Company's
financial condition and results of operations.
The Company's Contingency Plans
The Company has not completed the systems integration testing of the
new IT system. Accordingly, the Company has not fully assessed its risks from
potential Year 2000 failure of the new IT system. However, steps are currently
being taken to assess the impact of Year 2000 issues in the Company's existing
IT systems to avoid a material impact on the Company's ability to conduct
business, including implementing a contingency plan which will bring the
Company's existing IT systems into Year 2000 compliance. The likely impact on
such existing IT systems would be in "from-to" reporting and date printing which
the Company believes it can correct without material loss in business operation
or function. Additionally, the Company is currently undertaking steps to
identify its material vendors and to formulate a system to understand material
third parties' ability to continue providing services and products after the
Year 2000. The Company intends to contact and monitor its material suppliers,
vendors, and distributors to avoid any business interruption in the Year 2000,
including formulating contingency plans, where appropriate. However, the Company
can neither predict nor assure the successful outcome of such third parties'
remediation efforts.
SEASONALITY
The Company's quarterly operating results are affected by the number
of billing days in the quarter and the seasonality of its clients' businesses.
The first fiscal quarter has historically been strong as a result of
manufacturing and retail emphasis on holiday sales. The second fiscal quarter
historically shows little to no growth, and in some years a decline, in
comparable revenues from the first fiscal quarter. Revenue growth has
historically accelerated in each of the third and fourth fiscal quarters as
manufacturers, retailers and service businesses increase their level of business
activity.
10
11
REMEDYTEMP, INC.
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Set forth below is a list of the exhibits included as part of this
Quarterly Report:
Number
Exhibit Description
- ------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company (a)
3.2 Amended and Restated Bylaws of the Company (h)
4.1 Specimen Stock Certificate (a)
4.2 Shareholder Rights Agreement (a)
10.1 Robert E. McDonough, Sr. Amended and Restated Employment Agreement
10.2 Paul W. Mikos Amended and Restated Employment Agreement
10.3 R. Emmett McDonough Employment Agreement (a)
10.4 Allocation Agreement with R. Emmett McDonough and Related Trusts (a)
10.5 Registration Rights Agreement with R. Emmett McDonough and Related
Trusts (a)
10.6 Letter regarding terms of employment and potential severance of Alan M.
Purdy (a)
10.7 Deferred Compensation Agreement for Alan M. Purdy (a)
10.8 Letter regarding potential severance of Jeffrey A. Elias (a)
10.9 Form of Indemnification Agreement (a)
10.11 RemedyTemp, Inc. 1996 Amended and Restated Stock Incentive Plan (h)
10.12 RemedyTemp, Inc. 1996 Employee Stock Purchase Plan (a)
10.13 Form of Franchising Agreement for Licensed Offices (h)
10.14 Form of Franchising Agreement for Franchised Offices (a)
10.15 Form of Licensing Agreement for IntelliSearch(R) (a)
10.17 Paul W. Mikos Promissory Note (a)
10.18 Additional Deferred Compensation Agreement for Alan M. Purdy (b)
10.19 Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC (c)
10.20 Lease Agreement between RemedyTemp, Inc. and Mitchell Land & Improvement
Company (d)
10.21 Credit Agreement among Bank of America National Trust and Savings
Association and RemedyTemp, Inc. (e)
10.22 RemedyTemp, Inc. Deferred Compensation Plan (e)
10.23 Greg Palmer Employment Agreement (f)
10.24 1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership Plan for
Outside Directors (g)
10.25 Form of Licensing Agreement for i/search2000(TM) (h)
27.1 Financial Data Schedule
(a) Incorporated by reference to the exhibit of same number to the
Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as
amended.
(b) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 1996.
(c) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 30, 1997.
(d) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended June 29, 1997.
(e) Incorporated by reference to the exhibit of same number to the
Registrant's Annual Report on Form 10-K for the yearly period ended
September 28, 1997.
(f) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended December 28, 1997.
(g) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 29, 1998.
(h) Incorporated by reference to the exhibit of same number to the
Registrant's Annual Report on Form 10-K for the yearly period ended
September 27, 1998.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the fiscal quarter ended December
1998.
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12
REMEDYTEMP, INC.
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 thereunto duly authorized.
REMEDYTEMP, INC.
February 9, 1999 /s/ PAUL W. MIKOS
-------------------------------------------
Paul W. Mikos, President and Chief
Executive Officer
February 9, 1999 /s/ ALAN M. PURDY
-------------------------------------------
Senior Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer)
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REMEDY TEMP, INC.
EXHIBIT INDEX
NUMBER
EXHIBIT DESCRIPTION
- ------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company (a)
3.2 Amended and Restated Bylaws of the Company (h)
4.1 Specimen Stock Certificate (a)
4.2 Shareholder Rights Agreement (a)
10.1 Robert E. McDonough, Sr. Amended and Restated Employment Agreement
10.2 Paul W. Mikos Amended and Restated Employment Agreement
10.3 R. Emmett McDonough Employment Agreement (a)
10.4 Allocation Agreement with R. Emmett McDonough and Related Trusts (a)
10.5 Registration Rights Agreement with R. Emmett McDonough and Related
Trusts (a)
10.6 Letter regarding terms of employment and potential severance of Alan M.
Purdy (a)
10.7 Deferred Compensation Agreement for Alan M. Purdy (a)
10.8 Letter regarding potential severance of Jeffrey A. Elias (a)
10.9 Form of Indemnification Agreement (a)
10.11 RemedyTemp, Inc. 1996 Amended and Restated Stock Incentive Plan (h)
10.12 RemedyTemp, Inc. 1996 Employee Stock Purchase Plan (a)
10.13 Form of Franchising Agreement for Licensed Offices (h)
10.14 Form of Franchising Agreement for Franchised Offices (a)
10.15 Form of Licensing Agreement for IntelliSearch(R) (a)
10.17 Paul W. Mikos Promissory Note (a)
10.18 Additional Deferred Compensation Agreement for Alan M. Purdy (b)
10.19 Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC (c)
10.20 Lease Agreement between RemedyTemp, Inc. and Mitchell Land & Improvement
Company (d)
10.21 Credit Agreement among Bank of America National Trust and Savings
Association and RemedyTemp, Inc. (e)
10.22 RemedyTemp, Inc. Deferred Compensation Plan (e)
10.23 Greg Palmer Employment Agreement (f)
10.24 1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership Plan for
Outside Directors (g)
10.25 Form of Licensing Agreement for i/search2000(TM) (h)
27.1 Financial Data Schedule
13
14
REMEDY TEMP, INC.
NUMBER
EXHIBIT DESCRIPTION
- ------- -----------
[S] [C]
(a) Incorporated by reference to the exhibit of same number to the
Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as
amended.
(b) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 1996.
(c) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 30, 1997.
(d) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended June 29, 1997.
(e) Incorporated by reference to the exhibit of same number to the
Registrant's Annual Report on Form 10-K for the yearly period ended
September 28, 1997.
(f) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended December 28, 1997.
(g) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 29, 1998.
(h) Incorporated by reference to the exhibit of same number to the
Registrant's Annual Report on Form 10-K for the yearly period ended
September 27, 1998.
14