<PAGE>
- --------------------------------------------------------------------------------
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 September 30, 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.)
1016 South 28th Street, Tacoma, Washington 98409
- --------------------------------------------------------------------------------
(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 October 30, 1996 was $137,069,287.
- --------------------------------------------------------------------------------
As of October 30, 1996, the Registrant had 12,373,426 shares of Common
Stock outstanding.
- --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE: NONE
----
- --------------------------------------------------------------------------------
Page 1
<PAGE>
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LABOR READY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Consolidated Balance Sheets
at September 30, 1996 and December 31, 1995.............................3-4
Consolidated Statements of Operations
for the Nine Months and the Three Months
Ended September 30, 1996 and 1995.........................................5
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1996 and 1995..................6-7
Notes to Consolidated Financial Statements..................................8-9
- --------------------------------------------------------------------------------
Page 2
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC. Consolidated Balance Sheets at September 30, 1996
(Unaudited) and December 31, 1995 (Audited)
ASSETS
September 30, December 31,
1996 1995
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 21,498,484 $ 5,359,113
Accounts receivable, net of allowance for
doubtful accounts of $1,548,503 and
$868,607, respectively 21,451,382 12,182,806
Workers' compensation deposits
and credits 4,120,028 1,886,644
Prepaid expenses and other 1,476,950 602,052
Deferred income tax 1,029,000 698,930
----------- -----------
Total Current Assets 49,575,844 20,729,545
----------- -----------
PROPERTY AND EQUIPMENT:
Cost 8,332,000 3,542,071
Accumulated depreciation 1,138,996 690,648
----------- -----------
Property and Equipment, Net 7,193,004 2,851,423
----------- -----------
OTHER ASSETS:
Intangible assets, less amortization
of $119,237 and $114,588 163,959 962,632
Workers' compensation deposits and
credits, less current portion 3,260,766 1,427,905
Deferred income tax 100,000 16,477
Other 163,166 193,653
----------- -----------
Total Other Assets 3,687,891 2,600,667
----------- -----------
TOTAL ASSETS $60,456,739 $26,181,635
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Page 3
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC. Consolidated Balance Sheets at September 30, 1996
(Unaudited) and December 31, 1995 (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
1996 1995
---- ----
CURRENT LIABILITIES:
Checks issued against future deposits $ 1,845,589 $ 514,842
Accounts payable 896,998 1,118,081
Accrued wages and related expenses 2,070,167 1,588,147
Workers' compensation claims 3,774,283 1,943,338
Income taxes payable 289,902 1,161,000
Note payable 0 1,591,206
Current maturities of long-term debt 13,798 39,117
----------- -----------
Total Current Liabilities 8,890,737 7,955,731
----------- -----------
LONG-TERM LIABILITIES
Long-term debt, less current maturities 90,352 953,937
Subordinated debt, less unamortized
discount of $0 and $1,259,377 0 8,740,623
----------- -----------
Total Long-term Liabilities 90,352 9,694,560
----------- -----------
Total Liabilities 8,981,089 17,650,291
----------- -----------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Preferred stock, $0.444 par value, 5,000,000
shares authorized ; issued and outstanding
1,921,687 854,082 854,082
Common stock, no par value, 25,000,000
shares authorized, issued and outstanding
12,372,864 and 8,818,700 shares 49,562,308 7,116,422
Cumulative foreign currency
translation adjustment (39,914) (28,707)
Retained earnings 1,099,174 589,547
----------- -----------
Total Shareholders' Equity 51,475,650 8,531,344
----------- -----------
Total Liabilities and Shareholders' Equity $60,456,739 $26,181,635
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Page 4
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC. Consolidated Statements of Operations
For the Nine Months and the Three Months
Ended September 30, 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues from services $109,371,091 $63,240,036 $47,246,237 $30,872,700
Cost of services 89,006,985 51,066,172 37,589,614 24,689,547
Selling, general & administrative 16,972,039 9,158,043 7,187,429 3,515,036
Interest and other, net 632,812 659,121 ( 129,241) 367,950
------------ ----------- ----------- -----------
Income before taxes on income
and extraordinary loss 2,759,255 2,356,700 2,598,435 2,300,167
Taxes on income 1,020,200 848,412 960,200 829,191
------------ ----------- ----------- -----------
Net income before extraordinary loss $ 1,739,055 $ 1,508,288 $ 1,638,235 $ 1,470,976
Extraordinary loss on the
early retirement of subordinated debt (net
of income tax benefit of $703,200) 1,197,400 0 1,197,400 0
------------ ----------- ----------- -----------
Net income $ 541,655 $ 1,508,288 $ 440,835 $ 1,470,976
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Earnings per common share:
Net income per share before
extraordinary loss $ .16 $ .16 $ .13 $ .16
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Extraordinary loss per share (net of
income tax benefit) $ (.11) $ 0 $(.09) $ 0
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Net income per share $ .05 $ .16 $ .04 $ .16
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Weighted average common shares outstanding 10,632,444 9,031,910 12,262,689 9,121,984
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Page 5
<PAGE>
- --------------------------------------------------------------------------------
LABOR READY, INC. Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
Nine Months Ended
-----------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income : $ 541,655 $ 1,508,288
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation & amortization 574,157 284,901
Extraordinary loss on debt retirement 1,900,601 0
Provision for doubtful accounts, net 1,148,520 192,132
Deferred income taxes (413,593) (80,779)
Changes in Assets & Liabilities:
Accounts receivable (10,417,096) (9,252,449)
Workers' compensation deposits and credits ( 4,066,245) 233,225
Prepaid expenses and other ( 844,411) ( 357,635)
Accounts payable ( 221,083) 376,417
Accrued wages and benefits 530,270 1,770,010
Accrued workers' compensation claims 1,830,945 (82,943)
Income taxes payable ( 871,098) ( 439,027)
------------ ------------
Net cash used in operating activities (10,307,378) ( 4,969,806)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 4,789,929) ( 1,137,248)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable, net ( 1,591,206) 0
Borrowings on note payable, net 0 4,571,209
Checks issued against future deposits 1,330,747 0
Proceeds from issuance of common stock 33,636,259 114,998
Proceeds from warrants exercised 420,120 1,552,300
Proceeds from options exercised 380,183 0
Borrowings on long-term debt 0 300,000
Payments on long-term debt ( 2,927,831) ( 141,616)
Dividends ( 32,028) ( 42,705)
Debt Issue Costs 31,641 0
------------ ------------
Net cash provided by financing activities 31,247,885 6,354,186
------------ ------------
Effect of exchange rates ( 11,207) ( 2,585)
------------ ------------
Net increase in cash & cash equivalents: 16,139,371 244,547
Cash and cash equivalents, beginning of period 5,359,113 603,977
------------ ------------
Cash and cash equivalents, end of period $ 21,498,484 $ 848,524
------------ ------------
------------ ------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Page 6
<PAGE>
- --------------------------------------------------------------------------------
Nine Months Ended
-----------------
1996 1995
---- ----
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Income Taxes Paid $ 1,601,690 $490,164
Interest Paid $ 1,164,102 $798,260
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock for conversion of
convertible debentures $ 0 $ 75,000
Issuance of common stock
for payment of accounts payable $ 48,250 $ 7,679
Property in exchange of debt $0 $817,900
Issuance of common stock for the warrants
exercised on debt retirement $ 7,961,074 $ 0
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Page 7
<PAGE>
- --------------------------------------------------------------------------------
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These financial
statements should be read in conjunction with the financial statements and
related notes included in the Company's 1995 Form 10-K. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine-month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996.
NOTE 2 - PROPERTIES
In July 1996, the Company purchased a 44,000 square foot building with an
adjacent 10,000 square foot print shop, located in Tacoma, Washington including
the land, building, furniture, fixtures and equipment for $1,350,000. The new
facility will accommodate the Company's continuing expansion. No new or
additional financing was necessary for this capital purchase due to the recent
completion of the Company's stock offering ( see note 3).
NOTE 3 - COMMON STOCK
In June 1996, the Company sold, through an underwritten public offering,
1,950,000 common shares, at $15.23 per share. An additional 292,500 common
shares were sold pursuant to an underwriters over-allotment option.
The net proceeds from the offering are being used to fund opening of new
dispatch offices, purchase of an office building in Tacoma, Wa., payment of
short-term debt, prepayment of senior subordinated debt and other long-term
debt and for working capital and other general corporate purposes.
Surplus funds are currently invested in short-term, interest bearing
instruments, including government obligations and money market instruments.
In July 1996, the Company's Board of Directors approved a three-for-two
common stock dividend. This common stock dividend was effected in the form of
three shares of common stock issued for every two shares of common stock
outstanding, effective for shareholders of record on July 31, 1996. All
applicable share and per share data have been adjusted for the common stock
dividend.
NOTE 4 - PREFERRED STOCK
In July 1996, the Company's Board of Directors approved a three-for-two
preferred stock dividend. This preferred stock dividend was effected in the
form of three shares of preferred stock issued for every two shares of preferred
stock outstanding, effective for shareholders of record on July 31, 1996. All
applicable share and per share data have been adjusted for the preferred stock
dividend.
- --------------------------------------------------------------------------------
Page 8
<PAGE>
NOTE 5 - WORKERS' COMPENSATION
In 1996, the Company deposited $7.5 million with a foreign off-shore company
for the payment of workers' compensation claims and related expenses on claims
originating in the Non-monopolistic states. At September 30, 1996, $6.5 million
remained on deposit for the payment of future non-monopolistic claims and
related expenses and is recorded as workers' compensation deposits and credits.
Estimated incurred losses and related settlement and administration expenses to
be paid from those deposits of $3.3 million are recorded as current workers'
compensation claims payable at September 30, 1996. Additional workers'
compensation liabilities for amounts owed to the monopolistic states at
September 30, 1996, totaled $490,000. Workers' compensation expense of $5.5
million was recorded as a component of the cost of services for the nine months
ended September 30, 1996.
NOTE 6 -SUBORDINATED DEBT
In August 1996, the Company notified the holders of the 13% senior
subordinated debt of its intent to prepay the entire outstanding obligation of
$10,000,000 as of September 5, 1996. The debt was extinguished through the
payment of approximately $2.0 million and the issuance of, 1,023,552 common
shares for approximately $8.0 million upon the exercise of all detachable stock
warrants held. An extraordinary loss of $1,197,400 (net of the income tax
benefit of $703,200) was incurred from the early extinguishment of the
subordinated debt.
NOTE 7 -EMPLOYEE BENEFIT PLANS
At the August 1996, annual shareholders meeting, approval was obtained for
the adoption of both an Employee Stock Option and Incentive Plan (Option Plan)
and an Employee Stock Purchase Plan (Purchase Plan). The number of aggregate
shares of common stock that may be issued under both the Purchase Plan and
Option Plan shall not exceed 500,000.
The Purchase Plan provides that substantially all employees who have
completed six months of service an opportunity to purchase shares of its common
stock through payroll deductions, up to 10% of eligible compensation. The
purchase of shares of stock is at the lesser of 85% of the fair market value of
the stock on the offering date, or 85% of the fair market value of the stock on
the last business day of the offering. There were no shares issued under the
Purchase Plan as of September 30, 1996.
The Option Plan allows for the grant of incentive stock options, nonqualified
stock options and stock appreciation rights. The Compensation Committee has
ultimate discretion in the grant of shares under this plan. There were no
options issued under this plan as of September 30, 1996.
NOTE 8 -NEW FINANCING FACILITY
In August 1996, the Company obtained a new revolving credit facility from U.
S. Bank of Washington, NA which provides for borrowings of up to $20.0 million
secured by eligible accounts receivable. The U. S. Bank revolving credit
facility bears interest below market rates. The Company currently has no
borrowings against this credit facility.
- --------------------------------------------------------------------------------
Page 9
<PAGE>
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Labor Ready is a leading, national provider of temporary workers for manual
labor jobs. The Company's customers are primarily in construction, freight
handling, warehousing, landscaping, light manufacturing, and other light
industrial businesses. The Company has rapidly grown from eight dispatch
offices in 1991 to 194 dispatch offices at September 30, 1996. Substantially
all of the growth in dispatch offices was achieved by opening Company-owned
locations rather than through acquisitions.
In 1995, the Company opened 57 new dispatch offices at an average cost of
approximately $35,000 per dispatch office. The average cost of opening new
dispatch offices increased due to more extensive management training and the
installation of more sophisticated computer and other office systems. Once
open, the Company invests significant amounts of additional cash into the
operations of new dispatch offices until they begin to generate sufficient
revenue to cover their operating costs, generally in two to six months. The
Company pays its temporary workers on a daily basis, and bills its customers
on a weekly basis. Consequently, the Company experiences negative cash flow
from operations and investment activities during periods of high growth,
which also adversely impacts the Company's overall profitability. The
Company expects to continue to experience periods of negative cash flow from
operations and investment activities while it rapidly opens dispatch offices
and expects to require additional sources of working capital in order to
continue to grow.
Many of the Company's customers are construction and landscaping
businesses, which are significantly affected by the weather. Construction and
landscaping businesses and, to a lesser degree, other customer businesses
typically increase activity in spring, summer and early fall months and decrease
activity in late fall and winter months. Inclement weather can slow
construction and landscaping activities in such periods. As a result, the
Company has generally experienced a significant increase in temporary labor
demand in the spring, summer and early fall months, and lower demand in the late
fall and winter months.
Depending upon location, new dispatch offices initially target the
construction industry for potential customers. As dispatch offices mature, the
customer base broadens and the mix of work diversifies. The Company may
discount its rates when it enters a new market to attract customers. From time
to time during peak periods, the Company experiences shortages of available
temporary workers.
Cost of services primarily includes wages and related payroll expenses of
temporary workers and dispatch office employees, general managers, district
managers and area directors, including workers' compensation insurance, medicare
and social security taxes, but does not include dispatch offices lease expenses.
The Company's cost of services as a percentage of revenues has fluctuated
significantly in recent periods and it expects significant fluctuations to
continue in future periods as the Company continues its rapid growth. Cost of
services as a percentage of revenues is affected by numerous factors, including
salaries of new supervisory
- --------------------------------------------------------------------------------
Page 10
<PAGE>
- --------------------------------------------------------------------------------
personnel hired under new management organizational structures, the hiring of
large numbers of general managers prior to dispatch office openings, the use of
lower introductory rates to attract new customers at new dispatch offices, and
the relatively lower revenues generated by new dispatch offices prior to
reaching maturity.
Temporary workers assigned to customers remain Labor Ready employees.
Labor Ready is responsible for employee-related expenses of its temporary
workers, including workers' compensation, unemployment compensation insurance,
medicare and social security taxes and general payroll expenses. The Company
does not provide health, dental, disability or life insurance to its temporary
workers. Generally, the Company bills its customers for the hours worked by the
temporary workers assigned to the customer. Because the Company pays its
temporary workers only for the hours actually worked, wages for the Company's
temporary workers are a variable cost that increases or decreases directly in
proportion to revenue.
The Company has one franchisee which operates five dispatch offices. The
Company does not intend to grant additional franchises. Royalty revenues from
the franchised dispatch offices are included in revenues from services and were
not material during any period presented herein.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
DISPATCH OFFICES. The Company grew from 106 locations at December 31, 1995
to 194 locations at September 30, 1996, an increase of 88 locations for the nine
month period. The Company opened 25 dispatch offices during the third quarter
of 1996 compared to 4 dispatch offices during the third quarter of 1995.
REVENUES FROM SERVICES. The Company's revenues from services increased
to $109.4 and $47.2 million for the nine months and three months ended
September 30, 1996 compared to $63.2 and $30.9 million for the nine months
and three months ended September 30, 1995, an increase of $46.2 million
(73.1%) and $16.3 million (52.8%), respectively. This increase resulted
primarily from increases in revenues from dispatch offices open for the full
period.
COST OF SERVICES. Cost of services increased to $89.0 and $37.6 million
for the nine months and three months ended September 30, 1996 compared to
$51.1 and $24.7 million for the nine months and three months ended September
30, 1995, an increase of $37.9 million (74.2%) and $12.9 million (52.2%),
respectively, reflecting the additional wages and salaries paid to temporary
workers, additional management personnel, and related payroll and operating
expenses. As a percentage of revenues, cost of services increased to 81.4%
for the nine months ended September 30, 1996 from 80.7% for the nine months
ended September 30, 1995. Cost of services decreased to 79.6% for the three
months ended September 30, 1996 from 80% for the same period a year ago. The
increase of .7% in cost of services for the nine months resulted from higher
workers' 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 partially offset by productivity gains.
- --------------------------------------------------------------------------------
Page 11
<PAGE>
- --------------------------------------------------------------------------------
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 $17.0 million and $7.2 million for the
nine months and three months ended September 30, 1996 compared to $9.2 and
$3.5 million for the year earlier period, an increase of $7.8 million (85.3%)
and $3.7 million (106%), respectively. As a percentage of revenues from
services, selling, general, and administrative expenses increased to 15.5%
and 15.2% for the nine months and three months ended September 30, 1996 from
14.5% and 11.4% for the nine months and three months ended September 30,
1995, an increase of 1.0% and 3.8% respectively. This increase is primarily
the result of the Company continuing to build its infrastructure in the
selling, general and administrative expense area in order to support the rapid
expansion of dispatch offices and the growth in revenues.
INTEREST AND OTHER EXPENSES. Interest and other expenses decreased to
approximately $633,000 for the nine months ended September 30, 1996, with
income of approximately $129,000 for the three months ended September 30,
1996, compared to approximately $659,000 and $368,000 for the nine month and
three month periods ended September 30, 1995, a decrease of approximately
$26,000 and $497,000, respectively. This decrease resulted primarily from
payment of the Company's $10 million 13% Senior Subordinated Notes (the
"Subordinated Notes") in the third quarter and interest income earned on the
short term investments of approximately $20 million of surplus cash available
from the proceeds of the Company's public offering completed June 18, 1996.
TAXES ON INCOME. The Company recorded taxes on income of approximately
$1,020,000 and $960,000 for the nine months and three months ended September
30, 1996 compared to taxes on income of approximately $848,000 and $829,000
for the nine months and three months ended September 30, 1995. The Company's
effective tax rate increased to 37% for the nine months and three months
ended September 30, 1996 as compared to 36% for the comparable periods of
last year. The increase was primarily due to higher state tax rates combined
with higher pre-tax income.
NET INCOME. The Company recorded net income of approximately $542,000 and
$441,000 for the nine months and three months ended September 30, 1996
compared to approximately $1,508,000 and $1,471,000 for the nine months and
three months ended September 30, 1995, a decrease of approximately $966,000
(64%) and $1,030,000 (70%), respectively. The decrease resulted primarily
from an extraordinary loss of $1.2 million (net of the income tax benefit of
approximately $703,000) from the early extinguishment of the subordinated notes.
LIQUIDITY AND CAPITAL RESOURCES. In June 1996 the Company completed a
common stock offering of 2,242,500 shares resulting in net proceeds to the
Company of approximately $33.6 million. The Company used approximately $5.0
million to pay off the revolving credit facility, $863,000 to pay long-term
debt, and $1.4 million to purchase an office building in Tacoma. The Company
used approximately $8 million received from the exercise of outstanding
warrants along with approximately $2 million to prepay the $10 million 13%
Senior Subordinated Notes. The Company also used part of the offering
proceeds to fund working capital needs. The balance will be used to fund the
Company's expansion plans through 1998.
In the nine months of 1996, the Company utilized significant amounts of
cash to open 88 dispatch offices. During the nine months of 1996 and 1995,
the Company used net cash in operating and investing activities of
approximately $15.1 million and $6.1 million, respectively, reflecting
primarily increases in workers' compensation deposits, accounts receivable,
and capital expenditures. 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 its recent common stock
offering.
- --------------------------------------------------------------------------------
Page 12
<PAGE>
- --------------------------------------------------------------------------------
[moved to "[.save]inoctobr" pending receipt of Rider F]
In August 1996, the Company obtained a new revolving credit facility from
U.S. Bank of Washington, NA which provides for borrowing of up to $20.0 million
secured by eligible accounts receivable. The U.S. Bank revolving credit
facility bears interest below market rates. The Company currently has no
outstanding borrowings against this credit facility.
In 1995, the Company opened 57 new dispatch offices at an average cost of
approximately $35,000. Once opened, the Company invests significant amounts of
additional cash into the operations of new dispatch offices until they begin to
generate sufficient revenue to cover their operating costs, generally two to six
months. Since December 31, 1995, the Company opened 88 new dispatch offices at
an estimated cost of $4.8 million, of which $1.4 million was incurred in
connection with opening 25 new locations in the third quarter. Further, the
Company pays its temporary personnel on a daily basis, and bills its customers
on a weekly basis. Since the Company plans to open a total of 94 dispatch
offices in 1996, and 100 dispatch offices in 1997, the Company expects to
experience cash flow deficits from operations and investment activities in 1996
and 1997. The Company intends to finance opening and operating costs of new
dispatch offices with the proceeds from its recent common stock offering and
debt financings. With such funds, and depending on its results of operations
and other factors, the Company expects to have the financial resources necessary
to reach its goal of operating 300 dispatch offices by the end of 1997. 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 debt financings or
slow down its expansion plans.
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Page 13
<PAGE>
- --------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the shareholders of Labor Ready, Inc. was held on
Tuesday, August 20, 1996.
1. The following matters were voted upon in the meeting, with results as
indicated:
A. Approval of the Company's 1996 Stock Option and Incentive Plan:
Number of votes for: 4,765,432
Number of votes against: 575,896
Number of abstentions/broker nonvotes: 19,874
B. Approval of the Company's 1996 Stock Purchase Plan:
Number of votes for: 5,329,835
Number of votes against: 24,668
Number of abstentions/broker nonvotes: 6,699
C. Ratification of the selection of BDO Seidman, LLP as the Company's
independent auditors:
Number of votes for: 6,437,210
Number of votes against: 13,645
Number of abstentions/broker nonvotes: 4,069
2. Results of election of Directors:
Number of votes Number of
cast for Director votes witheld
Name of Director
Glenn A. Welstad 6,405,499 49,425
Robert J. Sullivan 6,405,724 49,200
Thomas E. McChesney 6,400,724 54,200
Ronald L. Junck 6,405,724 49,200
Ralph E. Peterson 6,405,724 49,200
Richard W. Gasten 6,405,724 49,200
- -------------------------------------------------------------------------------
Lri 10-q 09/30/96 Page 14
<PAGE>
- --------------------------------------------------------------------------------
SIGNATURES
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 10/30/96
-------------------- --------
Glenn A. Welstad Date
Principal Executive Officer
By: /s/ Ralph E. Peterson 10/30/96
--------------------- --------
Ralph E. Peterson Date
Principal Financial Officer
- --------------------------------------------------------------------------------
Page 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 21,498,484
<SECURITIES> 0
<RECEIVABLES> 21,451,382
<ALLOWANCES> 1,548,503
<INVENTORY> 0
<CURRENT-ASSETS> 49,575,844
<PP&E> 8,332,000
<DEPRECIATION> 1,138,996
<TOTAL-ASSETS> 60,456,739
<CURRENT-LIABILITIES> 8,890,737
<BONDS> 90,352
0
854,082
<COMMON> 49,562,308
<OTHER-SE> (39,914)
<TOTAL-LIABILITY-AND-EQUITY> 60,456,739
<SALES> 109,371,091
<TOTAL-REVENUES> 109,371,091
<CGS> 89,006,985
<TOTAL-COSTS> 16,972,039
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 632,812
<INCOME-PRETAX> 2,759,255
<INCOME-TAX> 1,020,200
<INCOME-CONTINUING> 1,739,055
<DISCONTINUED> 0
<EXTRAORDINARY> 1,197,400
<CHANGES> 0
<NET-INCOME> 541,655
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
