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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 APRIL 1, 2001
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 May 12, 2001 there were 7,282,680 shares of Class A Common Stock
and 1,637,194 shares of Class B Common Stock outstanding.
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REMEDYTEMP, INC.
INDEX
PAGE NO.
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PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of April 1, 2001 and October 1, 2000.................................... 3
Consolidated Statements of Income for the three fiscal months and six fiscal months ended
April 1, 2001 and April 2, 2000........................................................................ 4
Consolidated Statements of Cash Flows for the six fiscal months ended April 1, 2001
and April 2, 2000...................................................................................... 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................................................ 12
Item 5. Other Information.................................................................................. *
Item 6. Exhibits and Reports on Form 8-K................................................................... 12
SIGNATURES ....................................................................................................... 14
* 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
APRIL 1, OCTOBER 1,
2001 2000
-------- ----------
Current assets:
Cash and cash equivalents ............................................... $ 13,430 $ 1,084
Accounts receivable, net of allowance for doubtful accounts of
$1,987 and $1,888, respectively ....................................... 75,165 78,556
Prepaid expenses and other current assets ............................... 6,080 4,824
Prepaid workers' compensation insurance ................................. -- 4,877
Deferred income taxes ................................................... 1,825 1,825
-------- --------
Total current assets .............................................. 96,500 91,166
-------- --------
Fixed assets, net of accumulated depreciation of $16,584 and
$13,945, respectively .................................................. 19,704 20,313
Other assets, net ......................................................... 2,415 2,491
Deferred income taxes ..................................................... 129 129
Goodwill, net of accumulated amortization of $548
and $415, respectively ................................................. 4,499 4,555
-------- --------
$123,247 $118,654
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 1,197 $ 3,055
Accrued workers' compensation ........................................... 6,832 4,682
Accrued payroll, benefits and related costs ............................. 11,832 12,924
Accrued licensees' share of gross profit ................................ 3,337 3,657
Other accrued expenses .................................................. 3,859 3,865
-------- --------
Total current liabilities ......................................... 27,057 28,183
-------- --------
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;
7,283 and 7,246 issued and outstanding at April 1, 2001 and
October 1, 2000, respectively ......................................... 73 72
Class B Non-Voting Common Stock, $.01 par value; authorized
4,530 shares; 1,637 and 1,657 issued and outstanding at April
1, 2001 and October 1, 2000, respectively ............................. 16 17
Additional paid-in capital ................................................ 33,383 33,182
Retained earnings ......................................................... 62,718 57,200
-------- --------
Total shareholders' equity ........................................ 96,190 90,471
-------- --------
Total liabilities and shareholders' equity ........................ $123,247 $118,654
======== ========
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 SIX MONTHS ENDED
-------------------------- --------------------------
APRIL 1, APRIL 2, APRIL 1, APRIL 2,
2001 2000 2001 2000
--------- --------- --------- ---------
Direct sales ................................... $ 72,864 $ 73,586 $ 156,251 $ 156,588
Licensed sales ................................. 56,487 59,962 121,616 126,098
Franchise royalties ............................ 640 843 1,605 1,815
Initial license and franchise fees ............. 41 74 41 74
--------- --------- --------- ---------
Total revenues ........................... 130,032 134,465 279,513 284,575
Cost of direct sales ........................... 57,588 57,818 123,474 124,036
Cost of licensed sales ......................... 42,543 44,887 91,477 95,230
Licensees' share of gross profit ............... 9,585 10,179 20,616 20,844
Selling and administrative expenses ............ 15,232 14,533 33,263 30,052
Depreciation and amortization .................. 1,421 1,153 2,830 2,244
--------- --------- --------- ---------
Income from operations ................... 3,663 5,895 7,853 12,169
Other income:
Interest income (expense), net ............... 144 (202) 216 (364)
Other, net ................................... 303 166 513 419
--------- --------- --------- ---------
Income before provision for income taxes ....... 4,110 5,859 8,582 12,224
Provision for income taxes ..................... 1,455 2,179 3,064 4,630
--------- --------- --------- ---------
Net income ..................................... $ 2,655 $ 3,680 $ 5,518 $ 7,594
========= ========= ========= =========
Net income per share, basic (Note 2) ........... $ 0.30 $ 0.42 $ 0.62 $ 0.86
========= ========= ========= =========
Weighted-average number of shares, basic ....... 8,906 8,865 8,904 8,862
========= ========= ========= =========
Net income per share, diluted (Note 2) ......... $ 0.30 $ 0.40 $ 0.62 $ 0.84
========= ========= ========= =========
Weighted-average number of shares, diluted ..... 8,928 9,203 8,925 9,055
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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REMEDYTEMP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED
-------------------------
APRIL 1, APRIL 2,
2001 2000
-------- --------
Cash flows from operating activities:
Net income ....................................................... $ 5,518 $ 7,594
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................ 2,830 2,244
Provision for losses on accounts receivable .................. 2,892 675
Changes in assets and liabilities:
Accounts receivable ........................................ 499 (905)
Prepaid expenses and other current assets .................. (1,256) (1,092)
Prepaid workers' compensation insurance .................... 4,877 4,476
Other assets ............................................... 76 (74)
Accounts payable ........................................... (1,858) 2,037
Accrued workers' compensation .............................. 2,150 3,067
Accrued payroll, benefits and related costs ................ (1,092) (2,257)
Accrued licensees' share of gross profit ................... (320) (1,226)
Other accrued expenses ..................................... (6) (33)
-------- --------
Net cash provided by operating activities ........................ 14,310 14,506
-------- --------
Cash flows from investing activities:
Purchase of fixed assets ......................................... (2,088) (4,068)
Purchase of franchises, net of assets acquired ................... (77) (1,375)
-------- --------
Net cash used in investing activities ............................ (2,165) (5,443)
-------- --------
Cash flows from financing activities:
Borrowings under line of credit agreement ........................ -- 4,800
Repayments under line of credit agreement ........................ -- (17,300)
Proceeds from stock option activity .............................. 140 130
Proceeds from Employee Stock Purchase Plan Activity .............. 61 107
-------- --------
Net cash provided (used) by financing activities ................. 201 (12,263)
-------- --------
Net increase (decrease) in cash and cash equivalents ............... 12,346 (3,200)
Cash and cash equivalents at beginning of period ................... 1,084 7,887
-------- --------
Cash and cash equivalents at end of period ......................... $ 13,430 $ 4,687
======== ========
Other cash flow information:
Cash paid during the period for interest ......................... $ 128 $ 581
Cash paid during the period for income taxes ..................... $ 4,152 $ 5,757
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 April 1, 2001, and the
consolidated statements of income and 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 27, 2000.
2. EARNINGS PER SHARE DISCLOSURE
Earnings per share is calculated as follows:
THREE FISCAL MONTHS ENDED
------------------------------------------------------------------------
APRIL 1, 2001 APRIL 2, 2000
---------------------------------- ----------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- ------- ----------- ------------- -------
BASIC EPS
Income available to common shareholders $2,655 8,906 $ 0.30 $3,680 8,865 $ 0.42
======= =======
EFFECT OF DILUTIVE SECURITIES
Stock options ............................ $ -- 22 $ -- 338
------ ------ ------ ------
DILUTED EPS
Income available to common shareholders
plus assumed conversions ................. $2,655 8,928 $ 0.30 $3,680 9,203 $ 0.40
====== ====== ======= ====== ====== =======
SIX FISCAL MONTHS ENDED
------------------------------------------------------------------------
APRIL 1, 2001 APRIL 2, 2000
---------------------------------- ----------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- ------- ----------- ------------- -------
BASIC EPS
Income available to common shareholders $5,518 8,904 $ 0.62 $7,594 8,862 $ 0.86
======= =======
EFFECT OF DILUTIVE SECURITIES
Stock options ............................ $ -- 21 $ -- 193
------ ------ ------ ------
DILUTED EPS
Income available to common shareholders
plus assumed conversions ................. $5,518 8,925 $ 0.62 $7,594 9,055 $ 0.84
====== ====== ======= ====== ====== =======
3. REPURCHASE OF LICENSED OFFICE
During the first quarter of fiscal 2001, the Company acquired one
licensed office in New Jersey. Results of operations for the acquired licensed
office is 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.
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REMEDYTEMP, INC.
Had the results of operations for the licensed office been shown as of the
beginning of the current and prior year fiscal periods, the consolidated results
would not be significantly different. This acquisition is accounted for under
the purchase accounting method. The purchase price was allocated primarily to
goodwill and is being amortized over an estimated life of twenty years.
4. SUBSEQUENT EVENTS
WORKERS COMPENSATION
Effective April 1, 2001, the Company entered into a contract with
Liberty Mutual Insurance Company ("Liberty") for its workers' compensation
insurance and claims administration. The Company's deductible under the
insurance contract is $250 per individual claim and Liberty is responsible for
costs in excess of the deductible amount. Under the terms of the agreement, the
Company is required to maintain a letter of credit to secure repayment to
Liberty of the deductible portion of all open claims. Prior to April 1, 2001,
the Company utilized a guaranteed cost insurance program.
SEVERANCE PAYMENT
Effective June 30, 2001, Paul Mikos, previously the Company's president
and chief executive officer, will relinquish his employment and executive
responsibilities with the Company, but will remain Chairman of the Board of
Directors. The Company expects to record a non-recurring charge of approximately
$2.4 million in the third quarter to provide for the severance benefits outlined
in Mr. Mikos's severance agreement dated May 10, 2001.
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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 made by RemedyTemp Inc.
that involve material risks and uncertainties and are subject to change based on
factors beyond the control of the company (certain of such statements are
identified by use of words such as "anticipate," "believe," "estimate,"
"intend," "expect" or "future"). Accordingly, the company's actual results may
differ materially from those expressed or implied in any such forward-looking
statements as a result of various factors, including without limitation, the
benefits of proactive measures being taken to improve results and control costs,
the ability to open new points of distribution, changes in general or local
economic conditions, the availability of sufficient personnel, the company's
ability to attract and retain clients and franchisees/licensees, implementation
of the company's new IT systems, and other 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 April 1, 2001 Compared to the Three Fiscal
Months Ended April 2, 2000
Total revenues decreased 3.3% or $4.4 million to $130.0 million for the
three fiscal months ended April 1, 2001 from $134.5 million for the three fiscal
months ended April 2, 2000. Direct revenues decreased 1.0% to $72.9 million from
$73.6 million, licensed revenues decreased 5.8% to $56.5 million from $60.0
million and franchise royalties decreased 24.1% to $0.6 million from $0.8
million for the three fiscal months ended April 1, 2001 and April 2, 2000,
respectively. Overall direct revenues were relatively flat as compared to the
prior year resulting from a general slowdown in the economy as well as the
elimination of revenue from "dot com" companies that existed in the prior year.
The decrease in licensed revenues was also impacted by current economic
conditions including reduced revenues from a significant customer in the current
year quarter. The decrease in franchise royalties resulted from the conversion
of three franchised offices to the licensed format as well as lower billings at
existing offices. There were no significant changes in the mix between direct,
licensed and royalty revenues. The Company's ability to increase revenues
depends significantly on the Company's ability to continue to attract new
clients, retain existing clients, open new offices, find and retain licensees
and office managers and manage newly opened offices to maturity. There can be no
assurance that the Company's revenues will increase.
Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, decreased 2.5% or $2.6
million to $100.1 million for the three fiscal months ended April 1, 2001 from
$102.7 million for the three fiscal months ended April 2, 2000. This decrease
resulted primarily from decreased revenues. Total cost of direct and licensed
sales as a percentage of revenues was 77.0% for the three fiscal months ended
April 1, 2001 compared to 76.4% for the three fiscal months ended April 2, 2000.
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 is generally
based on the number of hours billed. 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 typically 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, with the exception of national accounts noted above.
Licensees' share of gross profit decreased 5.8% or $0.6 million to $9.6 million
for the three fiscal months ended April 1, 2001 from $10.2 million for the three
fiscal months ended April 2, 2000 due to decreased billings at existing offices
as discussed above. Licensees' share of gross profit as a percentage of licensed
gross profit was 68.7% for the three fiscal months ended April 1, 2001 compared
to 67.5% for the three fiscal months ended April 2, 2000. This increase resulted
from certain licensees earning a larger percentage of gross profit in the
current year.
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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 4.8% or $0.7 million to
$15.2 million for the three fiscal months ended April 1, 2001 from $14.5 million
for the three fiscal months ended April 2, 2000. This increase is primarily
attributable to increased bad debt expense and health insurance costs in the
current year. Selling and administrative expenses as a percentage of total
revenues were 11.7% for the three fiscal months ended April 1, 2001 as compared
to 10.8% for the three fiscal months ended April 2, 2000. 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 23.2% or $0.3 million to $1.4
million for the three fiscal months ended April 1, 2001 from $1.2 million for
the three fiscal months ended April 2, 2000. This increase results primarily
from depreciation of the Company's new back office information system which was
placed in service in October 2000.
Income from operations decreased 37.9% or $2.2 million to $3.7 million
for the three fiscal months ended April 1, 2001 from $5.9 million for the three
fiscal months ended April 2, 2000 due to the factors described above. Income
from operations as a percentage of revenues was 2.8% for the three fiscal months
ended April 1, 2001 compared to 4.4% for the three fiscal months ended April 2,
2000.
Net income decreased 27.9% or $1.0 million to $2.7 million for the three
fiscal months ended April 1, 2001 from $3.7 million for the three fiscal months
ended April 2, 2000 due to the factors described above. Interest expense
decreased as a result of no line of credit borrowings during the current
quarter. 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 2.0% for the three fiscal months ended April 1,
2001 compared to 2.7% for the three fiscal months ended April 2, 2000.
For the Six Fiscal Months Ended April 1, 2001 Compared to the Six Fiscal Months
Ended April 2, 2000
Total revenues decreased 1.8% or $5.1 million to $279.5 million for the
six fiscal months ended April 1, 2001 from $284.6 million for the six fiscal
months ended April 2, 2000. Direct revenues decreased 0.2% to $156.3 million
from $156.6 million, licensed revenues decreased 3.6% to $121.6 million from
$126.1 million and franchise royalties decreased 11.6% to $1.6 million from $1.8
million for the six fiscal months ended April 1, 2001 and April 2, 2000,
respectively. Overall direct revenues were relatively flat as compared to the
prior year resulting from increased first quarter revenues stemming from
fulfillment, distribution and customer care support services to new clients
offset by a general slowdown in the economy during the second quarter.
Additionally, revenues from "dot com" companies were substantially lower in the
current year. The decrease in licensed revenues was also impacted by current
economic conditions, including reduced revenues from a significant customer in
the current year. The decrease in franchise royalties resulted from the
conversion of five franchised offices to the licensed format as well as lower
billings at existing offices. There were no significant changes in the mix
between direct, licensed and royalty revenues. The Company's ability to increase
revenues depends significantly on the Company's ability to continue to attract
new clients, retain existing clients, open new offices, find and retain
licensees and office managers and manage newly opened offices to maturity. There
can be no assurance that the Company's revenues will increase.
Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, decreased 2.0% or $4.3
million to $215.0 million for the six fiscal months ended April 1, 2001 from
$219.3 million for the six fiscal months ended April 2, 2000. This decrease
resulted from reduced revenues as described above. Total cost of direct and
licensed sales as a percentage of revenues was 76.9% for the six fiscal months
ended April 1, 2001 compared to 77.1% for the six fiscal months ended April 1,
2000. 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 decreased 1.1% or $0.2 million to $20.6
million for the six fiscal months ended April 1, 2001 from $20.8 million for the
six fiscal months ended April 2, 2000 due to an overall decrease in billings at
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REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
existing licensed offices offset by higher licensed margins resulting from
increased permanent placement billings in fiscal 2001. Permanent placement
billings pertain to the fees earned by the Company for placing temporary
associates in permanent positions. These billings have higher gross margins than
temporary placement billings and the licensee earns a higher percentage of the
related gross margin. Licensees' share of gross profit as a percentage of
licensed gross profit was 68.4% for the six fiscal months ended April 1, 2001
compared to 67.5% for the six fiscal months ended April 2, 2000. This increase
resulted from increased permanent placement billings noted above and certain
licensees earning a larger percentage of gross profit in the current year.
Selling, general and administrative expenses increased 10.7% or $3.2
million to $33.3 million for the six fiscal months ended April 1, 2001 from
$30.1 million for the six fiscal months ended April 2, 2000. This increase is
primarily attributable to increased health insurance costs and bad debt expense,
including a non-recurring $1.9 million charge in the first quarter to provide
for a large client's account receivable deemed uncollectible. Selling and
administrative expenses as a percentage of total revenues were 11.9% for the six
fiscal months ended April 1, 2001 as compared to 10.6% for the six fiscal months
ended April 2, 2000. 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 26.1% or $0.6 million to $2.8
million for the six fiscal months ended April 1, 2001 from $2.2 million for the
six fiscal months ended April 2, 2000. This increase results primarily from
depreciation of the Company's new back office information system which was
placed in service in October 2000.
Income from operations decreased 35.5% or $4.3 million to $7.9 million
for the six fiscal months ended April 1, 2001 from $12.2 million for the six
fiscal months ended April 2, 2000 due to the factors described above. Income
from operations as a percentage of revenues was 2.8% for the six fiscal months
ended April 1, 2001 compared to 4.3% for the six fiscal months ended April 2,
2000.
Net income decreased 27.3% or $2.1 million to $5.5 million for the six
fiscal months ended April 1, 2001 from $7.6 million for the six fiscal months
ended April 2, 2000 due to the factors described above. Interest expense
decreased as a result of no line of credit borrowings 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 2.0% for the six fiscal months ended April 1, 2001
compared to 2.7% for the six fiscal months ended April 2, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $14.3 million for the six
months ended April 1, 2001 and $14.5 million for the six fiscal months ended
April 2, 2000. The slight overall decrease in cash from operating activities
results primarily from the timing of vendor payments, offset by the timing of
accounts receivable collection and lower cash outflows in the current year for
payroll and related costs, as well as licensees' share of gross profit.
Effective April 1, 2001, the Company entered into a contract with
Liberty Mutual Insurance Company ("Liberty") for its workers' compensation
insurance and claims administration. The Company's deductible under the
insurance contract is $250 per individual claim and Liberty is responsible for
costs in excess of the deductible amount. Under the terms of the agreement, the
Company is required to maintain a letter of credit to secure repayment to
Liberty of the deductible portion of all open claims. Prior to April 1, 2001,
the Company utilized a guaranteed cost insurance program.
Effective June 30, 2001, Paul Mikos, previously the Company's president
and chief executive officer, will relinquish his employment and executive
responsibilities with the Company but will remain Chairman of the Board of
Directors. The Company expects to record a non-recurring charge of approximately
$2.4 million in the third quarter to provide for the severance benefits outlined
in Mr. Mikos's severance agreement dated May 10, 2001.
Cash used for purchases of fixed assets was $2.1 million for the six
fiscal months ended April 1, 2001 and $4.1 million for the six fiscal months
ended April 2, 2000. The decrease in capital expenditures results from the
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REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
implementation of the Company's information system in October 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.
The Company acquired one licensed office during the first half of fiscal
2001 (see Note 3 to the consolidated financial statements) and six licensed
offices in the comparative prior year period. 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 has no borrowings outstanding as of April 1, 2001 and is in
the process of securing a $1.75 million letter of credit in accordance with the
workers' compensation insurance agreement discussed above. The required letter
of credit under this agreement is variable as outlined in the agreement. The
line of credit is unsecured and expires on February 28, 2002. The 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 covenants.
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.
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. Historically, the second fiscal quarter
shows 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.
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REMEDYTEMP, INC.
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 28, 2001, the Company held its Annual Meeting of
Shareholders ("the Annual Meeting"). The Company's shareholders voted in favor
of the matter voted upon at the Annual Meeting according to the following vote
tabulation:
Proposal One: Election of Directors.
Abstentions and
For Withhold Broker Non-Votes
--------- --------- ----------------
William D. Cvengros 6,492,859 11,772 805,142
James L. Doti 6,492,859 11,772 805,142
Robert A. Elliott 6,492,809 11,822 805,142
Mary George 6,492,859 11,772 805,142
J. Michael Hagan 6,492,859 11,772 805,142
Robert E. McDonough, Sr. 6,492,809 11,822 805,142
Paul W. Mikos 6,492,859 11,772 805,142
John B. Zaepfel 6,492,859 11,772 805,142
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(g)
4.1 Specimen Stock Certificate(a)
4.2 Shareholder Rights Agreement(a)
10.1 Robert E. McDonough, Sr. Employment Agreement, as amended(h)
10.2 Paul W. Mikos Employment Agreement, as amended(k)
10.5 Registration Rights Agreement with R. Emmett McDonough and
Related Trusts(a)
10.6 Alan M. Purdy Change in Control Severance Agreement(j)
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(i)
10.12 Amended and restated RemedyTemp, Inc. 1996 Employee Stock
Purchase Plan(a)
10.13 Form of Franchising Agreement for Licensed Offices(g)
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)
10.22 RemedyTemp, Inc. Deferred Compensation Plan(d)
10.23 Greg Palmer Employment Agreement, as amended(e)
10.24 1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership
Plan for Outside Directors(f)
10.25 Form of Licensing Agreement for i/search2000(TM)(g)
10.26 Credit Agreement among Bank of America National Trust and
Savings Association and RemedyTemp, Inc.(i)
10.27 Paul W. Mikos Severance Agreement and General Release
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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 Quarterly Reports on Form 10-Q for the quarterly period
ended December 28, 1997 (original agreement) and for the quarterly
period ended December 31, 2000 (amendment).
(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 March 29, 1998.
(g) 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.
(h) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Reports on Form 10-Q for the quarterly period
ended December 27, 1998 (original agreement) and for the quarterly
period ended December 31, 2000 (amendment).
(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 March 28, 1999.
(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 June 28, 1999.
(k) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Reports on Form 10-Q for the quarterly period
ended June 28, 1999 (original agreement) and for the quarterly period
ended December 31, 2000 (amendment).
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter of the
period covered by this Report.
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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.
May 15, 2001 /s/ GREG PALMER
----------------------------------------
Greg Palmer, President and Chief
Executive Officer
May 15, 2001 /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(g)
4.1 Specimen Stock Certificate(a)
4.2 Shareholder Rights Agreement(a)
10.1 Robert E. McDonough, Sr. Employment Agreement, as amended(h)
10.2 Paul W. Mikos Employment Agreement, as amended(k)
10.5 Registration Rights Agreement with R. Emmett McDonough and
Related Trusts(a)
10.6 Alan M. Purdy Change in Control Severance Agreement(j)
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(i)
10.12 Amended and restated RemedyTemp, Inc. 1996 Employee Stock
Purchase Plan(a)
10.13 Form of Franchising Agreement for Licensed Offices(g)
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)
10.22 RemedyTemp, Inc. Deferred Compensation Plan(d)
10.23 Greg Palmer Employment Agreement, as amended(e)
10.24 1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership
Plan for Outside Directors(f)
10.25 Form of Licensing Agreement for i/search2000(TM)(g)
10.26 Credit Agreement among Bank of America National Trust and
Savings Association and RemedyTemp, Inc.(i)
10.27 Paul W. Mikos Severance Agreement and General Release
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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 Quarterly Reports on Form 10-Q for the quarterly period
ended December 28, 1997 (original agreement) and for the quarterly
period ended December 31, 2000 (amendment).
(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 March 29, 1998.
(g) 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.
(h) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Reports on Form 10-Q for the quarterly period
ended December 27, 1998 (original agreement) and for the quarterly
period ended December 31, 2000 (amendment).
(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 March 28, 1999.
(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 June 28, 1999.
(k) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Reports on Form 10-Q for the quarterly period
ended June 28, 1999 (original agreement) and for the quarterly period
ended December 31, 2000 (amendment).
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