<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
---------------
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 2, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-5260
REMEDYTEMP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-2890471
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
101 ENTERPRISE
ALISO VIEJO, CALIFORNIA 92656
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 425-7600
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
As of May 12, 2000 there were 7,189,517 shares of Class A Common Stock
and 1,703,194 shares of Class B Common Stock outstanding.
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<PAGE> 2
REMEDYTEMP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of April 2, 2000 and October 3, 1999.................................... 3
Consolidated Statements of Income for the three fiscal months and six fiscal months ended
April 2, 2000 and March 28, 1999 .................................................................... 4
Consolidated Statements of Cash Flows for the six fiscal months ended April 2, 2000
and March 28, 1999................................................................................... 5
Condensed Notes to Consolidated Financial Statements................................................... 6
Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of
Operations............................................................................................. 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk............................................. *
PART II--OTHER INFORMATION
Item 1. Legal Proceedings..................................................................................... *
Item 2. Changes In Securities and Use of Proceeds............................................................. *
Item 3. Defaults Upon Senior Securities....................................................................... *
Item 4. Submission of Matters to a Vote of Security Holders................................................... 12
Item 5. Other Information..................................................................................... *
Item 6. Exhibits and Reports on Form 8-K...................................................................... 13
SIGNATURES ....................................................................................................... 14
</TABLE>
* No information provided due to inapplicability of item.
2
<PAGE> 3
REMEDYTEMP, INC.
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
APRIL 2, OCTOBER 3,
2000 1999
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................................................................... $ 4,687 $ 7,887
Accounts receivable, net of allowance for doubtful accounts of $2,482
and $2,038, respectively ................................................................... 76,534 76,304
Prepaid expenses and other current assets ...................................................... 5,078 3,986
Prepaid workers' compensation insurance ........................................................ -- 4,476
Deferred income taxes .......................................................................... 581 581
-------- --------
Total current assets ............................................................... 86,880 93,234
Fixed assets, net of accumulated depreciation of $11,447 and $9,841, respectively .................. 20,163 18,204
Other assets, net .................................................................................. 2,729 2,655
Deferred income taxes .............................................................................. 924 924
Goodwill, net of accumulated amortization of $305 and $296, respectively ........................... 4,426 1,704
-------- --------
$115,122 $116,721
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................................... $ 4,946 $ 2,909
Accrued workers' compensation .................................................................. 4,141 1,074
Accrued payroll, benefits and related costs .................................................... 10,884 13,141
Accrued licensees' share of gross profit ....................................................... 3,631 4,857
Line of credit obligation ...................................................................... 5,000 17,500
Other accrued expenses ......................................................................... 3,233 1,784
-------- --------
Total current liabilities .......................................................... 31,835 41,265
-------- --------
Commitments and contingent liabilities
Shareholders' equity:
Preferred Stock, $.01 par value; authorized 5,000 shares; none outstanding
Class A Common Stock, $.01 par value; authorized 50,000 shares;
7,166 and 7,055 issued and outstanding at April 2, 2000 and October 3, 1999, respectively ... 72 71
Class B Non-Voting Common Stock, $.01 par value; authorized 4,530 shares;
1,710 and 1,804 issued and outstanding at April 2, 2000 and October 3, 1999, respectively ... 17 18
Additional paid-in capital ......................................................................... 32,768 32,531
Retained earnings .................................................................................. 50,430 42,836
-------- --------
Total shareholders' equity ......................................................................... 83,287 75,456
-------- --------
$115,122 $116,721
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
REMEDYTEMP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
APRIL 2, MARCH 28, APRIL 2, MARCH 28,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Direct sales ..................................... $ 73,586 $ 62,731 $ 156,588 $ 129,169
Licensed sales ................................... 59,962 51,180 126,098 103,874
Franchise royalties .............................. 843 631 1,815 1,291
Initial license and franchise fees ............... 74 51 74 85
--------- --------- --------- ---------
Total revenues ....................... 134,465 114,593 284,575 234,419
Cost of direct sales ............................. 57,818 50,035 124,036 101,695
Cost of licensed sales ........................... 44,887 37,975 95,230 77,121
Licensees' share of gross profit ................. 10,179 8,973 20,844 18,114
Selling and administrative expenses .............. 14,533 11,895 30,052 25,070
Depreciation and amortization .................... 1,153 895 2,244 1,690
--------- --------- --------- ---------
Income from operations ............... 5,895 4,820 12,169 10,729
Other income:
Interest (expense) income, net ............... (202) (13) (364) 10
Other, net ................................... 166 265 419 475
--------- --------- --------- ---------
Income before provision for income taxes ......... 5,859 5,072 12,224 11,214
Provision for income taxes ....................... 2,179 1,861 4,630 4,317
--------- --------- --------- ---------
Net income ....................................... $ 3,680 $ 3,211 $ 7,594 $ 6,897
========= ========= ========= =========
Net income per share, basic (Note 2) ............. $ 0.42 $ 0.36 $ 0.86 $ 0.78
========= ========= ========= =========
Weighted-average number of shares ................ 8,865 8,821 8,862 8,894
========= ========= ========= =========
Net income per share, diluted (Note 2) ........... $ 0.40 $ 0.36 $ 0.84 $ 0.77
========= ========= ========= =========
Weighted-average number of shares ................ 9,203 8,908 9,055 8,980
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
REMEDYTEMP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
APRIL 2, MARCH 28,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 7,594 $ 6,897
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................ 2,244 1,690
Provision for losses on accounts receivable .................................. 675 80
Deferred taxes ............................................................... -- (1,500)
Changes in assets and liabilities:
Accounts receivable ...................................................... (905) 246
Prepaid expenses and other current assets ................................ (1,092) 339
Prepaid workers' compensation insurance .................................. 4,476 --
Other assets ............................................................. (74) 53
Accounts payable ......................................................... 2,037 906
Accrued workers' compensation ............................................ 3,067 1,358
Accrued payroll, benefits and related costs .............................. (2,257) (2,689)
Accrued licensees' share of gross profit ................................. (1,226) 642
Other accrued expenses ................................................... (33) 53
Income taxes payable ..................................................... -- 479
-------- --------
Net cash provided by operating activities ........................................... 14,506 8,554
-------- --------
Cash flows from investing activities:
Purchase of fixed assets ............................................................ (4,068) (4,210)
Purchase of franchises, net of assets acquired ...................................... (1,375) --
-------- --------
Net cash used in investing activities ............................................... (5,443) (4,210)
-------- --------
Cash flows from provided by financing activities:
Borrowings under line of credit agreement ........................................... 4,800 5,000
Repayments under line of credit agreement ........................................... (17,300) (5,000)
Repayments under capital lease obligation ........................................... -- (144)
Proceeds from stock option activity ................................................. 130 8
Purchase of Company Common Stock .................................................... -- (2,957)
Proceeds from Employee Stock Purchase Plan activity ................................. 107 144
-------- --------
Net cash used in financing activities ............................................... (12,263) (2,949)
-------- --------
Net (decrease) increase in cash and cash equivalents ................................... (3,200) 1,395
Cash and cash equivalents at beginning of period ....................................... 7,887 450
-------- --------
Cash and cash equivalents at end of period ............................................. $ 4,687 $ 1,845
======== ========
Other cash flow information:
Cash paid during the period for interest ............................................ $ 581 $ 84
Cash paid during the period for income taxes ........................................ $ 5,757 $ 5,338
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
REMEDYTEMP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
RemedyTemp, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany transactions and balances have been
eliminated.
The accompanying consolidated balance sheets at April 2, 2000, and the
consolidated statements of income and of cash flows for the six fiscal months
ended April 2, 2000 are unaudited. These statements have been prepared on the
same basis as the Company's audited consolidated financial statements and in the
opinion of management reflect all adjustments, which are only of a normal
recurring nature, necessary for a fair presentation of the consolidated
financial position and results of operations for such periods. These unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements included in the Company's Form 10-K as filed
with the Securities and Exchange Commission on December 28, 1999.
2. EARNINGS PER SHARE DISCLOSURE
Earnings per share is calculated as follows:
<TABLE>
<CAPTION>
THREE FISCAL MONTHS ENDED
------------------------------------------------------------------------------
APRIL 2, 2000 MARCH 28, 1999
------------------------------------- --------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to common shareholders .... $3,680 8,865 $ 0.42 $3,211 8,821 $ 0.36
====== ======
EFFECT OF DILUTIVE SECURITIES
Stock options .............................. $ -- 338 $ -- 87
------ ------ ------ ------
DILUTED EPS
Income available to common shareholders plus
assumed conversions ........................ $3,680 9,203 $ 0.40 $3,211 8,908 $ 0.36
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SIX FISCAL MONTHS ENDED
------------------------------------------------------------------------------
APRIL 2, 2000 MARCH 28, 1999
------------------------------------- --------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to common shareholders .... $7,594 8,862 $ 0.86 $6,897 8,894 $ 0.78
====== ======
EFFECT OF DILUTIVE SECURITIES
Stock options .............................. $ -- 193 $ -- 86
------ ------ ------ ------
DILUTED EPS
Income available to common shareholders plus
assumed conversions ........................ $7,594 9,055 $ 0.84 $6,897 8,980 $ 0.77
====== ====== ====== ====== ====== ======
</TABLE>
6
<PAGE> 7
REMEDYTEMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. STOCK OPTIONS
Under the terms of the Company's 1996 Stock Incentive Plan, as amended,
on February 29, 2000, upon their reelection to the Board of Directors, the
Company granted options to purchase 2.5 shares of Class A Common Stock to each
of its six non-employee directors at $21.875 per share, for a total of 15
shares. This plan is "non-compensatory" under APB No. 25, and accordingly, no
compensation expense was recorded in connection with these grants.
4. REPURCHASE OF LICENSED OFFICES
During October 1999, the Company acquired six licensed offices in
Virginia. Results of operations for the acquired licensed offices are recorded
in accordance with the Company's licensed revenue recognition policy until the
acquisition date. Subsequent to the acquisition date, the direct office revenue
recognition policy is utilized. Had the results of operations for the licensed
offices been shown as of the beginning of the current and prior year fiscal
periods, the consolidated results would not be significantly different. These
acquisitions were accounted for under the purchase accounting method. The
combined purchase price was allocated primarily to goodwill and is being
amortized over twenty years. A portion of the purchase price is contingent upon
future operating results and will be allocated to goodwill as earned.
5. SUBSEQUENT EVENT
Effective April 1, 2000, the Company renewed its fully insured workers'
compensation program with Reliance National Insurance Company 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 $11,139 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. In connection with this payment, the
Company borrowed $8,000 under its line of credit agreement.
7
<PAGE> 8
REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In addition to historical information, management's discussion and
analysis includes certain forward-looking statements, including, but not limited
to, those related to the Company's growth and strategies, future operating
results and financial position as well as economic and market events and trends.
All forward-looking statements made by the Company, including such statements
herein, include material risks and uncertainties and are subject to change based
on factors beyond the control of the Company. Accordingly, the Company's actual
results and financial position could differ materially from those expressed or
implied in any forward-looking statement as a result of various factors,
including without limitation, changes in general or local economic conditions,
the availability of sufficient personnel, increased costs of personnel and the
factors described in the Company's filings with the Securities and Exchange
Commission regarding risks affecting the Company's financial condition and
results of operations. The Company does not undertake to publicly update or
revise its forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied therein will not be
realized.
RESULTS OF OPERATIONS
For the Three Fiscal Months Ended April 2, 2000 Compared to the Three Fiscal
Months Ended March 28, 1999
Total revenues increased 17.3% or $19.9 million to $134.5 million for
the three fiscal months ended April 2, 2000 from $114.6 million for the three
fiscal months ended March 28, 1999. Direct revenues increased 17.3% to $73.6
million from $62.7 million, licensed revenues increased 17.2% to $60.0 million
from $51.2 million and franchise royalties increased 33.6% to $0.8 million from
$0.6 million for the three fiscal months ended April 2, 2000 and March 28, 1999,
respectively. The overall increase in direct and licensed revenues resulted
primarily from increased fulfillment, distribution and customer care support
services provided by existing direct and licensed offices. The mix between
direct and licensed revenues was impacted by the repurchase of six licensed
offices during the first fiscal quarter of 2000 (see Note 4 to the consolidated
financial statements). The increase in franchise royalties resulted from the
conversion of six offices from the licensed to franchise format during the first
half of fiscal 2000. The Company's future revenue increases depend significantly
on the Company's ability to continue to attract new clients, retain existing
clients, open new offices and manage newly opened offices to maturity.
Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, increased 16.7% or $14.7
million to $102.7 million for the three fiscal months ended April 2, 2000 from
$88.0 million for the three fiscal months ended March 28, 1999. This increase
resulted from continued business growth as described above. Total cost of direct
and licensed sales as a percentage of revenues was 76.4% for the three fiscal
months ended April 2, 2000 compared to 76.8% for the three fiscal months ended
March 28, 1999. Many factors, including increased wage costs or other employment
expenses, could adversely affect the Company's cost of direct and licensed
sales.
Licensees' share of gross profit represents the net payments to
licensees based upon a percentage of gross profit generated by the licensed
operation. The percentage of gross profit earned by the licensee generally is
based on the number of hours billed. In general, pursuant to terms of the
Company's franchise agreement for licensed offices executed prior to March 31,
1999, the Company's share of gross profit cannot be less than 7.5% of the
licensed operation sales, with the exception of national accounts on which the
Company's fee is reduced to compensate for lower gross margins. For franchise
agreements for licensed offices executed on or after April 1, 1999, the
Company's share of gross profit cannot be less than 8.75% of the licensed
operation's sales. Licensees' share of gross profit increased 13.4% or $1.2
million to $10.2 million for the three fiscal months ended April 2, 2000 from
$9.0 million for the three fiscal months ended March 28, 1999 due to increased
billings at existing licensed offices. This growth was offset by a reduction in
Licensees' share of gross profit resulting from the repurchases and conversions
noted above. Licensees' share of gross profit as a percentage of licensed gross
profit remained relatively consistent.
Selling, general and administrative expenses, including depreciation and
amortization, increased 22.6% or $2.9 million to $15.7 million for the three
fiscal months ended April 2, 2000 from $12.8 million for the three fiscal months
ended March 28, 1999. This increase can be attributed to the business growth
discussed above, implementation costs associated with the Company's new
information system and the related increased depreciation of the new information
8
<PAGE> 9
REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
system. Selling, general and administrative expenses as a percentage of total
revenues was 11.7% for the three fiscal months ended April 2, 2000 as compared
to 11.2% for the three fiscal months ended March 28, 1999. There can be no
assurance that selling, general and administrative expenses will not increase in
the future, both in absolute terms and as a percentage of total revenues.
Increases in these expenses could adversely affect the Company's profitability.
Income from operations increased 22.3% or $1.1 million to $5.9 million
for the three fiscal months ended April 2, 2000 from $4.8 million for the three
fiscal months ended March 28, 1999 due to the factors described above. Income
from operations as a percentage of revenues was 4.4% for the three fiscal months
ended April 2, 2000 compared to 4.2% for the three fiscal months ended March 28,
1999.
Net income increased 14.6% or $0.5 million to $3.7 million for the three
fiscal months ended April 2, 2000 from $3.2 million for the three fiscal months
ended March 28, 1999 due to the factors described above. Interest expense
increased as a result of the borrowings under the Company's line of credit
agreement. 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 2.7% in the three fiscal months
ended March 28, 1999 compared to 2.8% in the three fiscal months ended March 29,
1998. All revenues and results have been internally generated by the Company.
For the Six Fiscal Months Ended April 2, 2000 Compared to the Six Fiscal Months
Ended March 28, 1999
Total revenues increased 21.4% or $50.2 million to $284.6 million for
the six fiscal months ended April 2, 2000 from $234.4 million for the six fiscal
months ended March 28, 1999. Direct revenues increased 21.2% to $156.6 million
from $129.2 million, licensed revenues increased 21.4% to $126.1 million from
$103.9 million and franchise royalties increased 40.6% to $1.8 million from $1.3
million for the six fiscal months ended April 2, 2000 and March 28, 1999,
respectively. The overall increase in direct and licensed revenues resulted
primarily from increased fulfillment, distribution and customer care support
services provided to our clients by our existing direct and licensed offices.
The mix between direct and licensed revenues was impacted by the repurchase of
six licensed offices during the first fiscal quarter of 2000 (see Note 4 to the
consolidated financial statements). The increase in franchise royalties resulted
from the conversion of six offices from the licensed to franchise format during
the first half of fiscal 2000. The Company's future revenue increases depend
significantly on the Company's ability to continue to attract new clients,
retain existing clients, open new offices and manage newly opened offices to
maturity.
Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, increased 22.6% or $40.5
million to $219.3 million for the six fiscal months ended April 2, 2000 from
$178.8 million for the six fiscal months ended March 28, 1999. This increase
resulted from continued business growth as described above. Total cost of direct
and licensed sales as a percentage of revenues was 77.1% for the six fiscal
months ended April 2, 2000 compared to 76.3% for the six fiscal months ended
March 28, 1999. This increase is due primarily to a shift in the Company's
business mix. Many factors, including increased wage costs or other employment
expenses, could adversely affect the Company's cost of direct and licensed
sales.
Licensees' share of gross profit increased 15.1% or $2.7 million to
$20.8 million for the six fiscal months ended April 2, 2000 from $18.1 million
for the six fiscal months ended March 28, 1999 due to increased billings at
existing licensed offices. This growth was offset by a reduction in Licensees'
share of gross profit as a result of the repurchases and conversions noted
above. Licensees' share of gross profit as a percentage of licensed gross profit
remained relatively consistent.
Selling, general and administrative expenses, including depreciation and
amortization, increased 20.7% or $5.5 million to $32.3 million for the six
fiscal months ended April 2, 2000 from $26.8 million for the six fiscal months
ended March 28, 1999. This increase can be attributed to the business growth
discussed above, the implementation costs of the Company's new information
system and the related depreciation of the new information system. Selling,
general and administrative expenses as a percentage of total revenues decreased
to 11.3% for the six fiscal months ended April 2, 2000 from 11.4% for the six
fiscal months ended March 28, 1999. There can be no assurance that selling,
general and administrative expenses will not increase in the future, both in
absolute terms and as a percentage of total revenues. Increases in these
expenses could adversely affect the Company's profitability.
9
<PAGE> 10
REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Income from operations increased 13.4% or $1.4 million to $12.2 million
for the six fiscal months ended April 2, 2000 from $10.7 million for the six
fiscal months ended March 28, 1999 due to the factors described above. Income
from operations as a percentage of revenues was 4.3% for the six fiscal months
ended April 2, 2000 compared to 4.6% for the six fiscal months ended March 28,
1999.
Net income increased 10.1% or $0.7 million to $7.6 million for the six
fiscal months ended April 2, 2000 from $6.9 million for the six fiscal months
ended March 28, 1999 due to the factors described above. Interest expense
increased as a result of the borrowings under the Company's line of credit
agreement. 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 2.7% for the six fiscal months
ended April 2, 2000 compared to 2.9% for the six fiscal months ended March 28,
1999. All revenues and results have been internally generated by the Company.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $14.5 million for the six
fiscal months ended April 2, 2000 and $8.6 million for the six fiscal months
ended March 28, 1999. The increase in cash provided by operating activities
reflects the amortization of prepaid workers' compensation insurance (see
related discussion below) and the increase in accrued workers' compensation
costs in the current year. These increases were offset by decreased accrued
gross margin resulting from the timing of the current year payments and
increased accounts receivable resulting from stronger quarter end revenues in
the current year.
Effective April 1, 1999, the Company entered into a reinsurance contract
with Reliance National Insurance Company ("Reliance"), whereby Reliance assumed
the Company's remaining deductible liability for all open claims incurred during
the period July 22, 1997 through March 31, 1999. Additionally, the Company
entered into a one-year fully insured workers' compensation program with
Reliance. The Company paid the aggregate cost of both the reinsurance contract
and the one-year premium, a total of $18.9 million, to Reliance on April 16,
1999. Effective April 1, 2000, the Company renewed its fully insured workers'
compensation program for an additional year. The Company paid the estimated
premium amount of $11,139 to Reliance on April 13, 2000. See further discussion
in Note 5 to the consolidated financial statements.
Cash used for purchases of fixed assets was $4.1 million for the six
fiscal months ended April 2, 2000 and $4.2 million for the six fiscal months
ended March 28, 1999. The Company's purchases consist primarily of hardware and
software costs associated with its new management information system. Upgrades
of computers and hardware to support the new system began in early calendar year
1999, while implementation of the related software began in the third fiscal
quarter of 1999 and is scheduled to be completed in the fourth quarter of fiscal
2000. During the next twelve months, the Company anticipates capital
expenditures associated with direct office openings, and further investments in
the Company's computer-based technologies to approximate $5.0 million.
During October 1999, the Company acquired six licensed offices in
Virginia (see Note 4 to the consolidated financial statements). The Company is
contemplating the continued selective repurchase of licensed and franchised
offices in certain territories with the intent of expanding the Company's market
presence in such regions.
The Company has a revolving line of credit agreement with Bank of
America providing for aggregate borrowings and letters of credit of $40.0
million. The Company repaid borrowings of $12.5 million, net during the six
fiscal months ending April 2, 2000 and had $5.0 million in borrowings as of
April 2, 2000. Subsequent to April 2, 2000, the Company repaid the $5.0 million
and then borrowed an additional $8.0 million under the line of credit agreement
in connection with the payment of the workers' compensation premium discussed
above. The line of credit agreement expires on February 28, 2002.
The Company is contemplating certain strategic acquisitions. Such
acquisitions may have an impact on liquidity depending on the size of the
acquisition.
The Company believes that its current and expected levels of working
capital and line of credit are adequate to support present operations and to
fund future growth and business opportunities.
10
<PAGE> 11
REMEDYTEMP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000
The Company has not experienced any Year 2000 related disruptions and
has no basis for expecting any such events in the future.
SEASONALITY
The Company's quarterly operating results are affected by the number of
billing days in the quarter and the seasonality of its clients' businesses. The
first fiscal quarter has historically been strong as a result of manufacturing
and retail emphasis on holiday sales. The second fiscal quarter historically
shows little to no growth, and in some years a decline, in comparable revenues
from the first fiscal quarter. Revenue growth has historically accelerated in
each of the third and fourth fiscal quarters as manufacturers, retailers and
service businesses increase their level of business activity.
11
<PAGE> 12
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 29, 2000, the Company held its Annual Meeting of
Shareholders ("the Annual Meeting"). The Company's shareholders voted in favor
of the matter voted upon at the Annual Meeting according to the following vote
tabulation:
Proposal One: Election of Directors.
<TABLE>
<CAPTION>
Abstentions and
For Withhold Broker Non-Votes
--------- -------- ----------------
<S> <C> <C> <C>
William D. Cvengros 6,402,211 6,614 649,371
James L. Doti 6,402,211 6,614 649,371
Robert A. Elliott 6,402,211 6,614 649,371
Mary George 6,402,211 6,614 649,371
J. Michael Hagan 6,402,211 6,614 649,371
Robert E. McDonough, Sr 6,402,211 6,614 649,371
Paul W. Mikos 6,402,211 6,614 649,371
John B. Zaepfel 6,402,211 6,614 649,371
</TABLE>
12
<PAGE> 13
REMEDYTEMP, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Set forth below is a list of the exhibits included as part of this
Quarterly Report:
<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(h)
4.1 Specimen Stock Certificate(a)
4.2 Shareholder Rights Agreement(a)
10.1 Robert E. McDonough, Sr. Amended and Restated Employment
Agreement(i)
10.2 Paul W. Mikos Employment Agreement(k)
10.3 R. Emmett McDonough Employment Agreement(a)
10.4 Allocation Agreement with R. Emmett McDonough and Related
Trusts(a)
10.5 Registration Rights Agreement with R. Emmett McDonough and
Related Trusts(a)
10.6 Alan M. Purdy Change in Control Severance Agreement(k)
10.7 Deferred Compensation Agreement for Alan M. Purdy(a)
10.8 Letter regarding potential severance of Jeffrey A. Elias(a)
10.9 Form of Indemnification Agreement(a)
10.11 Amended and restated RemedyTemp, Inc. 1996 Stock Incentive
Plan(j)
10.12 Amended and restated RemedyTemp, Inc. 1996 Employee Stock
Purchase Plan(a)
10.13 Form of Franchising Agreement for Licensed Offices(h)
10.14 Form of Franchising Agreement for Franchised Offices(a)
10.15 Form of Licensing Agreement for IntelliSearch(R)(a)
10.18 Additional Deferred Compensation Agreement for Alan M. Purdy
(b)
10.19 Lease Agreement between RemedyTemp, Inc. and Parker-Summit,
LLC(c)
10.20 Lease Agreement between RemedyTemp, Inc. and Mitchell Land &
Improvement Company(d)
10.21 Credit Agreement among Bank of America National Trust and
Savings Association and RemedyTemp, Inc.(e)
10.22 RemedyTemp, Inc. Deferred Compensation Plan(e)
10.23 Greg Palmer Employment Agreement(f)
10.24 1998 RemedyTemp, Inc. Deferred Compensation and Stock
Ownership Plan for Outside Directors(g)
10.25 Form of Licensing Agreement for i/search2000(TM)(h)
10.26 Credit Agreement among Bank of America National Trust and
Savings Association and RemedyTemp, Inc.(j)
27.1 Financial Data Schedule
</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.
(b) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 1996.
(c) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 30, 1997.
(d) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended June 29, 1997.
(e) Incorporated by reference to the exhibit of same number to the
Registrant's Annual Report on Form 10-K for the yearly period ended
September 28, 1997. Form 10.21 is superseded by the new agreement,
effective March 31, 1999. See Exhibit 10.26
(f) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended December 27, 1997.
(g) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 29, 1998.
(h) Incorporated by reference to the exhibit of same number to the
Registrant's Annual Report on Form 10-K for the yearly period ended
September 27, 1998.
(i) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended December 27, 1998.
(j) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 28, 1999.
(k) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended June 28, 1999.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the fiscal quarter ended April 2,
2000.
13
<PAGE> 14
REMEDYTEMP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REMEDYTEMP, INC.
May 16, 2000 /s/ PAUL W. MIKOS
-----------------------------
Paul W. Mikos, President and
Chief Executive Officer
May 16, 2000 /s/ ALAN M. PURDY
-----------------------------
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
14
<PAGE> 15
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(h)
4.1 Specimen Stock Certificate(a)
4.2 Shareholder Rights Agreement(a)
10.1 Robert E. McDonough, Sr. Amended and Restated Employment
Agreement(i)
10.2 Paul W. Mikos Employment Agreement(k)
10.3 R. Emmett McDonough Employment Agreement(a)
10.4 Allocation Agreement with R. Emmett McDonough and Related
Trusts(a)
10.5 Registration Rights Agreement with R. Emmett McDonough and
Related Trusts(a)
10.6 Alan M. Purdy Change in Control Severance Agreement(k)
10.7 Deferred Compensation Agreement for Alan M. Purdy(a)
10.8 Letter regarding potential severance of Jeffrey A. Elias(a)
10.9 Form of Indemnification Agreement(a)
10.11 Amended and restated RemedyTemp, Inc. 1996 Stock Incentive
Plan(j)
10.12 Amended and restated RemedyTemp, Inc. 1996 Employee Stock
Purchase Plan(a)
10.13 Form of Franchising Agreement for Licensed Offices(h)
10.14 Form of Franchising Agreement for Franchised Offices(a)
10.15 Form of Licensing Agreement for IntelliSearch(R)(a)
10.18 Additional Deferred Compensation Agreement for Alan M. Purdy
(b)
10.19 Lease Agreement between RemedyTemp, Inc. and Parker-Summit,
LLC(c)
10.20 Lease Agreement between RemedyTemp, Inc. and Mitchell Land &
Improvement Company(d)
10.21 Credit Agreement among Bank of America National Trust and
Savings Association and RemedyTemp, Inc.(e)
10.22 RemedyTemp, Inc. Deferred Compensation Plan(e)
10.23 Greg Palmer Employment Agreement(f)
10.24 1998 RemedyTemp, Inc. Deferred Compensation and Stock
Ownership Plan for Outside Directors(g)
10.25 Form of Licensing Agreement for i/search 2000(TM)(h)
10.26 Credit Agreement among Bank of America National Trust and
Savings Association and RemedyTemp, Inc.(j)
27.1 Financial Data Schedule
</TABLE>
15
<PAGE> 16
REMEDYTEMP, INC.
(a) Incorporated by reference to the exhibit of same number to the
Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as
amended.
(b) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 1996.
(c) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 30, 1997.
(d) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended June 29, 1997.
(e) Incorporated by reference to the exhibit of same number to the
Registrant's Annual Report on Form 10-K for the yearly period ended
September 28, 1997. Form 10.21 is superseded by the new agreement,
effective March 31, 1999. See Exhibit 10.26.
(f) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended December 27, 1997.
(g) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 29, 1998.
(h) Incorporated by reference to the exhibit of same number to the
Registrant's Annual Report on Form 10-K for the yearly period ended
September 27, 1998.
(i) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended December 27, 1998.
(j) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 28, 1999.
(k) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended June 28, 1999.
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-01-2000
<PERIOD-START> OCT-4-1999
<PERIOD-END> APR-02-2000
<CASH> 4,687
<SECURITIES> 0
<RECEIVABLES> 76,534
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 86,880
<PP&E> 20,163
<DEPRECIATION> 0
<TOTAL-ASSETS> 115,122
<CURRENT-LIABILITIES> 31,835
<BONDS> 0
0
0
<COMMON> 89
<OTHER-SE> 83,198
<TOTAL-LIABILITY-AND-EQUITY> 115,122
<SALES> 0
<TOTAL-REVENUES> 284,575
<CGS> 0
<TOTAL-COSTS> 219,266
<OTHER-EXPENSES> 53,140
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 364
<INCOME-PRETAX> 12,224
<INCOME-TAX> 4,630
<INCOME-CONTINUING> 7,594
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,594
<EPS-BASIC> .86
<EPS-DILUTED> .84
</TABLE>
