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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 2, 2000
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
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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 August 11, 2000 there were 7,228,017 shares of Class A Common Stock
and 1,669,194 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 Sheets as of July 2, 2000 and October 3, 1999 ..... 3
Consolidated Statements of Income for the three fiscal months and nine
fiscal months ended July 2, 2000 and June 27, 1999 ..................... 4
Consolidated Statements of Cash Flows for the nine fiscal months ended
July 2, 2000 and June 27, 1999 ......................................... 5
Condensed Notes to Consolidated Financial Statements ................... 6
Item 2. Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations .............................................. 8
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 ....................................... 12
SIGNATURES .......................................................................... 13
* No information provided due to inapplicability of item.
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REMEDYTEMP, INC.
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
JULY 2, OCTOBER 3,
2000 1999
-------- --------
Current assets:
Cash and cash equivalents ..................................... $ 1,219 $ 7,887
Accounts receivable, net of allowance for doubtful accounts
of $2,153 and $2,038, respectively .......................... 77,873 76,304
Prepaid expenses and other current assets ..................... 3,980 3,986
Prepaid workers' compensation insurance ....................... 8,066 4,476
Deferred income taxes ......................................... 581 581
-------- --------
Total current assets .................................... 91,719 93,234
Fixed assets, net of accumulated depreciation of $12,491 and
$9,841, respectively .......................................... 20,041 18,204
Other assets, net ............................................... 2,609 2,655
Deferred income taxes ........................................... 924 924
Goodwill, net of accumulated amortization of $355 and $296,
respectively .................................................. 4,424 1,704
-------- --------
$119,717 $116,721
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................. $ 2,311 $ 2,909
Accrued workers' compensation ................................. 4,644 1,074
Accrued payroll, benefits and related costs ................... 11,139 13,141
Accrued licensees' share of gross profit ...................... 3,652 4,857
Line of credit obligation ..................................... 8,000 17,500
Other accrued expenses ........................................ 3,297 1,784
-------- --------
Total current liabilities ............................... 33,043 41,265
-------- --------
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; 7,228 and 7,055 issued and outstanding
at July 2, 2000 and October 3, 1999, respectively ........... 72 71
Class B Non-Voting Common Stock, $.01 par value; authorized
4,530 shares; 1,669 and 1,804 issued and outstanding at
July 2, 2000 and October 3, 1999, respectively .............. 17 18
Additional paid-in capital ...................................... 33,057 32,531
Retained earnings ............................................... 53,528 42,836
-------- --------
Total shareholders' equity ...................................... 86,674 75,456
-------- --------
$119,717 $116,721
======== ========
See accompanying notes to consolidated financial statements.
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REMEDYTEMP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
JULY 2, JUNE 27, JULY 2, JUNE 27,
2000 1999 2000 1999
--------- --------- --------- ---------
Direct sales ............................. $ 72,437 $ 70,415 $ 229,025 $ 199,584
Licensed sales ........................... 60,596 57,678 186,694 161,552
Franchise royalties ...................... 838 683 2,653 1,974
Initial license and franchise fees ....... 18 39 92 124
--------- --------- --------- ---------
Total revenues ..................... 133,889 128,815 418,464 363,234
Cost of direct sales ..................... 56,808 55,774 180,844 157,469
Cost of licensed sales ................... 45,407 43,012 140,637 120,133
Licensees' share of gross profit ......... 10,280 9,983 31,124 28,097
Selling and administrative expenses ...... 15,638 12,687 45,690 37,757
Depreciation and amortization ............ 1,078 949 3,322 2,639
--------- --------- --------- ---------
Income from operations ............. 4,678 6,410 16,847 17,139
Other income:
Interest (expense) income, net ......... (73) (182) (437) (172)
Other, net ............................. 303 206 722 681
--------- --------- --------- ---------
Income before provision for income taxes . 4,908 6,434 17,132 17,648
Provision for income taxes ............... 1,810 2,477 6,440 6,794
--------- --------- --------- ---------
Net income ............................... $ 3,098 $ 3,957 $ 10,692 $ 10,854
========= ========= ========= =========
Net income per share, basic (Note 2) ..... $ 0.35 $ 0.45 $ 1.21 $ 1.22
========= ========= ========= =========
Weighted-average number of shares ........ 8,892 8,825 8,872 8,871
========= ========= ========= =========
Net income per share, diluted (Note 2) ... $ 0.34 $ 0.45 $ 1.18 $ 1.22
========= ========= ========= =========
Weighted-average number of shares ........ 9,116 8,838 9,075 8,923
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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REMEDYTEMP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED
-----------------
JULY 2, JUNE 27,
2000 1999
-------- --------
Cash flows from operating activities:
Net income .................................................. $ 10,692 $ 10,854
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ........................... 3,322 2,639
Provision for losses on accounts receivable ............. 1,053 416
Deferred taxes .......................................... -- (251)
Changes in assets and liabilities:
Accounts receivable ................................... (2,622) (6,012)
Prepaid expenses and other current assets ............. 6 104
Prepaid workers' compensation insurance ............... (3,590) (8,392)
Other assets .......................................... 46 105
Accounts payable ...................................... (598) (603)
Accrued workers' compensation ......................... 3,570 (4,986)
Accrued payroll, benefits and related costs ........... (2,002) (2,484)
Accrued licensees' share of gross profit .............. (1,205) 341
Other accrued expenses ................................ 31 58
Income taxes payable .................................. -- (241)
-------- --------
Net cash provided by (used in) operating activities ......... 8,703 (8,452)
-------- --------
Cash flows from investing activities:
Purchase of fixed assets .................................... (4,975) (5,167)
Purchase of franchises, net of assets acquired .............. (1,422) (59)
-------- --------
Net cash used in investing activities ....................... (6,397) (5,226)
-------- --------
Cash flows from financing activities:
Borrowings under line of credit agreement ................... 12,800 23,750
Repayments under line of credit agreement ................... (22,300) (5,000)
Repayments under capital lease obligation ................... -- (194)
Proceeds from stock option activity ......................... 419 23
Purchase of Company Common Stock ............................ -- (2,957)
Proceeds from Employee Stock Purchase Plan activity ......... 107 234
-------- --------
Net cash (used in) provided by financing activities ......... (8,974) 15,856
-------- --------
Net (decrease) increase in cash and cash equivalents .......... (6,668) 2,178
Cash and cash equivalents at beginning of period .............. 7,887 450
-------- --------
Cash and cash equivalents at end of period .................... $ 1,219 $ 2,628
======== ========
Other cash flow information:
Cash paid during the period for interest .................... $ 728 $ 272
Cash paid during the period for income taxes ................ $ 6,050 $ 7,286
See accompanying notes to consolidated financial statements.
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REMEDYTEMP, INC.
CONDENSED 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. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany transactions and balances have been
eliminated.
The accompanying consolidated balance sheet at July 2, 2000, and the
consolidated statements of income and of cash flows 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 28, 1999.
2. EARNINGS PER SHARE DISCLOSURE
Earnings per share is calculated as follows:
THREE FISCAL MONTHS ENDED
---------------------------------------------------------------------------------------
JULY 2, 2000 JUNE 27, 1999
----------------------------------------- --------------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- ------- ----------- ------------- -------
BASIC EPS
Income available to common
shareholders ............................. $3,098 8,892 $ 0.35 3,957 8,825 $ 0.45
========= =========
EFFECT OF DILUTIVE SECURITIES
Stock options ............................ $ -- 224 $ -- 13
------ ----- ------ ----
DILUTED EPS
Income available to common
shareholders plus assumed conversions .... $3,098 9,116 $ 0.34 $3,957 8,838 $ 0.45
====== ===== ========= ====== ===== =========
NINE FISCAL MONTHS ENDED
-----------------------------------------------------------------------------------
JULY 2, 2000 JUNE 27, 1999
---------------------------------------- ----------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- ------- ----------- ------------- -------
BASIC EPS
Income available to common
shareholders ............................... $10,692 8,872 $ 1.21 $10,854 8,871 $ 1.22
EFFECT OF DILUTIVE SECURITIES ======= =======
Stock options .............................. $ -- 203 $ -- 52
------- ----- ------- -----
DILUTED EPS
Income available to common
shareholders plus assumed conversions ...... $10,692 9,075 $ 1.18 $10,854 8,923 $ 1.22
======= ===== ======= ======= ===== =======
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REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. STOCK OPTIONS
Under the terms of the Company's 1996 Stock Incentive Plan, as amended,
on February 29, 2000, upon their reelection to the Board of Directors, the
Company granted options to purchase 2.5 shares of Class A Common Stock to each
of its six non-employee directors at $21.875 per share, for a total of 15
shares. This plan is "non-compensatory" under APB No. 25, and accordingly, no
compensation expense was recorded in connection with these grants.
4. REPURCHASE OF LICENSED OFFICES
During October 1999, the Company acquired six licensed offices in
Virginia. Results of operations for the acquired licensed offices are recorded
in accordance with the Company's licensed revenue recognition policy until the
acquisition date. Subsequent to the acquisition date, the direct office revenue
recognition policy is utilized. Had the results of operations for the licensed
offices been shown as of the beginning of the current and prior year fiscal
periods, the consolidated results would not be significantly different. These
acquisitions were accounted for under the purchase accounting method. The
combined purchase price was allocated primarily to goodwill and is being
amortized over twenty years. A portion of the purchase price is contingent upon
future operating results and will be allocated to goodwill as earned.
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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 Company's growth and strategies, future operating
results and financial position as well as economic and market events and trends.
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, changes in general or local economic conditions,
the availability of sufficient personnel, increased costs of personnel and the
factors described in the Company's filings with the Securities and Exchange
Commission regarding risks affecting the Company's financial condition 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 July 2, 2000 Compared to the Three Fiscal
Months Ended June 27, 1999
Total revenues increased 3.9% or $5.1 million to $133.9 million for the
three fiscal months ended July 2, 2000 from $128.8 million for the three fiscal
months ended June 27, 1999. Direct revenues increased 2.9% to $72.4 million from
$70.4 million, licensed revenues increased 5.1% to $60.6 million from $57.7
million and franchise royalties increased 22.7% to $0.8 million from $0.7
million for the three fiscal months ended July 2, 2000 and June 27, 1999,
respectively. The increase in direct and licensed revenues resulted primarily
from increased fulfillment, distribution and customer care support services
provided by existing direct and licensed offices. The mix between direct and
licensed revenues was impacted by the repurchase of six licensed offices during
the first fiscal quarter of 2000 (see Note 4 to the consolidated financial
statements). The increase in franchise royalties resulted from the conversion of
six offices from the licensed to franchise format during the first half of
fiscal 2000. These conversions also impacted licensed revenue growth in the
current year. 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.
Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, increased 3.5% or $3.4
million to $102.2 million for the three fiscal months ended July 2, 2000 from
$98.8 million for the three fiscal months ended June 27, 1999. This increase
resulted from continued business growth as described above. Total cost of direct
and licensed sales as a percentage of revenues was 76.3% for the three fiscal
months ended July 2, 2000 compared to 76.7% for the three fiscal months ended
June 27, 1999. Many factors, including increased wage costs or other employment
expenses, could adversely affect the Company's cost of direct and licensed
sales.
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's sales. Licensees' share of gross profit increased 3.0% or $0.3
million to $10.3 million for the three fiscal months ended July 2, 2000 from
$10.0 million for the three fiscal months ended June 27, 1999 due to increased
billings at existing licensed offices. Licensees' share of gross profit as a
percentage of licensed gross profit was 67.7% for the three fiscal months ended
July 2, 2000 compared to 68.1% for the three fiscal months ended June 27, 1999.
This decrease resulted primarily from a change in the business mix of the
licensed offices to include more higher volume, lower margin accounts for which
the licensees typically earn a lower margin percentage based upon the terms of
the franchise agreement.
Selling and administrative expenses increased 23.3% or $3.0 million to
$15.6 million for the three fiscal months ended July 2, 2000 from $12.7 million
for the three fiscal months ended June 27, 1999. This increase can be attributed
to business growth, implementation costs associated with the Company's new
information system, operating expenses associated with the repurchased offices
noted above and a $0.4 million non-recurring charge to write-off certain
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REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
capitalized software costs the Company no longer anticipates utilizing. Selling
and administrative expenses as a percentage of total revenues were 11.7% for the
three fiscal months ended July 2, 2000 as compared to 9.8% for the three fiscal
months ended June 27, 1999. There can be no assurance that selling and
administrative expenses will not increase in the future, both in absolute terms
and as a percentage of total revenues. Increases in these expenses could
adversely affect the Company's profitability.
Depreciation and amortization increased 13.6% or $0.1 million to $1.1
million for the three fiscal months ended July 2, 2000 from $0.9 million for the
three fiscal months ended June 27, 1999. This increase results from the
increased depreciation expense of the new information system which was placed in
service in May of 1999, as well as increased goodwill amortization resulting
from the repurchase of licensed offices (as discussed in Note 4 to the
Consolidated Financial Statements).
Income from operations decreased 27.0% or $1.7 million to $4.7 million
for the three fiscal months ended July 2, 2000 from $6.4 million for the three
fiscal months ended June 27, 1999 due to the factors described above. Income
from operations as a percentage of revenues was 3.5% for the three fiscal months
ended July 2, 2000 compared to 5.0% for the three fiscal months ended June 27,
1999.
Net income decreased 21.7% or $0.9 million to $3.1 million for the three
fiscal months ended July 2, 2000 from $4.0 million for the three fiscal months
ended June 27, 1999 due to the factors described above. Interest expense
decreased as a result of lower average borrowings under the Company's line of
credit agreement in the current year. Additionally, the Company reduced its
effective tax rate as a result of expected Work Opportunity and Welfare to Work
Tax Credits. As a percentage of total revenues, net income was 2.3% for the
three fiscal months ended July 2, 2000 compared to 3.1% for the three fiscal
months ended June 27, 1999.
For the Nine Fiscal Months Ended July 2, 2000 Compared to the Nine Fiscal Months
Ended June 27, 1999
Total revenues increased 15.2% or $55.2 million to $418.5 million for
the nine fiscal months ended July 2, 2000 from $363.2 million for the nine
fiscal months ended June 27, 1999. Direct revenues increased 14.8% to $229.0
million from $199.6 million, licensed revenues increased 15.6% to $186.7 million
from $161.6 million and franchise royalties increased 34.4% to $2.7 million from
$2.0 million for the nine fiscal months ended July 2, 2000 and June 27, 1999,
respectively. The overall increase in direct and licensed revenues resulted
primarily from increased fulfillment, distribution and customer care support
services provided to our clients by our existing direct and licensed offices.
The mix between direct and licensed revenues was impacted by the repurchase of
six licensed offices during the first fiscal quarter of 2000 (see Note 4 to the
consolidated financial statements). The increase in franchise royalties resulted
from the conversion of six offices from the licensed to franchise format during
the first half of fiscal 2000. These conversions also impacted the licensed
revenue growth in the current year. 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.
Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, increased 15.8% or $43.9
million to $321.5 million for the nine fiscal months ended July 2, 2000 from
$277.6 million for the nine fiscal months ended June 27, 1999. This increase
resulted from continued business growth as described above. Total cost of direct
and licensed sales as a percentage of revenues was 76.8% for the nine fiscal
months ended July 2, 2000 compared to 76.4% for the nine fiscal months ended
June 27, 1999. This increase is due primarily to a shift in the Company's
business mix. Many factors, including increased wage costs or other employment
expenses, could adversely affect the Company's cost of direct and licensed
sales.
Licensees' share of gross profit increased 10.8% or $3.0 million to
$31.1 million for the nine fiscal months ended July 2, 2000 from $28.1 million
for the nine fiscal months ended June 27, 1999 due to increased billings at
existing licensed offices. Licensees' share of gross profit as a percentage of
licensed gross profit was 67.6% for the nine fiscal months ended July 2, 2000
and 67.8% for the nine fiscal months ended June 27, 1999.
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REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Selling and administrative expenses increased 21.0% or $7.9 million to
$45.7 million for the nine fiscal months ended July 2, 2000 from $37.8 million
for the nine fiscal months ended June 27, 1999. This increase can be attributed
to the business growth discussed above, the implementation and operating costs
of the Company's new information system, the operating expenses of the
repurchased licensed offices (as discussed in Note 4 of the Consolidated
Financial Statements) and a $0.4 million non-recurring charge in the third
quarter to write-off certain capitalized software costs the Company no longer
anticipates utilizing. Selling and administrative expenses as a percentage of
total revenues were 10.9% for the nine fiscal months ended July 2, 2000 and
10.4% for the nine fiscal months ended June 27, 1999. There can be no assurance
that selling and administrative expenses will not increase in the future, both
in absolute terms and as a percentage of total revenues. Increases in these
expenses could adversely affect the Company's profitability.
Depreciation and amortization increased 25.9% or $.7 million to $3.3
million for the nine fiscal months ended July 2, 2000 from $2.6 million for the
nine fiscal months ended June 27, 1999. This increase results from the increased
depreciation expense of the new information system which was placed in service
in May of 1999, as well as increased goodwill amortization resulting from the
repurchase of licensed offices (as discussed in Note 4 to the Consolidated
Financial Statements).
Income from operations decreased 1.7% or $0.3 million to $16.8 million
for the nine fiscal months ended July 2, 2000 from $17.1 million for the nine
fiscal months ended June 27, 1999 due to the factors noted above. Income from
operations as a percentage of revenues was 4.0% for the nine fiscal months ended
July 2, 2000 compared to 4.7% for the nine fiscal months ended June 27, 1999.
Net income decreased 1.5% or $0.2 million to $10.7 million for the nine
fiscal months ended July 2, 2000 from $10.9 million for the nine fiscal months
ended June 27, 1999 due to the factors described above. Interest expense
increased as a result of increased borrowings under the Company's line of credit
agreement in the current year. This was offset by a decrease in the Company's
effective tax rate resulting from expected Work Opportunity and Welfare to Work
Tax Credits. As a percentage of total revenues, net income was 2.6% for the nine
fiscal months ended July 2, 2000 compared to 3.0% for the nine fiscal months
ended June 27, 1999. All revenues and results have been internally generated by
the Company.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $8.7 million for the nine
fiscal months ended July 2, 2000 and cash used in operating activities was $8.5
million for the nine fiscal months ended June 27, 1999. Cash flows for the nine
fiscal months ended June 27, 1999 were significantly impacted by transactions
related to the Company's workers' compensation program in the third quarter of
fiscal 1999 (see related discussion below). Additionally, cash provided by
operating activities in the current year was favorably impacted by stronger
accounts receivable collections.
Effective April 1, 1999, the Company entered into a reinsurance contract
with Reliance National Insurance Company ("Reliance"), whereby Reliance assumed
the Company's remaining deductible liability for all open claims incurred during
the period July 22, 1997 through March 31, 1999. Additionally, the Company
entered into a one-year fully insured workers' compensation program with
Reliance. The Company paid the aggregate cost of both the reinsurance contract
and the one-year premium, a total of $18.9 million, to Reliance on April 16,
1999. Effective April 1, 2000, the Company renewed its fully insured workers'
compensation program for an additional year. The Company paid the estimated
premium amount of $11.1 million to Reliance on April 13, 2000 that was partially
funded by borrowings under the Company's line of credit agreement.
Cash used for purchases of fixed assets was $5.0 million for the nine
fiscal months ended July 2, 2000 and $5.2 million for the nine fiscal months
ended June 27, 1999. The Company's purchases consist primarily of hardware and
software costs associated with its new management information system. Upgrades
of computers and hardware to support the new system began in early calendar year
1999, while implementation of the related software began in the third fiscal
quarter of 1999 and is scheduled to be completed in the fourth quarter of fiscal
2000. 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.
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REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
During October 1999, the Company acquired six licensed offices in
Virginia (see Note 4 to the consolidated financial statements). The Company is
contemplating the continued selective repurchase of licensed and franchised
offices in certain territories with the intent of expanding the Company's market
presence in such regions.
The Company has a revolving line of credit agreement with Bank of
America providing for aggregate borrowings and letters of credit of $40.0
million. The Company repaid borrowings of $9.5 million, net during the nine
fiscal months ending July 2, 2000 and had $8.0 million in borrowings as of July
2, 2000. Subsequent to July 2, 2000, the Company repaid the $8.0 million in
borrowings from its strong operating cash flows. The line of credit agreement
expires on February 28, 2002.
The Company may continue evaluating certain strategic acquisitions. Such
acquisitions may have an impact on liquidity depending on the size of the
acquisition.
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
The Company has not experienced any Year 2000 related disruptions and
has no basis for expecting any such events in the future.
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. Revenue growth for
the third quarter of fiscal 2000 did not follow this historical trend.
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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
(i)
10.2 Paul W. Mikos Employment Agreement (k)
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 Alan M. Purdy Change in Control Severance Agreement (k)
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 Amended and restated RemedyTemp, Inc. 1996 Stock Incentive Plan (j)
10.12 Amended and restated 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)
10.18 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)
10.26 Credit Agreement among Bank of America National Trust and Savings
Association and RemedyTemp, Inc. (j)
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. Form 10.21 is superseded by the new agreement,
effective March 31, 1999. See Exhibit 10.26
(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 27, 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.
(i) 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 27, 1998.
(j) 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 28, 1999.
(k) 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 28, 1999.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the fiscal quarter ended April
2, 2000.
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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.
August 15, 2000 /s/ PAUL W. MIKOS
Paul W. Mikos, President and Chief
Executive Officer
August 15, 2000 /s/ ALAN M. PURDY
Senior Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
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REMEDYTEMP, 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 (i)
10.2 Paul W. Mikos Employment Agreement (k)
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 Alan M. Purdy Change in Control Severance Agreement (k)
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 Amended and restated RemedyTemp, Inc. 1996 Stock Incentive Plan
(j)
10.12 Amended and restated 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)
10.18 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/search 2000(TM) (h)
10.26 Credit Agreement among Bank of America National Trust and Savings
Association and RemedyTemp, Inc. (j)
27.1 Financial Data Schedule
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15
REMEDYTEMP, INC.
(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. Form 10.21 is superseded by the new agreement,
effective March 31, 1999. See Exhibit 10.26.
(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 27, 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.
(i) 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 27, 1998.
(j) 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 28, 1999.
(k) 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 28, 1999.
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