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CCNI > SEC Filings for CCNI > Form 10-Q on 8-May-2013All Recent SEC Filings

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Form 10-Q for COMMAND CENTER, INC.


8-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS: This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding industry trends, our future financial position and performance, business strategy, revenues and expenses in future periods, projected levels of growth and other matters that do not relate strictly to historical facts. These statements are often identified by words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "projects," "forecasts," "plans," "intends," "continue," "could," "should" or similar expressions or variations. These statements are based on the beliefs and expectations of our management based on information currently available. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by forward-looking statements. Important factors currently known to our management that could cause or contribute to such differences include, but are not limited to, those referenced in our Annual Report on Form 10-K for the year ended December 28, 2012 under Item 1A "Risk Factors." We undertake no obligation to update any forward-looking statements as a result of new information, future events or otherwise.

Overview

Command Center, Inc. (Command, us, we, or our) is a provider of temporary employees to the restoration, wholesale trades, manufacturing, hospitality, construction, restoration and retail industries. We provide semi-skilled and unskilled workers to our customers. We currently operate 58 stores in 23 states.

Results of Operations

The following table reflects operating results for the thirteen weeks ended
March 29, 2013 compared to the thirteen weeks ended March 30, 2012 (in
thousands, except per share amounts and percentages) and serves as the basis for
the narrative that follows. Percentages indicate line items as a percentage of
total revenue.

                                                             13 Weeks Ended
                                                 March 29, 2013          March 30, 2012
Total Operating Revenue                        $ 19,905                $ 19,094
Cost of Staffing Services                        14,685       73.8 %     14,452       75.7 %
Gross profit                                      5,220       26.2 %      4,642       24.3 %
Selling, general and administrative expenses      4,954       24.9 %      4,320       22.6 %
Depreciation and amortization                        89        0.4 %        120        0.6 %
Income (loss) from operations                       177        0.9 %        202        1.1 %
Interest expense and other financing expense       (220 )     -1.1 %       (147 )     -0.8 %
Change in fair value of warrant liability            55        0.3 %       (616 )     -3.2 %
Net income (loss) before income taxes                12        0.1 %       (561 )     -2.9 %
Provision for income taxes                            -        0.0 %          -        0.0 %
Net income (loss)                              $     12        0.1 %   $   (561 )     -2.9 %
Non-GAAP Data
EBITDA-D                                       $    266        1.3 %   $    322        1.7 %

Earnings before interest, taxes, depreciation and amortization, and the change in fair value of our derivative liabilities (EBITDA-D) is a non-GAAP measure that represents net income (loss) attributable to Command before interest expense, income tax benefit (expense), depreciation and amortization, and the change in fair value of our derivative liabilities. We utilize EBITDA-D as a financial measure as management believes investors find it a useful tool to perform more meaningful comparisons of past, present and future operating results and as a means to evaluate our results operations. We believe it is a complement to net income (loss) and other financial performance measures. EBITDA-D is not intended to represent net income (loss) as defined by GAAP, and such information should not be considered as an alternative to net income (loss) or any other measure of performance prescribed by GAAP.


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We use EBITDA-D to measure our financial performance because we believe interest, taxes, depreciation and amortization, and the change in fair value of our derivative liabilities bear little or no relationship to our operating performance. By excluding interest expense, EBITDA-D measures our financial performance irrespective of our capital structure or how we finance our operations. By excluding taxes on income, we believe EBITDA-D provides a basis for measuring the financial performance of our operations excluding factors that our branches cannot control. By excluding depreciation and amortization expense, EBITDA-D measures the financial performance of our operations without regard to their historical cost. By excluding the change in fair value of our derivative liabilities, EBITDA-D provides a basis for measuring the financial performance of our operations excluding factors that are beyond our control. For all of these reasons, we believe that EBITDA-D provides us and investors with information that is relevant and useful in evaluating our business.

However, because EBITDA-D excludes depreciation and amortization, it does not measure the capital we require to maintain or preserve our fixed assets. In addition, because EBITDA-D does not reflect interest expense, it does not take into account the total amount of interest we pay on outstanding debt nor does it show trends in interest costs due to changes in our financing or changes in interest rates. EBITDA-D, as defined by us, may not be comparable to EBITDA-D as reported by other companies that do not define EBITDA-D exactly as we define the term. Because we use EBITDA-D to evaluate our financial performance, we reconcile it to net income (loss), which is the most comparable financial measure calculated and presented in accordance with GAAP.

The following is a reconciliation of EBITDA-D to net loss for the periods presented:

                                                     13 Weeks Ended
                                                March 29,       March 30,
                                                  2013            2012
EBITDA-D                                       $       266     $       322
Interest expense and other financing expense          (220 )          (147 )
Depreciation and amortization                          (89 )          (120 )
Change in fair value of warrant liability               55            (616 )
Provision for income taxes                               -               -
Net income (loss)                              $        12     $      (561 )

Thirteen Weeks Ended March 29, 2013

Summary of Operations: Revenue for the thirteen weeks ended March 29, 2013 was $19.9 million, an increase of approximately $800,000, or 4.2%, when compared to the first quarter of 2012. Revenue growth was modest year over year as we focused on increasing net income and attracting work with larger gross margins.

Cost of Services: Cost of services was 73.8% and 75.7% of revenue for the thirteen weeks ended March 29, 2013 and March 30, 2012, respectively. Cost of services as a percentage of revenue decreased largely due to a decrease in our workers compensation expense. This was offset by management's focus on directing sales efforts to higher margin business through the use of new sales tools and incentives.

Workers' compensation expense was 2.8% and 3.4% of revenue for the thirteen weeks ended March 29, 2013 and March 30, 2012, respectively. This decrease is attributable to a reduction in our workers' compensation claims liability as estimated by our actuary.

Selling, General and Administrative Expenses (SG&A): SG&A expenses were 24.9% and 22.6% of revenue for the thirteen weeks ended March 29, 2013 and March 30, 2012, respectively. This increase is primarily related to an increase in compensation, employee benefits, and bad debt.


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Liquidity and Capital Resources

Based on our current operating plan, we anticipate that we will have sufficient cash and cash equivalents to fund our operations into the foreseeable future. If the level of sales anticipated by our financial plan are not achieved or our working capital requirements are higher than planned, we may need to raise additional cash or take actions to reduce operating expenses.

Cash provided by operating activities totaled approximately $1.6 million during the period ended March 29, 2013, as compared to cash provided by operations of approximately $191,000 during the same period in 2012. During the first quarter of 2013, the cash provided by operating activities was primarily due to a decrease in accounts receivable of approximately $2.7 million. This was offset by payments made to decrease our workers' compensation premium liability of approximately $809,000, a decrease in accounts payable of approximately $216,000, and a decrease in other current liabilities of approximately $216,000.

Cash used by investing activities totaled approximately $8,000 for the period ended March 29, 2013 compared to cash used by investing activities of approximately $220,000 during the same time period in 2012. For the period ended March 30, 2012, $150,000 was used to purchase DRS, LLC, and approximately $70,000 was used to purchase additional property and equipment.

Cash used by financing activities totaled approximately $2.4 million for the period ended March 29, 2013 and relates to a reduction in our account purchase agreement with Wells Fargo. For the period ended March 30, 2012, approximately $145,000 was used to reduce our account purchase agreement with Wells Fargo and $50,000 was used to reduce notes payable.

Accounts Receivable: At March 29, 2013, we had total current assets of approximately $13.1 million and total current liabilities of approximately $10.9 million. Included in current assets are trade accounts receivable of approximately $10.9 million (net of allowance for bad debts of approximately $558,000). Our cash position at March 29, 2013 was approximately $849,000. Weighted average aging on our trade accounts receivable at March 29, 2013 was 39 days. Actual bad debt expense was 1.4% of revenue during the quarter ended March 29, 2013. Accounts receivable are recorded at the invoiced amounts. We regularly review our accounts receivable for collectability. The allowance for doubtful accounts is determined based on historical write-off experience and current economic data and represents our best estimate of the amount of probable losses on our accounts receivable. We typically refer overdue balances to a collection agency at 120 days and the collection agent pursues collection for another 60 days. Most balances over 120 days past due are written off as it is probable the receivable will not be collected. We will continue to monitor and seek to improve our historical collection ratio and aging experience with respect to trade accounts receivable as these are important factors affecting our liquidity.

Financing: We have an account purchase agreement in place which allows us to sell eligible accounts receivable for 90% of the invoiced amount on a full recourse basis up to the facility maximum, $15 million, at March 29, 2013. When the receivable is collected, the remaining 10% is paid to us, less applicable fees and interest. Net outstanding accounts receivable sold pursuant to this agreement at March 29, 2013 were approximately $6.7 million. The term of the agreement is through April, 2014. The agreement bears interest at the greater of the London Interbank Offered Rate plus 5.25% or 6.25% per annum. At March 29, 2013 the effective interest rate was 6.25%. Interest is payable on the actual amount advanced or $3 million, whichever is greater. Additional charges include an annual facility fee equal to one percent of the facility threshold in place, a monthly monitoring fee of $5,000, and lockbox fees. As collateral for repayment of any and all obligations, we granted Wells Fargo Bank, N.A. a security interest in all of our property including, but not limited to, accounts receivable, intangible assets, contract rights, investment property, deposit accounts, and other such assets.

Subsequent to March 29, 2013, an amendment to our account purchase agreement with Wells Fargo was signed. The amendment extends the term of the agreement through April, 2016. The facility maximum was reduced to $14 million. The major modification to the terms of the previous agreement includes a decrease in the interest rate assessed on any amounts advanced to 3.00% plus Libor. In addition to other changes, the annual facility fee of 1% of the facility threshold in place was reduced to 0.75%, and monitoring fees of $5,000 per month were removed.

Workers' Compensation: On April 1, 2012 we changed our workers' compensation carriers to Dallas National in all states in which we operate other than Washington, North Dakota and New York. Management believes this change will keep our workers' compensation expense at a minimum. The Dallas National coverage is a large deductible policy where we have primary responsibility for claims under the policy. Dallas National provides insurance for covered losses and expenses in excess of $350,000 per incident. Per our contractual agreements with Dallas National, we will make payments into, and maintain a balance of, $900,000 in a non-depleting deposit account to cover claims within our self-insured layer.

Effective as of April 1, 2013, we renewed our workers compensation insurance coverage with Dallas National for a period of 12 months. The terms of the coverage for the new policy year remain essentially the same.


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