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 December 28, 2003
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 (State or other jurisdiction of Incorporation or organization) |
95-2890471 (I.R.S. Employer Identification Number) | |
| 101 Enterprise Aliso Viejo, California (Address of principal executive offices) |
92656 (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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of February 4, 2004 there were 8,794,606 shares of Class A Common Stock and 804,642 shares of Class B Common Stock outstanding.
RemedyTemp, Inc.
| Page No. | ||||
| PART I—FINANCIAL INFORMATION |
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| Item 1. |
Financial Statements |
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| Consolidated Balance Sheets as of December 28, 2003 (unaudited) and September 28, 2003 |
3 | |||
| 4 | ||||
| 5 | ||||
| Condensed Notes to Consolidated Financial Statements (unaudited) |
6 | |||
| Item 2. |
Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations |
14 | ||
| Item 3. |
21 | |||
| Item 4. |
22 | |||
| PART II—OTHER INFORMATION |
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| Item 1. |
23 | |||
| Item 2. |
* | |||
| Item 3. |
* | |||
| Item 4. |
* | |||
| Item 5. |
* | |||
| Item 6. |
25 | |||
| 27 | ||||
| * | No information provided due to inapplicability of item. |
2
RemedyTemp, Inc.
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(amounts in thousands, except per share amounts)
ASSETS
| (unaudited) | ||||||||
| December 28, 2003 |
September 28, 2003 |
|||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 12,397 | $ | 13,236 | ||||
| Investments |
18,563 | 18,384 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $3,032 and $2,627, respectively |
54,408 | 60,594 | ||||||
| Prepaid expenses and other current assets |
6,542 | 6,679 | ||||||
| Deferred and current income taxes |
614 | 330 | ||||||
| Total current assets |
92,524 | 99,223 | ||||||
| Fixed assets, net |
10,927 | 12,337 | ||||||
| Restricted cash and investments |
21,750 | 21,615 | ||||||
| Other assets |
1,176 | 1,334 | ||||||
| Intangible assets, net of accumulated amortization of $300 and $219, respectively |
1,574 | 1,655 | ||||||
| Goodwill |
3,001 | 3,030 | ||||||
| Total Assets |
$ | 130,952 | $ | 139,194 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 3,137 | $ | 4,790 | ||||
| Accrued workers’ compensation, current portion (Note 9) |
17,807 | 15,263 | ||||||
| Accrued payroll, benefits and related costs |
10,817 | 17,530 | ||||||
| Accrued licensees’ share of gross profit |
1,857 | 2,231 | ||||||
| Other accrued expenses |
3,406 | 3,335 | ||||||
| Total current liabilities |
37,024 | 43,149 | ||||||
| Accrued workers’ compensation, non-current portion (Note 9) |
21,771 | 20,681 | ||||||
| Total liabilities |
58,795 | 63,830 | ||||||
| Commitments and contingent liabilities (Note 2) |
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| Shareholders’ equity: |
||||||||
| Preferred Stock, $0.01 par value; authorized 5,000 shares; none outstanding |
— | — | ||||||
| Class A Common Stock, $0.01 par value; authorized 50,000 shares; 8,795 and 8,769 issued and outstanding at December 28, 2003 and September 28, 2003, respectively |
88 | 88 | ||||||
| Class B Non-Voting Common Stock, $0.01 par value; authorized 4,530 shares; 805 and 894 issued and outstanding at December 28, 2003 and September 28, 2003, respectively |
8 | 9 | ||||||
| Additional paid-in capital |
41,846 | 42,674 | ||||||
| Unearned compensation |
(5,047 | ) | (6,031 | ) | ||||
| Accumulated other comprehensive income |
88 | 134 | ||||||
| Retained earnings |
35,174 | 38,490 | ||||||
| Total shareholders’ equity |
72,157 | 75,364 | ||||||
| Total Liabilities and Shareholders’ Equity |
$ | 130,952 | $ | 139,194 | ||||
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
(unaudited)
| Three Months Ended |
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| December 28, 2003 |
December 29, 2002 |
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| Direct sales |
$ | 82,190 | $ | 70,268 | ||||
| Licensed franchise sales |
43,378 | 49,950 | ||||||
| Franchise royalties |
427 | 570 | ||||||
| Initial franchise fees |
16 | 6 | ||||||
| Total revenues |
126,011 | 120,794 | ||||||
| Cost of direct sales |
70,867 | 57,781 | ||||||
| Cost of licensed sales |
34,654 | 39,887 | ||||||
| Licensees’ share of gross profit |
5,817 | 6,721 | ||||||
| Selling and administrative expenses |
16,442 | 15,145 | ||||||
| Depreciation and amortization |
1,748 | 1,209 | ||||||
| (Loss) income from operations |
(3,517 | ) | 51 | |||||
| Other income and expense: |
||||||||
| Interest expense |
(127 | ) | (8 | ) | ||||
| Interest income |
258 | 347 | ||||||
| Other, net |
194 | 149 | ||||||
| (Loss) income before provision for income taxes and cumulative effect of adoption of a |
(3,192 | ) | 539 | |||||
| Provision for income taxes |
124 | 89 | ||||||
| (Loss) income before cumulative effect of adoption of a new accounting standard |
(3,316 | ) | 450 | |||||
| Cumulative effect of adoption of a new accounting standard, net of income taxes of $1,634 |
— | 2,421 | ||||||
| Net loss |
$ | (3,316 | ) | $ | (1,971 | ) | ||
| Earnings per share—basic: |
||||||||
| (Loss) income before cumulative effect of adoption of a new accounting standard |
$ | (0.37 | ) | $ | 0.05 | |||
| Cumulative effect of adoption of a new accounting standard, net of income taxes |
— | (0.27 | ) | |||||
| Net loss—basic |
$ | (0.37 | ) | $ | (0.22 | ) | ||
| Earnings per share—diluted: |
||||||||
| (Loss) income before cumulative effect of adoption of a new accounting standard |
$ | (0.37 | ) | $ | 0.05 | |||
| Cumulative effect of adoption of a new accounting standard, net of income taxes |
— | (0.27 | ) | |||||
| Net loss—diluted |
$ | (0.37 | ) | $ | (0.22 | ) | ||
| Weighted average shares: |
||||||||
| Basic |
9,019 | 9,000 | ||||||
| Diluted |
9,019 | 9,000 | ||||||
See accompanying notes to consolidated financial statements.
4
RemedyTemp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
| Three Months Ended |
||||||||
| December 28, 2003 |
December 29, 2002 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (3,316 | ) | $ | (1,971 | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: |
||||||||
| Cumulative effect of adoption of a new accounting standard, net of income taxes |
— | 2,421 | ||||||
| Depreciation and amortization |
1,748 | 1,209 | ||||||
| Provision for losses on accounts receivable |
903 | 381 | ||||||
| Restricted stock compensation expense |
89 | 298 | ||||||
| Changes in assets and liabilities: |
||||||||
| Trading investments |
(147 | ) | (473 | ) | ||||
| Accounts receivable |
5,283 | 9,111 | ||||||
| Prepaid expenses and other current assets |
137 | 234 | ||||||
| Other assets |
158 | (169 | ) | |||||
| Accounts payable |
(1,624 | ) | (1,293 | ) | ||||
| Accrued workers’ compensation |
3,634 | 1,952 | ||||||
| Accrued payroll, benefits and related costs |
(6,713 | ) | (4,229 | ) | ||||
| Accrued licensees’ share of gross profit |
(374 | ) | (785 | ) | ||||
| Other accrued expenses |
71 | (1,032 | ) | |||||
| Income taxes payable |
(284 | ) | — | |||||
| Net cash (used in) provided by operating activities |
(435 | ) | 5,654 | |||||
| Cash flows from investing activities: |
||||||||
| Purchase of fixed assets |
(257 | ) | (710 | ) | ||||
| Purchase of available-for-sale investments |
(8,067 | ) | (9,181 | ) | ||||
| Proceeds from maturity of available-for-sale investments |
5,998 | 8,000 | ||||||
| Increase in restricted cash |
1,847 | — | ||||||
| Net cash used in investing activities |
(479 | ) | (1,891 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from stock option activity |
8 | — | ||||||
| Proceeds from Employee Stock Purchase Plan activity |
58 | 53 | ||||||
| Net cash provided by financing activities |
66 | 53 | ||||||
| Effect of exchange rate changes in cash |
9 | — | ||||||
| Net (decrease) increase in cash and cash equivalents |
(839 | ) | 3,816 | |||||
| Cash and cash equivalents at beginning of period |
13,236 | 26,101 | ||||||
| Cash and cash equivalents at end of period |
$ | 12,397 | $ | 29,917 | ||||
See accompanying notes to consolidated financial statements.
5
RemedyTemp, Inc.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share amounts)
(unaudited)
1. Basis of Presentation
The Consolidated Financial Statements include the accounts of RemedyTemp, Inc. and its wholly-owned subsidiaries (collectively referred to herein as the “Company” or “Remedy”). These financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the accompanying unaudited Consolidated Financial Statements contain all material adjustments (consisting of normal recurring adjustments) necessary to fairly state the financial position of the Company as of December 28, 2003, and its results of operations and cash flows for the thirteen weeks ended December 28, 2003 and December 29, 2002. All significant intercompany accounts and transactions have been eliminated in consolidation. As permitted under the applicable rules and regulations of the SEC, these financial statements do not include all disclosures and footnotes normally included with annual Consolidated Financial Statements and, accordingly, should be read in conjunction with the Consolidated Financial Statements, and the notes thereto, included in the Company’s Annual Report on Form 10-K filed with the SEC on December 29, 2003 for the year ended September 28, 2003. The results of operations for the three fiscal months ended December 28, 2003 may not be indicative of the results of operations that can be expected for the full year. Certain prior year balances have been reclassified to conform to the current year presentation.
Fiscal quarter
The Company’s fiscal quarter includes 13 or 14 weeks. The second and third fiscal quarters of fiscal 2004 will be March 28, 2004 and June 27, 2004, respectively.
2. Commitments and Contingent Liabilities
Litigation
On October 16, 2001, GLF Holding Company, Inc. and Fredrick S. Pallas filed a complaint in the Superior Court of the State of California, County of Los Angeles, against RemedyTemp, Inc., its wholly-owned subsidiaries (Remedy Intelligent Staffing, Inc. and Remedy Temporary Services, Inc.), Karin Somogyi, Paul W. Mikos and Greg Palmer (the “Complaint”). The Complaint purports to be a class action brought by the individual plaintiffs on behalf of all of Remedy’s traditional and licensed franchisees. The Complaint alleges claims for fraud and deceit, negligent misrepresentation, negligence, breach of contract, breach of warranty, conversion and accounting, unfair and deceptive practices, and plaintiffs seek restitution and equitable relief. The plaintiffs claim that Remedy wrongfully induced its franchisees into signing franchise agreements and breached the agreements, thus causing the franchisees damage. Remedy has sought to compel arbitration with the plaintiffs in accordance with its franchise agreement with each of them and to deny class certification. Remedy believes it has meritorious defenses to the allegations contained in this complaint and intends to defend this action with vigor. Remedy has filed a counterclaim in arbitration with the American Arbitration Association alleging, among other things, breach of contract. At this time management is unable to give an estimate as to the amount or range of potential loss, if any, which might result to the Company if the outcome in this matter were unfavorable.