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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 JULY 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.
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(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
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(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 10, 2001 there were 7,332,347 shares of Class A Common Stock
and 1,617,194 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 1, 2001 and October 1, 2000... 3
Consolidated Statements of Income for the three fiscal months and
nine fiscal months ended July 1, 2001 and July 2, 2000............... 4
Consolidated Statements of Cash Flows for the nine fiscal months
ended July 1, 2001 and July 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.................. *
Item 5. Other Information.................................................... *
Item 6. Exhibits and Reports on Form 8-K..................................... 11
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 1, OCTOBER 1,
2001 2000
-------- ----------
Current assets:
Cash and cash equivalents ................................................... $ 26,081 $ 1,084
Accounts receivable, net of allowance for doubtful accounts of $2,466
and $1,888, respectively .................................................. 65,388 78,556
Prepaid expenses and other current assets ................................... 9,174 4,824
Prepaid workers' compensation insurance ..................................... -- 4,877
Deferred income taxes ....................................................... 1,825 1,825
-------- --------
Total current assets ................................................. 102,468 91,166
-------- --------
Fixed assets, net of accumulated depreciation of $17,598 and $13,945,
respectively ................................................................ 18,693 20,313
Other assets, net .............................................................. 2,688 2,491
Deferred income taxes .......................................................... 129 129
Goodwill, net of accumulated amortization of $605 and $415, respectively ....... 4,475 4,555
-------- --------
$128,453 $118,654
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................. $ 444 $ 3,055
Accrued workers' compensation (Note 4) ....................................... 9,788 4,682
Accrued payroll, benefits and related costs .................................. 12,545 12,924
Accrued licensees' share of gross profit ..................................... 2,687 3,657
Other accrued expenses ....................................................... 5,845 3,865
-------- --------
Total current liabilities ............................................ 31,309 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 July 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 July 1, 2001 and
October 1, 2000, respectively ............................................. 16 17
Additional paid-in capital ..................................................... 33,409 33,182
Retained earnings .............................................................. 63,646 57,200
-------- --------
Total shareholders' equity ........................................... 97,144 90,471
-------- --------
Total liabilities and shareholders' equity ........................... $128,453 $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 NINE MONTHS ENDED
------------------------- -------------------------
JULY 1, JULY 2, JULY 1, JULY 2,
2001 2000 2001 2000
-------- --------- -------- ---------
Direct sales ............................. $ 67,917 $ 72,437 $224,168 $ 229,025
Licensed sales ........................... 52,741 60,596 174,357 186,694
Franchise royalties ...................... 460 838 2,065 2,653
Initial license and franchise fees ....... -- 18 41 92
-------- --------- -------- ---------
Total revenues .................... 121,118 133,889 400,631 418,464
Cost of direct sales ..................... 53,926 56,808 177,399 180,844
Cost of licensed sales ................... 39,904 45,407 131,382 140,637
Licensees' share of gross profit ......... 8,971 10,280 29,587 31,124
Selling and administrative expenses ...... 14,162 15,638 45,526 45,690
Non-recurring charges (Note 5) ........... 2,300 -- 4,200 --
Depreciation and amortization ............ 1,451 1,078 4,281 3,322
-------- --------- -------- ---------
Income from operations ............ 404 4,678 8,256 16,847
Other income:
Interest income (expense), net ......... 242 (73) 458 (437)
Other, net ............................. 324 303 837 722
-------- --------- -------- ---------
Income before provision for income taxes . 970 4,908 9,551 17,132
Provision for income taxes ............... 41 1,810 3,105 6,440
-------- --------- -------- ---------
Net income ............................... $ 929 $ 3,098 $ 6,446 $ 10,692
======== ========= ======== =========
Net income per share, basic (Note 2) ..... $ 0.10 $ 0.35 $ 0.72 $ 1.21
======== ========= ======== =========
Weighted-average number of shares, basic . 8,920 8,892 8,910 8,872
======== ========= ======== =========
Net income per share, diluted (Note 2) ... $ 0.10 $ 0.34 $ 0.72 $ 1.18
======== ========= ======== =========
Weighted-average number of shares, diluted 8,943 9,116 8,931 9,075
======== ========= ======== =========
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 1, JULY 2,
2001 2000
-------- --------
Cash flows from operating activities:
Net income ............................................................ $ 6,446 $ 10,692
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ..................................... 4,273 3,322
Provision for losses on accounts receivable ....................... 3,239 1,053
Changes in assets and liabilities:
Accounts receivable ............................................. 9,929 (2,622)
Prepaid expenses and other current assets ....................... (4,350) 6
Prepaid workers' compensation insurance ......................... 4,877 (3,590)
Other assets .................................................... (197) 46
Accounts payable ................................................ (2,611) (598)
Accrued workers' compensation ................................... 5,106 3,570
Accrued payroll, benefits and related costs ..................... (379) (2,002)
Accrued licensees' share of gross profit ........................ (970) (1,205)
Other accrued expenses .......................................... 1,980 31
-------- --------
Net cash provided by operating activities ............................. 27,343 8,703
-------- --------
Cash flows from investing activities:
Purchase of fixed assets .............................................. (2,463) (4,975)
Purchase of franchises, net of assets acquired ........................ (110) (1,422)
-------- --------
Net cash used in investing activities ................................. (2,573) (6,397)
-------- --------
Cash flows from financing activities:
Borrowings under line of credit agreement ............................. -- 12,800
Repayments under line of credit agreement ............................. -- (22,300)
Proceeds from stock option activity ................................... 166 419
Proceeds from Employee Stock Purchase Plan Activity ................... 61 107
-------- --------
Net cash provided by (used in) financing activities ................... 227 (8,974)
-------- --------
Net increase (decrease) in cash and cash equivalents .................... 24,997 (6,668)
Cash and cash equivalents at beginning of period ........................ 1,084 7,887
-------- --------
Cash and cash equivalents at end of period .............................. $ 26,081 $ 1,219
======== ========
Other cash flow information:
Cash paid during the period for interest .............................. $ 157 $ 728
Cash paid during the period for income taxes .......................... $ 6,228 $ 6,050
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 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
--------------------------------------------------------------------------------
JULY 1, 2001 JULY 2, 2000
-------------------------------------- ---------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- --------- ----------- ------------- ---------
BASIC EPS
Income available to common
shareholders .............. $ 929 8,920 $ 0.10 $ 3,098 8,892 $ 0.35
======= =======
EFFECT OF DILUTIVE SECURITIES
Stock options ............... $ -- 23 $ -- 224
------ ----- ------- ------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions ............... $ 929 8,943 $ 0.10 $ 3,098 9,116 $ 0.34
====== ===== ======= ======= ====== =======
NINE FISCAL MONTHS ENDED
--------------------------------------------------------------------------------
JULY 1, 2001 JULY 2, 2000
-------------------------------------- ---------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- --------- ----------- ------------- ---------
BASIC EPS
Income available to common
shareholders .............. $6,446 8,910 $ 0.72 $10,692 8,872 $ 1.21
======= =======
EFFECT OF DILUTIVE SECURITIES
Stock options ............... $ -- 21 $ -- 203
------ ----- ------- ------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions ............... $6,446 8,931 $ 0.72 $10,692 9,075 $ 1.18
====== ===== ======= ======= ====== =======
6
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REMEDYTEMP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. REPURCHASE OF LICENSED OFFICE
The Company acquired one licensed office in New Jersey during the first
quarter of fiscal 2001 and an additional office in Delaware during the third
quarter of fiscal 2001. 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 are accounted for under the purchase
accounting method. The purchase prices were allocated primarily to goodwill and
are being amortized over an estimated life of twenty years.
4. 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. The Company is self-insured for its deductible liability.
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.
5. NON-RECURRING CHARGES
ACCOUNT RECEIVABLE
During the first quarter of fiscal 2001, the Company recorded a $1.9
million charge to provide for a large client's account receivable deemed
uncollectible.
SEVERANCE BENEFITS
Effective June 30, 2001, Paul Mikos, previously the Company's president and
chief executive officer, relinquished his employment and executive
responsibilities with the Company, but remained Chairman of the Board of
Directors. The Company recorded a $2.3 million charge in the third quarter of
fiscal 2001 to provide for the severance benefits outlined in Mr. Mikos's
severance agreement dated May 10, 2001.
6. ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statements on
Financial Accounting Standards (SFAS) Nos. 141 (Business Combinations) and 142
(Goodwill and Other Intangible Assets). SFAS 141, among other things, eliminates
the use of the pooling of interests method of accounting for business
combinations. Under the provisions of SFAS No. 142, goodwill will no longer be
amortized, but will be subject to a periodic test for impairment based upon fair
values. During the year ended October 1, 2000 and for the nine months ended July
2, 2001, the Company reported goodwill amortization of $244 and $190,
respectively. SFAS No. 141 is effective for all business combinations initiated
after June 30, 2001. SFAS No. 142 will be effective for the Company beginning
September 30, 2002. Given the recent issuance of these standards, the Company
has not yet determined the impact of adoption on the financial statements.
7
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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 the Company 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
the 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
and operation 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 July 1, 2001 Compared to the Three Fiscal
Months Ended July 2, 2000
Total revenues decreased 9.5% or $12.8 million to $121.1 million for the
three fiscal months ended July 1, 2001 from $133.9 million for the three fiscal
months ended July 2, 2000. Direct revenues decreased 6.2% to $67.9 million from
$72.4 million, licensed revenues decreased 13.0% to $52.7 million from $60.6
million and franchise royalties decreased 45.1% to $0.5 million from $0.8
million for the three fiscal months ended July 1, 2001 and July 2, 2000,
respectively. The overall decrease in direct revenues as compared to the prior
year results from the general slowdown in the economy as well as continued
pricing pressures. The decrease in licensed revenues was also impacted by
current economic conditions. 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 was a slight change in mix between
direct, licensed and royalty revenues with direct revenues accounting for 56.1%
of total revenues for the three months ended July 1, 2001 as compared to 54.1%
for the three months ended July 2, 2000. 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 8.2% or $8.4 million to
$93.8 million for the three fiscal months ended July 1, 2001 from $102.2 million
for the three fiscal months ended July 2, 2000. This decrease resulted primarily
from decreased revenues. Total cost of direct and licensed sales as a percentage
of revenues was 77.5% for the three fiscal months ended July 1, 2001 compared to
76.3% for the three fiscal months ended July 2, 2000. This increase results from
a shift in business mix, lower markup resulting from pricing pressures and
reduced permanent placement business. 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. In general, pursuant to terms of the Company's franchise
agreement for licensed offices, 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. Licensees' share of gross profit decreased 12.7% or $1.3 million
to $9.0 million for the three fiscal months ended July 1, 2001 from $10.3
8
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REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
million for the three fiscal months ended July 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 69.9% for the three fiscal months ended
July 1, 2001 compared to 67.7% for the three fiscal months ended July 2, 2000.
This increase resulted from certain licensees earning a larger percentage of
gross profit in the current year.
Selling and administrative expenses decreased 9.4% or $1.5 million to $14.1
million for the three fiscal months ended July 1, 2001 from $15.6 million for
the three fiscal months ended July 2, 2000. This overall decrease results
primarily from company-wide cost containment efforts implemented beginning late
in fiscal 2000 and reduced implementation costs associated with the Company's
information systems, offset by increased health insurance costs in the current
year. Additionally, in the prior year the Company wrote off $0.4 million of
capitalized software costs that could not be utilized. Selling and
administrative expenses as a percentage of total revenues remained consistent at
11.7% for the three fiscal months ended July 1, 2001 and July 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.
The Company recorded a $2.3 million non-recurring charge in the third
quarter of fiscal 2001 to provide for severance benefits to Paul Mikos, formerly
the Company's president and chief executive officer, in accordance with his
severance agreement dated May 10, 2001. Effective June 30, 2001, Mr. Mikos
relinquished his employment and executive responsibilities with the Company, but
remained Chairman of the Board of Directors.
Depreciation and amortization increased 34.6% or $0.4 million to $1.5
million for the three fiscal months ended July 1, 2001 from $1.1 million for the
three fiscal months ended July 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, including the non-recurring charge, decreased 91.4%
or $4.3 million to $0.4 million for the three fiscal months ended July 1, 2001
from $4.7 million for the three fiscal months ended July 2, 2000 due to the
factors described above. Income from operations as a percentage of revenues was
0.3% for the three fiscal months ended July 1, 2001 compared to 3.5% for the
three fiscal months ended July 2, 2000. Excluding the non-recurring charge,
income from operations decreased 42.2% or $2.0 million from the comparative
prior year period.
Net income decreased 70.0% or $2.2 million to $0.9 million for the three
fiscal months ended July 1, 2001 from $3.1 million for the three fiscal months
ended July 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 0.8% for the three fiscal months ended July 1,
2001 compared to 2.3% for the three fiscal months ended July 2, 2000. Excluding
the non-recurring charge, net income decreased 25.6% or $0.8 million from the
comparative prior year period.
For the Nine Fiscal Months Ended July 1, 2001 Compared to the Nine Fiscal Months
Ended July 2, 2000
Total revenues decreased 4.3% or $17.8 million to $400.6 million for the
nine fiscal months ended July 1, 2001 from $418.5 million for the nine fiscal
months ended July 2, 2000. Direct revenues decreased 2.1% to $224.2 million from
$229.0 million, licensed revenues decreased 6.6% to $174.4 million from $186.7
million and franchise royalties decreased 22.2% to $2.1 million from $2.7
million for the nine fiscal months ended July 1, 2001 and July 2, 2000,
respectively. The overall decrease in direct revenues as compared to the prior
year results from increased first quarter revenues stemming from fulfillment,
distribution and customer care support services offset by a general slowdown in
the economy during the second and third 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. 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 was a slight change in mix between direct, licensed and royalty revenues
with direct revenues accounting for 56.0% of total revenues for the nine months
ended July 1, 2001 as compared to 54.7% for
9
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REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
the nine months ended July 2, 2000. 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 4.0% or $12.7 million to
$308.8 million for the nine fiscal months ended July 1, 2001 from $321.5 million
for the nine fiscal months ended July 2, 2000. This decrease resulted from
reduced revenues as described above. Total cost of direct and licensed sales as
a percentage of revenues was 77.1% for the nine fiscal months ended July 1, 2001
compared to 76.8% for the nine fiscal months ended July 2, 2000. This increase
results from a shift in business mix, lower markup resulting from pricing
pressures and reduced permanent placement business. 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 4.9% or $1.5 million to $29.6
million for the nine fiscal months ended July 1, 2001 from $31.1 million for the
nine fiscal months ended July 2, 2000 due to an overall decrease in billings at
existing licensed offices. Licensees' share of gross profit as a percentage of
licensed gross profit was 68.8% for the nine fiscal months ended July 1, 2001
compared to 67.6% for the nine fiscal months ended July 2, 2000. This increase
resulted from certain licensees earning a larger percentage of gross profit in
the current year.
Selling, general and administrative expenses decreased 0.4% or $0.2 million
to $45.5 million for the nine fiscal months ended July 1, 2001 from $45.7
million for the nine fiscal months ended July 2, 2000. This overall decrease
results from company-wide cost containment efforts implemented beginning late in
fiscal 2000 offset by increased health insurance costs in the current year.
Selling and administrative expenses as a percentage of total revenues were 11.4%
for the nine fiscal months ended July 1, 2001 as compared to 10.9% for the nine
fiscal months ended July 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.
During the nine fiscal months ended July 1, 2001, the Company recorded
non-recurring charges totaling $4.2 million. During the first fiscal quarter,
the Company recorded a $1.9 million charge for a large client's account
receivable deemed uncollectible. During the third quarter, the Company recorded
a $2.3 million charge to provide for severance benefits to Paul Mikos, formerly
the Company's president and chief executive officer, in accordance with his
severance agreement dated May 10, 2001. Effective June 30, 2001, Mr. Mikos
relinquished his employment and executive responsibilities with the Company, but
remained Chairman of the Board of Directors.
Depreciation and amortization increased 28.9% or $1.0 million to $4.3
million for the nine fiscal months ended July 1, 2001 from $3.3 million for the
nine fiscal months ended July 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, including the non-recurring charges, decreased
51.0% or $8.6 million to $8.3 million for the nine fiscal months ended July 1,
2001 from $16.8 million for the nine fiscal months ended July 2, 2000 due to the
factors described above. Income from operations as a percentage of revenues was
2.1% for the nine fiscal months ended July 1, 2001 compared to 4.0% for the nine
fiscal months ended July 2, 2000. Excluding the non-recurring charges, income
from operations decreased 26.1% or $4.4 million from the comparative prior year
period.
Net income decreased 39.7% or $4.2 million to $6.4 million for the nine
fiscal months ended July 1, 2001 from $10.7 million for the nine fiscal months
ended July 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 1.6% for the nine fiscal months ended July 1, 2001
compared to 2.6% for the nine fiscal months ended July 2, 2000. Excluding the
non-recurring charges, net income decreased 16.2% or $1.7 million from the
comparative prior year period.
10
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REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $27.3 million for the nine months
ended July 1, 2001 and $8.7 million for the nine fiscal months ended July 2,
2000. The increase in cash from operating activities results primarily from
changes in the Company's workers' compensation program discussed below, timing
of accounts receivable collection, lower cash outflows in the current year for
payroll and related costs, as well as licensees' share of gross profit. These
increases to operating cash flows were offset by the timing of vendor payments.
Prior to April 1, 2001, the Company utilized a guaranteed cost insurance
program for its workers' compensation claims liability. During the third quarter
of the prior year, the Company prepaid the estimated policy premium of $11.1
million under this program. 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 $0.25 million per individual claim and Liberty is
responsible for costs in excess of the deductible amount. The Company is
self-insured for its deductible liability and as such no prepayment was made in
the current year. 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.
Cash used for purchases of fixed assets was $2.5 million for the nine
fiscal months ended July 1, 2001 and $5.0 million for the nine fiscal months
ended July 2, 2000. The decrease in capital expenditures results from the
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 two licensed office during the first nine months 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 July 1, 2001 and has a $17.3 million
letter of credit in accordance with the workers' compensation insurance
agreement discussed above. 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.
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:
Exhibit
Number 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)
11
12
Exhibit
Number Description
------- -----------
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
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/search2000TM (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 (l)
----------
(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).
(l) Incorporated by reference to the exhibit of same number to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2001.
(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.
12
13
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 14, 2001 /s/ GREG PALMER
-------------------------------
Greg Palmer, President and
Chief Executive Officer
August 14, 2001 /s/ ALAN M. PURDY
------------------------------
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
14
REMEDYTEMP, INC.
EXHIBIT INDEX
Exhibit
Number 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
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/search2000TM (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 (l)
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
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).
(l) Incorporated by reference to the exhibit of same number to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2001.