e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
10 - Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended January 1, 2006
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-5260
REMEDYTEMP, INC.
(Exact Name of Registrant as Specified in Its Charter)
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California
(State or Other Jurisdiction of
Incorporation or Organization)
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95-2890471
(I.R.S. Employer
Identification No.) |
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101 Enterprise
Aliso Viejo, California
(Address of Principal Executive Offices)
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92656
(Zip Code) |
Registrants 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 the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the Registrant a large accelerated filer, an accelerated filer,
or a non-accelerated filer.
Large Accelerated Filer o Accelerated Filer þ Non-Accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As
of February 2, 2006 the Registrant had 8,923,189 shares of Class A Common Stock and 798,188
shares of Class B Common Stock outstanding.
RemedyTemp, Inc.
INDEX
* No information provided due to inapplicability of item.
2
RemedyTemp, Inc.
PART IFINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except per share amounts)
(unaudited)
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January 1, 2006 |
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October 2, 2005 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
20,485 |
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$ |
24,954 |
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Investments (Note 3) |
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937 |
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692 |
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Restricted investments (Note 3) |
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4,042 |
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3,771 |
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Accounts receivable, net of allowance for doubtful accounts of $1,152 and
$905, respectively |
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62,128 |
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60,787 |
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Prepaid expenses and other current assets |
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7,400 |
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7,406 |
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Prepaid workers compensation insurance |
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1,202 |
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2,396 |
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Total current assets |
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96,194 |
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100,006 |
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Fixed assets, net |
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9,632 |
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9,696 |
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Restricted cash and investments (Note 3) |
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21,889 |
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21,889 |
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Other assets |
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240 |
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279 |
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Intangible assets, net of accumulated amortization of $1,380 and $1,244,
respectively |
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1,604 |
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1,730 |
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Goodwill (Note 4) |
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4,483 |
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4,483 |
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Total Assets |
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$ |
134,042 |
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$ |
138,083 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
1,410 |
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$ |
1,275 |
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Accrued workers compensation, current portion (Note 5) |
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12,112 |
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14,526 |
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Accrued payroll, benefits and related costs |
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13,014 |
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17,979 |
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Accrued licensees share of gross profit |
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2,194 |
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2,630 |
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Other accrued expenses |
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7,672 |
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7,834 |
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Total current liabilities |
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36,402 |
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44,244 |
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Other liabilities (Note 5) |
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33,657 |
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32,300 |
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Total liabilities |
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70,059 |
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76,544 |
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Commitments and contingent liabilities (Note 7) |
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Shareholders equity: |
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Preferred Stock, $0.01 par value; authorized 5,000 shares; none outstanding |
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Class A Common Stock, $0.01 par value; authorized 50,000 shares; 8,923
and 8,813 shares issued and outstanding at January 1, 2006 and October
2, 2005, respectively |
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89 |
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88 |
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Class B Non-Voting Common Stock, $0.01 par value; authorized 4,530 shares;
798 shares issued and outstanding at January 1, 2006 and October 2, 2005 |
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8 |
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8 |
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Additional paid-in capital |
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39,805 |
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41,824 |
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Unearned compensation |
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(2,382 |
) |
Accumulated other comprehensive loss |
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(166 |
) |
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(129 |
) |
Retained earnings |
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24,247 |
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22,130 |
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Total shareholders equity |
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63,983 |
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61,539 |
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Total Liabilities and Shareholders Equity |
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$ |
134,042 |
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$ |
138,083 |
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See accompanying notes to consolidated financial statements.
3
RemedyTemp, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
(unaudited)
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Three Months Ended |
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January 1, 2006 |
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January 2, 2005 |
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Company-owned office revenues |
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$ |
82,463 |
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$ |
88,628 |
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Licensed franchise revenues |
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51,148 |
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48,406 |
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Franchise royalties and initial franchise
fees |
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385 |
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322 |
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Total revenues |
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133,996 |
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137,356 |
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Cost of Company-owned office revenues
(exclusive of depreciation and amortization
shown below) |
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64,162 |
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71,821 |
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Cost of licensed franchise revenues
(exclusive of depreciation and amortization
shown below) |
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40,744 |
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38,744 |
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Licensees share of gross profit |
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7,078 |
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6,468 |
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Selling and administrative expenses |
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18,295 |
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19,348 |
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CIGA litigation |
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129 |
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98 |
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Depreciation and amortization |
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1,206 |
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1,364 |
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Income (loss) from operations |
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2,382 |
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(487 |
) |
Other income (expense): |
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Interest expense |
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(187 |
) |
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(128 |
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Interest income |
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336 |
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259 |
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Other, net |
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370 |
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371 |
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Income before income taxes |
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2,901 |
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15 |
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Provision for income taxes |
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784 |
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37 |
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Net income (loss) |
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$ |
2,117 |
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$ |
(22 |
) |
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Net income (loss) per share basic |
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$ |
0.23 |
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$ |
(0.00 |
) |
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Net income (loss) per share diluted |
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$ |
0.23 |
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$ |
(0.00 |
) |
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Weighted average shares basic |
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9,066 |
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9,033 |
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Weighted average shares diluted |
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9,393 |
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9,033 |
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See accompanying notes to consolidated financial statements.
4
RemedyTemp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
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Three Months Ended |
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January 1, 2006 |
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January 2, 2005 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
2,117 |
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$ |
(22 |
) |
Adjustments to reconcile net income (loss) to net
cash from operating activities: |
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Depreciation and amortization |
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1,206 |
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1,364 |
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Provision for losses on accounts receivable |
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305 |
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188 |
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Stock-based compensation expense |
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383 |
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|
357 |
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Changes in assets and liabilities: |
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Trading investments |
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(271 |
) |
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(344 |
) |
Accounts receivable |
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(1,646 |
) |
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|
1,860 |
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Prepaid expenses and other current assets |
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1,314 |
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1,151 |
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Prepaid income taxes |
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74 |
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Other assets |
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39 |
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60 |
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Accounts payable |
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135 |
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(2,836 |
) |
Accrued workers compensation |
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(1,057 |
) |
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1,955 |
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Accrued payroll, benefits and related costs |
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(4,965 |
) |
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(4,953 |
) |
Accrued licensees share of gross profit |
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(436 |
) |
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(589 |
) |
Other accrued expenses |
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(170 |
) |
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(707 |
) |
Other |
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(11 |
) |
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1 |
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Net cash used in operating activities |
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(3,057 |
) |
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(2,441 |
) |
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Cash flows from investing activities: |
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Purchase of fixed assets |
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(1,121 |
) |
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(716 |
) |
Purchase of available-for-sale investments |
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(245 |
) |
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Proceeds from maturity of available-for-sale investments |
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2,000 |
|
Restricted cash and investments |
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(1,781 |
) |
Purchase of intangible assets |
|
|
(10 |
) |
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Net cash used in investing activities |
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(1,376 |
) |
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(497 |
) |
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Effect of exchange rate changes in cash |
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(36 |
) |
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22 |
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Net decrease in cash and cash equivalents |
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|
(4,469 |
) |
|
|
(2,916 |
) |
Cash and cash equivalents at beginning of period |
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|
24,954 |
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|
7,075 |
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Cash and cash equivalents at end of period |
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$ |
20,485 |
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$ |
4,159 |
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|
See accompanying notes to consolidated financial statements.
5
RemedyTemp, Inc.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands, except per share amounts)
(unaudited)
1. Description of business and summary of significant accounting policies
Description of business
RemedyTemp, Inc.s (the Company or Remedy) principal business is providing temporary
personnel to industrial, service and technology companies, professional organizations and
governmental agencies nationwide.
The Company has two classes of Common Stock outstanding: Class A Common Stock, which has all
voting and other rights normally associated with Common Stock; and Class B Common Stock, which is
identical to the Class A Common Stock in all respects except that the Class B Common Stock has no
voting rights except with respect to certain amendments of the Companys Amended and Restated
Articles of Incorporation, certain mergers and as otherwise required by law. The Class B Common
Stock automatically converts into Class A Common Stock on a share-for-share basis upon the earlier
of (i) a transfer to a non-affiliate of the holder thereof in a public offering pursuant to an
effective registration statement or Rule 144 promulgated under the Securities Act of 1933, as
amended, (ii) the death or legal incapacity of Robert E. McDonough, Sr., or (iii) the tenth
anniversary of the completion of the Companys initial public offering (the Offering) on July 16,
1996.
Basis of presentation
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. These financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America and pursuant to the rules and
regulations of the Securities and Exchange Commission (the SEC). In the opinion of management,
the accompanying consolidated financial statements contain all material adjustments (consisting of
normal recurring adjustments) necessary to fairly state the financial position of the Company as of
January 1, 2006, and its results of operations and cash flows for the thirteen weeks ended January
1, 2006 and January 2, 2005. All 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 the annual consolidated
financial statements and, accordingly, should be read in conjunction with the consolidated
financial statements, and the notes thereto, included in the Companys Annual Report on Form 10-K
filed with the SEC on December 16, 2005 for the fiscal year ended October 2, 2005. The results of
operations for the three months ended January 1, 2006 may not be indicative of the results of
operations that can be expected for the full year.
Fiscal quarters
The Companys current quarter ended January 1, 2006 consisted of 13 weeks. The remaining
quarters of fiscal 2006 include 13 weeks and will end on April 2, 2006, July 2, 2006, and October
1, 2006. The fourth quarter of fiscal 2005, ended October 2, 2005 included 13 weeks.
Use of estimates in the preparation of consolidated financial statements
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods. Actual results could differ
from those estimates. Significant estimates made in the preparation of the consolidated financial
statements include revenue recognition, allowance for doubtful
accounts, deferred taxes, estimates to assess the recoverability of
intangible and long-lived assets, goodwill impairment, workers'
compensation reserves, contingencies and litigation reserves.
Reclassifications
Certain amounts in the prior years consolidated financial statements have been reclassified
to conform to the current year presentation. At April 3, 2005, the Company reclassified its
investments in auction rate securities from cash and cash equivalents to short-term investments for
the current and all prior periods. Corresponding adjustments to the Consolidated Statement of Cash
Flows for the fiscal year ended October 2, 2005
6
RemedyTemp, Inc.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands, except per share amounts)
(unaudited)
of the
Company have been made to reflect the gross purchases and sales
of these securities as investing activities rather than as a component of cash and cash
equivalents. The change in classification does not affect cash flows from operations or from
financing activities for any period previously reported in the Consolidated Statements of Cash
Flows, nor does it affect net income (loss) for any period previously reported in the Consolidated
Statements of Operations. The reclassification had no impact on the
purchases of investments and increased proceeds of investments by
$2,000 on the statement of cash flows for the three months ended January 2, 2005. The Company
had no auction rate securities for the three months ended January
1, 2006.
2. Accounting for stock-based compensation
Effective October 3, 2005, the Company adopted Statement of Financial Accounting Standard
(SFAS) No. 123(R) (revised 2004), Share-Based Payment, using the modified prospective application
transition method. As a result of the Companys decision to
accelerate the vesting of certain stock options in the fourth quarter
of fiscal year 2005, the adoption of SFAS No. 123(R) did
not have a significant impact on our financial position, results of
operations or cash flows because the intrinsic value method under
the Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, were materially consistent under the equity plans.
The following table illustrates, for the three months ended
January 2, 2005, the effect on net loss and net
loss per share had compensation expense for the employee
stock-based plans been recorded based on the fair value method
using the Black-Scholes option pricing model under
SFAS No. 123, as amended:
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For the Three | |
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Months Ended | |
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| |
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January 2, 2005 | |
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| |
Net loss, as reported
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$ |
(22 |
) |
Deduct: total stock-based compensation expense determined under
fair value method
|
|
|
(444 |
) |
|
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|
Net loss, as adjusted
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|
$ |
(466 |
) |
|
|
|
|
Basic and diluted net loss per share:
|
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|
|
|
As reported
|
|
$ |
(0.00 |
) |
As adjusted
|
|
$ |
(0.05 |
) |
The following table sets forth the components of stock-based compensation expense included in
net income (loss):
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|
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|
|
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|
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Three Months Ended |
|
|
|
January 1, |
|
|
January 2, |
|
|
|
2006 |
|
|
2005 |
|
Restricted stock-based compensation expense |
|
$ |
354 |
|
|
$ |
338 |
|
Board of Directors stock-based compensation expense |
|
|
19 |
|
|
|
19 |
|
Options stock-based compensation expense |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
383 |
|
|
$ |
357 |
|
|
|
|
|
|
|
|
Net
income (loss) for the three months ended January 1, 2006
and January 2, 2005 includes $383
and $357, respectively, of compensation costs related to our stock-based compensation arrangements.
The tax benefit related to the options granted during the three months ended January 1, 2006
and January 2, 2005 would generally be recorded at the Companys federal and state statutory rate
of approximately 40%. However, due to the full valuation allowance on
the deferred tax assets, any
expense related to stock-based compensation arrangements has resulted in a net zero tax effect.
3. Investments
The Company accounts for its investments in accordance with SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. At the time of sale, the cost of mutual fund
investments are determined using the average cost method and fixed income securities cost is based
upon specific identification. All investments are carried at fair value. The following presents the
classification of the Companys investments:
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January 1, 2006 |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Adjusted |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Losses |
|
|
Fair Value |
|
Available-for-sale investments: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
|
$ |
22,655 |
|
|
$ |
(302 |
) |
|
$ |
22,353 |
|
Mutual funds |
|
|
68 |
|
|
|
|
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale investments |
|
$ |
22,723 |
|
|
$ |
(302 |
) |
|
$ |
22,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Classified as: |
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|
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|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
$ |
22,421 |
|
Trading (deferred compensation plan) |
|
|
|
|
|
|
|
|
|
|
4,042 |
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
26,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7
RemedyTemp, Inc.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
Reported as: |
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
|
|
|
|
|
|
|
$ |
937 |
|
Restricted investments, short-term (deferred compensation plan) |
|
|
|
|
|
|
|
|
|
|
4,042 |
|
Restricted cash and investments, long-term |
|
|
|
|
|
|
|
|
|
|
21,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
26,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2, 2005 |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Adjusted |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Losses |
|
|
Fair Value |
|
Available-for-sale investments: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
|
$ |
22,409 |
|
|
$ |
(301 |
) |
|
$ |
22,108 |
|
Mutual funds |
|
|
68 |
|
|
|
|
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale investments |
|
$ |
22,477 |
|
|
$ |
(301 |
) |
|
$ |
22,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified as: |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
$ |
22,176 |
|
Trading (deferred compensation plan) |
|
|
|
|
|
|
|
|
|
|
3,771 |
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
26,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as: |
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
|
|
|
|
|
|
|
$ |
692 |
|
Restricted investments, short-term (deferred compensation plan) |
|
|
|
|
|
|
|
|
|
|
3,771 |
|
Restricted cash and investments, long-term |
|
|
|
|
|
|
|
|
|
|
21,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
26,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) from available-for-sale securities are included in accumulated other
comprehensive loss within shareholders equity. There were no
realized gains (losses) related to the Companys available-for-sale securities for the three months ended January 1, 2006 and
January 2, 2005.
Holding gains (losses) on trading securities are offset by the change in the deferred
compensation liability, which is included in selling and administrative expenses in the
consolidated statements of operations. The following table presents the net holding gains related
to the Companys trading securities:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
January 1, |
|
January 2, |
|
|
2006 |
|
2005 |
Net holding gains |
|
$ |
83 |
|
|
$ |
190 |
|
The following table summarizes the fair value and gross unrealized losses related to the
Companys available-for-sale securities that have been in a continuous unrealized loss position at
January 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
Greater than 12 Months |
|
Total |
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
|
Value |
|
Loss |
|
Value |
|
Loss |
|
Value |
|
Loss |
U.S. government securities |
|
$ |
7,913 |
|
|
$ |
(54 |
) |
|
$ |
14,440 |
|
|
$ |
(248 |
) |
|
$ |
22,353 |
|
|
$ |
(302 |
) |
The Company periodically reviews its investment portfolio to determine if any investment is
other-than-temporarily impaired due to changes in credit risk or other potential valuation
concerns. At January 1, 2006, the Company believes that its investments are not impaired. While
certain available-for-sale debt securities have fair values that are below cost, the Company
believes that it is probable that principal and interest will be collected in accordance with
contractual terms, and that the decline in market value is due to changes in interest rates and not
due
8
RemedyTemp, Inc.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands, except per share amounts)
(unaudited)
to increased credit risk. The cost and estimated fair value of available-for-sale fixed income
securities at January 1, 2006 and October 2, 2005, by contractual maturity, were as follows:
|
|
|
|
|
|
|
|
|
|
|
January 1, 2006 |
|
|
|
Cost Basis |
|
|
Fair Value |
|
Due within one year |
|
$ |
7,968 |
|
|
$ |
7,913 |
|
Due after one year through 3 years |
|
|
14,755 |
|
|
|
14,508 |
|
|
|
|
|
|
|
|
Total |
|
$ |
22,723 |
|
|
$ |
22,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2, 2005 |
|
|
|
Cost Basis |
|
|
Fair Value |
|
Due within one year |
|
$ |
7,968 |
|
|
$ |
7,892 |
|
Due after one year through 3 years |
|
|
14,509 |
|
|
|
14,284 |
|
|
|
|
|
|
|
|
Total |
|
$ |
22,477 |
|
|
$ |
22,176 |
|
|
|
|
|
|
|
|
4. Goodwill and other intangible assets
In accordance with SFAS No. 142, Goodwill and Intangible Assets, goodwill is tested for
impairment at the reporting unit level on an annual basis in the Companys fourth fiscal quarter or
more frequently if indicators of impairment exist. Reporting units are determined based on
geographic groupings of Company-owned offices. The performance of the test involves a two-step
process. The first step of the impairment test involves comparing the fair value of the Companys
reporting units with the reporting units carrying amount, including goodwill. The fair value of
reporting units is generally determined using the income approach. If the carrying amount of a
reporting unit exceeds the reporting units fair value, the second step of the goodwill impairment
test is performed to determine the amount of any impairment loss. The second step of the goodwill
impairment test involves comparing the implied fair value of the reporting units goodwill with the
carrying amount of that goodwill.
The following table summarizes the activity in goodwill:
|
|
|
|
|
|
|
|
|
|
|
January 1, |
|
|
October 2, |
|
|
|
2006 |
|
|
2005 |
|
Beginning balance |
|
$ |
4,483 |
|
|
$ |
3,703 |
|
Goodwill recorded in connection with contingent consideration earned |
|
|
|
|
|
|
875 |
|
Impairment charges |
|
|
|
|
|
|
(95 |
) |
|
|
|
|
|
|
|
Ending balance |
|
$ |
4,483 |
|
|
$ |
4,483 |
|
|
|
|
|
|
|
|
At October 2, 2005, goodwill consists of purchased franchise operations, which include
operations in Texas, Tennessee, Michigan and Pennsylvania. During fiscal year 2005, the Company
closed its Wilmington, Delaware office and recognized an impairment charge of $64. This office was
closed as a result of non-performance. In addition, the Company turned over its Ohio reporting unit
to a franchisee for future gross margin splits. The Company recognized an impairment charge of $31
during fiscal year 2005 related to the Ohio reporting unit. No indicators of impairment exist for
the three months ended January 1, 2006.
5. Workers Compensation
The Company provides workers compensation insurance to its temporary associates and
colleagues. Effective April 1, 2001 and for workers compensation claims originating in the
majority of states (referred to as non-monopolistic states), the Company has contracted with
independent, third-party carriers for workers compensation insurance and claims administration.
Each annual contract covers all workers compensation claim costs greater than a specified
deductible amount on a per occurrence basis. The Company is self-insured for its deductible
liability ($250 per individual claim incurred from April 1, 2001 to March 31, 2002 and $500 for all
subsequent periods). The insurance carrier is responsible for incremental losses in excess of the
applicable deductible amount.
The Company establishes a reserve for the estimated remaining deductible portion of its
workers compensation claims, representing the estimated ultimate cost of claims and related
expenses that have been reported but not settled, and that have been incurred but not reported. The
estimated ultimate cost of a claim is determined by applying actuarially determined loss
development factors to current claims information. These development factors
9
RemedyTemp, Inc.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands, except per share amounts)
(unaudited)
are determined based upon a detailed actuarial analysis of historical claims experience of
both the Company and the staffing industry. The Company periodically updates the actuarial analysis
supporting the development factors utilized and revises those development factors, as necessary.
Adjustments to the claims reserve are recorded to expense or income in the years in which they
occur. The estimated remaining deductible liability under the aforementioned contracts is $37,598
and $38,281 at January 1, 2006 and October 2, 2005, respectively. The Company recorded $9,935 and
$11,974 as current and $27,663 and $26,307 as non-current at January 1, 2006 and October 2, 2005,
respectively.
The Company also has an aggregate $2,177 and $2,552 current liability recorded at January 1,
2006 and October 2, 2005, respectively, for amounts due to various state funds related to workers
compensation. The following table presents the current and long-term classification of the
Companys workers compensation liability, accrued California Insurance Guarantee Association
(CIGA) litigation (see discussion of GIGA below) and other liabilities:
|
|
|
|
|
|
|
|
|
|
|
January 1, |
|
|
October 2, |
|
|
|
2006 |
|
|
2005 |
|
Current |
|
|
|
|
|
|
|
|
Liability for various state funds and previous guaranteed cost policies |
|
$ |
2,177 |
|
|
$ |
2,552 |
|
Accrued workers compensation |
|
|
9,935 |
|
|
|
11,974 |
|
|
|
|
|
|
|
|
Accrued workers compensation |
|
$ |
12,112 |
|
|
$ |
14,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term |
|
|
|
|
|
|
|
|
Other liabilities |
|
$ |
117 |
|
|
$ |
116 |
|
Accrued CIGA litigation |
|
|
5,877 |
|
|
|
5,877 |
|
Accrued workers compensation |
|
|
27,663 |
|
|
|
26,307 |
|
|
|
|
|
|
|
|
Other liabilities |
|
$ |
33,657 |
|
|
$ |
32,300 |
|
|
|
|
|
|
|
|
The Company is contractually required to collateralize its remaining obligation under each of
these workers compensation insurance contracts through the use of irrevocable letters of credit,
pledged cash and securities or a combination thereof. The level and type of collateral required for
each policy year is determined by the insurance carrier at the inception of the policy year and may
be modified periodically. As of January 1, 2006, the Company had outstanding letters of credit of
$36,538 and pledged cash and securities of $21,889 as collateral for these obligations. The pledged
cash and securities are restricted and cannot be used for general corporate purposes while the
Companys remaining obligations under the workers compensation program are outstanding. At the
Companys discretion and to the extent available, other forms of collateral may be substituted for
the pledged cash and securities. The Company has classified these pledged cash and securities as
restricted in the accompanying consolidated balance sheets.
From July 22, 1997 through March 31, 2001, the Company had a fully insured workers
compensation program with Reliance National Insurance Company (Reliance). The annual premium for
this program was based upon actual payroll costs multiplied by a fixed rate. Each year, the Company
prepaid the premium based upon estimated payroll levels and an adjustment was subsequently made for
differences between the estimated and actual amounts. Subsequent to March 31, 2001 (the end of
Companys final policy year with Reliance), Reliance became insolvent and was subsequently
liquidated. The Company is currently in litigation with the California Insurance Guaranty
Association regarding financial responsibility for all remaining open claims under the Reliance
workers compensation program. The Company recorded a $5,877 charge to operating income during the
fourth quarter of fiscal 2004 as a result of the October 2004 Court of Appeals decision (See Note
7).
6. Shareholders Equity
Earnings per share calculation
The Company is required to disclose basic and diluted earnings per share (EPS) in accordance
with SFAS No. 128, Earnings Per Share. Basic EPS is calculated using net income (loss) divided by
the weighted average number of common shares outstanding during the period. Diluted EPS is
calculated similar to basic EPS except that the weighted average number of common shares is
increased to include the number of additional common shares that
10
RemedyTemp, Inc.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands, except per share amounts)
(unaudited)
would have been outstanding if the potential dilutive common shares, such as options, had been
exercised and restricted shares had vested.
Potential
common shares (including applicable outstanding options and
restricted shares of 668 and 1,258 for the three months ended January 1, 2006 and January 2, 2005, respectively) have been
excluded from the calculation of diluted shares because the effect of their inclusion would be
anti-dilutive.
The table below sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
January 1, |
|
|
January 2, |
|
|
|
2006 |
|
|
2005 |
|
Numerator: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,117 |
|
|
$ |
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted-average number of shares, basic |
|
|
9,066 |
|
|
|
9,033 |
|
Effect of dilutive securities |
|
|
327 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares assuming dilution |
|
|
9,393 |
|
|
|
9,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic |
|
$ |
0.23 |
|
|
$ |
(0.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share diluted |
|
$ |
0.23 |
|
|
$ |
(0.00 |
) |
|
|
|
|
|
|
|
Accumulated other comprehensive loss
The components of accumulated other comprehensive income (loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
January 1, |
|
|
October 2, |
|
|
|
2006 |
|
|
2005 |
|
Accumulated unrealized loss on investments |
|
$ |
(302 |
) |
|
$ |
(301 |
) |
Accumulated translation adjustments |
|
|
136 |
|
|
|
172 |
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss |
|
$ |
(166 |
) |
|
$ |
(129 |
) |
|
|
|
|
|
|
|
Phantom Stock Plan
The Company created a Phantom Stock Plan (the Plan) to entice certain individuals to
participate in the start-up of the Companys RemX® specialty business unit. The Plan was
designed to reward the participants based upon five full years of RemX® operations. The value
of the phantom shares will be determined based on the performance of the division and the Companys
earnings multiple. At the end of five years, the phantom shares will be valued; 25% of the award
will be paid out and the remaining award will be paid out annually at 25% per year over the next 3
years. Participants must be employed by the Company to receive payment and the amount earned will
be paid out in cash or 50% cash and stock at the Companys election. During fiscal year 2005, the
Company determined that the probability of certain performance in the Plan would likely be met
based upon the current and expected performance of the RemX® specialty business unit.
Accordingly, the Company recorded a total accrual of $164 and $76 at
January 1, 2006 and October 2, 2005, respectively. Until the final measurement date is reached, the
Company will reassess the expense accrual on a quarterly basis and changes in the estimate of the
expense accrual will be accounted for as cumulative catch-up adjustments.
Stock Incentive Plan
The Companys 1996 Stock Incentive Plan, as amended, (the Incentive Plan) provides for the
grant of stock-based awards, including incentive stock options, non-qualified stock options,
restricted stock and stock appreciation rights, among others, to key employees and members of the
Companys Board of Directors. A total of 1,800 shares
11
RemedyTemp, Inc.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands, except per share amounts)
(unaudited)
have been reserved for issuance under the Incentive Plan, and as of January 1, 2006,
approximately 253 shares were available for future grants. Options granted to employees typically
may be exercised within ten years from the grant date and are exercisable in installments
determined by the Leadership, Development and Compensation Committee of the Board of Directors.
Options grants to non-employee, non-officer directors prior to the Offering were immediately
exercisable. Option grants to non-employee, non-officer directors subsequent to the Offering are
typically 50% exercisable immediately and 50% exercisable upon the date of the next annual
shareholders meeting.
The following table summarizes the activity relating to all stock and option plans, exclusive
of the restricted stock grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outside |
|
|
|
Incentive Plan Options |
|
|
Stock Purchase Plan |
|
|
Incentive Plan |
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
Weighted-Average |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Shares |
|
|
Exercise Price |
|
|
Shares |
|
|
Exercise Price |
|
Outstanding
October 2, 2005 |
|
|
670.5 |
|
|
$ |
14.47 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Granted |
|
|
2.5 |
|
|
$ |
7.61 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Cancelled |
|
|
(1.2 |
) |
|
$ |
12.54 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Exercised |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January
1, 2006 |
|
|
671.8 |
|
|
$ |
14.44 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the number of exercisable options outstanding at their
weighted average price at January 1, 2006 and October 2, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Avg. |
|
|
|
Shares |
|
|
Price |
|
January 1, 2006 |
|
|
661.8 |
|
|
$ |
14.52 |
|
October 2, 2005 |
|
|
660.1 |
|
|
$ |
14.53 |
|
The following table summarizes information about stock options outstanding at January 1,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
Shares |
|
Remaining Life |
|
Weighted-Average |
|
Shares |
|
Weighted-Average |
Exercise Price |
|
Outstanding |
|
(in years) |
|
Price |
|
Exercisable |
|
Price |
$7.00 - $10.00 |
|
|
77.0 |
|
|
|
9.3 |
|
|
$ |
9.21 |
|
|
|
67.0 |
|
|
$ |
9.21 |
|
$10.01 - $13.00 |
|
|
226.0 |
|
|
|
4.3 |
|
|
$ |
12.13 |
|
|
|
226.0 |
|
|
$ |
12.13 |
|
$13.01 - $16.00 |
|
|
234.6 |
|
|
|
4.5 |
|
|
$ |
14.74 |
|
|
|
234.6 |
|
|
$ |
14.74 |
|
$16.01 - $20.00 |
|
|
55.0 |
|
|
|
3.6 |
|
|
$ |
17.58 |
|
|
|
55.0 |
|
|
$ |
17.58 |
|
$20.01 - $25.00 |
|
|
69.2 |
|
|
|
2.4 |
|
|
$ |
22.64 |
|
|
|
69.2 |
|
|
$ |
22.64 |
|
$25.01 - $30.00 |
|
|
10.0 |
|
|
|
2.2 |
|
|
$ |
26.19 |
|
|
|
10.0 |
|
|
$ |
26.19 |
|
The fair value of each option grant has been estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average assumptions for the grants
at January 1, 2006 and October 2, 2005:
|
|
|
|
|
|
|
|
|
|
|
January 1, |
|
October 2, |
Assumptions |
|
2006 |
|
2005 |
Dividend Yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
Risk-Free Interest |
|
|
4.75 |
% |
|
|
4.04 |
% |
Volatility |
|
|
44.85 |
% |
|
|
46.0 |
% |
Expected Life (Years) |
|
|
5.9 |
|
|
|
5.6 |
|
Weighted Average Per Share |
|
|
$3.85 |
|
|
|
$4.84 |
|
Restricted stock awards
At January 1, 2006, the Company had 655.5 shares of restricted Class A Common Stock issued and
outstanding. The Leadership, Development and Compensation Committee of the Board of Directors
approved the issuance of 110.5 shares of restricted Class A Common Stock (the Restricted Stock)
under the Companys Incentive Plan during the first three months of fiscal 2006. No
shares were approved and issued during the fiscal year ended October 2, 2005. The Restricted Stock
has no purchase price and cliff vests after five years. However, certain grants of Restricted
Stock are subject to accelerated vesting after three years if certain performance goals are
achieved. All unvested Restricted Stock shall be forfeited upon voluntary termination or
termination for cause. Upon retirement or involuntary termination for other than cause, 20% vests
one year from the grant date with the remaining unvested shares vesting at 1.66% each month
thereafter. At the time of issuance, unearned compensation is recorded as a component of
shareholders equity and is based upon the fair market value of the Companys Class A Common Stock
on the respective grant dates. The unearned compensation is amortized and charged to operations
over the five-year vesting period on a straight-line basis. Amortization expense of $354 and $338
was included in operations for the three fiscal months ended January 1, 2006 and January 2, 2005,
respectively. At January 1, 2006, the Company reclassified unearned compensation into additional paid in capital to conform presentation to
current guidance under SFAS No. 123(R).
7. Commitments and contingent liabilities
Litigation
Lindsay Welch-Hess v. Remedy Temporary Services, Inc.
Commencing in March 2003, the Company was sued in an action entitled Lindsay Welch-Hess v.
Remedy Temporary Services, Inc. in San Diego Superior Court. The complaint sought damages under
various employment tort claims, including sexual harassment and retaliation stemming from a
four-day employment relationship. The complaint also sought damages for unpaid wages under the
California Labor Code. The plaintiff later amended the complaint to assert class claims for unpaid
wages with respect to certain aspects of the application process. The complaint asserted additional
class claims alleging failure to compensate persons assigned to one of Remedys clients.
In November 2004, the Court certified a class consisting of all persons in California who,
since October 1999, have applied to the Company for placement in a temporary job, regardless of
whether they were ever placed in a temporary assignment by the Company (the Remedy class). The
Court certified a second class consisting of all persons in California who, since October 1999,
were hourly employees hired by Remedy and assigned to a particular client (the training class).
On February 11, 2005, the Company filed two motions for summary judgment related to the Remedy
class and the training class.
On May 31, 2005, the Court denied, in part, the Companys motion for summary judgment related
to the Remedy class, which allowed a portion of that class to pursue the claim for unpaid
compensation. On June 27, 2005, the Company filed a writ in Division One of the Fourth Appellate
District seeking an order vacating the denial of
12
RemedyTemp, Inc.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands, except per share amounts)
(unaudited)
Remedys summary judgment motion related to the Remedy class. On September 27, 2005, the Court
of Appeal denied the writ. Subsequently, the Company filed a Petition for Review before the
California Supreme Court, which was summarily denied.
On July 27, 2005, plaintiffs filed an appeal challenging the following two court orders
relating to the Remedy class: (1) the order denying class certification for failure to pay wages
upon termination/resignation; and (2) the portion of the trial courts ruling on Remedys motion
for summary judgment, which excluded individuals who completed Remedys application process but
never worked for Remedy from class membership. The Companys brief is due February 27, 2006.
On July 29, 2005, the Court granted Remedys motion for summary judgment related to the
training class and allowed plaintiffs to recover attorneys fees. Plaintiffs filed a motion for
reconsideration on various issues, which was denied.
On September 27, 2005, plaintiffs filed an appeal challenging the following two court orders
relating to the training class: (1) the order denying class certification for failure to pay wages
upon termination/resignation; and (2) the portion of the trial courts ruling on Remedys summary
judgment, which held that all training class members had been properly paid. Plaintiffs have also
filed a motion to bifurcate the various individual tort claims from the class claims. That motion
was denied.
The Company intends to vigorously defend this case. At this time, the Company has not
estimated an accrual for this matter because the probability of an
unfavorable outcome cannot currently be reasonably estimated.
CIGA
In early 2002, as a result of the liquidation of Remedys former workers compensation
insurance carrier, Reliance National Insurance Company (Reliance), CIGA began making efforts to
join some of the Companys clients and their workers compensation insurance carriers
(collectively, Clients), in pending workers compensation claims filed by Remedy employees. At
the time of these injuries, from July 22, 1997 through March 31, 2001, Remedy was covered by
workers compensation policies issued by Reliance. The Company believes that under California law,
CIGA is responsible for Reliances outstanding liabilities. On April 5, 2002, the California
Workers Compensation Appeals Board (WCAB), at Remedys request, consolidated the various
workers compensation claims in which CIGA sought to join Remedys Clients, and agreed to stay
proceedings on those claims pending resolution of the issue of CIGAs obligations to satisfy
Reliances obligations to Remedys employees. The WCAB selected a single test case from the
consolidated pending cases in which to decide whether CIGA is responsible for the claims of
Remedys employees, or can shift such responsibility to the Clients. The trial occurred on
September 20, 2002. The WCAB Administrative Law Judge ruled in favor of CIGA, thus allowing the
pending workers compensation matters to proceed against the Clients. Remedy then filed a motion
for reconsideration of the Administrative Law Judges decision by the entire WCAB. On March 28,
2003, the WCAB affirmed the ruling of the Administrative Law Judge. Thereafter, in May 2003, the
Company filed a petition for writ of review of the WCABs decision in the California Court of
Appeal. The WCAB continued the stay in effect since April 5, 2002, thus preventing CIGA from
proceeding until the writ proceeding was concluded. In January 2004, the Court of Appeal granted
the Companys petition and undertook to review the WCABs decision. The Court of Appeal heard oral
argument in the matter on July 9, 2004.
On October 20, 2004, the Court of Appeal affirmed the WCABs decision. On November 18, 2004,
the Court of Appeal granted the Companys petition for rehearing and requested additional briefing
on this matter. The Court of Appeal heard oral argument on April 15, 2005. On July 25, 2005, the
Court of Appeal issued its decision finding that CIGA should not be dismissed and that the
insurance held by Remedys Client did not provide other available insurance for the workers
compensation claim. CIGA appealed this decision with the California Supreme Court. In October 2005,
the California Supreme Court declined to hear the appeal and sent the matter back to the WCAB with
instructions to enforce the Court of Appeals decision.
On October 25, 2005, Remedy filed a request for order seeking to dismiss Remedy, its Clients
and their insurance companies from the individual WCAB cases and joining CIGA as a defendant. On
November 7, 2005, CIGA filed objections to the request for dismissal. On December 13, 2005, the
Company filed a reply. A hearing date has not been set.
13
RemedyTemp, Inc.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands, except per share amounts)
(unaudited)
Despite the Court of Appeals decision, in the event of a final unfavorable outcome, Remedy
may be obligated to reimburse certain Clients and believes that it would consider reimbursement of
other Clients for actual losses incurred as a result of unfavorable rulings in these matters. If
Remedy is unsuccessful in dismissing Remedys Clients from these matters, and if these Clients or
their insurance carriers become obligated to respond to the claims of Remedys employees, the
Company believes that the direct financial exposure to Remedy becomes a function of the ultimate
losses on the claims and the impact of such claims, if any, on the Clients insurance coverage,
potentially including but not limited to the Clients responsibility for any deductibles or
retentions under their own workers compensation insurance. The Company has received data from the
Third Party Administrator (TPA) handling the claims for CIGA. Such data indicates claims of
approximately $32,337 as of January 1, 2006. The losses incurred to date represent amounts paid to
date by the trustee and the remaining claim reserves on open files.
In the fourth quarter of fiscal year 2004, the Company recorded a $5,877 charge to operating
income related to the CIGA case. The Company does not currently expect to adjust the reserve until
final resolution of the case. This amount represents the Companys estimate on the basis of a
review of known information and was established for costs associated with the indemnification of
certain Clients for losses they may suffer as a result of final unfavorable outcomes. The
information reviewed included customer contracts, review of the loss run received from the TPA
handling the claims, actuarial development of the reported claim losses, estimates of customer
insurance coverage, and other applicable information. The amount of the charge is, therefore,
subject to change as more information becomes available to the Company. In the event of a final
unfavorable outcome, the Company may also choose to reimburse certain Clients that did not enter
into contracts with the Company or whose contracts may not have included indemnification language.
These costs will be treated as period costs and will be charged to the consolidated statements of
operations in the period management decides to make any goodwill payments to Clients.
Managements current estimate of future goodwill payments is a range of $2,000 to $3,000. This
estimate is subject to change.
Other litigation
From time to time, the Company becomes a party to other litigation incidental to its business
and operations. The Company maintains insurance coverage that management believes is reasonable and
prudent for the business risks that the Company faces. Based on current available information,
management does not believe the Company is party to any other legal proceedings that are likely to
have a material adverse effect on its business, financial condition, cash flows or results of
operations.
Other contingency
In late 2003, the Company was notified that it may have underpaid certain payroll-related tax
liabilities by approximately $2,000 for the period from January 1, 2003 through September 30, 2003.
Based on its evaluations and after consultation with outside counsel, the Company believes that the
methodology the Company used to calculate these taxes was in compliance with applicable law. The
Company is currently working with outside counsel to resolve these matters. As of January 1, 2006,
the Company has accrued $983 in connection with the potential settlement of these payroll-related
tax matters.
8. Line of credit
The
Credit Agreement with Bank of America commencing December 1,
2004 (Credit Agreement) provides for borrowings
up to $50,000 with a provision permitting the Company to increase the aggregate amount of
borrowings to $60,000. The Company has granted a security interest to Bank of America in all its
existing and future assets. The Credit Agreement will expire on December 1, 2006. The Credit
Agreement bears interest on outstanding borrowings equal to LIBOR plus 1.75% to 2.75% based upon
the Companys earnings before interest, taxes, depreciation and amortization (EBITDA) or prime
rate plus 0.00% to 0.50% based on EBITDA. The Company is also required to pay monthly fees of 0.25%
per annum on the unused portion of the line of credit and monthly fees of 0.75% or 1.50% per annum
on outstanding letters of credit based on a pricing matrix. The Credit Agreement requires the
Company to comply with a minimum EBITDA covenant, which will not go into effect unless the
Companys total liquidity drops below $15,000. Liquidity is defined by the Credit Agreement as
unrestricted domestic cash plus
14
RemedyTemp, Inc.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands, except per share amounts)
(unaudited)
excess borrowing availability. The Company is in compliance with all financial covenants as
prescribed in the Credit Agreement at January 1, 2006.
The Company has no borrowings outstanding as of January 1, 2006 and October 2, 2005. The
Company had outstanding letters of credit totaling $36,538 at January 1, 2006 and October 2, 2005,
to collateralize its remaining workers compensation deductible liability (See Note 5).
On January 4, 2006, the Company reduced its outstanding letters of credit by $5,000 to an
aggregate amount of $31,538.
9. Income taxes
An income tax provision of $784 was recorded for the three months ended January 1, 2006,
compared to an income tax provision of $37 for the three months ended January 2, 2005. The
Companys overall annual effective tax rate of 27.0% for fiscal year 2006 differs from the
statutory rate due to the utilization of prior year tax credits in the current year. The effective
tax rate of 249.1% for the first quarter fiscal 2005 differs from the statutory rate due to the
respective current period valuation allowance against the deferred tax asset. The estimated annual
effective tax rate is revised quarterly based upon actual operating results, the tax credits earned
to date as well as current annual projections. The cumulative impact of any change in the
estimated annual effective tax rate is recognized in the period the change in estimate occurs.
10. Business segment and geographic information
Subsequent to the fiscal year ended October 2, 2005, the Company has started analyzing its
business in two segments: Specialty and Commercial. In turn, these segments provide services to the
industrial, clerical, professional and information technology business sectors.
The
Companys reportable segments have been determined based on the nature of the services offered to
clients and are comprised of the following: The Specialty segment includes the Talent Magnet and
RemX® business units. The Commercial segment includes light industrial and franchise business units.
Certain expenses and income, such as, corporate and other, depreciation and amortization, interest and other are not allocated to the
each segment. The supporting offices are organized into eight divisions: managed by an Operational Vice
President and other regional staff who provide operational support for the offices in their
regions. Company-owned offices are organized into different matrices based upon geographic
location and/or service offerings. Each matrix has an office manager who is accountable for the
day-to-day operations and profitability of the offices within that matrix. All segment revenues
are derived from external customers.
Selected financial information for the Companys reportable segments as of and for the three
months ended January 1, 2006 and January 2, 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty |
|
|
Commercial |
|
|
Total |
|
Three months ended January 1, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues |
|
$ |
23,117 |
|
|
$ |
107,050 |
|
|
$ |
130,167 |
|
Direct-hire and other revenues |
|
|
2,466 |
|
|
|
1,363 |
|
|
|
3,829 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
25,583 |
|
|
$ |
108,413 |
|
|
$ |
133,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income from operations |
|
$ |
876 |
|
|
$ |
8,659 |
|
|
$ |
9,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 2, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues |
|
$ |
24,081 |
|
|
$ |
110,299 |
|
|
$ |
134,380 |
|
Direct-hire and other revenues |
|
|
2,141 |
|
|
|
835 |
|
|
|
2,976 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
26,222 |
|
|
$ |
111,134 |
|
|
$ |
137,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income from operations |
|
$ |
130 |
|
|
$ |
7,075 |
|
|
$ |
7,205 |
|
15
RemedyTemp, Inc.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands, except per share amounts)
(unaudited)
The following reconciles segment income to consolidated income from continuing
operations before income taxes and segment assets to consolidated assets:
|
|
|
|
|
|
|
|
|
|
|
January 1, 2006 |
|
|
January 2, 2005 |
|
Total income from operations for reportable segments |
|
$ |
9,535 |
|
|
$ |
7,205 |
|
Unallocated amounts: |
|
|
|
|
|
|
|
|
Corporate and other expenses |
|
|
6,196 |
|
|
|
6,627 |
|
Depreciation and amortization |
|
|
957 |
|
|
|
1,065 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(187 |
) |
|
|
(128 |
) |
Interest income |
|
|
336 |
|
|
|
259 |
|
Other, net |
|
|
370 |
|
|
|
371 |
|
|
|
|
|
|
|
|
Income
before income taxes |
|
$ |
2,901 |
|
|
$ |
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2006 |
|
|
October 2, 2005 |
|
Assets |
|
|
|
|
|
|
|
|
Total assets for reportable segments |
|
$ |
75,840 |
|
|
$ |
71,724 |
|
Assets held at Corporate |
|
|
52,115 |
|
|
|
60,146 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
127,955 |
|
|
$ |
131,870 |
|
|
|
|
|
|
|
|
The Companys revenues from continuing operations are generated, and the Companys assets are,
held substantially in the United States.
16
RemedyTemp, Inc.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands, except per share amounts)
(unaudited)
11.
New accounting pronouncements
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets An Amendment
of APB Opinion No. 29, Accounting for Nonmonetary Transactions (SFAS No. 153). SFAS No. 153
eliminates the exception from fair value measurement for nonmonetary exchanges of similar
productive assets in paragraph 21 (b) of APB Opinion No. 29, Accounting for Nonmonetary
Transactions, and replaces it with an exception for exchanges that do not have commercial
substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result of the exchange.
SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005. The Companys adoption
did not have an impact on its consolidated results of operations or financial position.
In May
2005, the FASB issued SFAS No. 154, Accounting Changes and
Error Corrections. SFAS No. 154 replaced APB Opinion No. 20, Accounting Changes, and
SFAS No. 3, Reporting Accounting Changes in Interim Financial
Statements, and is effective for fiscal years beginning after
December 15, 2005. SFAS No. 154 requires retrospective
application to prior periods financial statements of changes in
accounting principle, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change.
We do not expect the adoption of SFAS No. 154 to have a material
impact on our consolidated financial statements.
17
RemedyTemp, Inc.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to historical information, managements discussion and analysis and other
statements contained elsewhere in this Quarterly Report on Form 10-Q include certain
forward-looking statements, including, but not limited to, those related to the growth and
strategies, future operating results and financial position as well as economic and market events
and trends of RemedyTemp, Inc., including its wholly owned subsidiaries (collectively, the
Company). All forward-looking statements made by the Company, including such statements herein,
include material risks and uncertainties and are subject to change based on factors beyond the
control of the Company (certain of such statements are identified by the use of words such as
anticipate, believe, estimate, intend, plan, expect, will, or future). Accordingly,
the Companys actual results may differ materially from those expressed or implied in any such
forward-looking statements as a result of various factors, including, without limitation, the
success of certain cost reduction efforts, the continued performance of the RemX®
specialty business unit, the Companys ability to realize improvements in the months ahead, changes
in general or local economic conditions that could impact the Companys expected financial results,
the availability of sufficient personnel, various costs relating to temporary workers and
personnel, including but not limited to workers compensation and state unemployment rates, the
Companys ability to expand its sales capacity and channels, to open new points of distribution and
expand in core geographic markets, attract and retain clients and franchisees/licensees, the
outcome of litigation, software integration and implementation, application of deferred tax assets
and other factors described below and elsewhere herein and in the Companys filings with the
Securities and Exchange Commission regarding risks affecting the Companys 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. The following should be read in
conjunction with the Consolidated Financial Statements of the Company and Notes therein filed on
Form 10-K on December 16, 2005.
(Unless otherwise noted, all dollar amounts are in thousands)
Company Overview
RemedyTemp, Inc. is a national provider of clerical, light industrial, information technology
and financial temporary staffing and direct-hire services to Fortune 1000 companies, as well as,
small and mid-size local and regional companies, including manufacturing, service, retail, banking
and governmental agencies. The Company provides its services in 35 states, the District of
Columbia and Puerto Rico through a network of 235 offices, of which 132 are Company-owned
and 103 are independently managed franchises.
The Company provides temporary personnel and direct-hire services in the following two
segments: Commercial and Specialty. These segments provide services to the Industrial, Clerical,
Professional and Information Technology business sectors. The sales and delivery functions for our
clients are concentrated in and through our field offices. Our headquarters provide support
services to our field offices in areas such as human resources, risk management, legal, marketing,
and national sales initiatives, in addition to the traditional back office support services such
as payroll, billing, accounting, tax, and data processing, which are highly centralized.
Traditional Franchise
Under the Companys traditional franchise agreements, the franchisee pays all lease and
working capital costs relating to its office, including funding payroll and collecting clients
accounts. Generally, the franchisee pays the Company an initial franchise fee and continuing
franchise fees, or royalties, at a standard rate of 7.0% of its gross billings. Franchisees that
have renewed their franchise agreement could qualify for a reduced rate (ranging from 5.5% 6.5%)
based on gross billings. Additionally, a discounted rate is utilized with national accounts for
which the Companys fee is reduced. The average royalty rate was 6.2% for the three months ended
January 1, 2006. The Company processes payroll and invoices clients, and the franchisee employs
all management staff and temporary personnel affiliated with its office. The Company no longer
offers this form of franchise agreement.
Licensed Franchise
Under the Companys licensed franchise agreements, the licensee pays the Company an initial
franchise fee and pays all lease and operating costs relating to its office. The licensee employs
all management staff affiliated with its office, but the Company employs all temporary personnel
affiliated with the licensed franchise office, handles invoicing and collecting clients accounts,
and generally remits to the licensed franchisee 60% 70% of the offices gross profit. The
Companys share of the licensees gross profit, representing the continuing franchise fees, is
generally not less than 7.5% of the licensed franchisees gross billings. However, the Companys
share of the licensees gross profit is decreased for (i) national accounts
18
RemedyTemp, Inc.
for which the Companys fee is reduced to compensate for lower gross margins, (ii) sales
incentive programs, and (iii) licensees that have renewed their franchise agreement and qualify for
a reduced rate (ranging from 6.0% 7.0%) based on gross revenues. For the three months ended
January 1, 2006, the Companys average share of licensees gross revenues was 6.5%. The percentage
of gross profit paid to the licensee is generally based on the level of hours billed during the
contract year. The Company adopted a new form of licensed franchise agreement in December 2005.
The new licensed franchise agreement will be used with new licensees and certain existing licensees
who decide to convert to the new agreement.
Executive Summary
The staffing industry is a highly competitive industry, which has contributed to significant
price competition and lower margins as major staffing companies have attempted to maintain or gain
market share. Although it is likely that the pressure on margins will continue throughout fiscal
2006, the Companys focus on increasing its business mix with specialty staffing services and its
direct-hire business will help mitigate the impact of the downward trend on margins throughout the
industry. The demand for temporary staffing has also continued to grow as demonstrated in recent
surveys by the American Staffing Association (ASA). According to ASA, new record highs were set
for staffing industry employment and sales in the third quarter (currently the most recent
available) of calendar 2005. The third quarters numbers surpassed the industrys previous peak,
set in the second quarter of 2005. While the pace of industry employment and sales increases has
slowed over the past two quarters when compared with the same period in 2004, the industry
continues to expand and has now posted 12 consecutive quarters of positive year-over-year growth.
Management continues to be encouraged by the recent economic data, as well as the steady job growth
in the staffing industry.
With long-term positive prospects, the staffing industry has always been inherently difficult
to forecast due to its dependence on economic factors and the strength of the labor market. The
Company has, however, developed a forecasting tool jointly with the A. Gary Anderson Center for
Economic Research at Chapman University. The Quarterly Labor Forecast Report, which is based upon
Bureau of Labor Statistics (the BLS) and other economic factors, helps to predict total demand
for temporary labor. The Company has been utilizing this tool for several years and has recently
begun to publish the results on a quarterly basis.
Highlights
The sections that follow this overview discuss and refer to critical accounting estimates and
recent pronouncements, the Companys results of operations and important aspects of its liquidity
and capital resources. Set forth below are what we believe to be important highlights of our
results of operations and our positioning for the future. Such highlights should be considered in
the context of all of the discussions herein and in conjunction with the consolidated financial
statements herein. We believe such highlights are as follows:
|
|
|
Total revenues, while having decreased 2.4%, showed improved traction with cost of
revenues being favorable by 5.1%. |
|
|
|
|
Sequentially, total revenues grew 3.6% over the fourth quarter of fiscal year 2005. |
|
|
|
|
RemX® achieved $13,365 in total revenues for the first quarter of fiscal year 2006, the
highest quarterly revenues in this business units history. |
|
|
|
|
Direct-hire revenues continued growth into the first quarter of fiscal year 2006,
recording the second highest in the Companys history, with
sequential growth of 1.9% and
growth of 29.9% over the first quarter of fiscal year 2005. |
|
|
|
|
Selling and administrative expenses decreased to 13.7% of revenues for the three months
ended January 1, 2006, compared to 14.1% for the three months ended January 2, 2005. |
|
|
|
|
Earnings before income taxes for the three months ended January 1, 2006 were $2,901, a
significant improvement over the $15 for the three months ended January 2, 2005 and an
increase of over 300% from the $715 in the fourth quarter of fiscal year 2005. |
19
RemedyTemp, Inc.
|
|
|
We believe that the quality of accounts receivable, the Companys primary operating
asset, continues to be consistent, with days sales outstanding (DSO) at 46.4 and 44.7
days and an allowance for doubtful accounts as a percentage of gross accounts receivable of
1.8% and 2.7% at January 1, 2006 and January 2, 2005, respectively. |
Critical Accounting Policies and Estimates
The discussions and analyses of the Companys consolidated financial condition and results of
operations were based on the Companys consolidated financial statements, which have been prepared
in conformity with accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and
liabilities at the financial statement date and reported amounts of revenues and expenses during
the reporting period. On an ongoing basis, the Companys management reviews and evaluates these
estimates and assumptions, including those that relate to revenue
recognition, allowance for doubtful accounts, deferred taxes,
estimates to assess the recoverability of intangible and long-lived
assets, goodwill impairment, workers compensation reserves,
contingencies and litigation reserves. These
estimates are based on historical experience and a variety of other assumptions believed reasonable
under the circumstances. Actual results could differ from these estimates under different
assumptions or conditions.
Management believes the following critical accounting policies are those most significantly
affected by the judgment, estimates and/or assumptions used in the preparation of Remedys
consolidated financial statements.
Revenue Recognition The Company generates revenues from the sale of temporary staffing and
direct-hire services by its Company-owned and licensed franchise operations and from royalties on
sales of such services by its traditional franchise operations. Temporary staffing revenues and the
related labor costs and payroll taxes are recorded in the period in which the services are
performed. Direct-hire revenues are recognized when the direct-hire candidate begins full-time
employment. Sales allowances are established to estimate losses due to placed candidates not
remaining employed for the Companys direct-hire guarantee period, typically 30 to 100 days and
have historically been insignificant to the Companys overall results of operations.
The Company accounts for the revenues and the related direct costs of its franchise
arrangements in accordance with Emerging Issues Task Force (EITF) 99-19, Reporting Revenue Gross
as a Principal versus Net as an Agent. The Company is required to assess whether it acts as a
principal in its transactions or as an agent acting on the behalf of others. Where the Company is
the principal in a transaction and has the risks and rewards of ownership, the transaction is
recorded gross in the income statement, and where the Company acts merely as an agent, only the
net fees earned are recorded in the income statement. Under the Companys traditional franchise
agreement, the franchisee has the direct contractual relationship with clients, holds title to the
related customer receivables and is the legal employer of the temporary employees. Accordingly,
the Company does not include the revenues and direct expenses from these transactions in its
income statement and only records the royalty fee earned. Alternatively, under the Companys
licensed franchise agreements, the Company has the direct contractual relationship with clients,
holds title to the related customer receivables and is the legal employer of the temporary
employees. As the Company retains the risks and rewards of ownership (such as the liability for
the cost of temporary personnel and the risk of loss for collection), the revenues and direct
expenses of its licensed franchise operations are included in the Companys results of operations.
The Company remits to each licensed franchisee a portion of the gross margin generated by its
office(s).
Accounts Receivable The Company provides an allowance for doubtful accounts on accounts
receivable for estimated losses resulting from the inability of the clients to make required
payments. The allowance is based upon managements analysis of historical write-off levels, current
economic trends, routine assessment of clients financial strength and any other known factors
impacting collectibility. If the financial condition of the Companys clients were to deteriorate,
which may result in the impairment of their ability to make payments, additional allowances may be
required. The Companys estimates are influenced by the following considerations: (i) the large
number of clients and their dispersion across wide geographic areas, (ii) the fact that no single
customer accounts for 10% or more of total revenues and (iii) continuing credit evaluation of
clients financial conditions.
Workers Compensation Costs The Company maintains reserves for workers compensation
obligations using actuarial methods to estimate the remaining undiscounted liability for the
deductible portion of all claims, including those incurred but not reported. This process includes
establishing loss development factors, based on the historical claims experience of the Company and
the industry, and applying those factors to current claims information to derive an estimate of the
Companys ultimate claims liability. The calculated ultimate liability is then reduced by
cumulative claims payments to determine the required reserve. Management evaluates the reserve, and
the underlying assumptions, regularly
20
RemedyTemp, Inc.
throughout the year and makes adjustments as needed. While management believes that the
recorded amounts are adequate, there can be no assurance that changes to managements estimates
will not occur due to limitations inherent in the estimation process.
Goodwill and Other Intangible Assets Effective the first quarter of fiscal year 2003, the
Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. SFAS No. 142 applies to goodwill and intangible assets that
are not amortized. SFAS No. 142 requires goodwill to no longer be amortized but instead be subject
to an impairment test at least annually or if events or circumstances change that may reduce the
fair value of the reporting unit below its book value. Reporting units are determined based on
geographic groupings of Company-owned offices. Intangible assets with finite lives continue to be
amortized over their estimated useful lives.
Other Long-Lived Assets Effective the first quarter of fiscal year 2003, the Company adopted
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. In accordance with
SFAS No. 144, the Company assesses the fair value and recoverability of its long-lived assets
including intangible assets subject to amortization, whenever events and circumstances indicate the
carrying value of an asset may not be recoverable from estimated undiscounted future cash flows
expected to result from its use and eventual disposition. In doing so, the Company makes
assumptions and estimates regarding future cash flows and other factors. The fair value of the
long-lived assets is dependent upon the forecasted performance of the Companys business and the
overall economic environment. When it determines that the carrying value of the long-lived assets
may not be recoverable, it measures impairment based upon a forecasted discounted cash flow method.
If these forecasts are not met, the Company may have to record additional impairment charges not
previously recognized. The charges, if any, are included in depreciation and amortization in the
accompanying consolidated statements of operations.
Income Taxes In preparing the Companys consolidated financial statements, management
estimates the Companys income taxes in each of the taxing jurisdictions in which it operates. This
includes estimating the Companys actual current tax expense together with any temporary
differences resulting from the different treatment of certain items, such as the timing for
recognizing revenues and expenses, for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included in the Companys consolidated balance
sheets.
Deferred tax assets and liabilities are determined based on temporary differences between
income and expenses reported for financial reporting and tax reporting. The Company is required to
record a valuation allowance to reduce its deferred tax assets to the amount that it believes is
more likely than not to be realized. In assessing the need for a valuation allowance, the Company
considers all positive and negative evidence, including scheduled reversals of deferred tax
liabilities, projected future taxable income, tax planning strategies and recent financial
performance. The Company had been profitable through the first fiscal quarter of 2003; however,
continued market softness and significant increases in workers compensation costs resulted in
significant losses in fiscal years 2003 and 2004, with the losses narrowing in fiscal year 2005.
The Company has returned to profitability in the three months ended January 1, 2006.
As a result of the Companys cumulative losses, management concluded that a full valuation
allowance was appropriate at January 1, 2006 and for the fiscal year ended October 2, 2005. While the Company expects to be profitable in fiscal year
2006, in view of the historical losses, there is no assurance that there will be sufficient future
taxable income to realize the benefit of the deferred tax asset. If, after future assessments of
the realizability of the deferred tax assets, the Company determines that a lesser allowance is
required, it would record a reduction to income tax expense and the valuation allowance in the
period of such determination. There is a possibility that the Company could release all or a
portion of its valuation allowances sometime during fiscal year 2006 provided that the
profitability forecasted for that period meets or exceeds budget, and if profitability is
reasonably expected to be sustained in the future.
Contingencies and Litigation There are various claims, lawsuits and pending actions against
the Company incident to its operations. If a loss arising from these actions is probable and can be
reasonably estimated, the Company must record the amount of the estimated liability. As additional
information becomes available, management will continue assessing any potential liability related
to these actions and may need to revise its estimates.
21
RemedyTemp, Inc.
Results of Operations
For the Three Fiscal Months Ended January 1, 2006 Compared to the Three Fiscal Months Ended January
2, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
% of Respective Revenues |
|
|
|
January 1, 2006 |
|
|
January 2, 2005 |
|
|
January 1, 2006 |
|
|
January 2, 2005 |
|
Company-owned office revenues |
|
$ |
82,463 |
|
|
$ |
88,628 |
|
|
|
|
|
|
|
|
|
Licensed franchise revenues |
|
|
51,148 |
|
|
|
48,406 |
|
|
|
|
|
|
|
|
|
Franchise royalties and initial franchise fees |
|
|
385 |
|
|
|
322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
133,996 |
|
|
|
137,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Company-owned office revenues
(exclusive of depreciation and amortization
shown below) |
|
|
64,162 |
|
|
|
71,821 |
|
|
|
77.8% |
|
|
|
81.0% |
|
Cost of licensed franchise revenues
(exclusive of depreciation and amortization
shown below) |
|
|
40,744 |
|
|
|
38,744 |
|
|
|
79.1% |
|
|
|
79.5% |
|
Licensees share of gross profit |
|
|
7,078 |
|
|
|
6,468 |
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
18,295 |
|
|
|
19,348 |
|
|
|
|
|
|
|
|
|
CIGA litigation |
|
|
129 |
|
|
|
98 |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,206 |
|
|
|
1,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
$ |
2,382 |
|
|
$ |
(487 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
Favorable (Unfavorable) |
|
|
|
January 1, 2006 |
|
|
January 2, 2005 |
|
|
$ Change |
|
|
% Change |
|
Company-owned office revenues |
|
$ |
82,463 |
|
|
$ |
88,628 |
|
|
$ |
(6,165 |
) |
|
|
(7.0 |
%) |
Licensed franchise revenues |
|
|
51,148 |
|
|
|
48,406 |
|
|
|
2,742 |
|
|
|
5.7 |
% |
Franchise royalties and initial
franchise fees |
|
|
385 |
|
|
|
322 |
|
|
|
63 |
|
|
|
19.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
133,996 |
|
|
$ |
137,356 |
|
|
$ |
(3,360 |
) |
|
|
(2.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The mix between Company-owned, licensed franchise and franchise royalty revenues shifted
with Company-owned revenues accounting for 61.5% of total revenues for the three months
ended January 1, 2006, compared to 64.5% for the three months ended January 2, 2005. |
|
|
|
|
Company-owned revenues decreased 7.0% for the three months ended January 1, 2006,
compared to the three months ended January 2, 2005. The decrease is primarily attributable
to the residual effect of decisions taken during fiscal year 2005 to eliminate certain
higher risk and lower margin business, principally in California, that did not meet the
Companys strategic directives. Somewhat offsetting this was the Companys RemX® specialty
staffing division, which generated a $2,503 increase in revenues to $13,365 for the three
months ended January 1, 2006, compared to the same period in the prior year. The $2,742 or
5.7% increase in the licensed franchise revenues is due to the addition of several new
customers and increased revenues from existing customers. |
|
|
|
|
For the three months ended January 1, 2006, direct-hire revenues accounted for 2.5% of
total revenues, up from 1.9% for the same period in the prior year. |
|
|
|
|
Revenues generated in California decreased to 38.2% of total revenues for the three
months ended January 1, 2006, compared to 43.4% for the three months ended January 2, 2005. |
The following table summarizes the Companys segment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
% of Total Revenues |
|
|
January 1, |
|
|
|
|
|
January 2, |
|
January 1, |
|
January 2, |
|
|
2006 |
|
|
|
|
|
2005 |
|
2006 |
|
2005 |
Commercial |
|
$ |
108,413 |
|
|
|
|
|
|
$ |
111,134 |
|
|
|
80.9 |
% |
|
|
80.9 |
% |
Specialty |
|
|
25,583 |
|
|
|
|
|
|
|
26,222 |
|
|
|
19.1 |
% |
|
|
19.1 |
% |
|
|
|
The 2.4% decrease in Commercial revenues reflects the impact of selectively reducing
higher risk and lower margin business within the Company-owned light industrial business
unit of the segment during mid and late fiscal year 2005. Somewhat offsetting this
decrease are increases noted above in the licensed franchise business unit and a near
doubling of direct-hire revenues. |
|
|
|
|
For the quarter ended January 1, 2006, the 2.4% decrease in revenues from the Specialty
segment is due to the impact of closing underperforming offices in mid and late fiscal year
2005 in preparation for organizing the start up of the Talent Magnet business unit, net of
23% growth from the RemX® business unit over the same period in the prior year.
Direct-hire revenues from Talent Magnet grew by 58% for the three months ended January 1,
2006, compared to the same period in the prior year. |
Cost
of Revenues (exclusive of depreciation and amortization)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
Favorable (Unfavorable) |
|
|
|
January 1, |
|
|
January 2, |
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
$ Change |
|
|
% Change |
|
Cost of Company-owned office revenues |
|
$ |
64,162 |
|
|
$ |
71,821 |
|
|
$ |
7,659 |
|
|
|
10.7 |
% |
Cost of licensed franchise revenues |
|
|
40,744 |
|
|
|
38,744 |
|
|
|
(2,000 |
) |
|
|
(5.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
$ |
104,906 |
|
|
$ |
110,565 |
|
|
$ |
5,659 |
|
|
|
5.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
22
RemedyTemp, Inc.
|
|
|
Total cost of Company-owned and licensed franchise revenues consists of payroll wages
and other expenses related to temporary associates and as a percentage of revenues was
78.3% and 80.5% for the three months ended January 1, 2006 and January 2, 2005,
respectively. The 2.2 percentage point improvement is the result of a 0.2 percentage point
increase due to pricing and mix efforts; a 1.5 percentage point increase attributable to
the Companys decrease in workers compensation expense; and a 0.5 percentage point
increase as a result of an $800 increase in direct-hire revenues, whereby the Company earns
a fee for placing an associate in a direct-hire position. Direct-hire revenues as a
percentage of total revenues increased 2.5% for the three months ended January 1, 2006,
compared to 1.9% for the three months ended January 2, 2005. |
|
|
|
|
Company-owned cost of revenues was 77.8% for the three months ended January 1, 2006,
compared to 81.0% for the same period in the prior year. The 3.2 percentage point decrease
in Company-owned office cost of revenues is primarily attributable to a decrease in workers
compensation expense, which contributed 2.2 percentage points. Within the decreased
workers compensation expense, was an adjustment of 1.2 percentage points or $900 as a
result of favorable claim frequency and severity trends confirmed in the most recent
actuarial reports, in particular within the state of California. Additionally, improved
pricing and mix contributed 0.3 percentage points; lower burden contributed 0.2 percentage
points of the increase and direct-hire business contributed 0.5 percentage points. |
|
|
|
|
The increase in cost of licensed franchise revenues is consistent with the 5.7% increase
in licensed franchise revenues. |
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
Favorable (Unfavorable) |
|
|
|
January 1, |
|
|
January 2, |
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
$ Change |
|
|
% Change |
|
Licensees share of gross profit |
|
$ |
7,078 |
|
|
$ |
6,468 |
|
|
$ |
(610 |
) |
|
|
(9.4 |
%) |
Selling and administrative expenses |
|
|
18,295 |
|
|
|
19,348 |
|
|
|
1,053 |
|
|
|
5.4 |
% |
CIGA litigation |
|
|
129 |
|
|
|
98 |
|
|
|
(31 |
) |
|
|
(31.6 |
%) |
Depreciation and amortization |
|
|
1,206 |
|
|
|
1,364 |
|
|
|
158 |
|
|
|
11.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
26,708 |
|
|
$ |
27,278 |
|
|
$ |
570 |
|
|
|
2.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensees share of gross profit represents the net payments to licensed franchisees
based upon a percentage of profit or revenues generated by the licensed franchise operation after deducting certain operating expenses. The
increase in licensees share of gross profit is consistent with the increase in licensed
franchise revenues and cost of licensed franchise revenues.
Licensees |
23
RemedyTemp, Inc.
|
|
|
share of gross profit as a percentage of licensed gross profit increased to 68.0% for the
three months ended January 1, 2006, compared to 66.9% for the three months ended January 2,
2005. |
|
|
|
|
The following table summarizes the significant changes in selling and administrative
expenses for the three months ended January 1, 2006, compared to the three months ended
January 2, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable (Unfavorable) |
|
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Specialty |
|
|
Commercial |
|
|
Other* |
|
Colleague salary & related taxes |
|
$ |
937 |
|
|
$ |
357 |
|
|
$ |
305 |
|
|
$ |
275 |
|
Profit sharing |
|
|
(291 |
) |
|
|
(455 |
) |
|
|
74 |
|
|
|
90 |
|
Colleague travel and business conferences |
|
|
150 |
|
|
|
85 |
|
|
|
42 |
|
|
|
23 |
|
Supplies and
postage |
|
|
51 |
|
|
|
24 |
|
|
|
17 |
|
|
|
10 |
|
Rent |
|
|
74 |
|
|
|
17 |
|
|
|
60 |
|
|
|
(3 |
) |
Professional fees |
|
|
91 |
|
|
|
1 |
|
|
|
|
|
|
|
90 |
|
Legal fees |
|
|
135 |
|
|
|
(8 |
) |
|
|
1 |
|
|
|
142 |
|
Bad debt |
|
|
(118 |
) |
|
|
|
|
|
|
|
|
|
|
(118 |
) |
Testing fees |
|
|
(52 |
) |
|
|
(4 |
) |
|
|
(48 |
) |
|
|
|
|
Other selling & administrative |
|
|
76 |
|
|
|
112 |
|
|
|
11 |
|
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in selling & administrative. |
|
$ |
1,053 |
|
|
$ |
129 |
|
|
$ |
462 |
|
|
$ |
462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Other Offices category includes the corporate office. |
|
|
|
Selling and administrative expenses as a percentage of total revenues were 13.7% for the
three months ended January 1, 2006, compared to 14.1% for the three months ended January 2,
2005. The primary factor contributing to the net decrease was colleague salary and related
taxes, which improved $937 due primarily to a reduction in headcount. |
|
|
|
|
Profit sharing increased $291 due mainly to the increase in direct-hire revenues and
improved overall results. |
|
|
|
|
The $158 decrease in depreciation and amortization for the three months ended January 1,
2006, compared to the three months ended January 2, 2005, is due to an increase in fully
depreciated fixed assets at January 1, 2006, compared to January 2, 2005. |
Operating Income
Income from operations improved $2,869 to an operating profit of $2,382 for the three months
ended January 1, 2006 from an operating loss of $487 for the three months ended January 2, 2005.
Improvement in the Companys operating income is due to the increase in direct-hire revenues and
gross margin improvement. The decrease in depreciation and amortization also contributed to the
improved operating profits.
The following table summarizes the operating margins of the Companys segments:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
January 1, |
|
January 2, |
|
|
2006 |
|
2005 |
Commercial |
|
|
8.0 |
% |
|
|
6.4 |
% |
Specialty |
|
|
3.4 |
% |
|
|
0.5 |
% |
|
|
|
The Commercial segment operating margins improved within both the light industrial and licensed
franchise business units for the three months ended January 1, 2006, compared with the same
period in the prior year. The main drivers to the improvement were lower workers
compensation costs and the favorable impact of increased direct-hire revenues within both
business units. |
|
|
|
|
The Specialty segment showed further operating margin improvement for the first three months ended
January 1, 2006, compared with the same period prior year. This percentage improvement was
attributable to both the Talent Magnet business units improved results on lower
temporary staffing volume and the impact of increased direct-hire
volume as well as the
RemX®
business units continued growth. |
An income tax provision of $784 was recorded for the three months ended January 1, 2006,
compared to an income tax provision of $37 for the three months ended January 2, 2005. The
Companys overall annual effective tax rate of 27.0% for fiscal year 2006 differs from the
statutory rate due to the utilization of prior year tax credits in the current year. The effective
tax rate of 249.1% for the first quarter fiscal 2005 differs from the statutory rate due to the
respective current period valuation allowance against the deferred tax asset. The estimated annual
effective tax rate is revised quarterly based upon actual operating results, the tax credits earned
to date as well as current annual projections. The cumulative impact of any change in the
estimated annual effective tax rate is recognized in the period the change in estimate occurs.
The Company generated net income of $2,117 for the three months ended January 1, 2006,
compared to a net loss of $22 for the three months ended January 2, 2005.
Liquidity and Capital Resources
The Companys balance sheet includes $47,353 in cash and investments as of January 1, 2006
(including restricted cash and investments discussed below), and the Company continues to have no
debt, although significant letters of credit are outstanding. Historically, the Company has
financed its operations through cash generated by operating activities and
24
RemedyTemp, Inc.
its credit facility, as
necessary. Generally, the Companys principal uses of cash are working capital needs and capital
expenditures (including management information systems initiatives and direct office openings) and
franchise acquisitions.
The following table summarizes the Companys cash and investments and letters of credit at
January 1, 2006 and October 2, 2005:
|
|
|
|
|
|
|
|
|
|
|
January 1, 2006 |
|
|
October 2, 2005 |
|
Cash and cash equivalents |
|
$ |
20,485 |
|
|
$ |
24,954 |
|
Investments |
|
|
937 |
|
|
|
692 |
|
Deferred compensation investments |
|
|
4,042 |
|
|
|
3,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and investments current |
|
|
25,464 |
|
|
|
29,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restricted cash and investments long-term |
|
|
21,889 |
|
|
|
21,889 |
|
|
|
|
|
|
|
|
Total cash and investments |
|
$ |
47,353 |
|
|
$ |
51,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit |
|
$ |
36,538 |
|
|
$ |
36,538 |
|
|
|
|
|
|
|
|
Cash flows from operating, investing and financing activities, as reflected in the
accompanying consolidated statements of cash flows, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
January 1, 2006 |
|
|
January 2, 2005 |
|
Cash used in: |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(3,057 |
) |
|
$ |
(2,441 |
) |
Investing activities |
|
|
(1,376 |
) |
|
|
(497 |
) |
Financing activities |
|
|
|
|
|
|
|
|
Effect of exchange rate on cash |
|
|
(36 |
) |
|
|
22 |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(4,469 |
) |
|
|
(2,916 |
) |
Cash and cash equivalents at beginning of period |
|
|
24,954 |
|
|
|
7,075 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
20,485 |
|
|
$ |
4,159 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities, compared to the preceding year, were primarily
impacted by the timing of receivables collections, the timing of payroll disbursements
(including incentive compensation payments), as well as the timing of vendor payments. The
nature of the Companys business requires payment of wages to its temporary associates on a
weekly basis, while payments from clients are generally received 30 to 45 days after the
related billing. |
|
|
|
|
Cash used in investing activities was $1,376 and $497 for the three months ended January
1, 2006 and January 2, 2005, respectively. During the first quarter of fiscal year 2006,
cash used in investing activities was primarily related to capital expenditures, which
consisted of cash used for purchases of fixed assets, including information systems
development costs. Net cash outflows related to available-for-sale investments were $245
for the three months ended January 1, 2006, compared to $0 of cash outflows in the three
months ended January 2, 2005. The Company continues to invest in computer-based
technologies and anticipates approximately $2,000 in related capital expenditures for the
remaining nine months of fiscal 2006. |
|
|
|
|
There was no cash used in or provided by financing activities for the first quarter of
fiscal years 2006 and 2005. |
Cash and cash equivalents decreased $4,469 from the prior year as a result of the timing of
payroll disbursements and vendor payments as well as delayed cash payments from several large
customers related to December 2005 revenues.
As discussed in Note 5 to the condensed notes to consolidated financial statements, the
Company provides workers compensation insurance to its temporary associates and colleagues. The
Company establishes a reserve for the deductible portion of its workers compensation claims using
actuarial estimates of the ultimate cost of claims and related expenses that have been reported but
not settled, and that have been incurred but not reported. The estimated remaining deductible
liability under the aforementioned contracts as of January 1, 2006 is approximately $37,598, of
which, $9,935 is recorded as current and $27,663 is recorded as non-current in the consolidated
balance sheet. The Company also has an aggregate
25
RemedyTemp, Inc.
of $2,177 recorded as a current liability at
January 1, 2006 for amounts due to various state funds related to workers compensation.
The Company is contractually required to collateralize its obligation under each of these
workers compensation insurance contracts through the use of irrevocable letters of credit, pledged
cash and securities or a combination thereof. The level and type of collateral required for each
policy year is determined by the insurance carrier at the inception of the policy year and may be
modified periodically. The Company had outstanding letters of credit totaling $36,538 as of
January 1, 2006 and January 2, 2005. On January 4, 2006, the Company reduced its outstanding
letters of credit by $5,000 to an aggregate amount of $31,538. At January 1, 2006, the Company had
$12,622 available under its line of credit. The Company believes that this amount plus the letter
of credit reductions for previous year programs will be sufficient for the new insurance policy.
The Credit Agreement with Bank of America commencing December 1, 2004 provides for borrowings
up to $50,000 with a provision permitting the Company to increase the aggregate amount of
borrowings to $60,000. The Company has granted a security interest to Bank of America in all its
existing and future assets. The Credit Agreement will expire on December 1, 2006. The Credit
Agreement bears interest equal to LIBOR plus 1.75% to 2.75% based upon the Companys EBITDA or Bank
of Americas prime rate plus 0.00% to 0.50% based on EBITDA. The Company is also required to pay
monthly fees of 0.25% per annum on the unused portion of the line of credit and monthly fees of
0.75% to 1.50% per annum on outstanding letters of credit based on a pricing matrix. The Credit
Agreement requires the Company to comply with a minimum EBITDA covenant which will not go into
effect unless the Companys total liquidity drops below $15,000. Liquidity is defined by the Credit
Agreement as unrestricted domestic cash plus excess borrowing availability. The Company is in
compliance with all financial covenants as prescribed in the Credit Agreement at January 1, 2006.
The Company had no borrowings outstanding as of January 1, 2006 and January 2, 2005.
As discussed in Part II, Item 1, Legal Proceedings and Note 7 to the condensed notes to
consolidated financial statements, the Company recorded a $5,877 charge during the fourth quarter
of fiscal 2004 for the costs of indemnifying certain clients for losses they may suffer as a result
of an October 2004 decision by the California Court of Appeal. This charge is based upon various
estimates and is subject to change as more information becomes available to the Company. The
Company may also choose to reimburse clients that did not enter into contracts with the Company or
whose contracts may not have included indemnification language. These costs will be treated as
period costs and will be charged to the consolidated statements of operations in the period
management decides to make any goodwill payments to clients. Managements current estimate of
future goodwill payments is a range of $2,000 to $3,000. This estimate is subject to change.
The Company has in effect a universal shelf registration statement on Form S-3 filed with the
Securities and Exchange Commission (SEC). The universal shelf registration statement permits the
Company to sell, in one or more public offerings, shares of its Class A common stock, shares of
preferred stock, debt securities, depository shares and/or warrants, or any combination of such
securities, for proceeds in an aggregate amount of up to $30,000. Specific terms and prices will
be determined at the time of any offering and included in a related prospectus supplement to be
filed with the SEC. To date no securities have been issued pursuant to the universal shelf
registration.
On November 18, 2003, the Company was notified by the State of California Employment
Development Department (the EDD) that the Company allegedly underpaid its state unemployment
insurance tax by approximately $2,000 for the period January 1, 2003 through September 30, 2003.
Based on its evaluations and after consulation with outside counsel, the Company believes that its
methodology in calculating its state unemployment insurance tax is in compliance with all
applicable laws. As of January 1, 2006, the Company has accrued $983 in connection with the
potential settlement of these payroll-related tax matters.
From time to time, the Company may selectively purchase licensed and traditional franchise
offices in certain territories with the intent of expanding the Companys market presence in such
regions. The Company may continue evaluating certain strategic acquisitions which 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 are sufficient at
January 1, 2006 and line of credits are adequate to support present operations and to fund future
growth and business opportunities for the foreseeable future. Should it be necessary, the Company
may issue securities under its effective Form S-3 registration statement.
26
RemedyTemp, Inc.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements as defined in Regulation S-K 303(a) (4)
(ii).
Contractual Obligations
The Company has no significant contractual obligations not fully recorded in the consolidated
balance sheets or fully disclosed in the condensed notes to consolidated financial statements. The
Companys estimated workers compensation obligation which represents the remaining deductible
liability under the Companys current workers compensation contracts decreased $793 to $37,598 at
January 1, 2006, compared to $38,391 at October 2, 2005.
Critical Accounting Policies and Estimates
The accounting policies that have the greatest impact on our financial condition and results
of operations and that require the most judgment are those relating
to revenue recognition, allowance for doubtful accounts, deferred
taxes, estimates to assess the recoverability of intangible and
long-lived assets, goodwill impairment, workers compensation
reserves, contingencies and litigation reserves. These policies are described in further detail in our Annual Report on
Form 10-K for the year ended October 2, 2005.
Seasonality
The Companys 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 relatively strong as a result of manufacturing and retail emphasis on holiday sales.
Historically, the second fiscal quarter shows a decline in comparable revenues from the first
fiscal quarter. Revenue growth has historically accelerated in each of the third and fourth fiscal
quarters as manufacturers, retailers and service businesses increase their level of business
activity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk resulting from changes in interest rates and equity
prices and, to a lesser extent, foreign currency rates. Under its current policy, the Company does
not engage in speculative or leveraged transactions to manage exposure to market risk. There were
no material changes to the disclosures made in Item 7A in the Companys Annual Report on Form 10-K
for the year ended October 2, 2005 regarding quantitative and qualitative disclosures about market
risk.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of January 1, 2006, under the supervision and with the participation of the Companys
management, including the Companys principal executive officer and principal financial officer,
the Company carried out an evaluation of the effectiveness of the design and operation of the
Companys disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and
15d-15(e). These disclosure controls and procedures are designed to provide reasonable assurance
that the information required to be disclosed by the Company in its periodic reports with the SEC
is recorded, processed, summarized and reported within the time periods specified by the SECs
rules and forms, and that the information is accumulated and communicated to the Companys
management, including the principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure. The design of any disclosure
controls and procedures also is based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions.
Based upon their evaluation, the principal executive officer and principal financial officer
concluded that the Companys disclosure controls and procedures are effective at the reasonable
assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in the Companys internal control over financial reporting during
the fiscal quarter ended January 1, 2006, that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over financial reporting.
27
RemedyTemp, Inc.
PART IIOTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Lindsay Welch-Hess v. Remedy Temporary Services, Inc.
Commencing in March 2003, the Company was sued in an action entitled Lindsay Welch-Hess v.
Remedy Temporary Services, Inc. in San Diego Superior Court. The complaint sought damages under
various employment tort claims, including sexual harassment and retaliation stemming from a
four-day employment relationship. The complaint also sought damages for unpaid wages under the
California Labor Code. The plaintiff later amended the complaint to assert class claims for unpaid
wages with respect to certain aspects of the application process. The complaint asserted additional
class claims alleging failure to compensate persons assigned to one of Remedys clients.
In November 2004, the Court certified a class consisting of all persons in California who,
since October 1999, have applied to the Company for placement in a temporary job, regardless of
whether they were ever placed in a temporary assignment by the Company (the Remedy class). The
Court certified a second class consisting of all persons in California who, since October 1999,
were hourly employees hired by Remedy and assigned to a particular client (the training class).
On February 11, 2005, the Company filed two motions for summary judgment related to the Remedy
class and the training class.
On May 31, 2005, the Court denied, in part, the Companys motion for summary judgment related
to the Remedy class, which allowed a portion of that class to pursue the claim for unpaid
compensation. On June 27, 2005, the Company filed a writ in Division One of the Fourth Appellate
District seeking an order vacating the denial of Remedys summary judgment motion related to the
Remedy class. On September 27, 2005, the Court of Appeal denied the writ. Subsequently, the Company
filed a Petition for Review before the California Supreme Court, which was summarily denied.
On July 27, 2005, plaintiffs filed an appeal challenging the following two court orders
relating to the Remedy class: (1) the order denying class certification for failure to pay wages
upon termination/resignation; and (2) the portion of the trial courts ruling on Remedys motion
for summary judgment, which excluded individuals who completed Remedys application process but
never worked for Remedy from class membership. The Companys brief is due February 27, 2006.
On July 29, 2005, the Court granted Remedys motion for summary judgment related to the
training class and allowed plaintiffs to recover attorneys fees. Plaintiffs filed a motion for
reconsideration on various issues, which was denied.
On September 27, 2005, plaintiffs filed an appeal challenging the following two court orders
relating to the training class: (1) the order denying class certification as to the tenth cause of
action (failure to pay wages upon termination/resignation); and (2) the portion of the trial
courts ruling on Remedys summary judgment, which held that all training class members had been
properly paid. Plaintiffs have also filed a motion to bifurcate the various individual tort claims
from the class claims. That motion was denied.
The Company intends to vigorously defend this case. At this time, the Company has not
estimated an accrual for this matter because the probability of an
unfavorable outcome cannot currently be reasonably estimated.
CIGA
In early 2002, as a result of the liquidation of Remedys former workers compensation
insurance carrier, Reliance National Insurance Company (Reliance), the California Insurance
Guarantee Association (CIGA) began making efforts to join some of the Companys clients and their
workers compensation insurance carriers (collectively, Clients), in pending workers
compensation claims filed by Remedy employees. At the time of these injuries, from July 22, 1997
through March 31, 2001, Remedy was covered by workers compensation policies issued by Reliance.
The Company believes that under California law, CIGA is responsible for Reliances outstanding
liabilities. On April 5, 2002, the California Workers Compensation Appeals Board (WCAB), at
Remedys request, consolidated the various workers compensation claims in which CIGA sought to
join Remedys Clients, and agreed to stay proceedings on those claims pending resolution of the
issue of CIGAs obligations to satisfy Reliances obligations to Remedys employees. The WCAB
selected a single test case from the consolidated pending cases in which to decide whether CIGA is
responsible for the claims of Remedys employees, or can shift such responsibility to the Clients.
The trial occurred on September 20, 2002. The WCAB Administrative Law Judge ruled in favor of CIGA,
thus allowing the pending workers compensation matters to proceed against the Clients. Remedy then
filed a motion for reconsideration of the Administrative Law Judges decision by the entire WCAB.
On March 28, 2003, the WCAB affirmed the ruling of the Administrative Law Judge.
28
RemedyTemp, Inc.
Thereafter, in May 2003, the Company filed a petition for writ of review of the WCABs
decision in the California Court of Appeal. The WCAB continued the stay in effect since April 5,
2002, thus preventing CIGA from proceeding until the writ proceeding was concluded. In January
2004, the Court of Appeal granted the Companys petition and undertook to review the WCABs
decision. The Court of Appeal heard oral argument in the matter on July 9, 2004.
On October 20, 2004, the Court of Appeal affirmed the WCABs decision. On November 18, 2004,
the Court of Appeal granted the Companys petition for rehearing and requested additional briefing
on this matter. The Court of Appeal heard oral argument on April 15, 2005. On July 25, 2005, the
Court of Appeal issued its decision finding that CIGA should not be dismissed and that the
insurance held by Remedys Client did not provide other available insurance for the workers
compensation claim. CIGA appealed this decision with the California Supreme Court. In October 2005,
the California Supreme Court declined to hear the appeal and sent the matter back to the WCAB with
instructions to enforce the Court of Appeals decision.
On October 25, 2005, Remedy filed a request for order seeking to dismiss Remedy, its Clients
and their insurance companies from the individual WCAB cases and joining CIGA as a defendant. On
November 7, 2005, CIGA filed objections to the request for dismissal. On December 13, 2005, the
Company filed a reply. A hearing date has not been set.
Despite the Court of Appeals decision, in the event of a final unfavorable outcome, Remedy
may be obligated to reimburse certain Clients and believes that it would consider reimbursement of
other Clients for actual losses incurred as a result of unfavorable rulings in these matters. If
Remedy is unsuccessful in dismissing Remedys Clients from these matters, and if these Clients or
their insurance carriers become obligated to respond to the claims of Remedys employees, the
Company believes that the direct financial exposure to Remedy becomes a function of the ultimate
losses on the claims and the impact of such claims, if any, on the Clients insurance coverage,
potentially including but not limited to the Clients responsibility for any deductibles or
retentions under their own workers compensation insurance. The Company has received data from the
Third Party Administrator (TPA) handling the claims for CIGA. Such data indicates claims of
approximately $32,337 as of January 1, 2006. The losses incurred to date represent amounts paid to
date by the trustee and the remaining claim reserves on open files.
In the fourth quarter of fiscal year 2004, the Company recorded a $5,877 charge to operating
income related to the CIGA case. The Company does not currently expect to adjust the reserve until
final resolution of the case. This amount represents the Companys estimate on the basis of a
review of known information and was established for costs associated with the indemnification of
certain Clients for losses they may suffer as a result of final unfavorable outcomes. The
information reviewed included customer contracts, review of the loss run received from the TPA
handling the claims, actuarial development of the reported claim losses, estimates of customer
insurance coverage, and other applicable information. The amount of the charge is, therefore,
subject to change as more information becomes available to the Company. In the event of a final
unfavorable outcome, the Company may also choose to reimburse certain Clients that did not enter
into contracts with the Company or whose contracts may not have included indemnification language.
These costs will be treated as period costs and will be charged to the consolidated statements of
operations in the period management decides to make any goodwill payments to Clients.
Managements current estimate of future goodwill payments is a range of $2,000 to $3,000. This
estimate is subject to change.
Other Litigation
From time to time, the Company becomes a party to other litigation incidental to its business
and operations. The Company maintains insurance coverage that management believes is reasonable and
prudent for the business risks that the Company faces. Based on current available information,
management does not believe the Company is party to any other legal proceedings that are likely to
have a material adverse effect on its business, financial condition, cash flows or results of
operations.
Other Contingency
In late 2003, the Company was notified that it may have underpaid certain payroll-related tax
liabilities by approximately $2,000 for the period from January 1, 2003 through September 30, 2003.
Based on its evaluations and after consultation with outside counsel, the Company believes that the
methodology the Company used to calculate these taxes was in compliance with applicable law. The
Company is currently working with outside counsel to resolve these matters. As of October 2, 2005,
the Company has accrued $983 in connection with the potential settlement of these payroll-related
tax matters.
29
RemedyTemp, Inc.
ITEM 6. EXHIBITS
Set forth below is a list of the exhibits included as part of this
Quarterly Report:
|
|
|
Exhibit |
|
|
No. |
|
Description |
3.1
|
|
Amended and Restated Articles of Incorporation of the Company(a) |
|
|
|
3.2
|
|
Amended and Restated Bylaws of the Company(e) |
|
|
|
4.1
|
|
Specimen Stock Certificate(a) |
|
|
|
4.2
|
|
Shareholder Rights Agreement(a) |
|
|
|
10.1
|
|
*Robert E. McDonough, Sr. Amended and Restated Employment Agreement(f) |
|
|
|
10.2
|
|
*Paul W. Mikos Employment Agreement, as amended(g) |
|
|
|
10.3
|
|
*Robert E. McDonough, Sr. Amendment No. 1 to Amended and Restated Employment Agreement(i) |
|
|
|
10.7
|
|
*Deferred Compensation Agreement for Alan M. Purdy(a) |
|
|
|
10.9
|
|
Form of Indemnification Agreement entered into by RemedyTemp, Inc. and each of its directors
and certain executive officers(a) |
|
|
|
10.11
|
|
*Amended and Restated RemedyTemp, Inc. 1996 Stock Incentive Plan (effective as of January 1,
2005)(cc) |
|
|
|
10.12
|
|
*Amended and Restated RemedyTemp, Inc. 1996 Employee Stock Purchase Plan (effective as of
September 26, 2005)(z) |
|
|
|
10.13
|
|
Form of Franchising Agreement for Licensed Offices(k) |
|
|
|
10.14
|
|
Form of Franchising Agreement for Franchised Offices(a) |
|
|
|
10.15
|
|
Form of Licensing Agreement for IntelliSearch(a) |
|
|
|
10.18
|
|
*Additional Deferred Compensation Agreement for Alan M. Purdy(b) |
|
|
|
10.19
|
|
Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC(c) |
|
|
|
10.22
|
|
*RemedyTemp, Inc. Deferred Compensation Plan (effective as of January 1, 2005)(cc) |
|
|
|
10.23
|
|
*Amended and Restated Employment Agreement for Greg Palmer(m) |
|
|
|
10.24
|
|
*1998 RemedyTemp, Inc. Amended and Restated Deferred Compensation and Stock Ownership Plan for
Outside Directors (effective as of January 1, 2005)(cc) |
|
|
|
10.25
|
|
Form of Licensing Agreement for i/Search 2000®(e) |
|
|
|
10.27
|
|
*Paul W. Mikos Severance Agreement and General Release(j) |
|
|
|
10.28
|
|
*Gunnar B. Gooding Employment and Severance Letter(l) |
|
|
|
10.29
|
|
*Cosmas N. Lykos Employment and Severance Letter(l) |
|
|
|
10.30
|
|
*Alan M. Purdy Retirement Agreement and General Release(n) |
|
|
|
10.31
|
|
*Monty Houdeshell Employment Letter(o) |
|
|
|
10.34
|
|
Amendment No. 2 to the Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC(q) |
|
|
|
10.36
|
|
Business Loan Agreement between Bank of America N.A. and RemedyTemp, Inc.(s) |
30
RemedyTemp, Inc.
|
|
|
Exhibit |
|
|
No. |
|
Description |
10.37
|
|
Amended and Restated Credit Agreement between Bank of America, N.A. and Remedy Temp, Inc.(t) |
|
|
|
10.38
|
|
*Robert E. McDonough, Sr. Amendment No. 2 to Amended and Restated Employment Agreement(u) |
|
|
|
10.39
|
|
*Short-term Incentive Bonus Plan for Fiscal 2005(v) |
|
|
|
10.40
|
|
*Amended Agreement with Janet Hawkins(w) |
|
|
|
10.41
|
|
*Deferred Compensation Plan for Greg Palmer(cc) |
|
|
|
10.42
|
|
*Form of Change in Control Severance Agreement(x) |
|
|
|
10.43
|
|
*Amendment to Amended and Restated Employment Agreement for Greg Palmer(y) |
|
|
|
10.44
|
|
*Short-Term Incentive Bonus Plan for Fiscal 2006(aa) |
|
|
|
10.45
|
|
*Form of Lock-Up Agreement with certain executive officers(bb) |
|
|
|
10.46
|
|
Summary of Compensation Arrangements for Named Executive Officers and Directors(cc) |
|
|
|
10.47
|
|
Form of Franchising Agreement for Licensed Offices (effective January 1, 2006) |
|
|
|
10.48
|
|
Form of Early Renewal Addendum for Existing Licensees (effective January 1, 2006) |
|
|
|
10.49
|
|
Form of Software License Agreement for Licensees (effective January 1, 2006) |
|
|
|
31.1
|
|
Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2
|
|
Chief Administrative Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|
|
|
32
|
|
Chief Executive Officer and Chief Administrative Officer Certifications Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
* |
|
Indicates a management contract or a compensatory plan, contract or arrangement. |
|
(a) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Registration Statement on Form S-1 (Reg. No. 333-4276), as amended. |
|
(b) |
|
Incorporated by reference to the exhibit of same number to the Registrants
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 Registrants
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 Registrants
Annual Report on Form 10-K for the yearly period ended September 28, 1997. |
|
(e) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Annual Report on Form 10-K for the yearly period ended September 27, 1998. |
|
(f) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Reports on Form 10-Q for the quarterly period ended December 27,
1998. |
|
(g) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Reports on Form 10-Q for the quarterly period ended June 27, 1999
(original agreement) and for the quarterly period ended December 31, 2000
(amendment). |
|
(h) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Annual Report on Form 10-K for the yearly period ended March 28, 1999. |
31
RemedyTemp, Inc.
|
|
|
(i) |
|
Incorporated by reference to exhibit number 10.1 to the Registrants Quarterly
Report on Form 10-Q for the quarterly period ended December 31, 2000. |
|
(j) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2001. |
|
(k) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2001. |
|
(l) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Annual Report on Form 10-K for the yearly period ended September 30, 2001. |
|
(m) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended December 30, 2001. |
|
(n) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002. |
|
(o) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Annual Report on Form 10-K for the yearly period ended September 29, 2002. |
|
(p) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2003. |
|
(q) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Annual Report on Form 10-K for the yearly period ended September 28, 2003. |
|
(r) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2004.
|
|
(s) |
|
Incorporated by reference to the exhibit of same number to
the Registrants Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2004. |
|
(t) |
|
Incorporated by reference to the exhibit of same number to
Registrants Current Report on Form 8-K filed on December 3, 2004. |
|
(u) |
|
Incorporated by reference to the exhibit of same number to Registrants
Quarterly Report on Form 10-Q for the quarterly period ended January 2, 2005. |
|
(v) |
|
Incorporated by reference to Item 1.01 of the Registrants Current Report on
Form 8-K filed on February 1, 2005.
|
|
(w) |
|
Incorporated by reference to Item 10.1 of the Registrants Current Report on
Form 8-K filed on May 9, 2005. |
|
(x) |
|
Incorporated by reference to Exhibit 10.1 to Registrants Current Report on
Form 8-K filed on April 22, 2005. |
|
(y) |
|
Incorporated by reference to Exhibit 10.2 to Registrants Current Report on
Form 8-K filed on April 22, 2005. |
|
(z) |
|
Incorporated by reference to Exhibit 10.2 to Registrants Current Report on
Form 8-K filed on September 27, 2005. |
|
(aa) |
|
Incorporated by reference to Item 1.01 of the Registrants Current Report on
Form 8-K filed on September 23, 2005. |
|
(bb) |
|
Incorporated by reference to Exhibit 10.1 of the Registrants Current Report on
Form 8-K filed on September 27, 2005. |
32
RemedyTemp, Inc.
|
|
|
(cc) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Annual Report on Form 10-K for the yearly period ended October 2, 2005. |
33
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. |
|
|
|
February 10, 2006
|
|
/s/ GREG D. PALMER |
|
|
|
|
|
|
|
|
|
Greg D. Palmer, President and Chief |
|
|
|
|
Executive Officer |
|
|
|
|
|
|
|
February 10, 2006
|
|
/s/ MONTY A. HOUDESHELL |
|
|
|
|
|
|
|
|
|
Monty A. Houdeshell, Senior Vice |
|
|
|
|
President Chief Administrative Officer and |
|
|
|
|
Corporate Secretary |
|
|
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
February 10, 2006
|
|
/s/ JOHN D. SWANCOAT |
|
|
|
|
|
|
|
|
|
John D. Swancoat, Vice President and Controller |
|
|
|
|
(Principal Accounting Officer) |
|
|
34
Exhibit Index
|
|
|
Exhibit |
|
|
No. |
|
Description |
3.1
|
|
Amended and Restated Articles of Incorporation of the Company(a) |
|
|
|
3.2
|
|
Amended and Restated Bylaws of the Company(e) |
|
|
|
4.1
|
|
Specimen Stock Certificate(a) |
|
|
|
4.2
|
|
Shareholder Rights Agreement(a) |
|
|
|
10.1
|
|
*Robert E. McDonough, Sr. Amended and Restated Employment Agreement(f) |
|
|
|
10.2
|
|
*Paul W. Mikos Employment Agreement, as amended(g) |
|
|
|
10.3
|
|
*Robert E. McDonough, Sr. Amendment No. 1 to Amended and Restated Employment Agreement(i) |
|
|
|
10.7
|
|
*Deferred Compensation Agreement for Alan M. Purdy(a) |
|
|
|
10.9
|
|
Form of Indemnification Agreement entered into by RemedyTemp, Inc. and each of its directors
and certain executive officers(a) |
|
|
|
10.11
|
|
*Amended and Restated RemedyTemp, Inc. 1996 Stock Incentive Plan (effective as of January 1,
2005)(cc) |
|
|
|
10.12
|
|
*Amended and Restated RemedyTemp, Inc. 1996 Employee Stock Purchase Plan (effective as of
September 26, 2005)(z) |
|
|
|
10.13
|
|
Form of Franchising Agreement for Licensed Offices(k) |
|
|
|
10.14
|
|
Form of Franchising Agreement for Franchised Offices(a) |
|
|
|
10.15
|
|
Form of Licensing Agreement for IntelliSearch(a) |
|
|
|
10.18
|
|
*Additional Deferred Compensation Agreement for Alan M. Purdy(b) |
|
|
|
10.19
|
|
Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC(c) |
|
|
|
10.22
|
|
*RemedyTemp, Inc. Deferred Compensation Plan (effective as of January 1, 2005)(cc) |
|
|
|
10.23
|
|
*Amended and Restated Employment Agreement for Greg Palmer(m) |
|
|
|
10.24
|
|
*1998 RemedyTemp, Inc. Amended and Restated Deferred Compensation and Stock Ownership Plan for
Outside Directors (effective as of January 1, 2005)(cc) |
|
|
|
10.25
|
|
Form of Licensing Agreement for i/Search 2000®(e) |
|
|
|
10.27
|
|
*Paul W. Mikos Severance Agreement and General Release(j) |
|
|
|
10.28
|
|
*Gunnar B. Gooding Employment and Severance Letter(l) |
|
|
|
10.29
|
|
*Cosmas N. Lykos Employment and Severance Letter(l) |
|
|
|
10.30
|
|
*Alan M. Purdy Retirement Agreement and General Release(n) |
|
|
|
10.31
|
|
*Monty Houdeshell Employment Letter(o) |
|
|
|
10.34
|
|
Amendment No. 2 to the Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC(q) |
|
|
|
10.36
|
|
Business Loan Agreement between Bank of America N.A. and RemedyTemp, Inc.(s) |
|
|
|
Exhibit |
|
|
No. |
|
Description |
10.37
|
|
Amended and Restated Credit Agreement between Bank of America, N.A. and Remedy Temp, Inc.(t) |
|
|
|
10.38
|
|
*Robert E. McDonough, Sr. Amendment No. 2 to Amended and Restated Employment Agreement(u) |
|
|
|
10.39
|
|
*Short-term Incentive Bonus Plan for Fiscal 2005(v) |
|
|
|
10.40
|
|
*Amended Agreement with Janet Hawkins(w) |
|
|
|
10.41
|
|
*Deferred Compensation Plan for Greg Palmer(cc) |
|
|
|
10.42
|
|
*Form of Change in Control Severance Agreement(x) |
|
|
|
10.43
|
|
*Amendment to Amended and Restated Employment Agreement for Greg Palmer(y) |
|
|
|
10.44
|
|
*Short-Term Incentive Bonus Plan for Fiscal 2006(aa) |
|
|
|
10.45
|
|
*Form of Lock-Up Agreement with certain executive officers(bb) |
|
|
|
10.46
|
|
Summary of Compensation Arrangements for Named Executive Officers and Directors(cc) |
|
|
|
10.47
|
|
Form of Franchising Agreement for Licensed Offices (effective January 1, 2006) |
|
|
|
10.48
|
|
Form of Early Renewal Addendum for Existing Licensees (effective January 1, 2006) |
|
|
|
10.49
|
|
Form of Software License Agreement for Licensees (effective January 1, 2006) |
|
|
|
31.1
|
|
Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2
|
|
Chief Administrative Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|
|
|
32
|
|
Chief Executive Officer and Chief Administrative Officer Certifications Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
* |
|
Indicates a management contract or a compensatory plan, contract or arrangement. |
|
(a) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Registration Statement on Form S-1 (Reg. No. 333-4276), as amended. |
|
(b) |
|
Incorporated by reference to the exhibit of same number to the Registrants
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 Registrants
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 Registrants
Annual Report on Form 10-K for the yearly period ended September 28, 1997. |
|
(e) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Annual Report on Form 10-K for the yearly period ended September 27, 1998. |
|
(f) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Reports on Form 10-Q for the quarterly period ended December 27,
1998. |
|
(g) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Reports on Form 10-Q for the quarterly period ended June 27, 1999
(original agreement) and for the quarterly period ended December 31, 2000
(amendment). |
|
(h) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Annual Report on Form 10-K for the yearly period ended March 28, 1999. |
|
|
|
(i) |
|
Incorporated by reference to exhibit number 10.1 to the Registrants Quarterly
Report on Form 10-Q for the quarterly period ended December 31, 2000. |
|
(j) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2001. |
|
(k) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2001. |
|
(l) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Annual Report on Form 10-K for the yearly period ended September 30, 2001. |
|
(m) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended December 30, 2001. |
|
(n) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002. |
|
(o) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Annual Report on Form 10-K for the yearly period ended September 29, 2002. |
|
(p) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2003. |
|
(q) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Annual Report on Form 10-K for the yearly period ended September 28, 2003. |
|
(r) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2004.
|
|
(s) |
|
Incorporated by reference to the exhibit of same number to
the Registrants Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2004.
|
|
(t) |
|
Incorporated by reference to the exhibit of same number to
Registrants Current Report on Form 8-K filed on December 3, 2004. |
|
(u) |
|
Incorporated by reference to the exhibit of same number to Registrants
Quarterly Report on Form 10-Q for the quarterly period ended January 2, 2005. |
|
(v) |
|
Incorporated by reference to Item 1.01 of the Registrants Current Report on
Form 8-K filed on February 1, 2005.
(w) Incorporated by reference to Item 10.1 of the Registrants Current Report on
Form 8-K filed on May 9, 2005. |
|
(w) |
|
Incorporated by reference to Item 10.1 of the Registrants Current Report on
Form 8-K filed on May 9, 2005. |
|
(x) |
|
Incorporated by reference to Exhibit 10.1 to Registrants Current Report on
Form 8-K filed on April 22, 2005. |
|
(y) |
|
Incorporated by reference to Exhibit 10.2 to Registrants Current Report on
Form 8-K filed on April 22, 2005. |
|
(z) |
|
Incorporated by reference to Exhibit 10.2 to Registrants Current Report on
Form 8-K filed on September 27, 2005. |
|
(aa) |
|
Incorporated by reference to Item 1.01 of the Registrants Current Report on
Form 8-K filed on September 23, 2005. |
|
(bb) |
|
Incorporated by reference to Exhibit 10.1 of the Registrants Current Report on
Form 8-K filed on September 27, 2005. |
|
(cc) |
|
Incorporated by reference to the exhibit of same number to the Registrants
Annual Report on Form 10-K for the yearly period ended October 2, 2005. |