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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1996
Commission File number 0-23828
Labor Ready, Inc.
(Exact Name of Registrant as specified in its charter)
Washington 91-1287341
(State of Incorporation) (Federal I.R.S. No.)
2156 Pacific Avenue, Tacoma, Washington 98402
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number 206-383-9101
Securities registered pursuant to Section 12(b) or 12(g) of the
Act:
Common Stock, No Par Value
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 (X) No ( )
The aggregate market value of the voting stock held by non-
affiliates of the registrant, on May 1, 1996 was $113,007,504.
As of May 1, 1996, the Registrant had 6,066,633 shares of
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LABOR READY INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
INDEX
Consolidated Balance Sheets
at March 31, 1996 and December 31, 1995 3-4
Consolidated Statements of Operations
for the Three Months Ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995 6-7
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LABOR READY, INC. Consolidated Balance Sheets at March 31,
1996 and December 31, 1995 (Unaudited)
ASSETS
March 31, December 31,
1996 1995
CURRENT ASSETS:
Cash and equivalents $ 2,959,779 $ 5,359,113
Workers' compensation deposits
and credits 2,206,644 1,886,644
Accounts receivable, net of
allowance for doubtful accounts
of $587,512 and $365,927,
respectively 11,636,043 12,182,806
Prepaid expenses and other 875,753 602,052
Deferred income tax 542,000 698,930
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Total Current Assets 18,220,219 20,729,545
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PROPERTY AND EQUIPMENT:
Cost 4,394,241 3,542,071
Accumulated depreciation 839,018 690,648
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Total Property and Equipment 3,555,223 2,851,423
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OTHER ASSETS:
Intangible assets, less
amortization of $114,588
and $124,483 952,737 962,632
Workers' compensation deposits and
credits, less current portion 2,091,000 1,427,905
Deferred income tax 99,000 16,477
Other 193,723 193,653
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Total Other Assets 3,336,460 2,600,667
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TOTAL ASSETS $25,111,902 $26,181,635
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LABOR READY, INC. Consolidated Balance Sheets at March 31,
1996 and December 31, 1995 (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1996 1995
CURRENT LIABILITIES:
Checks issued against
future deposits 886,833 514,842
Accounts payable 1,313,375 1,118,081
Accrued wages and
related expenses 1,458,105 1,588,147
Workers' compensation claims 2,051,769 1,943,338
Income taxes payable - - 1,161,000
Note payable 1,428,158 1,591,206
Current maturities of
long-term debt 41,318 39,117
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Total current liabilities 7,179,588 7,955,731
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LONG-TERM LIABILITIES
Long-term debt, less
current maturities 942,227 953,937
Subordinated debt, less
unamortized discount of
$1,213,303 and $1,259,377 8,786,697 8,740,623
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Total long-term
liabilities 9,728,924 9,694,560
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Total liabilities 16,908,482 17,650,291
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SHAREHOLDERS' EQUITY
Preferred stock, $0.667
par value, 5,000,000 shares
authorized ; issued and
outstanding 1,281,123 854,082 854,082
Common stock, no par value,
25,000,000 shares authorized,
issued and outstanding
6,030,633 and 5,879,133
shares 7,489,635 7,116,422
Cumulative foreign currency
translation adjustment (33,844) (28,707)
Retained earnings
(accumulated deficit) (106,453) 589,547
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Total shareholders' equity 8,203,420 8,531,344
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Total liabilities and
shareholders' equity $25,111,902 $26,181,635
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LABOR READY, INC. Consolidated Statements of Operations for
the Three Months Ended March 31, 1996 and
1995 (Unaudited)
Three Months Ended March 31,
1996 1995
Revenues from services $26,093,924 $12,617,752
Cost of services 22,207,458 10,494,339
Selling, general & administrative 4,500,319 2,495,051
Interest and other, net 435,471 164,386
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Income (loss) before taxes on income (1,049,324) (536,025)
Taxes on income (364,000) (182,249)
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Net income (loss) $ (685,324) $ (353,776)
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Earnings (loss) per common share:
Net income (loss) $ (.12) $ (.07)
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Weighted average shares
outstanding 5,948,628 5,097,358
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LABOR READY, INC. Consolidated Statements of Cash Flows
for the Three Months Ended March 31,
1996 and 1995 (Unaudited)
Three Months Ended March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss: $ (685,324) $ (353,776)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation & amortization 204,329 80,424
Provision for doubtful accounts 1,020,544 258,541
Deferred income taxes 74,407 (100,000)
Changes in Assets & Liabilities:
Accounts receivable (473,781) (869,908)
Worker compensation
deposits and credits (983,095) (311,374)
Prepaid expenses and other (273,771) (281,264)
Accounts payable 195,294 705,236
Accrued wages and benefits (130,042) 511,908
Accrued workers'
compensation claims 108,431 231,182
Income taxes payable (1,161,000) (332,248)
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Net cash used in
operating activities (2,103,998) (461,279)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (852,170) (396,744)
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Net cash used in investing activities (852,170) (396,744)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on note payable (163,048) (140,015)
Checks issued against
future deposits 371,991 - -
Proceeds from warrants exercised - - 514,295
Proceeds from options exercised 373,213 - -
Payments on long-term debt (9,509) (20,532)
Dividends (10,676) (10,676)
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Net cash provided by
financing activities 561,971 343,072
Effect of exchange rates (5,137) (11,669)
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Net increase (decrease) in
cash & equivalents: (2,399,334) (526,620)
Cash and cash equivalents,
beginning of period 5,359,113 603,977
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Cash and cash equivalents,
end of period $ 2,959,779 $ 77,357
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SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Interest Paid $ 506,436 $ 151,653
Income Taxes Paid $ 983,315 $ 250,000
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock for conversion of
promissory notes - - $ 40,000
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended March 31, 1996 Compared to Three Months Ended
March 31, 1995.
Dispatch Offices. The Company opened 21 dispatch offices
during the first quarter of 1996 compared to 17 dispatch offices
during the first quarter of 1995.
Revenues from Services. The Company's revenues from
services increased to $26.1 million for the three months ended
March 31, 1996 compared to $12.6 million for the three months
ended March 31, 1995, an increase of $13.5 million or 107%. This
increase resulted from increases in revenues from dispatch
offices open for the full period.
Cost of Services. Cost of services increased to $22.2
million for the three months ended March 31, 1996 compared to
$10.5 million for the three months ended March 31, 1995, an
increase of $11.7 million or 111.4%, reflecting the additional
wages and salaries paid to temporary workers and additional
management personnel and related payroll expenses. As a
percentage of revenues, cost of services increased to 85.1% for
the three months ended March 31, 1996 from 83.2% for the three
months ended March 31, 1995, an increase of 1.9%. Cost of
services increased due to several factors, including higher
worker compensation costs, increased salary costs for branch
managers in training, longer training periods for new management
personnel and for additional supervisory personnel hired under
new management organizational structures. The Company expects
significant continuing fluctuations in cost of services as the
Company pursues further aggressive growth.
Selling, General and Administrative Expenses. Selling,
general, and administrative expenses increased to $4.5 million
for the three months ended March 31, 1996 compared to $2.5
million for the year earlier period, an increase of $2.0 million
or 80.0%. As a percentage of revenues from services, selling,
general, and administrative expenses decreased to 17.2% for the
three months ended March 31, 1996 from 19.8% for the three months
ended March 31, 1995, a decrease of 2.6%. This decrease is
primarily the result of selling, general and administrative
expenses increasing at a slower rate than the increase in
revenues from services.
Interest and Other Expenses. Interest and other expenses
increased to approximately $435,000 for the three months ended
March 31, 1996 compared to approximately $164,000 for the three
month period ended March 31, 1995, an increase of approximately
$271,000 or 165%, reflecting primarily higher borrowing amounts,
the relatively higher interest costs of the $10 million principal
amount of subordinated debt issued in October 1995 and certain
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prepayment penalties incurred in paying off the Company's prior
lender. As a percentage of revenues, interest and other expenses
increased to 1.7% for the three months ended March 31, 1996 from
1.3% for the three months ended March 31, 1995.
Taxes on Income. The Company recorded a tax benefit from its
loss on operations of $364,000 for the three months ended March
31, 1996, compared to a tax benefit of approximately $182,000 for
the three months ended March 31, 1995.
Net Loss. The Company incurred a net loss from operations of
approximately $685,000 for the three months ended March 31, 1996
compared to approximately $354,000 for the three months ended
March 31, 1995, an increase of approximately $332,000 or 93.7%.
As a percentage of revenues, the net loss remained relatively
constant.
Liquidity and Capital Resources. During the first quarter of
1996, the Company utilized significant amounts of cash to open 21
dispatch offices during the first quarter and in advance of
opening 19 dispatch offices in April. During the first quarter of
1995 and 1996, the Company used net cash in operating activities
of approximately $461,000 and $2.1 million, respectively, an
increase of 356%, reflecting primarily increases in workers
compensation deposits and a reduction in accounts payable.
Management anticipates that cash flow deficits from operating and
investing activities will continue while the Company adds
substantial numbers of new dispatch offices. Management expects
to finance such cash flow deficits with the proceeds from equity
or debt financings.
The Company financed its operations and growth in 1995
primarily through the sale of debt and equity securities. In
early 1995, warrants to purchase 712,440 shares of the Company's
Common Stock were exercised for aggregate consideration of
approximately $1.8 million.
In October 1995, the Company completed a private financing
of $10.0 million principal amount of 13.0% Senior Subordinated
Notes (the "Notes"). Under the terms of the Notes, which require
principal payments to begin in 1998 and which mature in 2002, the
Company pledged its remaining assets as collateral and issued
warrants (the "Financing Warrants") to the purchasers of the
Notes. The Financing Warrants entitle the holders thereof to
purchase 682,368 shares of Common Stock of the Company at an
exercise price of $11.67 per share, and are exercisable at any
time prior to their expiration on the earlier of the seventh
anniversary of the Notes and six years from the date the Notes
are paid in full. If the Notes are retired by the Company prior
to November 1997 and before the Financing Warrants are exercised,
the number of shares subject to purchase under the Financing
Warrants is reduced to 546,374 shares.
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In March 1996, the Company obtained a new revolving credit
facility from U.S. Bank of Washington which provides for
borrowing of up to $10.0 million secured by eligible accounts
receivable. As of March 31, 1996, the Company had borrowed $4.4
million against this line. The U.S. Bank revolving credit
facility bears interest at a rate of prime plus 1/4% (currently
8.5%).
In 1995, the Company incurred costs of $2.0 million to open
57 new dispatch offices (an average of approximately $35,000 per
dispatch offices). Further, the Company invested significant
amounts of additional cash into the operations of new offices
until they begin to generate sufficient revenue to cover their
operating costs, generally in two to six months. Further, the
Company pays its temporary personnel on a daily basis, and bills
its customers on a weekly basis. The average collection cycle
for 1995 was approximately 37 days. Since the Company plans to
open 94 dispatch offices in 1996, the Company expects to
experience cash flow deficits from operations and investing
activities in 1996. The Company intends to finance opening and
operating costs of new dispatch offices with the proceeds from
equity or debt financing. To the extent that the Company's
resources are not sufficient to finance new dispatch offices, or
are not sufficient to open all currently targeted dispatch
offices, the Company would either seek additional capital through
equity or debt financing or scale back its expansion plans.
PART II - OTHER INFORMATION: Not applicable.
SIGNATURES
The unaudited interim financial statements furnished by
management reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of financial
position and results of operation.
Pursuant to the requirements of Section 13 or 15(d) 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.
REGISTRANT: LABOR READY, INC.
By: /s/ Glenn A. Welstad 5/10/96
Glenn A. Welstad Date
Principal Executive Officer
By: /s/ Ralph Peterson 5/10/96
Ralph Peterson Date
Principal Financial Officer
