<PAGE>
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UNITED STATES
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, 1997
Commission File Number 0-23828
Labor Ready, Inc.
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(Exact Name of Registrant as specified in its charter)
Washington 91-1287341
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(State of Incorporation) (Federal I.R.S. No.)
1016 S. 28th Street , Tacoma, Washington 98409
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(Address of Principal Executive Offices) (Zip Code)
(206) 383-9101
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(Registrant's Telephone Number)
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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 ( )
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The aggregate market value of the voting stock held by non-affiliates of the
registrant, on April 25, 1997 was $85,884,528.
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As of April 25, 1997, the Registrant had 12,271,826 shares of Common Stock
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE: NONE
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Page 1
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LABOR READY, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets
March 31, 1997 and December 31, 1996. . . . . . . . . . . . 3
Consolidated Statements of Operation
Three Months Ended March 31, 1997 and 1996. . . . . . . . . 5
Consolidated Statements of Cash Flow
Three Months Ended March 31, 1997 and 1996. . . . . . . . . 6
Consolidated Statements of Shareholders' Equity
Three Months Ended March 31, 1997 and for the
Years Ended December 31, 1996 and 1995. . . . . . . . . . . 7
Notes to Consolidated Financial Statements. . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . 9
PART II. OTHER INFORMATION
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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Page 2
<PAGE>
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LABOR READY, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
------------- --------------
1997 1996
------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 8,382,941 $ 17,597,821
Accounts receivable, less allowance for doubtful accounts
of $1,400,579 and $1,236,776. . . . . . . . . . . . . . . . . 23,510,177 21,010,653
Workers' compensation deposits and credits (Note 2) . . . . . . 5,967,145 5,285,552
Prepaid expenses and other. . . . . . . . . . . . . . . . . . . 1,872,681 1,983,961
Income taxes receivable . . . . . . . . . . . . . . . . . . . . 1,125,000 1,194,633
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 2,846,263 1,668,474
------------- --------------
Total current assets. . . . . . . . . . . . . . . . . . . . . 43,704,207 48,741,094
------------- --------------
PROPERTY AND EQUIPMENT:
Buildings and land. . . . . . . . . . . . . . . . . . . . . . . 3,806,192 3,733,202
Computers and software. . . . . . . . . . . . . . . . . . . . . 6,828,305 5,522,934
------------- --------------
10,634,497 9,256,136
Less accumulated depreciation . . . . . . . . . . . . . . . . . (1,805,976) (1,431,562)
------------- --------------
Property and equipment, net . . . . . . . . . . . . . . . . . 8,828,521 7,824,574
------------- --------------
OTHER ASSETS:
Intangible assets and other, less amortization of
$1,533,422 and $979,572 . . . . . . . . . . . . . . . . . . . 3,894,334 3,071,933
Workers' compensation deposits and credits, less current
portion (Note 2). . . . . . . . . . . . . . . . . . . . . . . 4,214,150 2,979,018
Restricted cash in captive insurance subsidiary (Note 2). . . . 2,442,063 1,714,744
------------- --------------
Total other assets. . . . . . . . . . . . . . . . . . . . . . 10,550,547 7,765,695
------------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . $63,083,275 $64,331,363
------------- --------------
------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
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Page 3
<PAGE>
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LABOR READY, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
------------ ------------
1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Checks issued against future deposits . . . . . . . . . . $ 1,520,184 $ 1,139,555
Accounts payable. . . . . . . . . . . . . . . . . . . . . 1,493,671 2,230,721
Accrued wages and benefits. . . . . . . . . . . . . . . . 2,388,451 3,046,084
Workers' compensation claims (Note 2) . . . . . . . . . . 5,677,119 5,076,686
Current maturities of long-term debt. . . . . . . . . . . 12,226 11,905
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . 11,091,651 11,504,951
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities . . . . . . . . . 86,174 90,352
Deferred income taxes . . . . . . . . . . . . . . . . . . 1,651,924 1,144,144
------------ ------------
Total long-term liabilities . . . . . . . . . . . . . . 1,738,098 1,234,496
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . 12,829,749 12,739,447
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $0.444 par value 5,000,000 shares
authorized; issued and outstanding 1,921,687 shares . . 854,082 854,082
Common stock, no par value 25,000,000 shares authorized;
issued and outstanding, 12,319,826 and 12,373,576
shares (Note 3) . . . . . . . . . . . . . . . . . . . . 49,320,959 49,516,834
Cumulative foreign currency translation adjustment. . . . (92,037) (50,126)
Retained earnings . . . . . . . . . . . . . . . . . . . . 170,522 1,271,126
------------ ------------
Total shareholders' equity. . . . . . . . . . . . . . . 50,253,526 51,591,916
------------ ------------
Total liabilities and shareholders' equity. . . . . . . 63,083,275 $ 64,331,363
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
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Page 4
<PAGE>
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LABOR READY, INC.
CONSOLIDATED STATEMENTS OF OPERATION
FOR THE THREE MONTHS ENDED MARCH 31, 1997, AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
Revenues from services . . . . . . . . . . . . $51,714,200 $26,093,924
Costs and expenses:
Cost of services . . . . . . . . . . . . . . 44,642,856 22,207,458
Selling, general and
administrative. . . . . . . . . . . . . . . 8,626,060 4,500,319
Interest and other, net. . . . . . . . . . . . (196,975) 435,471
----------- -----------
Net loss before tax benefit. . . . . . . . . . (1,357,741) (1,049,324)
Tax benefit. . . . . . . . . . . . . . . . . . 564,866 364,000
----------- -----------
Net loss . . . . . . . . . . . . . . . . . . . $(792,875) $(685,324)
----------- -----------
----------- -----------
Earnings per common share:
Net loss . . . . . . . . . . . . . . . . . . . $(0.06) $(0.08)
----------- -----------
----------- -----------
Weighted average shares
outstanding . . . . . . . . . . . . . . . . 12,366,095 8,922,942
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
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Page 5
<PAGE>
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LABOR READY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . $(792,875) $(685,324)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . 929,145 204,339
Provision for doubtful accounts. . . . . . . . . . . . . . 851,311 1,020,544
Deferred income taxes. . . . . . . . . . . . . . . . . . . (670,009) 74,407
Changes in assets and liabilities
Accounts receivable. . . . . . . . . . . . . . . . . . . . (3,350,835) (473,781)
Workers' compensation deposits and credits . . . . . . . . (1,916,725) (983,095)
Prepaid expenses and other . . . . . . . . . . . . . . . . 111,280 (273,771)
Accounts payable . . . . . . . . . . . . . . . . . . . . . (737,050) 195,294
Accrued wages and benefits . . . . . . . . . . . . . . . . (657,633) (130,042)
Workers' compensation claims.. . . . . . . . . . . . . . . 600,433 108,431
Income taxes payable (receivable). . . . . . . . . . . . . 69,633 (1,161,000)
------------ ------------
Net cash used in operating activities. . . . . . . . . . . . (5,563,325) (2,103,998)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . (1,378,361) (852,170)
Captive insurance subsidiary deposits. . . . . . . . . . . (727,319) --
Additions to intangible assets and other . . . . . . . . . (1,377,132) --
------------ ------------
Net cash used in investing activities. . . . . . . . . . . . (3,482,812) (852,170)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on note payable . . . . . . . . . . . . . . -- (163,048)
Checks issued against future deposits. . . . . . . . . . . 380,629 371,991
Proceeds from options exercised. . . . . . . . . . . . . . 8,330 373,213
Purchases for Employee Stock Purchase Plan . . . . . . . . 27,901 --
Purchase and retirement of Treasury Stock. . . . . . . . . (529,159) --
Payments on long-term debt . . . . . . . . . . . . . . . . (3,857) (9,509)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . (10,676) (10,676)
------------ ------------
Net cash provided by financing activities. . . . . . . . . (126,832) 561,971
Effect of exchange rates . . . . . . . . . . . . . . . . . (41,911) (5,137)
------------ ------------
Net increase in cash and cash equivalents. . . . . . . . . (9,214,880) (2,399,334)
CASH AND CASH EQUIVALENTS, beginning of year . . . . . . . . 17,597,821 5,359,113
------------ ------------
CASH AND CASH EQUIVALENTS, end of year . . . . . . . . . . . $ 8,382,941 $ 2,959,779
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . 22,628 506,436
Income taxes paid. . . . . . . . . . . . . . . . . . . . . 30,510 983,315
</TABLE>
See accompanying notes to consolidated financial statements.
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Page 6
<PAGE>
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LABOR READY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
CUMULATIVE
RETAINED FOREIGN
EARNINGS CURRENCY
COMMON STOCK PREFERRED STOCK (ACCUMULATED TRANSLATION
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT DEFICIT) ADJUSTMENT
----------- ----------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995 . . . . . . . . . . . . . . . . 7,458,290 3,540,187 1,921,687 854,082 (1,429,556) (2,853)
Net income for the year. . . . . . . . . . . . . . . . -- -- -- -- 2,061,807 --
Common stock issued on conversion of debt. . . . . . . 224,103 382,364 -- -- -- --
Common stock issued for 401(k) Plan. . . . . . . . . . 1,795 7,679 -- -- -- --
Common stock issued from private placement . . . . . . 21,000 69,998 -- -- -- --
Common stock issued on warrants exercised. . . . . . . 1,068,660 1,781,100 -- -- -- --
Common stock issued on the exercise of options . . . . 45,000 45,000 -- -- -- --
Detachable stock warrants issued . . . . . . . . . . . -- 1,290,094 -- -- -- --
Preferred stock dividend . . . . . . . . . . . . . . . -- -- -- -- (42,704) --
Foreign currency translation . . . . . . . . . . . . . -- -- -- -- -- (25,854)
----------- ----------- ---------- -------- --------- ----------
BALANCE, December 31, 1995 . . . . . . . . . . . . . . . 8,818,848 7,116,422 1,921,687 854,082 589,547 (28,707)
Net income for the year. . . . . . . . . . . . . . . . -- -- -- -- 724,283 --
Common stock issued for 401(k) Plan. . . . . . . . . . 5,138 48,250 -- -- -- --
Common stock issued from public stock offering, net. . 2,242,500 33,586,259 -- -- -- --
Common stock issued on debt extinguishment
and warrants exercised. . . . . . . . . . . . . . . . 1,023,552 7,961,074 -- -- -- --
Common stock issued on the exercise of options . . . . 283,538 804,829 -- -- -- --
Preferred stock dividend . . . . . . . . . . . . . . . -- -- -- -- (42,704) --
Foreign currency translation . . . . . . . . . . . . . -- -- -- -- -- (21,419)
----------- ----------- ---------- -------- --------- ----------
BALANCE, December 31, 1996 . . . . . . . . . . . . . . . 12,373,576 49,516,834 1,921,687 854,082 1,271,126 (50,126)
Net loss for the year to date. . . . . . . . . . . . . -- -- -- -- (792,875) --
Common stock issued for Employee Stock Purchase Plan . 2,525 27,901 -- -- -- --
Common stock issued on exercise of options . . . . . . 1,725 8,330 -- -- -- --
Common stock purchased and retired . . . . . . . . . . (58,000) (232,106) -- -- (297,053) --
Preferred stock dividend . . . . . . . . . . . . . . . -- -- -- -- (10,676) --
Foreign Currency Translation . . . . . . . . . . . . . -- -- -- -- -- (41,911)
----------- ----------- ---------- -------- --------- ----------
BALANCE, March 31, 1997. . . . . . . . . . . . . . . . . 12,319,826 $49,320,959 1,921,687 $854,082 $170,522 $(92,037)
----------- ----------- ---------- -------- --------- ----------
----------- ----------- ---------- -------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
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Page 7
<PAGE>
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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 consolidated financial
statements and related notes included in the Company's 1996 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 three month period ending March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
NOTE 2. WORKERS' COMPENSATION
In January 1997, the Company increased the capitalization of its wholly
owned foreign subsidiary, Labor Ready Assurance Company, by $727,319, net of
expenses, to $2,442,063, which is recorded as restricted cash.
The Company deposited $1,692,767, in 1997, with a foreign off-shore company
for the payment of workers' compensation claims and related expenses on claims
originating in the non-monopolistic states. As of March 31, 1997, $9,390,729
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 the related settlement and administration expenses
to be paid from those deposits of $5,176,580 are recorded as current workers'
claims payable at March 31, 1997.
In Washington, West Virginia and Ohio, the monopolistic states, the Company
has recorded a retro-receivable of $790,566, which is included in the current
workers' compensation deposits and credits. Additional workers' compensation
liabilities for amounts owed as of March 31, 1997, in the monopolistic states
was $500,539.
Workers' compensation expense of $2,970,874 and $1,415,377 was recorded as
a component of cost of services for the three month period ended March 31, 1997
and 1996, respectively.
NOTE 3. COMMON STOCK
In February 1997, the Company's Board of Directors approved a stock
repurchase plan whereby the Company's management is authorized to purchase up to
200,000 shares of the outstanding common stock. In March 1997, the Company
purchased 58,000 shares, which were subsequently retired, in accordance with the
Washington State incorporation laws, at a cost of $529,159. In April 1997, the
Company purchased and retired an additional 48,000 shares at a total cost of
$357,263.
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Page 8
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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 256 dispatch offices at March 31, 1997. Substantially all of the
growth in dispatch offices was achieved by opening Company-owned locations
rather than through acquisitions. The Company's annual revenues grew from
approximately $6.0 million to $163.5 million from 1991 to 1996. This revenue
growth has been generated both by opening new dispatch offices and by continuing
to increase sales at existing dispatch offices. In 1996, the average annual
revenue per dispatch office open for more than a full year was $1.3 million.
The Company expects to open at least 100 new dispatch offices in 1997 and
1998 (56 dispatch offices already have been opened in 1997). In 1996, the
Company incurred costs of approximately $5.6 million to open 94 new dispatch
offices (an average of approximately $60,000 per dispatch office). The Company
expects the average cost of opening new dispatch offices to continue to increase
due to more extensive management training and the installation of more
sophisticated computer and other office systems. Further, 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 significant 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 discounts
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 claims and related
costs, unemployment compensation insurance and Medicare and Social Security
taxes. 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.
Temporary workers assigned to customers remain Labor Ready employees. Labor
Ready is responsible for employee-related expenses of its temporary workers,
including workers' compensation coverage, 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.
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Page 9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented
by certain items in the Company's Consolidated Statements of Operations for
the periods indicated:
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------ -----
Revenues from services........................ 100.0% 100.0%
Cost of services.............................. (86.3) (85.1)
Selling, general and administrative expenses.. (16.7) (17.2)
Interest and other, net....................... 0.4 (1.7)
Loss before tax benefit....................... (2.6) (4.0)
Net loss...................................... (1.5) (2.6)
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
DISPATCH OFFICES
The number of offices grew to 256 at March 31, 1997 from 200 locations at
December 31, 1996. This represents a net increase (after closings and
consolidations) of 56 dispatch offices, or a 28% first quarter new dispatch
office opened growth rate. This is compared to a net increase of 21 dispatch
offices opened in the first quarter of 1996, or a 20% first quarter new dispatch
office opened growth rate.
REVENUES FROM SERVICES
The Company's revenues from services increased to $51.7 million for the
three months ended March 31, 1997, as compared to $26.1 million for the three
months ended March 31, 1996 an increase $25.6 million or 98%. This increase
resulted primarily from those dispatch offices that have been open for a full
year, and to a lessor extent from revenues from dispatch offices that have been
open for less than year. This increase is also attributed to both the Company's
expansion into areas of the country with a more temperate climate, thereby
reducing the impact of seasonality on the business, and the continued
development of high volume national accounts.
COST OF SERVICES
Cost of services increased to $44.6 million for the three months ended
March 31, 1997 as compared to $22.2 million for the three months ended March 31,
1996, an increase of $22.4 million or 101%. This increase is directly related
to the additional wages and salaries paid to temporary workers and the
corresponding increase in revenues. Cost of services as a percentage of
revenues increased to 86.3% for the three months ended March 31, 1997 from 85.1%
for the three months ended March 31, 1996, which represents an increase of 1.2%.
This increase in cost of services as a percentage of revenues is attributable to
the salaries and wages paid to Company personnel operating the new dispatch
offices opened during the quarter, for which initial break even revenues have
not yet been achieved and the use of a special introductory rates to initially
penetrate new markets. 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 $8.6 million as
of the three month period ended March 31, 1997, as compared to $4.5 million for
the three month period ended March 31, 1996, an increase of $4.1 million or 91%.
As a percentage of revenues from services, selling, general and administrative
expenses decreased to 16.7% from 17.2% for the same period in the prior year,
representing a 0.5% decrease. This decrease was primarily due to improved
economies of scale on administrative operations as revenues from services
increased at an accelerated rate.
INTEREST AND OTHER EXPENSES
Interest and other expenses was a positive contribution to income of
$197,000 for the three months ended March 31, 1997, as compared to an expense of
$435,000 for the three months ended March 31, 1996, an increase of $632,000 or
321%. This reversal of expense to income was the result of the Company's
completion of a public offering and subsequent prepayment of substantially all
outstanding debt during the third and fourth quarters of 1996, which permitted
surplus funds to be invested in interest bearing short-term debt obligations.
Interest and other expenses as a percentage of revenue from services was a
positive contribution of 0.4% for the three months ended March 31, 1997, as
compared to an expense of 1.7% for the three months ended March 31,1996. The
Company expects interest and other, net, to continue to fluctuate significantly
as its aggressive growth strategy will place further demands on operating funds.
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Page 10
<PAGE>
TAXES ON INCOME
The Company's taxes on income was a benefit of $565,000 for the three
months ended March 31, 1997, as compared to a benefit of $364,000 for the three
months ended March 31, 1996, an increase of $201,000 or 55%. This increase was
the direct result of both the increase in Company's loss before the calculated
tax effect, and the continued increase in the Company's effective tax rate
related to the expansion of the Company into those states and cities which
impose a local income tax. The Company recorded a net deferred tax asset of
approximately $2.8 million at March 31, 1997, resulting primarily from workers'
compensation deposits and the reserve for bad debts. The Company has not
established a valuation allowance against this net deferred tax asset as
management believes that it is more likely than not that the tax benefits will
be realized in the future based on historical levels of pre-tax income and
expected future earnings.
NET INCOME
The Company incurred a net loss of $792,000 for the three months ended
March 31, 1997, as compared to a net loss of $685,000, an increase of $107,000
or 15.6%. As a percentage of revenues from services, the net loss decreased to
1.5% for the three months ended March 31, 1997, which compares to 2.6%, for the
three months ended March 31, 1996, a decrease of 1.1%. This decrease in the net
loss as a percentage of revenues is primarily the result of the decrease in
interest expense and the incremental growth in revenues exceeding the
incremental growth in selling, general and administrative costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company used net cash in operating activities of $5.6 million and $2.1
million during the three months ended March 31, 1997 and 1996, reflecting the
significant growth in the Company's accounts receivable, workers' compensation
deposits and the opening of new dispatch offices. The net cash from investing
activities used through March 31, 1997 was $3.5 million as compared to $0.9
million for the same period in 1996, and was primarily associated with capital
expenditures for the new dispatch offices opened. Management anticipates that
cash flow deficits from operating and investing activities will continue while
the Company continues to increase the number of dispatch office locations.
This cash flow deficit will be funded through the funds obtained in the 1996
public offering and the use of the Company's $20.0 million revolving line of
credit with US Bank of Washington, N.A. In addition, Management may consider
other equity or debt financing, as necessary.
In December 1996, the Company used $1.7 million in cash to finance the
original capitalization of Labor Ready Assurance Company, a wholly owned foreign
subsidiary. In January 1997, the Company used an additional $0.7 million in
cash to further capitalize this subsidiary. These funds remain on deposit as
restricted cash to provide the Company a more cost efficient opportunity of
administering, paying and finally settling its workers' compensation claims and
liabilities.
In February 1997, the Company's Board of Directors approved a stock
repurchase plan. This stock repurchase plan permits management to purchase up
to 200,000 shares of the Company's common stock from the open market. As of
March 31, 1997, 58,000 shares have been purchased and subsequently retired, at a
total cost of $529,000. In April 1997, the Company purchased and retired an
additional 48,000 shares at a total cost of $ 357,000.
- -------------------------------------------------------------------------------
Page 11
<PAGE>
PART II. OTHER INFORMATION - NOT APPLICABLE
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 April 28, 1997
-------------------------------------- --------------
Glenn A. Welstad Date
Chairman of the Board, Chief Executive
Officer and President
By: /s/ Charles B. Russell April 28, 1997
--------------------------------------- ---------------
Charles B. Russell Date
Chief Financial Officer, Treasurer and
Assistant Secretary
- -------------------------------------------------------------------------------
Page 12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AT MARCH 31, 1997 AND FOR THE PERIOD
THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,383
<SECURITIES> 0
<RECEIVABLES> 23,510
<ALLOWANCES> 1,401
<INVENTORY> 0
<CURRENT-ASSETS> 43,704
<PP&E> 10,634
<DEPRECIATION> (1,805)
<TOTAL-ASSETS> 63,083
<CURRENT-LIABILITIES> 11,092
<BONDS> 0
0
854
<COMMON> 49,321
<OTHER-SE> 79
<TOTAL-LIABILITY-AND-EQUITY> 63,083
<SALES> 0
<TOTAL-REVENUES> 51,714
<CGS> 0
<TOTAL-COSTS> 44,643
<OTHER-EXPENSES> 8,626
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (197)
<INCOME-PRETAX> (1,358)
<INCOME-TAX> 564
<INCOME-CONTINUING> (793)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (793)
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0
</TABLE>
