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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended October 1, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission file number 0-5260
REMEDYTEMP, INC.
(Exact Name of Registrant as Specified in Its Charter)
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California 95-2890471
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
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101 Enterprise
Aliso Viejo, California 92656
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (949) 425-7600
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
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Name of Each Exchange
Title of Each Class on Which Registered
Class A Common Stock $.01 par value Nasdaq National Market
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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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or by
amendment to this Form 10-K. [X]
The aggregate market value of the Class A Common Stock held by
non-affiliates of the registrant based upon the closing sales price of its Class
A Common Stock on December 15, 2000 on the Nasdaq National Market was
$54,155,492. The aggregate market value of the Class B Common Stock (which
converts to Class A upon certain transactions) held by non-affiliates of the
registrant based upon the closing sales price of its Class A Common Stock on
December 15, 2000 on the Nasdaq National Market was $5,124,015.
The number of shares of Class A Common Stock outstanding as of December
15, 2000 was 7,245,849 and the number of shares of Class B Common Stock
outstanding as of December 15, 2000 was 1,657,194.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant will file a definitive Proxy Statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year end October 1,
2000. Portions of the Company's Proxy Statement, to be mailed to the
shareholders in connection with the Annual Meeting, are incorporated by
reference in Part III of this report. Except for the portions expressly
incorporated by reference, the Company's Proxy Statement shall not be deemed to
be part of this report.
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REMEDYTEMP, INC.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE NO.
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PART I
Item 1 Business 3
Item 2 Properties 8
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 9
Executive Officers of the Registrant 9
PART II
Item 5 Market for Registrant's Common Equity and Related Shareholder Matters 11
Item 6 Selected Financial Data 12
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 12
Item 7A Quantitative and Qualitative Disclosures About Market Risk *
Item 8 Financial Statements and Supplementary Data 17
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 17
PART III
Item 10 Directors and Executive Officers of the Registrant 18
Item 11 Executive Compensation 18
Item 12 Security Ownership of Certain Beneficial Owners and Management 18
Item 13 Certain Relationships and Related Transactions 18
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 19
Signatures 21
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* No information provided due to inapplicability of item.
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PART I
ITEM 1. BUSINESS
In addition to historical information, the description of business below,
management's discussion and analysis in Part II and other statements contained
elsewhere in this Annual Report of Form 10-K, include certain forward-looking
statements, including, but not limited to, those related to the growth and
strategies, future operating results and financial position as well as economic
and market events and trends of RemedyTemp, Inc., including its wholly-owned
subsidiaries, (collectively the "Company"). All forward-looking statements made
by the Company, including such statements herein, include material risks and
uncertainties and are subject to change based on factors beyond the control of
the Company (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 and financial position may 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, the
Company's ability to attract and retain clients and franchisees/licensees,
implementation of the Company's new IT systems, the Company's ability to attain
cost reductions and other factors described in the Company's filings with the
Securities and Exchange Commission regarding risks affecting the Company's
financial conditions and results of operations. The Company does not undertake
to publicly update or revise its forward-looking statements even if experience
or future changes make it clear that any projected results expressed or implied
therein will not be realized. The following should be read in conjunction with
the Consolidated Financial Statements of the Company and Notes thereto.
GENERAL
RemedyTemp, Inc., founded in 1965 and incorporated in California in 1974,
is a rapidly growing national provider of clerical and light industrial
temporary staffing services to industrial, service and technology companies,
professional organizations and governmental agencies. The Company provides its
services in 40 states and Puerto Rico through a network of 282 offices, of which
114 are Company-owned and 168 are independently-managed. During the twelve
months ended October 1, 2000, the Company placed approximately 175,000 temporary
workers, known as "associates," and provided over 48 million hours of staffing
services to approximately 16,000 clients. From the beginning of fiscal 1996
through the end of fiscal 2000, the Company added 140 offices. Revenues and
income before taxes between fiscal 1996 and fiscal 2000 increased at compound
annual growth rates of 18.2% and 17.0% respectively, to $557.9 million and $22.5
million, respectively.
The Company has positioned itself to take advantage of trends in the
temporary staffing industry, such as increased integration of temporary workers
as a significant, long-term workforce component in both manufacturing and
service-oriented companies and increased outsourcing by clients of certain
staffing functions. Historically, the Company focused on the clerical and light
industrial sectors of the nation's temporary workforce. Beginning in November
1998, the Company began also to service the information technology sector. The
clerical, light industrial and information technology sectors comprise
approximately 80.1% of the nation's temporary staffing industry revenues,
according to the Staffing Industry Analysts, Inc. ("SIA"), an independent
staffing industry publication. Additionally, the Company intends to continue to
increase its efforts in the call center and logistics areas of its clerical and
light industrial sectors, respectively. During fiscal 2000, the Company built
upon its strengths in these areas to meet the staffing needs of its technology
clients. Through the use of innovative technologies and value-added services,
the Company strives to partner with its clients to deliver total solutions to
their temporary staffing needs. The Company's expertise in providing associates
who possess the skills and attitudinal characteristics necessary to "fit" into
clients' organizations and perform at a superior level distinguishes the Company
as a premium provider of temporary staffing services and technologies.
Over the past five years, the Company has invested significant human and
financial resources in the development of proprietary technologies designed to
enable the Company to provide its clients with premium temporary workers and
unique value-added services. The Company's primary proprietary technologies are
maintained and offered in the following four interactive systems: Market
Analysis Profiling Sourcing ("MAPS (SM)"), a demographic system that assists
branch personnel in finding associates to meet certain criteria; Human
Performance Technology ("HPT(R)"), an innovative series of multimedia
evaluations used to profile the attitudinal characteristics of the Company's
associates; i/search 2000(TM), an integrated front office and back office
database system that is used to pay temporary associates and bill clients as
well as to classify, search and match the Company's associates to job openings
using parameters based upon client needs, and Employee Data Gathering and
Evaluation ("EDGE(R)"), a proprietary computer system installed at client
locations to coordinate scheduling and track job performance of the client's
entire temporary workforce. EDGE(R) also has the capability to customize
invoices and utilization reports. The Company has substantially completed its
implementation of i/search 2000(TM), which replaced Intellisearch(R), the
Company's previous proprietary front office information system. The Company
believes that the integrated i/search 2000(TM) will enable its Company-owned and
independently-managed offices to streamline operational efficiencies and enhance
client service levels. Management believes that the Company's proprietary
technologies give the Company advantages over competing temporary staffing
companies that do not provide similar value-added services.
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THE STAFFING INDUSTRY
Revenues for the United States temporary staffing services industry were
projected by SIA to have exceeded $76.9 billion in 1999. This represents an
increase of approximately 14.9% over 1998 and, since 1995, industry revenues
have increased at a compound annual rate of approximately 16.7%. Economic and
social factors have increased the portion of the non-farm U.S. workforce working
on a temporary basis from 1.7% in 1994 to 2.3% in 1999, according to the
American Staffing Association ("ASA"), an independent trade organization for the
staffing industry. ASA estimates that the average daily employment in temporary
help services approximates 2.9 million nationwide.
The staffing services industry was once used predominately as a
short-term solution for greater workforce needs during peak production periods
and to replace workers who were abruptly terminated or who were absent due to
illness or vacation. Since the late 1980s, the use of temporary services has
evolved into a permanent and significant component of the staffing plans of many
employers. Corporate restructuring, government regulations, advances in
technology and the desire by many business entities to shift employee costs from
a fixed to a variable expense have resulted in the use of a wide range of
staffing alternatives by businesses. In addition, the high cost of recruitment
and the risk of employment litigation have led to increasing use of temporary
staffing as a means of evaluating the qualifications of personnel before hiring
them on a full-time basis, as well as accomplishing reductions in workforce
without the risk of wrongful termination liability.
The clerical, light industrial and information technology sectors
represent the largest three sectors of the temporary staffing industry. A
staffing industry report by SIA, based on 1999 revenues, reported that the
office and clerical sector accounted for $20.0 billion or approximately 26.0% of
the temporary staffing industry revenues, while the light industrial sector
accounted for $16.7 billion or approximately 21.7% of industry revenues, and the
technical/information technology sectors accounted for $24.9 billion or
approximately 32.4% of industry revenues. According to SIA, from 1995 through
1999, industry revenues for the office and clerical sector increased by
approximately $6.9 billion, representing a compound annual growth rate of
approximately 11.2% and industry revenues for the light industrial sector
increased by approximately $5.4 billion, representing a compound annual growth
rate of approximately 10.3%. Industry revenues for the technical and information
technology sectors increased by approximately $15.7 billion, representing a
compound annual growth rate of approximately 28.3%. In the aggregate, these
three sectors constituted approximately 85.7% of the $35.5 billion increase in
total industry revenues during the period.
OPERATIONS
The Company provides temporary personnel in the following three industry
sectors: clerical, light industrial and information technology.
Clerical Services. As use of temporary staffing has become more
prevalent, the range of clerical positions provided by the Company has expanded
beyond traditional secretarial staff to include a broad range of general
business environment personnel. Clerical services include executive assistants,
word processors, customer service representatives, data entry operators,
accountants, bookkeepers, hosts, telemarketers, computer operators and other
general office staff.
Within the clerical services sector, the Company's Caller Access division
addresses the needs of clients for call center agents. Caller Access services
include customer service, help desk/product support, order takers, market
surveyors, collection agents and telesales.
Light Industrial Services. Light industrial services personnel are
furnished for a variety of assignments including assembly work (such as
mechanical assemblers, general assemblers, solderers and electronic assemblers),
factory work (including merchandise packagers, machine operators and pricing and
tagging personnel), warehouse work (such as general laborers, stock clerks,
material handlers, order pullers, forklift operators, palletizers and
shipping/receiving clerks), technical work (such as lab technicians, quality
control technicians, bench technicians, test operators, electronic technicians,
inspectors, drafters, checkers, designers, expediters and buyers) and general
services (such as maintenance and repair personnel, janitors and food service
workers).
In August 1998, the Company created the Remedy Logistics Group to provide
solutions for clients' logistics staffing needs. Logistics is the management of
inventory, and includes warehousing, transportation, distribution and supply of
goods. Remedy Logistics Group supplies temporary associates in the following
categories: inventory takers, forklift operators, shipping clerks, material
processors, warehouse workers, boxers, mail clerks, expeditors and inventory
control clerks.
The Company has utilized its experience gained from the Caller Access and
Logistics divisions to offer an integrated e-commerce solution to businesses and
intends to continue to develop such business niches. The Company supplies
customer service representatives, help desk specialists, email response agents,
distribution and fulfillment workers.
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Information Technology Services. In November 1998, the Company's newest
division, RemX Technology Group(SM), began providing information technology
temporary staffing and consulting services. RemX Technology Group(SM) supplies
contract staffing and consulting professionals in key technology categories
including hardware and software engineering, database design development,
Internet/Intranet site development, networking, software quality assurance and
technical support.
Office Organization.
The Company provides its services through a network of 282 office
locations, 114 of which are owned and operated by the Company and 168 of which
are operated as franchised or licensed offices. The table below sets forth the
geographic distribution of the Company-owned and independently-managed offices
as of October 1, 2000.
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COMPANY-OWNED LICENSED AND TOTAL
OFFICES FRANCHISED OFFICES OFFICES
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California 87 2 89
Western Region(1) 7 23 30
Midwestern Region(2) 7 40 47
Southeastern Region(3) 11 80 91
Northeastern Region(4) 2 22 24
Puerto Rico 0 1 1
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Total 114 168 282
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(1) Includes Arizona, Colorado, Hawaii, Idaho, Nevada, New Mexico, Oregon,
Utah and Washington.
(2) Includes Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri,
Nebraska, Ohio and Wisconsin.
(3) Includes Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana,
Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas
and Virginia.
(4) Includes Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New
York and Pennsylvania.
Company-Owned Offices.
The Company-owned offices are concentrated in California, with locations
in 12 other states. These offices are organized into six divisions, each managed
by an Operational Vice President and other regional staff who provide
operational support for the offices in their regions. Each Company-owned office
has an office manager who is accountable for the day-to-day operations and
profitability of that office.
Managers report to their Operational Vice Presidents, and together they
are responsible for sales, client development and retention, recruitment,
placement and retention of associates and general administration for their
respective offices and regions. The Company believes that its decentralized
structure contributes to the initiative and commitment of its management team
and that its incentive compensation approach motivates managers to increase
profits.
Company-owned offices had average sales per office of approximately $2.7
million for fiscal 2000. The Company often pursues a "fill-in" strategy to
expand its market penetration by transferring clients on the periphery of an
existing office's territory to a newly-opened office, which can then use those
established accounts as a base for further expansion. The density of
Company-owned offices in certain areas also enables the Company to spread fixed
costs such as advertising, recruiting and administration over a larger revenue
base, and also to share associates and provide clients with superior coverage
and service capabilities. In addition, the Company has divided highly successful
Company-owned offices into separate clerical and light industrial offices,
allowing each to specialize and further penetrate its market.
Independently-Managed Offices.
Independently-managed offices, structured in either franchise or license
format, have been an important element of the Company's growth strategy for more
than a decade. Such offices have enabled the Company to expand into new markets
with highly qualified franchisees and licensees, without significant capital
expenditures. Most of the Company's offices outside California are
independently-managed. Independent office agreements have ten-year terms and are
renewable for successive five-year or ten-year terms, depending upon when such
agreements were originally entered into. Such agreements cover exclusive
geographic territories and contain minimum revenue performance standards.
Franchises. The Company employed a traditional franchise model primarily
from 1987 until 1990. As of October 1, 2000, 27 of the Company's 168
independently-managed offices were franchises. Franchisees pay all lease and
working capital costs, fund payroll and collect clients' accounts. Franchisees
pay the Company an initial franchise fee and royalties equal to approximately 7%
of gross billings. Royalty fees are reduced when the franchisee serves a
national client as these clients typically have lower margins. Franchisees
employ all office management staff and all temporary personnel
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affiliated with their offices. The Company provides training, the right to use
the Company's service marks, trademarks and business model, proprietary computer
programs and operational support.
Licenses. Since 1990, the Company has recruited new independent office
managers as licensees. The Company switched from the franchise to the license
format to exercise more control over the collection and tracking of the
receivables of the independently-managed offices and to allow the Company to
grow without being limited by the financial resources of franchisees. As of
October 1, 2000, 141 of the Company's 168 independently-managed office locations
were licensed offices. The license format differs from the franchise format in
that the Company acts as the employer of all temporary personnel affiliated with
the office. The Company funds payroll, collects clients' accounts and remits to
the licensee 60%-70% of the office's gross profit, based upon the level of hours
billed during the licensee's contract year. However, the Company's share of the
licensee's gross profit is not less than 7.5% of the licensee's gross billings,
with the exception of national accounts on which the Company's fee is reduced to
compensate for lower gross margins. Beginning in April 1999, and to reflect the
increased value-added services and proprietary technologies provided by the
Company, the gross profit remitted to new licensees is 60%-65% of the office's
gross profit. For these licensees, the Company's share of the licensee's gross
profit cannot be less than 8.75% of the licensee's gross billings, subject to a
similar reduction on national accounts as discussed above.
CLIENTS
During the twelve months ended October 1, 2000, the Company served
approximately 16,000 clients nationwide. The Company's ten highest volume
clients in fiscal 2000 accounted for approximately 16.9% of the Company's
system-wide gross billings. No single client accounted for more than 3.5% of the
Company's system-wide gross billings for fiscal 2000.
COMPETITION
The temporary services industry is highly competitive with limited
barriers to entry. The Company believes that its largest competitors in the
clerical and light industrial sectors include Adecco Employment Services,
Interim Services, Inc., Kelly Services, Inc., Manpower Inc. and Robert Half
International, Inc. These and other large competitors have nationwide operations
with substantially greater resources than the Company, which among other things
could enable them to attempt to maintain or increase their market share by
reducing prices. In addition, there are a number of other medium-sized firms
that are regional or emphasize specialized niches and compete with the Company
in certain markets where they have a stronger presence. Finally, numerous small
or single-office firms compete effectively with the Company's offices in their
limited areas. In the information technology sector, the Company believes that
its competitors include Alternative Resources, Hall Kinion, Modis Professional
Services and Metro Information Services.
The Company's management believes that the most important competitive
factors in obtaining and retaining its targeted clients are an understanding of
a customer's specific job requirements, the ability to provide qualified
temporary personnel in a timely manner and the quality and price of services.
The primary competitive factors in obtaining qualified candidates for temporary
employment assignments are wages, benefits and responsiveness to work schedules.
The Company expects ongoing vigorous competition and pricing pressure
from national, regional and local providers, and there is no assurance that the
Company will be able to maintain or increase its market share or profitability.
WORKERS' COMPENSATION
From July 22, 1997 through March 31, 1999, the Company utilized an
insured workers' compensation program for Company-owned and licensed offices,
administered through its wholly-owned subsidiary, Remedy Insurance Group, LTD
("RIG"). Under this program, the Company paid a deductible of up to $250,000 per
individual claim and purchased excess liability coverage for individual claims
greater than $250,000 and aggregate claims greater than $7.5 million for the
twelve months ended July 1998, and $7.0 million for the nine months ended March
1999.
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 to 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. The
one-year premium was based upon estimated payroll levels. As actual payroll for
the policy year ended March 31, 2000 exceeded the estimated amount, the Company
owes additional premiums for this policy year. As of October 1, 2000, the
Company has accrued $2.8 million in additional premium expense.
The reinsurance contract discussed above included a provision for
additional payments up to $700,000 in the event that ultimate losses exceed the
projected losses as of April 1, 1999. During fiscal 1999, the Company provided
for the additional $700,000 due to the ultimate loss projections.
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Effective April 1, 2000, the Company renewed its fully insured workers'
compensation program for an additional year. The premium for this program is
based upon actual payroll costs multiplied by a fixed rate. The Company paid a
premium amount of $11.1 million to Reliance on April 13, 2000 based upon
estimated payroll levels. If actual payroll exceeds the estimated amount, the
Company will owe additional workers' compensation premiums for this policy year
as well.
EMPLOYEES
As of October 1, 2000, the Company employed a staff of approximately 500
individuals (excluding temporary associates). During fiscal 2000, approximately
175,000 temporary associates were placed by the Company through Company-owned
and independently-managed offices. Approximately 80,000 of the temporary
associates were employed by Company-owned offices and approximately 74,000 were
employed through licensed offices. Approximately 20,000 of the temporary
associates were placed by franchised offices, and are not employed by the
Company but are legal employees of the franchised offices. At any given time
during 2000, only a portion of these employees were placed on temporary
assignments. The Company has no collective bargaining agreements and believes
its employee relations are good.
GOVERNMENTAL REGULATION
The Company's marketing and sale of franchises and licenses is regulated
by the Federal Trade Commission and by authorities in 19 states. In those
states, the Company is required to file a registration application, provide
notice or qualify for an exemption. The Company has filed, or is in the process
of filing, the appropriate registration application or provided notice in 12 of
these states and has obtained an exemption from such registration requirements
in the remaining 7 states. The Company files and distributes to prospective
franchisees and licensees Franchise Offering Circulars and other materials in
order to comply with such registration and disclosure requirements. In addition,
the Company's ongoing relationships with its franchisees and licensees are
regulated by applicable federal and state franchise laws.
PROPRIETARY RIGHTS AND SYSTEMS
The Company has developed, either internally or through hired
consultants, its MAPS(SM), HPT(R), EDGE(R), IntelliSearch(R) and i/search
2000(TM) computer systems. These proprietary systems are trade secrets of the
Company and the Company has copyrights to certain software used in these
systems.
The Company has registered the following trademarks and service marks
with the U.S. Patent & Trademark Office: REMEDY(R), REMEDY TEMPORARY
SERVICES(R), REMEDYTEMP(R), CALLER ACCESS(R), INTELLISEARCH(R), INTELLIGENT
STAFFING(R), HIRE INTELLIGENCE(R), EDGE(R), VSM(R), HPT(R) and THE INTELLIGENT
TEMPORARY(R). In addition, the Company asserts ownership of, and has filed
applications with the U.S. Patent & Trademark Office to register the following
trademarks and service marks: MAPS(SM), i/search 2000(TM), REMX TECHNOLOGY
GROUP(SM), REMX(SM), STARS(SM), NON-STOP(SM) and WE WON'T SEND YOU A DUMMY(SM).
In general, these marks are used by the Company and its licensees and
franchisees, except that REMX TECHNOLOGY GROUP(SM) and REMX(SM) are used
exclusively by the Company.
RISK FACTORS
Among the risks affecting the Company are the following:
Fluctuations in the General Economy. Demand for temporary services is
significantly affected by the general level of economic activity. As economic
activity slows, companies may reduce their use of temporary employees before
undertaking layoffs of their full-time employees. Further, in an economic
downturn, the Company may face pricing pressure from its customers and increased
competition from other staffing companies, which could have a material adverse
effect on the Company's business. Because the Company currently derives a
significant portion of its system-wide billings from the California market
(approximately 42.8% in fiscal 2000), an economic downturn in California would
have a greater impact on the Company than if the Company had a more widely
dispersed revenue base.
Competitive Market. The temporary services industry is highly competitive
with limited barriers to entry. The Company competes in national, regional and
local markets with full service agencies and with specialized temporary services
agencies. Many competitors are smaller than the Company but have an advantage
over the Company in discrete geographic markets because of their stronger local
presence. Other competitors are more well-known and have greater marketing and
financial resources than the Company, which among other things could enable them
to attempt to maintain or increase their market share by reducing prices. The
Company expects the level of competition to remain high, and competitive pricing
pressures may have an adverse effect on the Company's operating margins.
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Ability to Continue Company Growth. The Company has grown rapidly in
recent years by opening new offices and increasing the volume of services
provided through existing offices. There can be no assurance that the Company
will continue to be able to maintain or expand its market presence in its
current locations, successfully enter other markets or successfully enter and
compete in new industry sectors. The ability of the Company to continue its
growth will depend on a number of factors including existing and emerging
competition, the availability of working capital to support such growth, the
Company's ability to maintain margins in the face of pricing pressures, find and
retain new qualified licensees and office managers, recruit and train additional
qualified temporary personnel, find and retain clients and manage costs. Other
factors that may impact the Company's future growth or profitability include the
availability of sufficient personnel, increased costs of personnel (due to
various factors including workers' compensation insurance costs or increased
wage rates) and the potential negative impact on margins.
Franchising and Licensing Risks. The Company derives a substantial amount
of its system-wide billings (approximately 49.7% in fiscal 2000) from franchised
and licensed operations. The ownership of the Company's franchised and licensed
offices is concentrated, with the ten largest franchisees and licensees together
accounting for approximately 23.0% of the Company's system-wide billings in
fiscal 2000. The loss of one or more of these relationships, or other
franchisees or licensees who may in the future account for a significant portion
of the Company's revenues, could have a material adverse effect on the Company's
results of operations.
Implementation of Information System. The Company has substantially
implemented its new integrated front and back office information system,
i/search 2000(TM). There can be no assurance that the Company's conversion from
its previous IT systems to i/search 2000(TM) will be without disruption. Any
such disruption may have an adverse impact on the Company's operational and
financial performance.
ITEM 2. PROPERTIES
The Company does not own any real property. The Company leases its
corporate headquarters in Aliso Viejo, California, from Parker-Summit, LLC. The
lease agreement provides for leased premises, totaling approximately 52,500
square feet in size, at a fixed rate of $1.93 per square foot per month, for a
fixed term of five and one-half years from the date of occupancy. The base rent
includes amounts for operating costs, which include, but are not limited to,
property taxes, utilities, supplies, repairs and maintenance, janitorial staff,
security staff and insurance premiums on the building. In addition to base rent,
after the first year of occupancy, the Company is obligated to pay a portion of
the increase in operating costs and real property taxes for the leased premises.
The Company has an option to renew the lease after the initial term for an
additional term of five years. The Company moved into its current corporate
headquarters in September 1998.
As of October 1, 2000, the Company leased the space occupied by all of
its 114 Company-owned offices. The Company selects the sites for these offices
by evaluating proximity to potential clients and available temporary personnel.
The Company assists its franchisees and licensees in selecting sites for
independently-managed offices, but presently does not own and is not obligated
under any leases at these sites.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company becomes a party to litigation incidental
to its business. The Company maintains insurance coverage that management
believes is reasonable and prudent for the business risks that the Company
faces. In management's opinion, no pending legal proceeding is likely to have a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the Company's fourth quarter of the fiscal year ended October 1, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officer employees of the Company and their respective ages
as of October 1, 2000, are set forth below.
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NAME AGE POSITION(s) HELD
---- --- ----------------
<S> <C> <C>
Robert E. McDonough, Sr. 78 Chairman of the Board of Directors
Paul W. Mikos 55 Chief Executive Officer, President and Director
Greg Palmer 44 Executive Vice President and Chief Operations Officer
Alan M. Purdy 60 Senior Vice President and Chief Financial Officer
Gunnar B. Gooding 37 Senior Vice President, Human Resources and Legal Affairs
William M. Herbster 48 Vice President, Marketing
Norman H. Leibson 55 Vice President, Information Technology
Cosmas N. Lykos 32 Vice President of Business Affairs, General Counsel and Secretary
</TABLE>
Robert E. McDonough, Sr. has served as Chairman of the Board of Directors
of the Company (the "Board") since August 1978. Mr. McDonough founded the
Company in 1965 and has been continuously involved in the management and
long-term operation and strategic planning of the Company since that time. For
29 years, until May 1994, he served as the Company's Chief Executive Officer.
Mr. McDonough is the father-in-law of Paul W. Mikos.
Paul W. Mikos has served in various positions in the Company since 1977,
including as President since 1985. Mr. Mikos has served as Chief Executive
Officer of the Company since January 1996 and as a Director of the Company since
May 1993. From May 1994 until January 1996, he served as Co-Chief Executive
Officer of the Company. Prior to joining the Company, Mr. Mikos worked for ARA
as a Regional Sales Director from August 1976 until October 1977. From July 1968
until August 1976, Mr. Mikos worked for IBM in sales management. Mr. Mikos is
the son-in-law of Robert E. McDonough, Sr.
Greg Palmer has served as Executive Vice President and Chief Operations
Officer of the Company since January 1998. From 1985 to December 1997, Mr.
Palmer served in senior level management positions in the southeast and
northeast divisions and previously as Senior Vice President in charge of
managing operations in the western United States for Olsten Corporation,
formerly a provider of staffing and health care services.
Alan M. Purdy has served as Senior Vice President and Chief Financial
Officer since November 1996 and prior to that as Vice President and Chief
Financial Officer since February 1994. From January 1993 until December 1993, he
was Senior Vice President and Chief Financial Officer of Builder's Emporium, a
division of Collins and Aikman Group, Inc. From March 1988 until August 1992, he
was Senior Vice President and Chief Financial Officer of HUB Distributing, Inc.
(dba Millers Outpost), a subsidiary of American Retail Group.
Gunnar B. Gooding has served as Vice President, Human Resources and Legal
Affairs since April 2000 and prior to that as Vice President, General Counsel
since September 1998. From September 1989 to September 1998, Mr. Gooding worked
as an attorney at Gibson, Dunn & Crutcher LLP where he specialized in employment
litigation.
William M. Herbster has served as Vice President, Marketing since January
1994. From January 1985 until January 1994, he was with Manpower, Inc., a
temporary staffing company, as Director of U.S. Marketing from April 1990 to
January 1994, Manager of Office Automation Services from September 1987 to April
1990, and Marketing Manager, Great Lakes and Northeast Region from January 1985
to September 1987.
Norman H. Leibson has served as Vice President, Information Technology
Systems since November 1994. From March 1992 until November 1994, Mr. Leibson
was a Vice President of HUB Distributing, Inc. (dba Millers Outpost), a
subsidiary of American Retail Group, and from November 1983 until August 1992,
he was a Vice President of Carter Hawley Hale.
9
<PAGE> 10
Cosmas N. Lykos has served as Vice President of Business Affairs, General
Counsel and Secretary since December 2000 and prior to that as Vice President,
General Counsel and Secretary since September 1998. From September 1994 to
September 1998, Mr. Lykos served as a corporate associate at Gibson, Dunn &
Crutcher LLP, specializing in mergers and acquisitions, public offerings,
franchise and general corporate matters.
10
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Since July 11, 1996, the Company's Class A Common Stock has been traded
on the Nasdaq National Market under the symbol "REMX." Prior to July 11, 1996,
the Company's stock was not publicly traded. The following table sets forth the
high and low sales prices for the Class A common Stock for fiscal 2000 and
fiscal 1999:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------------------------------------
JANUARY 2, APRIL 2, JULY 2, OCTOBER 1,
2000 2000 2000 2000
---------- -------- ------- ----------
<S> <C> <C> <C> <C>
High .......... $20.13 $23.50 $22.88 $12.94
Low ........... $10.25 $17.38 $10.00 $11.00
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 27, MARCH 28, JUNE 27, OCTOBER 3,
1998 1999 1999 1999
------------ --------- -------- ----------
<S> <C> <C> <C> <C>
High .......... $22.13 $18.75 $15.00 $19.50
Low ........... $11.13 $12.00 $ 9.81 $13.00
</TABLE>
As of December 15, 2000, there were an estimated 1400 shareholders of
record of the Company's Class A Common Stock and 10 shareholders of record of
the Company's Class B Common Stock.
Subsequent to the Company's initial public offering in fiscal 1996, the
Company has not declared or paid cash dividends on its Class A or Class B Common
Stock and does not anticipate that it will do so in the foreseeable future. The
present policy of the Company is to retain earnings for use in its operations
and the expansion of its business.
11
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data with respect to the Company set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto. The following selected financial information as of
and for the fiscal years ended October 1, 2000, October 3, 1999, September 27,
1998, September 28, 1997 and September 29, 1996 has been derived from the
audited financial statements of the Company.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)
----------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues ........................................ $557,860 $513,536 $451,344 $360,346 $285,519
Income before income taxes ............................ 22,515 24,749 23,177 17,424 12,007
Provision for income taxes(2) ......................... 8,151 9,528 9,271 7,231 7,794
-------- -------- -------- -------- --------
Net income ............................................ $ 14,364 $ 15,221 $ 13,906 $ 10,193 $ 4,213
======== ======== ======== ======== ========
Net income per share, basic ........................... $ 1.62 $ 1.72 $ 1.55 $ 1.15 $ 0.58
======== ======== ======== ======== ========
Weighted-average number of shares, basic .............. 8,878 8,864 8,966 8,896 7,225
Net income per share, diluted ......................... $ 1.59 $ 1.71 $ 1.50 $ 1.13 $ 0.58
======== ======== ======== ======== ========
Weighted-average number of shares, diluted ............ 9,020 8,923 9,297 9,042 7,250
PRO FORMA DATA(2):
Income before income taxes ............................ $ 12,007
Provision for income taxes ............................ 4,923
--------
Net income ............................................ $ 7,084
========
BALANCE SHEET DATA:
Cash and cash equivalents ............................. $ 1,084 $ 7,887 $ 450 $ 5,128 $ 10,959
Working capital ....................................... $ 62,983 $ 51,969 $ 42,398 $ 39,130 $ 35,341
Total assets .......................................... $118,654 $116,721 $ 89,785 $ 73,806 $ 63,906
Long-term debt ........................................ $ 0 $ 0 $ 0 $ 281 $ 734
Shareholders' equity .................................. $ 90,471 $ 75,456 $ 62,437 $ 47,061 $ 36,276
</TABLE>
-----------
(1) The fiscal year end of RemedyTemp, Inc., including its wholly-owned
subsidiaries (collectively the "Company"), is a 52 or 53 week period
ending the Sunday closest to September 30. Thus, "fiscal 2000," "fiscal
1999," "fiscal 1998," "fiscal 1997" and "fiscal 1996" refer to the
Company's fiscal years ending October 1, 2000, October 3, 1999, September
27, 1998, September 28, 1997 and September 29, 1996, respectively. Fiscal
year 1999 consisted of 53 weeks. All other fiscal years consisted of 52
weeks.
(2) Prior to the Company's initial public offering (the "Offering") in July
1996, the Company operated as an S corporation under Subchapter S of the
Internal Revenue Code and comparable provisions of certain state income
tax laws. The pro forma income statement data reflects provisions for
federal and state income taxes as if the Company had been subject to
federal and state income taxation as a C corporation for the entire 1996
fiscal year. The termination of the Company's S corporation status in
connection with the Offering resulted in a non-recurring net charge to
actual earnings of $7.8 million in the fourth quarter of fiscal 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company provides temporary staffing services to industrial, service
and technology companies, professional organizations and governmental agencies.
During the twelve fiscal months ended October 1, 2000, the Company placed
approximately 175,000 temporary workers and provided over 48 million hours of
staffing services to approximately 16,000 clients. From the beginning of fiscal
1996 through the end of fiscal 2000, the Company added 140 offices for a total
of 282 offices. Revenues and income before taxes between fiscal 1996 to fiscal
2000 increased at compound annual growth rates of approximately 18.2% and 17.0%,
respectively, to $557.9 million and $22.5 million, respectively.
12
<PAGE> 13
OPERATIONS
The Company's revenues are derived from Company-owned offices (direct
sales) and independently-managed offices (licensed sales and franchise
royalties). Under the Company's franchise arrangements, the franchisee pays all
lease and working capital costs relating to its office, including funding
payroll and collecting clients' accounts. Generally, the franchisee pays the
Company an initial franchise fee and royalties equal to 7% of its gross billings
(except for national accounts on which royalties are paid at a reduced rate).
The Company processes payroll and invoices clients, and the franchisee employs
all management staff and temporary personnel affiliated with its office. Under
the Company's license arrangements, the licensee pays the Company an initial
license fee and pays all lease and operating costs relating to its office. The
licensee employs all management staff affiliated with its office, but the
Company employs all temporary personnel affiliated with the licensed office,
handles invoicing and collecting clients' accounts, and remits to the licensee
60% - 70% of the office's gross profit. However, the Company's share of the
licensee's gross profit is not less than 7.5% of the licensee's gross billings,
with the exception of national accounts on which the Company's fee is reduced to
compensate for lower gross margins. The percentage of gross profit paid to the
licensee is based on the level of hours billed during the contract year.
As of October 1, 2000, there were 27 independently-managed offices
operating as franchises and 141 operating as licensed offices. In general,
independently-managed offices opened from 1987 to 1990 are operated as
franchises, and independently-managed offices opened since 1990 are operated as
licensed offices. The Company moved from franchise to license format to exercise
more control over the collection and tracking of the receivables of the
independently-managed offices and to allow the Company to grow without being
limited by the financial resources of franchisees. Accordingly, the number of
independently-managed offices is not anticipated to increase, except in certain
circumstances when a licensed office may convert to the independently-managed
franchise format. The number of licensed offices is expected to increase because
new independently-managed offices will be opened in license format and offices
currently operated as franchises may, depending upon various factors, be
converted to license format. However, existing franchisees have the option under
their contract to open new franchise offices within their territory. If the
number of franchise offices is reduced, royalty revenues will decrease.
The table on the following page sets forth for the last five fiscal
years, the number of Company-owned, franchised and licensed offices and customer
billings associated with each. Total system-wide billings consist of all
services billed to clients by all Company-owned and independently-managed
offices. For the Company-owned offices and licensed offices, all billings are
Company revenues; for franchised offices, Company revenues are limited to the
royalties earned on gross billings. Average billings per office are computed by
dividing the relevant billings by the number of related offices. The Company's
long-term revenue growth depends in part upon its ability to continue to attract
new clients, retain existing clients and open new offices, as well as its
ability to enhance the sales of existing offices beyond historical levels.
13
<PAGE> 14
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMPANY-OWNED OFFICES
Number of offices ...................... 114 101 98 86 68
Average hours billed per office ........ 225,682 241,108 241,216 233,233 248,062
Total billings ......................... $306,955 $279,206 $274,577 $221,679 $184,564
Average billings per office ............ $ 2,693 $ 2,764 $ 2,802 $ 2,578 $ 2,714
LICENSED OFFICES
Number of offices ...................... 141 130 117 93 73
Average hours billed per office ........ 130,303 137,065 118,494 123,813 117,373
Total billings ......................... $247,246 $231,481 $173,764 $135,532 $ 98,003
Average billings per office ............ $ 1,754 $ 1,781 $ 1,485 $ 1,457 $ 1,343
FRANCHISED OFFICES
Number of offices ...................... 27 20 19 20 20
Average hours billed per office ........ 154,869 158,713 184,679 190,345 190,674
Total billings ......................... $ 55,906 $ 43,845 $ 45,371 $ 46,526 $ 44,304
Average billings per office ............ $ 2,071 $ 2,192 $ 2,388 $ 2,326 $ 2,215
Royalties .............................. $ 3,552 $ 2,689 $ 2,812 $ 2,948 $ 2,811
TOTAL OFFICES .......................... 282 251 234 199 161
TOTAL SYSTEM-WIDE BILLINGS ............. $610,107 $554,532 $493,712 $403,737 $326,871
AVERAGE HOURS BILLED PER OFFICE ........ 171,212 180,656 175,265 177,786 181,677
TOTAL COMPANY REVENUES ................. $557,860 $513,536 $451,344 $360,346 $285,519
</TABLE>
RESULTS OF OPERATIONS
Fiscal 2000 Compared to Fiscal 1999
Total revenues increased 8.6% or $44.3 million to $557.9 million for
fiscal 2000 from $513.5 million for fiscal 1999. Direct revenues increased 9.9%
to $307.0 million from $279.2 million, licensed revenues increased 6.8% to
$247.2 million from $231.5 million and franchise royalties increased 32.1% to
$3.6 million from $2.7 million for fiscal 2000 compared to fiscal 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
seven licensed offices during fiscal 2000 (see Note 5 to the Consolidated
Financial Statements). The increase in franchise royalties resulted primarily
from the conversion of six offices from the licensed to franchise format during
the first half of fiscal 2000. The year over year comparison of total revenues
is also impacted by the number of weeks in each of the fiscal periods. Fiscal
2000 included 52 weeks of operations as compared to 53 weeks in fiscal 1999.
Excluding the additional week in fiscal 1999, the year over year increase in
total revenues would have been greater. The Company's future revenue increases
depend significantly on the Company's ability to continue to attract new clients
and licensees, retain existing clients and licensees, 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 8.7% or $34.3
million to $428.1 million for fiscal 2000 from $393.8 million for fiscal 1999.
This increase resulted from continued business growth as described above, as
well as a $0.2 million non-recurring charge in the third quarter relating to an
unanticipated settlement with an insurance company related to previous years'
workers' compensation costs. Total cost of direct and licensed sales as a
percentage of revenues was consistent at 76.7% for both fiscal 2000 and fiscal
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 is generally 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, subject to a
similar reduction on national accounts as discussed above. Licensees' share of
gross profit increased 4.6% or $1.8 million to $41.4 million for fiscal 2000
from $39.6 million for fiscal 1999 due to an overall net increase in billings at
existing licensed offices. As previously discussed, the overall
14
<PAGE> 15
increase in licensed office billings was impacted by the office conversions
noted above. Licensees' share of gross profit as a percentage of licensed gross
profit was 67.7% for fiscal 2000 as compared to 67.5% for fiscal 1999.
Selling and administrative expenses increased 17.6% or $9.2 million to
$61.6 million for fiscal 2000 from $52.4 million for fiscal 1999. This increase
can be attributed in part to the business growth discussed above, the
implementation and operating costs of the Company's new information systems,
increased bad debt expense in fiscal 2000, the operating expenses of the
repurchased licensed offices 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. The Company has recently implemented several
operational and organizational changes designed to increase efficiency in a
cost-effective manner. However, 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 24.5% or $0.9 million to $4.6 for
fiscal 2000 from $3.7 million for fiscal 1999. This increase results from the
increased depreciation expense associated with the Company's new front office
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 5 to the Consolidated Financial Statements).
Income from operations decreased 8.2% or $2.0 million to $22.1 million
for fiscal 2000 from $24.1 million for fiscal 1999 due to the factors noted
above. Income from operations as a percentage of revenues was 4.0% for fiscal
2000 compared to 4.7% for fiscal 1999.
Net income decreased 5.6% or $0.9 million to $14.4 million for fiscal
2000 from $15.2 million for fiscal 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 fiscal 2000 compared to 3.0% for fiscal 1999.
Fiscal 1999 Compared to Fiscal 1998
Total revenues increased 13.8% or $62.2 million to $513.5 million for
fiscal 1999 from $451.3 million for fiscal 1998. Direct revenues increased 1.7%
to $279.2 million from $274.6 million, while licensed revenues increased 33.2%
to $231.5 million from $173.8 million for fiscal 1999 compared to fiscal 1998,
respectively. During fiscal year 1998, the Company elected not to renew a
contract in which the client requested a substantially reduced gross margin. As
of December 1998, the Company discontinued providing service to this high
volume, low gross margin client, which had primarily been serviced by the
Company's direct offices. Excluding this client, revenues at the direct offices
increased 15.2% and total Company revenue increased 22.6% for fiscal 1999
compared to fiscal 1998. The expansion of business at existing licensed offices
as well as the opening of additional offices account for the increase in
licensed revenue. The Company's future revenue increases depend significantly on
the Company's ability to continue to attract new clients and licensees, retain
existing clients and licensees, 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 14.4% or $49.7
million to $393.8 million for fiscal 1999 from $344.1 million for fiscal 1998.
Such increase was primarily due to increased revenues as discussed above. Total
cost of direct and licensed sales as a percentage of revenues was 76.7% for
fiscal 1999 compared to 76.2% for fiscal 1998. The increase is due in part to a
shift in the mix of business to an increased percentage of light industrial and
technical business, which tends to have lower gross margins than clerical
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.
Licensees' share of gross profit increased 31.4% or $9.5 million to $39.6
million for fiscal 1999 from $30.1 million for fiscal 1998. Licensees' share of
gross profit as a percentage of licensed gross profit was 67.5% for fiscal 1999
compared to 67.7% for fiscal 1998.
Selling, general and administrative expenses, including depreciation and
amortization, increased 1.4% or $0.8 million to $56.1 million for fiscal 1999
from $55.3 million for fiscal 1998. Selling, general and administrative expenses
as a percentage of total revenues decreased to 10.9% for fiscal 1999 from 12.3%
for fiscal 1998. This reduction was due in part to a decrease in profit sharing
and bonus expense to $5.1 million for fiscal 1999 compared to $6.1 million for
fiscal 1998 and to a reduction in bad debt expense of $1.1 million in fiscal
1999.
Income from operations increased 10.3% or $2.2 million to $24.1 million
for fiscal 1999 from $21.8 million for fiscal 1998 due to the factors described
above. Operating income as a percentage of revenues decreased to 4.7% for fiscal
1999 from 4.8% for fiscal 1998.
15
<PAGE> 16
Net income increased 9.5% or $1.3 million to $15.2 million for fiscal
1999 from $13.9 million for fiscal 1998 due to the factors described above. Net
income was also favorably impacted by a decrease in the Company's effective tax
rate. The lower rate reflects the expected tax savings from Work Opportunity Tax
Credits. As a percentage of total revenues, net income decreased to 3.0% in 1999
from 3.1% in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $18.2 million in fiscal 2000
and cash used in operating activities was $0.9 million in fiscal 1999. Cash used
in operating activities was significantly impacted by transactions related to
workers' compensation program in both fiscal 2000 and fiscal 1999, as discussed
below. Additionally, cash provided by operating activities in the current year
was favorably impacted by stronger accounts receivable collections.
Prior to April 1, 1999 the Company had an insured workers' compensation
program through RIG whereby the Company paid a deductible of $250,000 per
individual claim with third party insurance covering individual claims in excess
of the deductible amount. Under this program, the Company accrued for individual
claims at the expected ultimate loss amount based upon current information and
historical loss experience. The deductible was paid, and the liability reduced,
as claims were processed. As a result, the Company had an accrued workers'
compensation liability of $5.2 million under this program at September 27, 1998.
Effective April 1, 1999, the Company entered into a reinsurance contract
with Reliance whereby Reliance assumed the Company's remaining deductible
liability for all open claims incurred during the period July 22, 1997 to March
31, 1999, thereby accelerating the projected deductible payment and reducing the
accrued workers' compensation liability. Additionally, the Company entered into
a one-year fully insured workers' compensation program with Reliance for the
following year. The Company paid the aggregate cost of both the reinsurance
contract and the estimated one-year premium, a total of $18.9 million, to
Reliance on April 16, 1999 with borrowings under its line of credit agreement.
The estimated premium for the one-year fully insured program was capitalized as
a prepaid cost and amortized over the policy year based upon actual payroll. As
a result, the Company had prepaid workers' compensation insurance of $4.5
million at October 3, 1999. The one-year premium was based upon estimated
payroll levels. As actual payroll for the policy year ended March 31, 2000
exceeded the estimated amount, the Company owes additional premiums for this
policy year. As of October 1, 2000, the Company has accrued $2.8 million in
additional premium expense for the initial one-year policy period.
Effective April 1, 2000, the Company renewed its fully insured workers'
compensation program an additional year. The Company paid a premium amount of
$11.1 million to Reliance on April 13, 2000 based upon estimated payroll levels.
The estimated premium has been capitalized and is being amortized over the
policy period consistent with the prior one-year policy.
Cash used for purchases of fixed assets was $6.5 million and $6.6 million
in fiscal 2000 and fiscal 1999, respectively. The purchases in fiscal 2000 and
fiscal 1999 primarily resulted from expenditures associated with the Company's
new management information system and branch office openings. Upgrades of
computers and hardware to support the new system were begun and completed during
fiscal year 1999. Implementation of the related software began during fiscal
1999 and was completed near the end of fiscal 2000. In fiscal 2001, the Company
anticipates capital expenditures associated with direct office openings and
further investments in the Company's computer-based technologies will
approximate $5.0 million.
During fiscal 2000, the Company acquired seven licensed offices (six in
Virginia and one in Philadelphia) and during fiscal 1999, the Company acquired
two licensed offices in Stockbridge and College Park, Georgia. 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 $17.5 million, net during fiscal 2000 and has no
borrowings outstanding as of October 1, 2000. 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 levels of working capital and line of
credit are adequate to support present operations and to fund future growth and
business opportunities.
16
<PAGE> 17
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. Historically, the second fiscal quarter
shows a slight 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.
INFLATION
The effects of inflation on the Company's operations were not significant
during the periods presented in the consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of this report is set forth in Item
14(a) under the caption "Financial Statements" as a part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information as to the officers of the Company required by this item is
set forth at the end of Part I of this report under the caption "Executive
Officers of the Registrant." Information as to the Board of Directors of the
Company required by this item is incorporated by reference from the portion of
the Company's definitive Proxy Statement under the caption "Proposal 1--Election
of Directors." Information as to the Company's reporting persons' compliance
with Section 16(a) of the Exchange Act, required by this item, is incorporated
by reference from the portion of the Company's definitive Proxy Statement under
the caption "Section 16(A) Beneficial Ownership Reporting Compliance" to be
filed with the Commission pursuant to Regulation 14A under the Exchange Act and
mailed to the Company's shareholders prior to the Company's Annual Meeting of
Shareholders, which is scheduled to be held on February 28, 2001.
ITEM 11. EXECUTIVE COMPENSATION
Information as to Executive Compensation required by this item is
incorporated by reference from the Company's definitive Proxy Statement, under
the caption "Executive Compensation and Other Information," to be filed with the
Commission pursuant to Regulation 14A under the Exchange Act and mailed to the
Company's shareholders prior to the Company's Annual Meeting of Shareholders,
which is scheduled to be held on February 28, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information as to Security Ownership of Certain Beneficial Owners and
Management required by this item is incorporated by reference from the Company's
definitive Proxy Statement, under the caption "Security Ownership of Certain
Beneficial Owners and Management," to be filed with the Commission pursuant to
Regulation 14A under the Exchange Act and mailed to the Company's shareholders
prior to the Company's Annual Meeting of Shareholders, which is scheduled to be
held on February 28, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information as to Certain Relationships and Certain Transactions required
by this item is incorporated by reference from the Company's definitive Proxy
Statement, under the caption "Certain Transactions," to be filed with the
Commission pursuant to Regulation 14A under the Exchange Act and mailed to the
Company's shareholders prior to the Company's Annual Meeting of Shareholders,
which is scheduled to be held on February 28, 2001.
18
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements.
(1) Consolidated Financial Statements filed as part of this
Report are set forth in the "Index to Consolidated
Financial Statements" on page F-1 of this Report.
(2) The Financial Statement Schedule filed as part of this
report is set forth in the "Index to Consolidated Financial
Statements" on page F-1 of this report.
(3) The following Exhibits are filed as part of this Report.
<TABLE>
<CAPTION>
NUMBER
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
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. Amended and Restated Employment Agreement(h)
10.2 Paul W. Mikos Employment Agreement(j)
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(e)
10.24 1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership Plan for Outside Directors(f)
10.25 Form of Licensing Agreement for i/search 2000(TM)(g)
10.26 Credit Agreement among Bank of America National Trust and Savings Association and RemedyTemp, Inc.(i)
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
</TABLE>
(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.
19
<PAGE> 20
(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 Report on Form 10-Q for the quarterly
period ended December 28, 1997.
(f) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended 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 Report on Form 10-Q for the quarterly
period ended December 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 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.
(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.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/ PAUL W. MIKOS
--------------------------------
Paul W. Mikos
President and Chief Executive Officer
December 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROBERT E. MCDONOUGH Chairman of the Board of Directors December 27, 2000
--------------------------------
Robert E. McDonough, Sr.
/s/ PAUL W. MIKOS President and Chief Executive Officer December 27, 2000
--------------------------------
Paul W. Mikos
Senior Vice President and Chief and
/s/ ALAN M. PURDY Financial Officer (Principal Financial December 27, 2000
-------------------------------- Accounting Officer)
Alan M. Purdy
/s/ WILLIAM D. CVENGROS Director December 27, 2000
--------------------------------
William D. Cvengros
/s/ JAMES L. DOTI Director December 27, 2000
--------------------------------
James L. Doti, Ph.D.
/s/ ROBERT A. ELLIOTT Director December 27, 2000
--------------------------------
Robert A. Elliott
/s/ MARY GEORGE Director December 27, 2000
--------------------------------
Mary George
/s/ J. MICHAEL HAGAN Director December 27, 2000
--------------------------------
J. Michael Hagan
/s/ JOHN B. ZAEPFEL Director December 27, 2000
--------------------------------
John B. Zaepfel
</TABLE>
21
<PAGE> 22
REMEDYTEMP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS:
<TABLE>
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets as of October 1, 2000 and October 3, 1999 F-3
Consolidated Statements of Income for the three fiscal years ended
October 1, 2000, October 3, 1999 and September 27, 1998 F-4
Consolidated Statements of Shareholders' Equity for the three fiscal years
Ended October 1, 2000, October 3, 1999 and September 27, 1998 F-5
Consolidated Statements of Cash Flows for the three fiscal years ended
October 1, 2000, October 3, 1999 and September 27, 1998 F-6
Notes to Consolidated Financial Statements F-7
FINANCIAL STATEMENT SCHEDULES:
For the three fiscal years ended October 1, 2000, October
3, 1999 and September 27, 1998
II - Valuation and Qualifying Accounts F-17
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
</TABLE>
F-1
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of RemedyTemp, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of RemedyTemp, Inc. and its subsidiaries (the "Company") at
October 1, 2000 and October 3, 1999, and the results of their operations and
their cash flows for each of the three fiscal years in the period ended October
1, 2000, in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 14(a)(2) presents fairly in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
---------------------------------
PricewaterhouseCoopers LLP
Orange County, California
November 10, 2000
F-2
<PAGE> 24
REMEDYTEMP, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 1, OCTOBER 3,
2000 1999
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................................................... $ 1,084 $ 7,887
Accounts receivable, net of allowance for doubtful accounts of $1,888 and
$2,038, respectively ............................................................ 78,556 76,304
Prepaid expenses and other current assets ......................................... 4,824 3,986
Prepaid workers' compensation insurance (Note 1) .................................. 4,877 4,476
Deferred income taxes (Note 4) .................................................... 1,825 581
-------- --------
Total current assets ................................................ 91,166 93,234
Fixed assets, net (Note 2) ............................................................. 20,313 18,204
Other assets ........................................................................... 2,491 2,655
Deferred income taxes (Note 4) ......................................................... 129 924
Goodwill, net of accumulated amortization of $415 and $296,
respectively (Note 5) ............................................................. 4,555 1,704
-------- --------
Total assets ........................................................ $118,654 $116,721
======== ========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Accounts payable .................................................................. $ 3,055 $ 2,909
Accrued workers' compensation (Note 1) ............................................ 4,682 1,074
Accrued payroll, benefits and related costs ....................................... 12,924 13,141
Accrued licensees' share of gross profit .......................................... 3,657 4,857
Line of credit (Note 3) ........................................................... -- 17,500
Other accrued expenses ............................................................ 3,865 1,784
-------- --------
Total current liabilities ........................................... 28,183 41,265
-------- --------
Commitments and contingent liabilities (Note 6)
Shareholders' equity:
Preferred Stock, $.01 par value; authorized 5,000 shares; none outstanding ........ -- --
Class A Common Stock, $.01 par value; authorized 50,000 shares;
7,246 and 7,055 issued and outstanding at October 1, 2000 and
October 3, 1999, respectively ................................................... 72 71
Class B Non-Voting Common Stock, $.01 par value;
authorized 4,530; 1,657 and 1,804 issued and outstanding at October 1, 2000 and
October 3, 1999, respectively ................................................... 17 18
Additional paid-in capital ........................................................ 33,182 32,531
Retained earnings ................................................................. 57,200 42,836
-------- --------
Total shareholders' equity .......................................... 90,471 75,456
-------- --------
Total liabilities and shareholders' equity .......................... $118,654 $116,721
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 25
REMEDYTEMP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OCTOBER 1, OCTOBER 3, SEPTEMBER 27,
2000 1999 1998
---------- ---------- -------------
<S> <C> <C> <C>
Direct sales .................................. $ 306,955 $ 279,206 $274,577
Licensed sales ................................ 247,246 231,481 173,764
Franchise royalties ........................... 3,552 2,689 2,812
Initial license and franchise fees ............ 107 160 191
--------- --------- --------
Total revenues ...................... 557,860 513,536 451,344
Cost of direct sales .......................... 242,052 220,947 214,870
Cost of licensed sales ........................ 186,031 172,817 129,219
Licensees' share of gross profit .............. 41,447 39,614 30,138
Selling and administrative expenses ........... 61,639 52,403 52,577
Depreciation and amortization ................. 4,603 3,696 2,723
--------- --------- --------
Income from operations .............. 22,088 24,059 21,817
--------- --------- --------
Other income and expense:
Interest (expense) income, net ............ (494) (251) 263
Other, net ................................ 921 941 1,097
--------- --------- --------
Income before provision for income taxes ...... 22,515 24,749 23,177
Provision for income taxes (Note 4) ........... 8,151 9,528 9,271
--------- --------- --------
Net income .................................... $ 14,364 $ 15,221 $ 13,906
========= ========= ========
Net income per share, basic (Note 8) .......... $ 1.62 $ 1.72 $ 1.55
========= ========= ========
Weighted-average number of shares, basic ...... 8,878 8,864 8,966
========= ========= ========
Net income per share, diluted (Note 8) ........ $ 1.59 $ 1.71 $ 1.50
========= ========= ========
Weighted-average number of shares, diluted .... 9,020 8,923 9,297
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 26
REMEDYTEMP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL
------------------- -------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ -------- -------- -------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 28, 1997 ...................... 5,930 $ 60 2,997 $ 30 $33,262 $13,709 $47,061
Activity of Employee Stock Purchase Plan ...... 19 313 313
Stock option activity ......................... 66 857 857
Conversion upon transfer to non-affiliates .... 1,191 12 (1,191) (12)
Tax benefits from option activity ............. 300 300
Net income .................................... 13,906 13,906
------ ------- ------ ------- ------- ------- -------
Balance at September 27, 1998 ...................... 7,206 72 1,806 18 34,732 27,615 62,437
Activity of Employee Stock Purchase Plan ...... 26 1 333 334
Stock option activity ......................... 24 355 355
Repurchase of common stock .................... (203) (2) (2,955) (2,957)
Conversion upon transfer to non-affiliates .... 2 (2)
Tax benefits from option activity ............. 66 66
Net income .................................... 15,221 15,221
------ ------- ------ ------- ------- ------- -------
Balance at October 3, 1999 ......................... 7,055 71 1,804 18 32,531 42,836 75,456
Activity of Employee Stock Purchase Plan ...... 15 166 166
Stock option activity ......................... 29 419 419
Conversion upon transfer to non-affiliates .... 147 1 (147) (1)
Tax benefits from option activity ............. 66 66
Net income .................................... 14,364 14,364
------ ------- ------ ------- ------- ------- -------
Balance at October 1, 2000 ......................... 7,246 $ 72 1,657 $ 17 $33,182 $57,200 $90,471
====== ======= ====== ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 27
REMEDYTEMP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 1, OCTOBER 3, SEPTEMBER 27,
2000 1999 1998
---------- ---------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .................................................... $ 14,364 $ 15,221 $ 13,906
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization ........................ 4,603 3,696 2,723
Provision for losses on accounts receivable .......... 1,485 413 1,519
Deferred taxes ....................................... (417) 967 (4,546)
Changes in assets and liabilities:
Accounts receivable .............................. (3,737) (13,057) (9,428)
Prepaid expenses and other current assets ........ (804) (585) (1,414)
Prepaid workers' compensation insurance .......... (401) (4,476) --
Other assets ..................................... 164 (88) (65)
Accounts payable ................................. 146 (124) (1,049)
Accrued workers' compensation .................... 3,608 (4,461) 2,630
Accrued payroll, benefits and related costs ...... (217) (463) 2,115
Accrued licensees' share of gross profit ......... (1,200) 1,663 969
Other accrued expenses ........................... 599 856 (283)
Income taxes payable ............................. -- (479) (894)
-------- -------- --------
Net cash provided by (used in) operating activities ........... 18,193 (917) 6,183
-------- -------- --------
Cash flows from investing activities:
Purchase of fixed assets ...................................... (6,468) (6,573) (10,591)
Purchase of franchises, net of assets acquired ................ (1,613) (60) (1,014)
-------- -------- --------
Net cash used in investing activities ......................... (8,081) (6,633) (11,605)
-------- -------- --------
Cash flows from financing activities:
Borrowings under line of credit agreement ..................... 12,800 23,750 1,000
Repayments under line of credit agreement ..................... (30,300) (6,250) (1,000)
Repayments under capital lease obligation ..................... -- (245) (426)
Proceeds from stock option activity ........................... 419 355 857
Repurchase of Company Common Stock ............................ -- (2,957) --
Proceeds from Employee Stock Purchase Plan activity ........... 166 334 313
-------- -------- --------
Net cash (used in) provided by financing activities ........... (16,915) 14,987 744
-------- -------- --------
Net (decrease) increase in cash and cash equivalents .............. (6,803) 7,437 (4,678)
Cash and cash equivalents at beginning of period .................. 7,887 450 5,128
-------- -------- --------
Cash and cash equivalents at end of period ........................ $ 1,084 $ 7,887 $ 450
======== ======== ========
Other cash flow information:
Cash paid during the period for interest ...................... $ 872 $ 555 $ 98
Cash paid during the period for income taxes .................. $ 9,047 $ 9,768 $ 15,011
Non-cash financing activities:
Utilization of tax benefit from disqualifying dispositions .... $ (34) $ (330) $ (80)
Tax benefit from disqualifying dispositions recorded into
additional paid-in capital ................................. $ 66 $ 66 $ 300
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 28
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Description of business
The Company's principal business is providing temporary personnel to
industrial, service and technology companies, professional organizations and
governmental agencies nationwide.
The Company has two classes of Common Stock outstanding: Class A Common
Stock, which has all voting and other rights normally associated with Common
Stock; and Class B Common Stock, which is identical to the Class A Common Stock
in all respects except that the Class B Common Stock has no voting rights except
with respect to certain amendments of the Company's Amended and Restated
Articles of Incorporation, certain mergers and as otherwise required by law. The
Class B Common Stock automatically converts into Class A Common Stock on a
share-for-share basis upon the earlier of (i) certain transfers to
non-affiliates, (ii) the death or legal incapacity of Robert E. McDonough, Sr.
or (iii) the tenth anniversary of the completion of the Company's initial public
offering on July 16, 1996.
Summary of significant accounting policies
Fiscal year
The Company's fiscal year includes 52 or 53 weeks, ending on the Sunday
closest to September 30. Fiscal years 2000, 1999 and 1998 consisted of 52, 53
and 52 weeks, respectively.
Revenue recognition
Revenue from the sale of services is recognized at the time the service
is performed. A portion of the Company's revenue is derived from affiliate
operations, which consist of franchised and licensed operations.
Under the Company's franchised operations, the franchisee has the
direct contractual relationship with the customers, holds title to the related
customer receivables and is the legal employer of the temporary employees.
Accordingly, sales and cost of sales generated by the franchised operations are
not included in the Company's consolidated financial statements. Fees are paid
to the Company based upon a percentage of the gross sales generated by the
franchised operation and such fees are recorded by the Company as "Franchise
royalties."
Revenues generated by licensed operations and the related costs of
services are included in the Company's consolidated financial statements and are
reported as "Licensed sales" and "Cost of licensed sales," respectively. The
Company has the direct contractual relationship with the customer, holds title
to the related customer receivables and is the legal employer of the temporary
employees. Thus, certain risks associated with the licensed operations remain
with the Company. "Licensee" refers to the Company's affiliates in their role as
independent contractors and limited agents of the Company in recruiting job
applicants, soliciting job orders, filling those orders and handling collection
matters upon request. The licensee acts as a limited agent for the Company to
market the Company's services within the licensee's territory. The net
distribution paid to the licensee for the services rendered is based on a
percentage of the gross profit generated by the Licensee's operation and is
reflected as "Licensees' share of gross profit" in the consolidated statements
of income.
Both franchisees and licensees pay an initial fee for their affiliation
with the Company. This fee is recognized as revenue when substantially all of
the initial services required of the Company have been performed, and is
reported by the Company as "Initial license and franchise fees."
F-7
<PAGE> 29
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Concentrations of credit risk
The Company's financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of trade
receivables. However, concentrations of credit risk are limited due to the large
number of customers comprising the Company's customer base and their dispersion
across different business and geographic areas. Furthermore, the Company
routinely assesses the financial strength of its customers and maintains
reserves for potential credit losses. Such losses have been within management's
expectations.
Use of estimates in the preparation of consolidated financial statements
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Fair value of financial instruments
The carrying amounts of cash, accounts receivable, accounts payable and
all other accrued expenses approximate fair value because of the short maturity
of these items. The Company's investments in equity securities are carried at
fair value based upon available market information. The carrying amount of debt
issued under the line of credit agreement approximates fair value at the stated
interest rate, which approximates the current market rate.
Cash and cash equivalents
For purposes of financial reporting, cash equivalents represent highly
liquid short-term investments with original maturities of less than 90 days.
Investments
The Company accounts for its investments in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
No. 115"). The majority of the Company's investment portfolio consists of
investments related to the Company's deferred compensation program (Note 7).
These investments are classified as trading under the provisions of SFAS No. 115
and are therefore reported at fair value in the accompanying balance sheets.
Both realized and unrealized gains and losses are recorded in other income or
expense and generally offset the change in the deferred compensation liability
which is also included in other income or expense. Investments totaling $1,960
and $1,321 at October 1, 2000 and October 3, 1999, respectively, are included in
"Prepaid expenses and other current assets" in the accompanying balance sheets.
Fixed assets
Fixed assets are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, which are three to five years for furniture
and fixtures and computer equipment, excluding computer server costs, which are
seven years. Major improvements to leased office space are capitalized and
amortized over the shorter of their useful lives or the term of the lease.
The Company currently capitalizes the costs of purchased internal-use
software as well as internal and external software development costs related to
its new management information system. These capitalized costs are included in
fixed assets and are amortized over their estimated useful life, not to exceed
seven years.
F-8
<PAGE> 30
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Goodwill
Goodwill consists of the excess of purchase price over the fair value
of net assets of businesses acquired and is amortized on a straight-line basis
over an estimated life of 20 years. The Company regularly reviews the individual
components of the balance and recognizes any decline in value on a current
basis.
Workers' compensation
From July 22, 1997 through March 31, 1999, Remedy Insurance Group, LTD
("RIG"), a wholly-owned subsidiary, provided direct and licensed offices with an
insured workers' compensation program. RIG, an offshore insurance captive
domiciled in Bermuda, was incorporated and funded with an amount of $600 of
restricted cash which is classified on the consolidated balance sheet as other
assets. The Company utilized Lindsey Morden, a national Third Party
Administrator to administer claims nationally, and Reliance National Indemnity
Company to provide stop-loss insurance coverage. The Company's deductible under
the insurance program was $250 per individual claim. The stop-loss coverage in
effect paid individual claims costs exceeding $250 and aggregate claims greater
than $7,500 for the twelve months ended July 1998, and $7,000 for the nine
months ended March 1999.
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 to March 31, 1999. Additionally, the
Company entered into a one-year fully insured workers' compensation program with
Reliance. The one-year premium was based upon estimated payroll levels. The
Company paid the aggregate cost of both the reinsurance contract and the
estimated one-year premium, a total of $18,873, to Reliance on April 16, 1999.
The one-year estimated premium was capitalized and amortized over the policy
period based upon actual payroll. As of October 3, 1999, the Company had a
prepaid insurance balance of $4,476. As actual payroll for the policy year ended
March 31, 2000 exceeded the estimated amount, the Company amortized this
remaining prepaid balance during fiscal 2000 and has accrued additional premium
expense of $2,800 as of October 1, 2000 for the initial policy year.
The reinsurance contract discussed above included a provision for
additional payments up to $700 in the event that ultimate losses exceed the
projected losses as of April 1, 1999. The Company provided for the additional
$700 during fiscal 1999.
Effective April 1, 2000, the Company renewed its fully insured workers'
compensation program for an additional year. The premium for this program is
based upon actual payroll costs multiplied by a fixed rate. The Company paid an
estimated premium amount of $11,100 to Reliance on April 13, 2000 based upon
estimated payroll levels. If actual payroll exceeds the estimated amount, the
Company will owe additional workers' compensation premiums for this policy year
as well.
Other income
Other income consists primarily of late fees collected from customers
on past due accounts receivable balances in the amounts of $1,004, $1,029 and
$1,091, for the fiscal years ended October 1, 2000, October 3, 1999 and
September 27, 1998, respectively.
Income taxes
The Company records income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes." SFAS No. 109 is an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's consolidated financial statements or tax returns. In estimating future
tax consequences, SFAS No. 109 generally considers all expected future events
including enactments of changes in the tax law or rates.
F-9
<PAGE> 31
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Accounting for stock-based compensation
The Company accounts for its stock compensation plans under Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and
related interpretations. The disclosures required under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123") have been included in Note 8.
2. FIXED ASSETS
<TABLE>
<CAPTION>
OCTOBER 1, OCTOBER 3,
2000 1999
-------- --------
<S> <C> <C>
Computer equipment and software $ 18,588 $ 16,263
Furniture and fixtures ........ 4,922 4,385
Leasehold improvements ........ 3,745 3,221
Construction in progress ...... 7,003 4,176
-------- --------
34,258 28,045
Less accumulated depreciation . (13,945) (9,841)
-------- --------
$ 20,313 $ 18,204
======== ========
</TABLE>
Construction in progress primarily relates to expenditures for the
Company's development and implementation of a new Company-wide management
information system, which was placed in service subsequent to year end in
October 2000.
3. LINE OF CREDIT
On March 31, 1999, the Company renewed its revolving line of credit
agreement with Bank of America, providing for aggregate borrowings and letters
of credit of $40,000. Interest on outstanding borrowings is payable monthly. The
interest rate is the bank's reference rate minus up to 0.25%, based upon certain
financial covenants or, at the Company's discretion, LIBOR plus a range of 1.0%
to 1.375%, based upon the financial covenants. The line of credit is unsecured
and expires on February 28, 2002.
At October 1, 2000 and October 3, 1999, the Company had $0 and $17,500,
respectively, outstanding under its line of credit agreement. Under the
provisions of the line of credit agreement, the Company must maintain certain
financial ratios and comply with certain restrictive covenants. The Company was
in compliance with these requirements for the fiscal years ended October 1, 2000
and October 3, 1999.
4. INCOME TAXES
The Company's provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------------------------
OCTOBER 1, OCTOBER 3, SEPTEMBER 27,
2000 1999 1998
---------- ---------- -------------
<S> <C> <C> <C>
Current tax expense:
Federal ................................................ $ 6,550 $6,628 $ 11,042
State .................................................. 2,018 1,933 2,775
------- ------ --------
Total current ....................... 8,568 8,561 13,817
------- ------ --------
Deferred tax expense:
Federal ................................................ (360) 867 (3,960)
State .................................................. (57) 100 (586)
------- ------ --------
Total deferred ...................... (417) 967 (4,546)
------- ------ --------
Total provision for income taxes .... $ 8,151 $9,528 $ 9,271
======= ====== ========
</TABLE>
F-10
<PAGE> 32
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The composition of the deferred tax assets (liabilities) at October 1, 2000 and
October 3, 1999 is listed below.
<TABLE>
<CAPTION>
OCTOBER 1, OCTOBER 3,
2000 1999
------- -------
<S> <C> <C>
Reserves and accrued liabilities ...... $ 4,404 $ 2,956
Depreciation .......................... 115 568
------- -------
Gross deferred tax assets ......... 4,519 3,524
------- -------
Prepaid expenses ...................... (2,565) (2,019)
------- -------
Gross deferred tax liabilities .... (2,565) (2,019)
------- -------
Net deferred tax assets ............... $ 1,954 $ 1,505
======= =======
</TABLE>
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory income tax rates to income
before taxes as a result of the following differences:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
------------------------------------------
OCTOBER 1, OCTOBER 3, SEPTEMBER 27,
2000 1999 1998
---------- ---------- -------------
<S> <C> <C> <C>
Federal tax computed at statutory rate .... 35.0% 35.0% 35.0%
State taxes, net of federal benefit ....... 5.4% 5.5% 5.3%
Federal tax credits ....................... (5.1)% (2.6)% (1.0)%
Other ..................................... 0.9% 0.6% 0.7%
---- ---- ----
Total provision for income taxes .......... 36.2% 38.5% 40.0%
==== ==== ====
</TABLE>
5. REPURCHASE OF LICENSED AND FRANCHISED OFFICES
During fiscal 2000, the Company acquired six licensed offices in
Virginia and one licensed office in Philadelphia and during fiscal 1999, the
Company acquired two licensed offices in Stockbridge and College Park, Georgia.
Results of operations for the acquired licensed offices are recorded in
accordance with the Company's related revenue recognition policy (Note 1) 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 preceding
fiscal years, the consolidated financial information would not be significantly
different. These acquisitions were accounted for under the purchase method of
accounting. The combined purchase prices were allocated primarily to goodwill
and are being amortized over an estimated twenty-year life.
6. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases its corporate facility, Company-owned offices and
certain equipment under operating leases. The leases typically require the
Company to pay taxes, insurance and certain other operating expenses applicable
to the leased property. Total rent expense was approximately $4,619, $3,987 and
$2,867 for the years ended October 1, 2000, October 3, 1999 and September 27,
1998, respectively.
F-11
<PAGE> 33
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Future minimum lease commitments under all noncancellable operating
leases as of October 1, 2000 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2001 ................................................. $3,363
2002 ................................................. 2,923
2003 ................................................. 1,779
2004 ................................................. 559
2005 ................................................. 232
Thereafter ........................................... 178
------
Total .................................. $9,034
======
</TABLE>
The Company is involved in various claims and legal actions arising in
the ordinary course of business. It is the opinion of management, based upon the
advice of legal counsel, that the ultimate disposition of these matters will not
materially affect the Company's consolidated financial position, results of
operations or cash flows.
7. EMPLOYEE BENEFIT PLANS
401(k) Plan
The Company has an employee savings plan which permits participants to
make contributions by salary reduction pursuant to section 401(k) of the
Internal Revenue Code. The plan is open to qualified full-time and temporary
employees who earn less than $80 per year. The annual amount of employer
contributions to the plan is determined at the discretion of the Board of
Directors, subject to certain limitations. Eligible participants may make
voluntary contributions to the plan and become fully vested in the Company's
contributions over a five-year period. The Company has made no contributions
during the three fiscal years ended October 1, 2000.
Deferred Compensation Plan
The Company maintains a nonqualified deferred compensation plan (the
"Deferred Compensation Plan") for certain executives of the Company. Under the
Deferred Compensation Plan, eligible participants may defer receipt of up to
100% of their base compensation and bonuses on a pretax basis until specified
future dates, upon retirement or death. The deferred amounts are placed in trust
and invested by the Company. Participants recommend investment vehicles for the
funds, subject to approval by the trustees. The balance due each participant
increases or decreases as a result of the related investment gains and losses.
The trust and the investments therein are assets of the Company and the
employees are general creditors of the Company with respect to the benefits due.
For each of the three years ended October 1, 2000, the amounts charged to
expense relating to the Deferred Compensation Plan were $555, $580 and $349,
respectively. Included in "Accrued payroll, benefits and related costs" in the
accompanying consolidated balance sheets at October 1, 2000 and October 3, 1999
was $1,571 and $1,016, respectively, relating to this plan.
8. SHAREHOLDERS' EQUITY
Employee Stock Purchase Plan
In connection with the Company's initial public offering in July 1996
(the "Offering"), the Company implemented its 1996 Employee Stock Purchase Plan
(the "Purchase Plan"). Under the terms of the Purchase Plan, as amended,
eligible employees may purchase shares of the Company's Common Stock based on
payroll deductions. A total of 250 shares were reserved for issuance under the
Purchase Plan. On August 16, 1999, the Purchase Plan was amended to enable
employees of the Company's subsidiaries to participate in the Purchase Plan. The
purchase price for shares granted is the lower of 85% of the market price of the
stock on the first or last day of each six month purchase period. The Purchase
Plan commenced on October 1, 1996.
F-12
<PAGE> 34
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. SHAREHOLDERS' EQUITY (CONTINUED)
During fiscal 2000, 15 shares were purchased at prices between $10.16
and $11.95, during fiscal 1999, 26 shares were purchased at prices between
$10.20 and $18.06 and during fiscal 1998, 19 shares were purchased at prices
between $13.18 and $20.82 per share.
Stock Incentive Plan
In connection with the Offering, the Company implemented its 1996 Stock
Incentive Plan (the "Incentive Plan") for officers, directors and key employees
of the Company. A total of 900 shares were reserved for issuance under the
Incentive Plan. In February 1998 and 1999, amendments to the Incentive Plan were
approved by votes of the Company's shareholders to reserve an additional 325 and
575 shares, respectively, for issuance under the Incentive Plan. Accordingly, a
total of 1,800 shares have been reserved for issuance under the Incentive Plan,
as amended. Options granted to employees of the Company typically may be
exercised within ten years from the grant date and are exercisable in
installments determined by the Leadership, Development and Compensation
Committee of the Board of Directors. Options granted to non-employee,
non-officer directors prior to the Offering were immediately exercisable.
Options granted to non-employee, non-officer directors subsequent to the
Offering are typically 50% exercisable immediately and 50% exercisable upon the
date of the next annual shareholders meeting. Grants for 241 shares at prices
between $13.59 and $21.88 per share were made during fiscal 2000, grants for 262
shares at prices between $14.75 and $19.06 per share were made during fiscal
1999 and grants for 263 shares at prices between $17.93 and $29.00 per share
were made during fiscal 1998.
Stock Ownership Plan for Outside Directors
Prior to March 16, 1998, non-employee directors received an annual cash
retainer of $18. Effective March 16, 1998, the Company implemented its
Non-Employee Director Compensation and Deferral Plan (the "Director Plan").
Under the Director Plan, non-employee, non-officer directors receive an annual
retainer in the form of shares of Common Stock with a total value of $20 on the
date of the director's election and/or subsequent reelection to the Board (the
"Director Shares"). The shares are earned ratably over the year and issued at
the end of the annual term. When issued, the Director Shares are held in trust,
on a deferred basis until a director is no longer a director of the Company.
Participation in the Director Plan is mandatory. In February 2000 and 1999, a
total of 6 and 4 shares, respectively, were issued to the trust for services
rendered. At October 1, 2000, an additional 3 shares were earned and will be
issued at the next annual meeting of shareholders in February 2001. As the trust
belongs to the Company, all shares issued to the trust are treated as treasury
stock for financial reporting purposes. All shares issued and earned are
included in the diluted shares outstanding calculation.
Stock Repurchase
On October 2, 1998, the Board of Directors authorized the Company to
repurchase its outstanding Class A and/or Class B Common Stock in the open
market or in privately negotiated transactions at the prevailing market prices
not to exceed $5,000 in aggregate. During the fiscal year ended October 3, 1999,
the Company repurchased 202.9 Class A Common Stock shares at prices ranging from
$12.56 to $15.13, for a total of $2,957.
F-13
<PAGE> 35
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. SHAREHOLDERS' EQUITY (CONTINUED)
Earnings per share calculation
The table below sets forth the computation of Basic and Diluted earnings per
share:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
---------------------------------------------
OCTOBER 1, OCTOBER 3, SEPTEMBER 27,
2000 1999 1998
---------- ---------- -------------
<S> <C> <C> <C>
BASIC EPS
Income available to common shareholders ......... $14,364 $15,221 $13,906
Weighted-average number of shares, basic ........ 8,878 8,864 8,966
BASIC EPS ................................. $ 1.62 $ 1.72 $ 1.55
======= ======= =======
DILUTED EPS
Income available to common shareholders ......... $14,364 $15,221 $13,906
Weighted-average number of shares, basic ........ 8,878 8,864 8,966
Effect of dilutive securities:
Stock options ............................. 142 59 331
------- ------- -------
Weighted-average number of shares - assuming
dilution .................................. 9,020 8,923 9,297
DILUTED EPS ............................... $ 1.59 $ 1.71 $ 1.50
======= ======= =======
</TABLE>
The Company has adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock and option plans. Had compensation cost for all
stock and option plans been determined based on the fair value at the grant date
of awards in fiscal 2000, 1999 and 1998 consistent with the provisions of SFAS
No. 123, the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
------------------------------------------------------
OCTOBER 1, 2000 OCTOBER 3, 1999 SEPTEMBER 27, 1998
--------------- --------------- ------------------
<S> <C> <C> <C>
Net income - as reported $ 14,364 $ 15,221 $ 13,906
Net income - pro forma $ 12,556 $ 13,397 $ 12,355
Basic earnings per share - as reported $ 1.62 $ 1.72 $ 1.55
Basic earnings per share - pro forma $ 1.41 $ 1.51 $ 1.38
Diluted earnings per share - as reported $ 1.59 $ 1.71 $ 1.50
Diluted earnings per share - pro forma $ 1.39 $ 1.50 $ 1.34
</TABLE>
The fair value of each option grant has been estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for the grants in fiscal 2000, 1999 and 1998,
respectively: dividend yield of 0.0%, 0.0% and 0.0%; risk free interest rate of
5.88%, 4.54% and 5.81%; expected volatility of 40.4%, 37.0% and 31.0% and
expected lives of 3.9, 3.7 and 2.9 years. The weighted-average per share
estimated fair value at the date of grant for options granted during fiscal
2000, 1999 and 1998 was $5.57, $5.26 and $6.24, respectively.
F-14
<PAGE> 36
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes the activity relating to all stock and
option plans:
<TABLE>
<CAPTION>
INCENTIVE PLAN PURCHASE OPTIONS OUTSIDE
OPTIONS PLAN STOCK INCENTIVE PLAN
----------------------- ------------------ -------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- --------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding September 28, 1997 671.6 $ 14.04 11.3 $ 13.18 --
Options granted 262.8 $ 21.63 15.5 $ 19.49 125.0 $ 20.72
Options canceled (55.4) $ 14.95 -- -- -- --
Options exercised (65.6) $ 13.98 (18.8) $ 16.46 -- --
------- ------- ------- ------- ------- -------
Options outstanding September 27, 1998 813.4 $ 16.44 8.0 $ 18.06 125.0 $ 20.72
Options granted 262.0 $ 15.22 27.2 $ 10.93 -- --
Options canceled (43.3) $ 16.53 -- -- -- --
Options exercised (25.4) $ 13.91 (26.2) $ 12.75 -- --
------- ------- ------- ------- ------- -------
Options outstanding October 3, 1999 1,006.7 $ 16.18 9.0 $ 11.95 125.0 $ 20.72
Options granted 241.0 $ 14.36 5.8 $ 10.16 -- --
Options canceled (42.9) $ 16.60 -- -- -- --
Options exercised (29.2) $ 14.24 (14.8) $ 11.25 -- --
------- ------- ------- ------- ------- -------
Options outstanding October 1, 2000 1,175.6 $ 15.84 -- $ -- 125.0 $ 20.72
======= ======= ======= ======= ======= =======
</TABLE>
The number of exercisable options outstanding for the fiscal years
ended 2000, 1999 and 1998 under the plans were 724, 441 and 242 shares,
respectively, at weighted-average prices of $16.42, $16.37 and $15.14 per share,
respectively. The following table summarizes information about stock options
outstanding at October 1, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options exercisable
---------------------------------------------------------------------------- -------------------------------
Weighted-
Average
Shares Remaining Weighted- Shares Weighted-
Exercise Price Outstanding Life Average Price Exercisable Average Price
-------------- ----------- --------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$10.00 - $13.00 273,088 5.8 $ 13.00 218,102 $ 13.00
$13.01 - $16.00 598,441 7.9 $ 14.57 273,939 $ 15.15
$16.01 - $20.00 89,000 8.1 $ 17.60 49,600 $ 18.18
$20.01 - $25.00 308,450 7.1 $ 21.17 162,465 $ 21.38
$25.01 - $30.00 31,667 7.1 $ 26.63 19,667 $ 26.47
</TABLE>
F-15
<PAGE> 37
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. UNAUDITED CONSOLIDATED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-------------------------------------------------------------
JANUARY 2, APRIL 2, JULY 2, OCTOBER 1,
2000 2000 2000 2000
---------- -------- ------- ----------
<S> <C> <C> <C> <C>
Total revenues .................................. $150,110 $134,465 $133,889 $139,396
Total cost of direct and licensed sales ......... $116,561 $102,705 $102,215 $106,602
Licensees' share of gross profit ................ $ 10,665 $ 10,179 $ 10,280 $ 10,323
Selling, general and administrative expenses .... $ 16,610 $ 15,686 $ 16,716 $ 17,230
Net income ...................................... $ 3,914 $ 3,680 $ 3,098 $ 3,672
Net income per share, basic ..................... $ 0.44 $ 0.42 $ 0.35 $ 0.41
Net income per share, diluted ................... $ 0.44 $ 0.40 $ 0.34 $ 0.41
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------------------------------------------
DECEMBER 27, MARCH 28, JUNE 27, OCTOBER 3,
1998 1999 1999 1999
------------ --------- -------- ----------
<S> <C> <C> <C> <C>
Total revenues .................................. $119,826 $114,593 $128,815 $150,302
Total cost of direct and licensed sales ......... $ 90,806 $ 88,010 $ 98,786 $116,162
Licensees' share of gross profit ................ $ 9,141 $ 8,973 $ 9,983 $ 11,517
Selling, general and administrative expenses .... $ 13,970 $ 12,790 $ 13,636 $ 15,703
Net income ...................................... $ 3,685 $ 3,211 $ 3,957 $ 4,368
Net income per share, basic ..................... $ 0.41 $ 0.36 $ 0.45 $ 0.49
Net income per share, diluted ................... $ 0.41 $ 0.36 $ 0.45 $ 0.49
</TABLE>
F-16
<PAGE> 38
REMEDYTEMP, INC.
FINANCIAL STATEMENT SCHEDULE
(AMOUNTS IN THOUSANDS)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts Receivable:
<TABLE>
<CAPTION>
BALANCE BALANCE AT
AT BEGINNING END OF
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS(1) PERIOD
----------- --------- --------- ------------- ------
<S> <C> <C> <C> <C>
Year ended October 1, 2000 $2,038 $1,485 $1,635 $1,888
Year ended October 3, 1999 $2,647 $ 413 $1,022 $2,038
Year ended September 27, 1998 $2,612 $1,519 $1,484 $2,647
</TABLE>
(1) Represents write-offs of bad debts
F-17
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
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. Amended and Restated Employment Agreement(h)
10.2 Paul W. Mikos Employment Agreement(j)
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(e)
10.24 1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership Plan for Outside Directors(f)
10.25 Form of Licensing Agreement for i/search 2000(TM)(g)
10.26 Credit Agreement among Bank of America National Trust and Savings Association and RemedyTemp, Inc.(i)
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
</TABLE>
(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.
<PAGE> 40
(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 Report on Form 10-Q for the quarterly
period ended December 28, 1997.
(f) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended 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 Report on Form 10-Q for the quarterly
period ended December 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 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.
