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CCNI > SEC Filings for CCNI > Form 10-Q on 7-Nov-2013All Recent SEC Filings

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Form 10-Q for COMMAND CENTER, INC.


7-Nov-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 wholesale trades, manufacturing, hospitality, construction, restoration, and retail industries. We provide semi-skilled and unskilled workers to our customers. We currently operate 57 stores in 23 states.

Results of Operations

The following table reflects operating results for the thirteen weeks ended
September 27, 2013 compared to the thirteen weeks ended September 28, 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.

                                   Thirteen Weeks Ended                                     Thirty-nine Weeks Ended
                      September 27, 2013           September 28, 2012           September 27, 2013           September 28, 2012
Total Operating
Revenue            $    25,910                  $    28,385                  $    69,109                  $    71,748
Cost of Staffing
Services                19,226         74.2 %        21,047         74.2 %        51,323         74.3 %        53,756         74.9 %
Gross profit             6,684         25.8 %         7,338         25.9 %        17,786         25.7 %        17,992         25.1 %
Selling, general
and
administrative
expenses                 4,416         17.0 %         6,277         22.1 %        14,574         21.1 %        15,664         21.8 %
Depreciation and
amortization                67          0.3 %            82          0.3 %           284          0.4 %           285          0.4 %
Income from
operations               2,201          8.5 %           979          3.4 %         2,928          4.2 %         2,043          2.8 %
Interest expense
and other
financing
expense                    (89 )       -0.3 %          (221 )       -0.8 %          (428 )       -0.6 %          (560 )       -0.8 %
Change in fair
value of warrant
liability                 (884 )       -3.4 %           372          1.3 %          (787 )       -1.1 %           218          0.3 %
Net income
before income
taxes                    1,228          4.7 %         1,130          4.0 %         1,713          2.5 %         1,701          2.4 %
Provision for
income taxes                 -          0.0 %          (408 )       -1.4 %             -          0.0 %          (698 )       -1.0 %
Net income         $     1,228          4.7 %   $       722          2.5 %   $     1,713          2.5 %   $     1,003          1.4 %
Non-GAAP Data
EBITDA-D           $     2,268          8.8 %   $     1,061          3.7 %   $     3,212          4.6 %   $     2,328          3.2 %

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 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 of operations. We believe it is a complement to net income and other financial performance measures. EBITDA-D is not intended to represent net income as defined by GAAP, and such information should not be considered as an alternative to net income or any other measure of performance prescribed by GAAP.


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, 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:

                                                       Thirteen Weeks Ended                     Thirty-nine Weeks Ended
                                                September 27,         September 28,       September 27,         September 28,
                                                    2013                  2012                2013                  2012
EBITDA-D                                       $         2,268       $         1,061     $         3,212       $         2,328
Interest expense and other financing expense               (89 )                (221 )              (428 )                (560 )
Depreciation and amortization                              (67 )                 (82 )              (284 )                (285 )
Change in fair value of warrant liability                 (884 )                 372                (787 )                 218
 Provision for income taxes                                  -                  (408 )                 -                  (698 )
Net income (loss)                              $         1,228       $           722     $         1,713       $         1,003

Thirteen Weeks Ended September 27, 2013

Summary of Operations: Revenue for the thirteen weeks ended September 27, 2013 was $25.9 million, a decrease of approximately $2.5 million, or 9.6%, when compared to the third quarter of 2012. This decrease in revenue is related to the winding down of contracts ran through our wholly owned subsidiary, Disaster Recovery Services, Inc., a change in organizational structure and an increased focus maximizing income from operations by more effectively controlling our cost of staffing services and operating expenses.

Cost of Staffing Services: Cost of staffing services was 74.2% and 74.2% of revenue for the thirteen weeks ended September 27, 2013 and September 28, 2012, respectively. Cost of services decreased largely due to a decrease in our per diem expense as we were engaged in less disaster work in 2013 than 2012 and a decrease in other costs of goods, materials and equipment rental related to contract work we were engaged in during 2012. This was offset by an increase in workers' compensation expense and a slight increase in wages paid to our temporary employees (Field Team Members) and the related payroll taxes.

Workers' compensation expense was 5.3% and 4.3% of revenue for the thirteen weeks ended September 27, 2013 and September 28, 2012, respectively. This increase is attributable to an increase in our claims liability as estimated by our actuary.

Selling, General and Administrative Expenses ("SG&A"): SG&A expenses were 17.0% and 22.1% of revenue for the thirteen weeks ended September 27, 2013 and September 28, 2012, respectively. This decrease is related to a change in our organizational structure, large recoveries of accounts receivable previously written off, and a reduction in travel and travel related expenses.


Thirty-nine Weeks Ended September 27, 2013

Summary of Operations: Revenue for the Thirty-nine weeks ended September 27, 2013 was $69.1 million, a decrease of approximately $2.6 million, or 3.7%, when compared to 2012. This decrease in revenue is related to a change in organizational structure and an increased focus maximizing income from operations by more effectively controlling our cost of staffing services and operating expenses.

Cost of Staffing Services: Cost of staffing services was 74.3% and 74.9% of revenue for the thirty-nine weeks ended September 27, 2013 and September 28, 2012, respectively. Cost of services decreased largely due to a decrease in our per diem expense as we were engaged in less disaster work in 2013 than 2012, and other cost of goods sold related to contracts work we were engaged in during 2012. This was offset by an increase in Field Team Member wages.

Workers' compensation expense was 4.4% and 4.3% of revenue for the thirty-nine weeks ended September 27, 2013 and September 28, 2012, respectively. This is related to an increase in our workers' compensation claims liability as estimated by our actuary.

Selling, General and Administrative Expenses: SG&A expenses were 21.1% and 21.8% of revenue for the Thirty-nine weeks ended September 27, 2013 and September 28, 2012, respectively. This decrease is primarily related to a change in organizational structure and an increase in bad debt expenses.

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 $2.3 million during the thirty-nine weeks ended September 27, 2013, as compared to cash used by operations of approximately $2.0 million during the same period in 2012. During the third quarter of 2013, the cash provided by operating activities was primarily due to a decrease in accounts receivable of approximately $1.1 million. This decrease was due to the collection of receivables related to disaster work undertaken in 2012 as well as increased collections efforts. This was offset by an increase in our workers' compensation risk pool deposits of approximately $1.2 million, a decrease in our workers' compensation premiums and claims liability of approximately $589,000, a decrease in checks issued and payable of approximately $263,000 and a decrease in accrued wages and benefits of $209,000.

Cash provided by investing activities totaled approximately $2,000 for the period ended September 27, 2013 compared to cash used by investing activities of approximately $340,000 during the same time period in 2012. For the period ended September 27, 2013, approximately $38,000 was used to purchase additional property and equipment which was offset by cash received related to the sale of property and equipment of approximately $40,000. For the period ended September 28, 2012, approximately $190,000 was used to purchase property equipment and we paid $150,000 toward the purchase of DR Services of Louisiana, LLC (DRS, LLC).

Cash used by financing activities totaled approximately $883,000 for the period ended September 27, 2013 and relates to a reduction in the amount outstanding in our account purchase agreement with Wells Fargo. For the period ended September 28, 2012, approximately $2.7 million was provided by our account purchase agreement with Wells Fargo and $150,000 was used to pay down a note related to the acquisition of DRS, LLC.

Accounts Receivable: At September 27, 2013, we had total current assets of approximately $17.1 million. Included in current assets are trade accounts receivable of approximately $12.3 million (net of allowance for bad debts of approximately $811,000). Weighted average aging on our trade accounts receivable at September 27, 2013 was 40 days. Bad debt expense was approximately $(234,000) for the thirteen weeks ended September 27, 2013 compared to approximately $269,000 during the same time period in 2012. This negative expense is primarily due to a large payment we received shortly after quarter end for a receivable related to disaster work performed in 2012 that was fully reserved. Bad debt expense was approximately $743,000 for the thirty-nine weeks ended September 27, 2013 compared to approximately $269,000 during the same quarter the previous year. This increase in bad debt expense relates primarily to an increase in reserves established on three delinquent accounts of approximately $467,000. Although we have created a bad debt reserve for these three accounts, we are actively pursuing collection through the legal process.


Accounts receivable are recorded at the invoiced amounts. We regularly review our accounts receivable for collectability. Our 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, $14 million, at September 27, 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 September 27, 2013 were approximately $8.2 million. The term of the agreement is through April 7, 2016. The agreement bears interest at the London Interbank Offered Rate plus 3.0% per annum. At September 27, 2013 the effective interest rate was 3.2%. Interest is payable on the actual amount advanced or $3 million, whichever is greater. Additional charges include an annual facility fee equal to 0.75% of the facility threshold in place 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 asset.

Workers' Compensation: On April 1, 2012 we changed our workers' compensation carrier 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 for the policy year.

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, requiring an additional non-depleting collateral deposit of $900,000.

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