-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GlFE/9f/l0u9iIkJHCAQ5Fe0gUQwUvmBCpCWT0OKnz14M+BsWK7wo+mOg+Q+aHx4 OfeMokgJy7X364J97K6yrg== 0000892569-98-002294.txt : 19980814 0000892569-98-002294.hdr.sgml : 19980814 ACCESSION NUMBER: 0000892569-98-002294 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REMEDYTEMP INC CENTRAL INDEX KEY: 0001013467 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 952890471 STATE OF INCORPORATION: CA FISCAL YEAR END: 0929 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20831 FILM NUMBER: 98685810 BUSINESS ADDRESS: STREET 1: 32122 CAMINO CAPISTRANO CITY: SAN JUAN CAPISTRANO STATE: CA ZIP: 92675 BUSINESS PHONE: 7146611211 MAIL ADDRESS: STREET 1: 32122 CAMINO CAPISTRANO STREET 2: 32122 CAMINO CAPISTRANO CITY: SAN JUAN CAPISTRANO STATE: CA ZIP: 92675 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 28, 1998 1 ================================================================================ 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 JUNE 28, 1998 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) 32122 CAMINO CAPISTRANO SAN JUAN CAPISTRANO, CALIFORNIA 92675 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 661-1211 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of August 1, 1998 there were 7,191,171 shares of Class A Common Stock and 1,812,539 shares of Class B Common Stock outstanding. ================================================================================ 2 REMEDYTEMP, INC. INDEX
PAGE NO. -------- PART I--FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet as of June 28, 1998 and September 28, 1997.......... 3 Consolidated Statement of Income for the three fiscal months and nine fiscal months ended June 28, 1998 and June 29, 1997............................ 4 Consolidated Statement of Cash Flows for the nine fiscal months ended June 28, 1998 and June 29, 1997................................................ 5 Notes to Consolidated Financial Statements..................................... 6 Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations............................................ 8 Item 3. Quantitative and Qualitative Disclosure About Market Risk...................... * PART II--OTHER INFORMATION Item 1. Legal Proceedings.............................................................. * Item 2. Changes In Securities and Use of Proceeds...................................... * Item 3. Defaults Upon Senior Securities................................................ * Item 4. Submission of Matters to a Vote of Security Holders............................ * Item 5. Other Information.............................................................. * Item 6. Exhibits and Reports on Form 8-K............................................... 12 SIGNATURES.............................................................................. 13
* No information provided due to inapplicability of item. 2 3 REMEDYTEMP, INC PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ASSETS
JUNE 28, SEPTEMBER 28, 1998 1997 --------- ------------- Current assets: Cash and cash equivalents ....................................... $ 5,707 $ 5,128 Accounts receivable, net of allowance for doubtful accounts of $2,984 and $2,612.............................................. 56,286 55,751 Prepaid expenses and other current assets ....................... 2,444 1,987 Deferred income taxes ........................................... 349 349 ------- ------- Total current assets ...................................... 64,786 63,215 Fixed assets, net of accumulated depreciation of $12,471 and $10,583.......................................................... 12,716 7,184 Other assets ...................................................... 2,478 2,502 Goodwill, net of accumulated amortization of $114 and $20 ......... 1,825 905 ------- ------- $81,805 $73,806 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ............................................... $ 2,543 $ 4,082 Accrued workers' compensation .................................. 5,115 2,905 Accrued payroll, benefits and related costs .................... 11,614 11,489 Accrued licensees' share of gross profit ....................... 2,831 2,225 Other accrued expenses ......................................... 1,084 1,148 Income taxes payable ........................................... -- 1,783 Current portion of capitalized lease obligation ................ 314 453 ------- ------- Total current liabilities ................................ 23,501 24,085 Deferred income taxes ............................................ 129 2,379 Capitalized lease obligation ..................................... 114 281 ------- ------- 23,744 26,745 ------- ------- 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; 7,178 and 5,930 issued and outstanding at June 28, 1998 and September 28, 1997, respectively ........... 72 60 Class B Non-Voting Common Stock, $.01 par value; authorized 4,530 shares; 1,815 and 2,997 issued and outstanding at June 28, 1998 and September 28, 1997, respectively ........... 18 30 Additional paid-in capital ....................................... 34,221 33,262 Retained earnings ................................................ 23,750 13,709 ------- ------- Total shareholders' equity ....................................... 58,061 47,061 ------- ------- $81,805 $73,806 ======= =======
See accompanying notes to consolidated financial statements. 3 4 REMEDYTEMP, INC. CONSOLIDATED STATEMENT OF INCOME (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------ ------------------------ JUNE 28, JUNE 29, JUNE 28, JUNE 29, 1998 1997 1998 1997 -------- -------- -------- -------- Direct sales ............................. $ 68,709 $ 54,641 $206,619 $161,749 Licensed sales ........................... 43,938 36,858 125,204 96,338 Franchise royalties ...................... 691 727 2,180 2,242 Initial license and franchise fees ....... 50 61 137 108 -------- -------- -------- -------- Total revenues ..................... 113,388 92,287 334,140 260,437 Cost of direct sales ..................... 53,390 42,392 161,936 126,086 Cost of licensed sales ................... 32,556 27,666 93,351 71,987 Licensees' share of gross profit ......... 7,771 6,153 21,644 16,457 Selling and administrative expenses....... 13,251 11,444 39,118 33,021 Depreciation and amortization ............ 683 643 2,016 1,865 -------- -------- -------- -------- Income from operations ............. 5,737 3,989 16,075 11,021 Other income: Interest income, net ................... 139 168 223 392 Other, net ............................. 175 237 866 839 -------- -------- -------- -------- Income before provision for income taxes................................... 6,051 4,394 17,164 12,252 Provision for income taxes ............... 2,511 1,823 7,123 5,084 -------- -------- -------- -------- Net income ............................... $ 3,540 $ 2,571 $ 10,041 $ 7,168 ======== ======== ======== ======== Net income per share, basic (Note 2)...... $ 0.39 $ 0.29 $ 1.12 $ 0.81 ======== ======== ======== ======== Weighted-average number of shares ........ 8,984 8,900 8,954 8,900 ======== ======== ======== ======== Net income per share, diluted (Note 2)... $ 0.38 $ 0.29 $ 1.08 $ 0.79 ======== ======== ======== ======== Weighted-average number of shares ........ 9,412 9,007 9,297 9,025 ======== ======== ======== ========
See accompanying notes to consolidated financial statements. 4 5 REMEDYTEMP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED -------------------------- JUNE 28, JUNE 29, 1998 1997 --------- --------- Cash flows (used in) provided by operating activities: Net income ............................................... $ 10,041 $ 7,168 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ........................ 2,016 1,865 Provision for losses on accounts receivable .......... 1,004 1,269 Deferred taxes ....................................... (2,250) (2,250) Changes in assets and liabilities: Accounts receivable ................................ (1,539) (8,466) Prepaid expenses and other current assets .......... (457) 75 Other assets ....................................... 24 (691) Accounts payable ................................... (1,539) 1,722 Accrued workers' compensation ...................... 2,210 833 Accrued payroll, benefits and related costs ........ 125 (206) Accrued licensees' share of gross profit ........... 606 411 Other accrued expenses ............................. (64) (441) Income taxes payable ............................... (1,783) (1,167) -------- -------- Net cash provided by operating activities ................ 8,394 122 -------- -------- Cash flows (used in) provided by investing activities: Purchase of fixed assets ................................. (7,454) (2,484) Purchase of franchises, net of assets acquired ........... (1,014) -- Sale of investments ...................................... -- 1,016 -------- -------- Net cash used in investing activities .................... (8,468) (1,468) -------- -------- Cash flows (used in) provided by financing activities: Borrowings under line of credit agreement ................ 1,000 100 Repayments under line of credit agreement ................ (1,000) (100) Repayments under capital lease obligation ................ (306) (309) Proceeds from stock option activity ...................... 646 -- Proceeds from Employee Stock Purchase Plan activity ...... 313 163 Distributions to pre-offering shareholders ............... -- (4,007) -------- -------- Net cash provided by (used in) financing activities ...... 653 (4,153) -------- -------- Net increase (decrease) in cash and cash equivalents ...... 579 (5,499) Cash and cash equivalents at beginning of period .......... 5,128 10,959 -------- -------- Cash and cash equivalents at end of period ................ $ 5,707 $ 5,460 ======== ======== Other cash flow information: Cash paid during the period for interest ................. $ 68 $ 90 Cash paid during the period for income taxes ............. $ 11,161 $ 8,780
5 6 REMEDYTEMP, INC. 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. (the "Company") including its wholly-owned subsidiary, Remedy Insurance Group, LTD ("RIG"). All significant intercompany transactions and balances have been eliminated. The accompanying consolidated balance sheet at June 28, 1998, and the consolidated statements of income and of cash flows for the nine fiscal months ended June 28, 1998 and June 29, 1997, 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 23, 1997. Certain reclassifications, which have no effect on retained earnings, have been made to conform the fiscal 1997 information to the fiscal 1998 presentation. 2. EARNINGS PER SHARE DISCLOSURE During the first fiscal quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128") which became effective for financial statements issued for periods ending after December 15, 1997. SFAS No. 128 replaces the previous presentation of earnings per share on the Statement of Income with a dual presentation of Basic Earnings Per Share ("Basic EPS") and Diluted Earnings Per Share ("Diluted EPS"). Basic EPS excludes dilution and is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised, resulting in the issuance of common stock that then shared in the earnings of the Company. As required by SFAS 128, all prior period EPS data has been restated to conform with the provisions of this statement. Basic and Diluted EPS under SFAS No. 128 do not differ materially from Primary Earnings Per Share as previously presented. The following table sets forth the computation of Basic and Diluted EPS under SFAS 128:
THREE FISCAL MONTHS ENDED ---------------------------------------------------------------------------- JUNE 28, 1998 JUNE 29, 1997 ------------------------------------ ------------------------------------- INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS ----------- ------------- --------- ----------- ------------- ---------- BASIC EPS Income available to common shareholders.................. $3,540 8,984 $ 0.39 $2,571 8,900 $ 0.29 ======= ======= EFFECT OF DILUTIVE SECURITIES Stock options.................... $ -- 428 $ -- 107 ------ ----- ------ ----- DILUTED EPS Income available to common shareholders plus assumed conversions.................... $3,540 9,412 $ 0.38 $2,571 9,007 $ 0.29 ====== ===== ======= ====== ===== =======
6 7 REMEDYTEMP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2. EARNINGS PER SHARE DISCLOSURE (CONTINUED)
NINE FISCAL MONTHS ENDED ------------------------------------------------------------------------------ JUNE 28, 1998 JUNE 29, 1997 ------------------------------------ ----------------------------------- INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS ----------- ------------- --------- ----------- ------------- --------- BASIC EPS Income available to common shareholders................... $10,041 8,954 $ 1.12 $7,168 8,900 $ 0.81 ======= ======= EFFECT OF DILUTIVE SECURITIES Stock options.................... $ -- 343 $ -- 125 ------- ----- ------ ----- DILUTED EPS Income available to common shareholders plus assumed conversions.................... $10,041 9,297 $ 1.08 $7,168 9,025 $ 0.79 ======= ===== ======= ====== ===== =======
3. STOCK OPTIONS In accordance with the terms of the Company's 1996 Stock Incentive Plan, as amended, on June 8, 1998 the Company granted options to purchase 5 shares of Class A Common Stock to a certain employee at $29.00 per share, the average stock price of the Class A Common Stock on such grant date. This plan is "non-compensatory" under APB No. 25, and accordingly, no compensation expense was recorded in connection with this grant. 7 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 those related to the Company's growth and strategies, regarding events and financial trends that may affect the Company's future operating results and financial position. The Company's actual results and financial position could differ materially from those anticipated in the forward-looking statements as a result of competition, the availability of sufficient personnel, and other risks and uncertainties including, but not limited to, those risks described in detail under the "Risk Factors" section and elsewhere in the Company's Form 10-K as filed with the SEC on December 23, 1997. RESULTS OF OPERATIONS For the Three Fiscal Months Ended June 28, 1998 Compared to the Three Fiscal Months Ended June 29, 1997 Total revenues increased 22.9% or $21.1 million to $113.4 million for the three fiscal months ended June 28, 1998 from $92.3 million for the three fiscal months ended June 29, 1997, due primarily to volume increases attributable to increased billings at existing offices, expansion of services and the opening of 37 new offices since the prior period. Future revenue increases depend to a significant extent on the Company's ability to continue to open new offices and manage newly opened offices to maturity. Although the quarterly increase in total revenues is generally consistent with the Company's historical performance as a public company, the Company has recently experienced extraordinary price competition from a national staffing provider on one existing high volume, low gross margin client. The Company believes it is likely that it will not be able to retain this client for various reasons, including the Company's strategic emphasis on maintaining acceptable gross margin levels on all client accounts. In light of the significant market demand for the Company's staffing services from clients and potential clients who accept the Company's customary gross margin requirements, the Company believes that it should be able to continue to maintain its gross margin requirements and to expand its business on that basis, although no assurance in this regard can be given. Total cost of direct and licensed sales, which consists of wages and other expenses related to the temporary associates, increased 22.7% or $15.9 million to $85.9 million for the three fiscal months ended June 28, 1998 from $70.1 million for the three fiscal months ended June 29, 1997, due to increased revenues as discussed above. Total cost of direct and licensed sales as a percentage of revenues was 75.8% for the three fiscal months ended June 28, 1998 compared to 75.9% for the three fiscal months ended June 29, 1997. The Company's cost of licensed sales as a percentage of licensed sales decreased to 74.1% for the three fiscal months ended June 28, 1998 compared to 75.1% for the three fiscal months ended June 29, 1997. 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. Pursuant to terms of the franchise agreement for licensed offices, 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. Licensees' share of gross profit increased 26.3% or $1.6 million to $7.8 million for the three fiscal months ended June 28, 1998 from $6.2 million for the three fiscal months ended June 29, 1997 due to increased billings at existing licensed offices and to the opening of 23 new offices. Licensees' share of gross profit as a percentage of total revenues remained relatively stable. Licensees' share of gross profit as a percentage of licensed revenue increased to 17.7% for the three fiscal months ended June 28, 1998 from 16.7% for the three fiscal months ended June 29, 1997 due to an increase in hours billed at existing licensed offices. Selling, general and administrative expenses (including depreciation and amortization) increased 15.3% or $1.8 million to $13.9 million for the three fiscal months ended June 28, 1998 from $12.1 million for the three fiscal months ended June 29, 1997. Selling, general and administrative expenses as a percentage of total revenues decreased to 12.3% for the three fiscal months ended June 28, 1998 from 13.1% for the three fiscal months ended June 29, 1997. The Company has controlled growth in selling, general and administrative expenses by tightening cost controls through budgetary analysis and implementing more stringent hiring and compensation guidelines. There can be no assurance that 8 9 REMEDYTEMP, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) selling, general and administrative expenses will not increase in the future, both in absolute terms and as a percentage of total revenues, and increases in these expenses could adversely affect the Company's profitability. Income from operations increased 43.8% or $1.7 million to $5.7 million for the three fiscal months ended June 28, 1998 from $4.0 million for the three fiscal months ended June 29, 1997 due to the factors described above. Income from operations as a percentage of revenues increased to 5.1% for the three fiscal months ended June 28, 1998 from 4.3% for the three fiscal months ended June 29, 1997. Income before income taxes increased 37.7% or $1.7 million to $6.1 million for the three fiscal months ended June 28, 1998 from $4.4 million for the three fiscal months ended June 29, 1997 due to the factors described above. As a percentage of total revenues, income before income taxes increased to 5.3% in the three fiscal months ended June 28, 1998 from 4.8% in the three fiscal months ended June 29, 1997. For the Nine Fiscal Months Ended June 28, 1998 Compared to the Nine Fiscal Months Ended June 29, 1997 Total revenues increased 28.3% or $73.7 million to $334.1 million for the nine fiscal months ended June 28, 1998 from $260.4 million for the nine fiscal months ended June 29, 1997, due primarily to volume increases attributable to increased billings at existing offices, expansion of services and the opening of 37 new offices since the prior period. Future revenue increases depend to a significant extent on the Company's ability to continue to 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 28.9% or $57.2 million to $255.3 million for the nine fiscal months ended June 28, 1998 from $198.1 million for the nine fiscal months ended June 29, 1997, due to increased revenues as discussed above. Total cost of direct and licensed sales as a percentage of revenues was 76.4% for the nine fiscal months ended June 28, 1998 compared to 76.1% for the nine fiscal months ended June 29, 1997. This increase was due largely to the increase in revenue from one high volume, lower gross margin client. The Company's cost of licensed sales as a percentage of licensed sales remained relatively stable. 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. Pursuant to terms of the franchise agreement for licensed offices, 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. Licensees' share of gross profit increased 31.5% or $5.2 million to $21.6 million for the nine fiscal months ended June 28, 1998 from $16.5 million for the nine fiscal months ended June 29, 1997. Licensees' share of gross profit as a percentage of total revenues remained relatively stable. Licensees' share of gross profit as a percentage of licensed revenue increased to 17.3% for the nine fiscal months ended June 28, 1998 from 17.1% for the nine fiscal months ended June 29, 1997 due to an increase in hours billed at existing licensed offices. Selling, general and administrative expenses (including depreciation and amortization) increased 17.9% or $6.2 million to $41.1 million for the nine fiscal months ended June 28, 1998 from $34.9 million for the nine fiscal months ended June 29, 1997. Selling, general and administrative expenses as a percentage of total revenues decreased to 12.3% for the nine fiscal months ended June 28, 1998 from 13.4% for the nine fiscal months ended June 29, 1997. The Company has controlled growth in selling, general and administrative expenses by tightening cost controls through budgetary analysis and implementing more stringent hiring and compensation guidelines. 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, and increases in these expenses could adversely affect the Company's profitability. Income from operations increased 45.9% or $5.1 million to $16.1 million for the nine fiscal months ended June 28, 1998 from $11.0 million for the nine fiscal months ended June 29, 1997 due to the factors described above. Income from operations as a percentage of revenues increased to 4.8% for the nine fiscal months ended June 28, 1998 from 4.2% for the nine fiscal months ended June 29, 1997. 9 10 REMEDYTEMP, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Income before income taxes increased 40.1% or $4.9 million to $17.2 million for the nine fiscal months ended June 28, 1998 from $12.3 million for the nine fiscal months ended June 29, 1997 due to the factors described above. As a percentage of total revenues, income before income taxes increased to 5.1% in the nine fiscal months ended June 28, 1998 from 4.7% in the nine fiscal months ended June 29, 1997. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities was $8.4 million for the nine fiscal months ended June 28, 1998 and $0.1 million for the nine fiscal months ended June 29, 1997. Cash provided by operating activities was significantly impacted by changes in working capital primarily resulting from a substantial increase in business volumes. Cash used for purchases of fixed assets was $7.5 million for the nine fiscal months ended June 28, 1998, and $2.5 million for the nine fiscal months ended June 29, 1997. The increase in fiscal 1998 primarily resulted from expenditures associated with leasehold improvements at direct offices, the new corporate headquarters and the Company's new management information system. Implementation of this system is expected to begin in early calendar year 1999. During the next twelve months, the Company anticipates capital expenditures associated with direct office openings, new corporate headquarters and further investments in the Company's computer-based technologies to approximate $4.3 million. Prior to the Company's initial public offering (the "Offering") on July 11, 1996, the Company declared distributions to its pre-Offering shareholders. In accordance with the declaration, distributions of $4.0 million were paid to the pre-Offering shareholders during nine fiscal months ended June 29, 1997. In connection with the Offering, the Company terminated its S corporation status and, as a result, was required to change its overall method of accounting for tax reporting purposes from the cash method to the accrual method, resulting in a one-time charge to earnings in the fourth quarter of fiscal 1996 of approximately $7.8 million. The Internal Revenue Code allows the Company to recognize the effects of this termination in its tax returns over a four-year period. This resulted in additional quarterly installments of $750,000 in each fiscal quarter of 1998 and 1997, respectively. The Company has a revolving line of credit agreement with Bank of America providing for aggregate borrowings and letters of credit of $30.0 million. Interest on outstanding borrowings is payable monthly at the bank's reference rate or, at the Company's discretion, LIBOR plus 1.5%. The line of credit is unsecured and expires on February 28, 1999. The principal use of the line of credit has been to finance receivables, to provide a letter of credit required in connection with the Company's workers' compensation self-insurance program and to finance prior S corporation distributions made to pre-Offering shareholders. The Company had no balance outstanding under its line of credit and $2.6 million in undrawn letters of credit as of June 28, 1998. The bank 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 requirements. Additionally, RIG has a letter of credit agreement with Bank of Bermuda (New York) Limited in the amount of $80,000. The letter of credit is unsecured, expires on July 22, 1999 and is required in connection with the Company's workers' compensation self-insurance program. The Company believes that its current and expected levels of working capital and line of credit are adequate to support present operations and to fund future growth and business opportunities. YEAR 2000 COMPLIANCE In July 1996, the FASB Emerging Issues Task Force ("EITF") issued EITF No. 96-14, "Accounting for the Costs Associated with Modifying Computer Software for the Year 2000," in which it reached a consensus that external and internal costs specifically associated with modifying internal-use software for the year 2000 should be charged to expense as incurred. The Company believes that it is exposed to low Year 2000 related risk since the new management information system, which is believed to be Year 2000 compliant, is expected to be operational beginning in early calendar year 1999. It should be noted that the new management information system is being implemented for strategic business 10 11 REMEDYTEMP, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) reasons unrelated to Year 2000 issues and the implementation schedule was not accelerated due to Year 2000 issues. All other information technology ("IT") and non-IT systems have been evaluated and are believed to pose no material risk to the Company. No significant incremental costs are expected to be incurred in connection with Year 2000 issues. The material customers and vendors of the Company are sufficiently diverse that the Company believes that no significant Year 2000 risks to the Company exist from these sources, although no assurance can be given on behalf of third parties. 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 12 PART II--OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Set forth below is a list of the exhibits included as part of this Quarterly Report:
Number Exhibit Description - ------- ----------- 3.1 Amended and Restated Articles of Incorporation of the Company (a) 3.2 Amended and Restated Bylaws of the Company (a) 4.1 Specimen Stock Certificate (a) 4.2 Shareholder Rights Agreement (a) 10.1 Robert E. McDonough, Sr. Amended and Restated Employment Agreement (a) 10.2 Paul W. Mikos Employment Agreement (a) 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 Letter regarding terms of employment and potential severance of Alan M. Purdy (a) 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) 10.10 Lease Agreement between RemedyTemp, Inc. and Robert E. McDonough, Sr. (b) 10.11 RemedyTemp, Inc. 1996 Stock Incentive Plan (a) 10.12 RemedyTemp, Inc. 1996 Employee Stock Purchase Plan (a) 10.13 Form of Franchising Agreement for Licensed Offices (a) 10.14 Form of Franchising Agreement for Franchised Offices (a) 10.15 Form of Licensing Agreement for IntelliSearch(R)(a) 10.16 Credit Agreement among Bank of America National Trust and Savings Association, Union Bank and RemedyTemp, Inc. as amended (f) 10.17 Paul W. Mikos Promissory Note (a) 10.18 Additional Deferred Compensation Agreement for Alan M. Purdy (c) 10.19 Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC (d) 10.20 Lease Agreement between RemedyTemp, Inc. and Mitchell Land & Improvement Company (e) 10.21 Credit Agreement among Bank of America National Trust and Savings Association and RemedyTemp, Inc. (g) 10.22 RemedyTemp, Inc. Deferred Compensation Plan (g) 10.23 Greg Palmer Employment Agreement (h) 10.24 1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership Plan for Outside Directors (i) 27.1 Financial Data Schedule
- ----------------- (a) Incorporated by reference to the exhibit of same number to the Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as amended. (b) Incorporated by reference to the exhibit of same number to the Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as amended. This agreement was terminated July 15, 1997. (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 December 29, 1996. (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 March 30, 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 June 29, 1997. (f) 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. This agreement was terminated August 24, 1997. (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 28, 1997. (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 28, 1997. (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 29, 1998. (b) Reports on Form 8-K. No reports on Form 8-K were filed in the fiscal quarter ended June 28, 1998. 12 13 REMEDTEMP, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REMEDYTEMP, INC. August 10, 1998 /s/ PAUL W. MIKOS ----------------------------------- Paul W. Mikos, President and Chief Executive Officer August 10, 1998 /s/ ALAN M. PURDY ----------------------------------- Alan M. Purdy Senior Vice President and Chief Financial Officer (Principal Financial Officer) 13 14 REMEDYTEMP, INC. EXHIBIT INDEX
Number Exhibit Description - ------- ----------- 3.1 Amended and Restated Articles of Incorporation of the Company (a) 3.2 Amended and Restated Bylaws of the Company (a) 4.1 Specimen Stock Certificate (a) 4.2 Shareholder Rights Agreement (a) 10.1 Robert E. McDonough, Sr. Amended and Restated Employment Agreement (a) 10.2 Paul W. Mikos Employment Agreement (a) 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 Letter regarding terms of employment and potential severance of Alan M. Purdy (a) 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) 10.10 Lease Agreement between RemedyTemp, Inc. and Robert E. McDonough, Sr. (b) 10.11 RemedyTemp, Inc. 1996 Stock Incentive Plan (a) 10.12 RemedyTemp, Inc. 1996 Employee Stock Purchase Plan (a) 10.13 Form of Franchising Agreement for Licensed Offices (a) 10.14 Form of Franchising Agreement for Franchised Offices (a) 10.15 Form of Licensing Agreement for IntelliSearch(R)(a) 10.16 Credit Agreement among Bank of America National Trust and Savings Association, Union Bank and RemedyTemp, Inc. as amended (f) 10.17 Paul W. Mikos Promissory Note (a) 10.18 Additional Deferred Compensation Agreement for Alan M. Purdy (c) 10.19 Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC (d) 10.20 Lease Agreement between RemedyTemp, Inc. and Mitchell Land & Improvement Company (e) 10.21 Credit Agreement among Bank of America National Trust and Savings Association and RemedyTemp, Inc. (g) 10.22 RemedyTemp, Inc. Deferred Compensation Plan (g) 10.23 Greg Palmer Employment Agreement (h) 10.24 1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership Plan for Outside Directors (i) 27.1 Financial Data Schedule
- ----------------- (a) Incorporated by reference to the exhibit of same number to the Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as amended. (b) Incorporated by reference to the exhibit of same number to the Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as amended. This agreement was terminated July 15, 1997. (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 December 29, 1996. (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 March 30, 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 June 29, 1997. (f) 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. This agreement was terminated August 24, 1997. (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 28, 1997. (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 28, 1997. (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 29, 1998. EX-27.1 2 FINANCIAL DATA SCHEDULE
5 3-MOS SEP-27-1998 MAR-30-1998 JUN-28-1998 5,707 0 56,286 0 0 64,786 12,716 0 81,805 23,501 0 0 0 90 57,971 81,805 0 113,388 0 85,946 21,705 0 0 6,051 2,511 3,540 0 0 0 3,540 0.39 0.38
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