<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 quarterly period ended October 1, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________
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) (Employer Identification No.)
1016 S. 28th Street, Tacoma, Washington 98409
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(Address of Principal Executive Offices) (Zip Code)
(253) 383-9101
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(Registrant's Telephone Number)
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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As of November 5, 1999, the Registrant had 42,785,857 shares of Common
Stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE: None.
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LABOR READY, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets
October 1, 1999 and December 31, 1998....................2
Consolidated Statements of Income
Thirteen and Thirty-Nine Weeks Ended
October 1, 1999 and October 2, 1998......................4
Consolidated Statements of Cash Flows
Thirty-Nine Weeks Ended October 1, 1999
and October 2, 1998......................................5
Notes to Consolidated Financial Statements...............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.........................16
Signatures........................................................17
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Page 1
<PAGE>
LABOR READY, INC.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
OCTOBER 1, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 14,402 $ 25,940
Accounts receivable, less allowance for doubtful accounts
of $6,856 and $4,218............................................. 115,914 65,484
Workers' compensation deposits and credits........................ 4,940 2,961
Prepaid expenses and other........................................ 6,536 4,947
Deferred income taxes............................................. 6,302 6,601
------------- -------------
Total current assets............................................. 148,094 105,933
------------- -------------
PROPERTY AND EQUIPMENT:
Buildings and land ............................................... 6,156 4,854
Computers and software............................................ 21,195 13,443
Cash dispensing machines.......................................... 10,314 7,376
Furniture and equipment........................................... 717 667
------------- -------------
38,382 26,340
Less accumulated depreciation .................................... 9,149 6,069
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Property and equipment, net...................................... 29,233 20,271
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OTHER ASSETS:
Intangible assets and other, less accumulated
amortization of $206 and $6,383.................................. 77 2,630
Restricted cash................................................... 1,599 151
Deferred income taxes............................................. 5,971 1,751
------------- -------------
Total other assets............................................... 7,647 4,532
------------- -------------
Total assets...................................................... $ 184,974 $ 130,736
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
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Page 2
<PAGE>
LABOR READY, INC.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS (EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(UNAUDITED)
OCTOBER 1, DECEMBER 31,
1999 1998
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit.......................................................... $ 20,124 $ --
Accounts payable........................................................ 3,542 6,889
Accrued wages and benefits.............................................. 12,005 7,544
Current portion of workers' compensation claims reserve................. 12,556 15,300
Current portion of capital lease obligations............................ 1,031 754
Income taxes payable.................................................... 1,224 4,355
-------------- -------------
Total current liabilities............................................. 50,482 34,842
-------------- -------------
LONG-TERM LIABILITIES:
Capital lease obligations............................................... 6,616 5,073
Workers' compensation claims reserve.................................... 19,558 10,324
-------------- -------------
Total long-term liabilities............................................ 26,174 15,397
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Total liabilities...................................................... 76,656 50,239
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $0.197 par value, 20,000 shares authorized;
6,486 shares issued and outstanding..................................... 854 854
Common stock, no par value, 100,000 shares authorized;
42,731 and 41,961 shares issued and outstanding......................... 61,410 54,131
Retained earnings....................................................... 46,054 25,512
-------------- -------------
Total shareholders' equity............................................. 108,318 80,497
-------------- -------------
Total liabilities and shareholders' equity............................. $ 184,974 $ 130,736
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
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Page 3
<PAGE>
LABOR READY, INC.
CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS (EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------- -------------------------
OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
1999 1998 1999 1998
------------------------- -------------------------
<S> <C> <C> <C> <C>
Revenues from services....................................... $ 251,795 $ 191,851 $ 616,097 $ 428,879
Cost of services.......................................... 175,375 134,466 424,522 300,750
------------------------- -------------------------
Gross profit................................................. 76,420 57,385 191,575 128,129
Selling, general and administrative expenses.............. 59,065 41,420 151,789 103,244
Depreciation and amortization............................. 1,347 1,440 3,107 4,543
------------------------- -------------------------
Income from operations....................................... 16,008 14,525 36,679 20,342
Interest expense, net........................................ 410 170 491 58
------------------------- -------------------------
Income before taxes and cumulative effect of accounting
change ..................................................... 15,598 14,355 36,188 20,284
Income taxes................................................. 6,118 5,813 14,152 8,249
------------------------- -------------------------
Income before cumulative effect of accounting change......... 9,480 8,542 22,036 12,035
Cumulative effect of accounting change, net of income tax
benefit of $897............................................. -- -- (1,453) --
------------ ------------ ------------ ------------
Net income................................................... $ 9,480 $ 8,542 $ 20,583 $ 12,035
========================= =========================
Basic income per common share:
Income before cumulative effect of accounting change...... $ 0.22 $ 0.20 $ 0.51 $ 0.29
Cumulative effect of accounting change, net............... -- -- (0.03) --
------------------------- -------------------------
Net income................................................... $ 0.22 $ 0.20 $ 0.48 $ 0.29
========================= =========================
Diluted income per common share:
Income before cumulative effect of accounting change...... $ 0.22 $ 0.20 $ 0.50 $ 0.28
Cumulative effect of accounting change, net............... -- -- (0.03) --
------------------------- -------------------------
Net income................................................ $ 0.22 $ 0.20 $ 0.47 $ 0.28
========================= =========================
Weighted average shares outstanding:
Basic..................................................... 42,769 41,772 42,442 41,654
========================= =========================
Diluted................................................... 43,694 43,364 43,607 43,104
========================= =========================
</TABLE>
See accompanying notes to consolidated financial statements.
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Page 4
<PAGE>
LABOR READY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
--------------------------------
OCTOBER 1, OCTOBER 2,
1999 1998
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................. $ 20,583 $ 12,035
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization.............................................. 3,107 4,543
Provision for doubtful accounts............................................ 9,213 4,567
Deferred income taxes...................................................... (3,921) (1,730)
Cumulative effect of accounting change..................................... 2,350 --
Changes in operating assets and liabilities
Accounts receivable........................................................ (59,643) (48,619)
Workers' compensation deposits and credits................................. (1,979) (1,678)
Prepaid expenses and other................................................. (1,409) (1,236)
Accounts payable........................................................... (3,379) 2,532
Accrued wages and benefits................................................. 4,461 4,218
Income taxes payable....................................................... 654 5,802
Workers' compensation claims reserve....................................... 6,490 9,304
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Net cash used in operating activities......................................... (23,473) (10,262)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................................... (9,566) (6,645)
Additions to restricted cash............................................... (1,448) (15)
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Net cash used in investing activities......................................... (11,014) (6,660)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit........................................... 20,124 21,125
Proceeds from options and warrants exercised............................... 3,832 1,190
Proceeds from sale of stock through employee benefit plans................. 806 476
Purchase and retirement of common stock.................................... (1,144) (1,917)
Payments on long-term debt................................................. -- (89)
Payments on capital lease obligations...................................... (660) (387)
------------- --------------
Net cash provided by financing activities..................................... 22,958 20,398
Effect of exchange rates on cash........................................... (9) (10)
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Net increase (decrease) in cash and cash equivalents.......................... (11,538) 3,466
CASH AND CASH EQUIVALENTS, beginning of period................................ 25,940 22,117
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CASH AND CASH EQUIVALENTS, end of period...................................... $ 14,402 $ 25,583
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures usually
found in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These financial statements
should be read in conjunction with the consolidated financial statements and
related notes included in Labor Ready, Inc.'s ("the Company") 1998 annual report
on Form 10-K. Certain amounts in the consolidated balance sheet at December 31,
1998 have been reclassified to conform to the 1999 presentation. The
accompanying consolidated financial statements reflect all adjustments,
including normal recurring adjustments, which in the opinion of management, are
necessary to present fairly the financial position, results of operations and
cash flows for the interim periods presented. Operating results for the
thirty-nine week period ended October 1, 1999 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1999.
NOTE 2. WORKERS' COMPENSATION
The Company provides workers' compensation insurance to its temporary workers
and regular employees. For workers' compensation claims originating in the
majority of states (the 43 non-monopolistic states), the Company has purchased a
deductible insurance policy. Under terms of the policy, the Company's workers'
compensation exposure is limited to a deductible amount per occurrence and a
maximum aggregate stop-loss limit. Should any single occurrence exceed the
deductible amount per occurrence, all losses and expenses beyond the deductible
amount are paid by independent insurance companies unrelated to the Company.
Similarly, should the total of paid losses related to any one year period exceed
the maximum aggregate stop-loss limit for that year, all losses beyond the
maximum aggregate stop-loss limit are paid by independent insurance companies
unrelated to the Company. In 1997, the per occurrence deductible amount was
$250,000 per claim, to an aggregate maximum of $11.60 per $100 of temporary
worker payroll, or $18.8 million. For claims arising in 1998 and 1999, the per
occurrence deductible amount was increased to $350,000 and the maximum aggregate
stop-loss limit was reduced to $10.41 per $100 of temporary worker payroll, or
$31.7 million for the year ended December 31, 1998 and $32.9 million for the
thirty-nine weeks ended October 1, 1999.
For claims arising in years prior to 1997, the Company has insured all losses
with independent insurance companies unrelated to the Company. The difference
between the discounted maximum aggregate stop-loss limit for claims arising in
all periods prior to October 1, 1999, and the total of claims paid and reserved
for in the Company's financial statements for the same periods is $8.2 million.
This amount represents the discounted maximum additional exposure, net of tax,
to the Company before its maximum aggregate stop-loss limits are met.
The Company establishes its reserve for workers' compensation claims using
actuarial estimates of the future cost of claims and related expenses that have
been reported but not settled, and that have been incurred but not reported.
Adjustments to the claims reserve are charged or credited to expense in the
periods in which they occur. Included in the accompanying consolidated balance
sheets as of October 1, 1999 and December 31, 1998, are workers' compensation
claims reserves in the non-monopolistic states of $31.5 million and $24.4
million and in the monopolistic states of $0.6 million and $1.1 million,
respectively. The claims reserves were computed using a discount rate of 6.0% at
October 1, 1999 and December 31, 1998.
Workers' compensation expense totaling $11.9 million, and $10.3 million was
recorded as a component of cost of services in each of the thirteen weeks ended
October 1, 1999 and October 2, 1998, respectively. Workers' compensation expense
totaling $27.2 million and $22.6 million was recorded as a component of cost of
services in each of the thirty-nine weeks ended October 1, 1999 and October 2,
1998, respectively.
For the 1997 and 1998 program years, the Company is required to provide
collateral in the amount of the maximum aggregate stop-loss limits, less claims
paid to date. The Company has provided approximately 50% of the required
collateral in the form of a surety bond, and 50% in letters of credit.
Accordingly, at October 1, 1999, $14.5 million of the collateral was satisfied
with surety bonds and $12.6 million was satisfied with letters of credit for the
1997 and 1998 program years.
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NOTE 2. WORKERS' COMPENSATION, (CONTINUED)
The Company has a deductible insurance policy for the non-monopolistic states
covering the years ended 1999 and 2000. The policy includes substantially the
same terms and limitations as the 1998 policy described above except that the
required collateral was reduced to an amount equal to 60% of claims reserves.
Collateral for the 1999 program year consists of 50% letters of credit and 50%
surety bond. Accordingly, as of October 1, 1999, the Company has provided the
insurance carrier with a letter of credit totaling $12.0 million and a surety
bond for $12.6 million. Prior to year end December 31, 1999, the total amount of
the letters of credit and surety bonds for the 1999 program year will increase
approximately $1.4 million.
For workers' compensation claims originating in Washington, Ohio and West
Virginia (the monopolistic states), Canada and Puerto Rico, the Company pays
workers' compensation insurance premiums as required by state administered
programs. The insurance premiums are established by each jurisdiction, generally
based upon the job classification of the insured workers and the previous claims
experience of the Company.
The Company's risk management department has established working relationships
with its insurers, third party claims administrators, and medical service
providers. To reduce wage-loss compensation claims, the Company employs claims
coordinators throughout the United States. The claims coordinators manage the
acceptance, processing and final resolution of claims and administer the
Company's return to work program. Workers in the program are employed on
customer assignments that require minimal physical exertion or within the
Company in the local dispatch office. The Company has an on-line connection with
its third party administrators that allows the claims coordinators to maintain
visibility of all claims, manage their progress and generate required management
information.
NOTE 3. CHANGE IN ACCOUNTING PRINCIPLE
In the first quarter of 1999, the Company adopted the provisions of Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5"). SOP
98-5 establishes new rules for the financial reporting of start-up costs, and
requires the Company to expense the cost of establishing new dispatch offices as
incurred and write off, as a cumulative effect of adopting SOP 98-5, any
unamortized capitalized pre-opening costs in the first quarter of the year
adopted. Prior to adopting SOP 98-5, pre-opening costs incurred to open new
dispatch offices, including salaries, recruiting, testing, training, lease and
other related costs, were capitalized and amortized using the straight-line
method over two years. The cumulative effect of adopting SOP 98-5 was to
decrease net income by $1.5 million or $0.03 per common share.
NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
THIRTY-NINE WEEKS ENDED
-----------------------------
OCTOBER 1, OCTOBER 2,
1999 1998
------------ ------------
<S> <C> <C>
Cash paid during the period for:
Interest ................................................. $ 825 $ 534
Income taxes ............................................. $ 16,333 $ 3,850
Non-cash investing and financing activities:
Tax benefits related to stock options..................... $ 3,785 $ 1,782
Assets acquired with capital lease obligations............ $ 2,480 $ 6,393
</TABLE>
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Page 7
<PAGE>
NOTE 5. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income, less preferred
stock dividends, by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is computed by dividing net
income, less preferred stock dividends, by the weighted average number of common
shares and common share equivalents outstanding during the period. Common share
equivalents for the Company include the dilutive effect of outstanding options,
except where their inclusion would be anti-dilutive.
Basic and diluted earnings per share were calculated as follows (amounts in
thousands, except per share amounts):
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------ ------------------------
OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
1999 1998 1999 1998
------------------------ ------------------------
<S> <C> <C> <C> <C>
Basic:
Net income............................. $ 9,480 $ 8,542 $ 20,583 $ 12,035
Less preferred stock dividends......... (11) (11) (32) (32)
------------------------ ------------------------
Income allocable to common
shareholders......................... 9,469 8,531 20,551 12,003
------------------------ ------------------------
Weighted average shares
outstanding........................ 42,769 41,772 42,442 41,654
------------------------ ------------------------
Net income per share................... $ 0.22 $ 0.20 $ 0.48 $ 0.29
======================== ========================
Diluted:
Income allocable to common
shareholders......................... $ 9,469 $ 8,531 $ 20,551 $ 12,003
------------------------ ------------------------
Weighted average shares outstanding.... 42,769 41,772 42,442 41,654
Plus options to purchase common
stock outstanding at end of period... 3,691 3,630 3,691 3,630
Less shares assumed repurchased........ (2,766) (2,038) (2,526) (2,180)
------------------------ ------------------------
Weighted average shares outstanding,
including dilutive effect of
options.............................. 43,694 43,364 43,607 43,104
------------------------ ------------------------
Net income per share................... $ 0.22 $ 0.20 $ 0.47 $ 0.28
======================== ========================
</TABLE>
NOTE 6. COMMITMENTS
During the thirty-nine weeks ended October 1, 1999, the Company entered into an
agreement to lease approximately 200 automated Cash Dispensing Machines ("CDMs")
for installation in the Company's dispatch offices opened in 1999. The fair
market value of the CDMs at inception of the lease was approximately $2.6
million. The lease is payable over 72 months with an imputed interest rate of
6.5% and a residual payment equal to 20% of the CDMs original cost. The leases
are secured by the CDMs. During the thirty-nine weeks ended October 1, 1999, the
Company installed approximately 200 of the CDMs in its new dispatch offices
throughout the United States. Accordingly, the Company recorded assets under
capital lease and capital lease obligations totaling $2.6 million with future
minimum lease payments over the next 6 years of approximately $0.4 million per
year.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain matters discussed in this Form 10-Q, including statements about the
Company's revenue growth, the demand for temporary labor and its plans for
opening new offices, are forward-looking statements within the meaning of the
Private Litigation Reform Act of 1995. As such, these forward-looking statements
may involve known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Company to be
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. These factors include, but are not
limited to (1) the Company's ability to manage and continue its rapid growth,
(2) economic conditions in its key market areas, and (3) other risks as set
forth in Item 7 of the Company's Form 10-K for the year ended December 31, 1998.
Although the Company believes the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be attained.
OVERVIEW
Labor Ready is the nation's leading provider of temporary manual labor. The
Company's customers are primarily in the freight handling, warehousing,
landscaping, construction, light manufacturing, and other light industrial
businesses. The Company has grown from eight dispatch offices in 1991 to 687
dispatch offices at October 1, 1999. Substantially all of the growth in dispatch
offices was achieved by opening Company-owned locations rather than through
acquisitions or franchising. The Company's annual revenues have grown from
approximately $6 million in 1991 to $607 million in 1998 and $616 million for
the thirty-nine weeks ended October 1, 1999. This revenue growth has been
generated both by opening new dispatch offices in markets throughout the U.S.,
Canada, United Kingdom and Puerto Rico and by continuing to increase sales at
existing dispatch offices.
The Company opened 201 dispatch offices during the first thirty-nine weeks of
1999 and expects to open approximately 200 additional dispatch offices in the
year 2000. The average cost of opening each new dispatch office in 1999 was
approximately $45,000. The cost of opening a new dispatch office includes
management training, the installation of computer and other office systems and a
CDM. Further, once open, the Company invests additional cash into the operations
of new dispatch offices until they begin to generate sufficient revenue to cover
their operating costs, generally within six months. The Company pays its
temporary workers on a daily basis, and bills its customers weekly.
Consequently, the Company may experience significant negative cash flow from
operations and investment activities during periods of high growth and may
require additional sources of working capital in order to continue to grow.
Approximately 20% 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. Further, 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 customer mix diversifies. From time to time, during peak
periods, the Company experiences shortages of available temporary workers. The
Company has completed the installation of the CDMs in substantially all of its
dispatch offices in the United States. The CDMs provide the Company's temporary
workers with the option of receiving cash payment instead of a payroll check.
The Company believes this additional feature is unique among its direct
competitors and should increase the Company's ability to attract available
temporary workers.
Revenue from services includes revenues earned on services provided by the
Company's temporary workers and fees generated by the CDMs.
Cost of services includes the wages and related payroll taxes of temporary
workers, workers' compensation expense, unemployment compensation insurance and
transportation. Cost of services as a percentage of revenues has historically
been affected by numerous factors, including the use of lower introductory rates
to attract new customers at new dispatch offices, the use of higher pay rates to
attract more skilled workers, changes in the Company's workers' compensation
reserve rates and the changing geographic mix of new and established, more
mature markets. Although the Company has implemented policies and procedures to
prevent unplanned increases in pay rates, and is no longer required to discount
billing rates to attract new customers, significant continuing fluctuations in
cost of services may be experienced as the Company pursues further aggressive
growth.
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Selling, general and administrative expenses include the salaries and wages of
the Company's operations and administrative personnel, dispatch office operating
expenses, corporate office operating expenses and the costs of the CDM program.
Labor Ready pays employee-related expenses of its temporary workers, including
workers' compensation coverage, unemployment compensation insurance, and Social
Security and Medicare taxes. The Company does not provide health, dental,
disability or life insurance to its temporary workers. The Company bills its
customers for the hours worked by its 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 not material during any period presented herein.
RESULTS OF OPERATIONS
The following table compares the operating results of the Company for the
thirty-nine and thirteen weeks ended October 1, 1999 and October 2, 1998 (in
thousands):
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
----------------------------------- ------------------------------------
OCTOBER 1, PERCENT OCTOBER 2, OCTOBER 1, PERCENT OCTOBER 2,
1999 CHANGE 1998 1999 CHANGE 1998
---------- ------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from services........................ $ 251,795 31.2% $ 191,851 $ 616,097 43.7% $ 428,879
Cost of services.............................. 175,375 30.4 134,466 424,522 41.2 300,750
Selling, general and administrative expenses.. 59,065 42.6 41,420 151,789 47.0 103,244
Depreciation and amortization................. 1,347 (6.5) 1,440 3,107 (31.6) 4,543
Interest expense, net......................... 410 141.2 170 491 746.6 58
Income before income taxes and cumulative
effect of accounting change................ 15,598 8.7 14,355 36,188 78.4 20,284
Net income.................................... $ 9,480 11.0 $ 8,542 $ 20,583 71.0 $ 12,035
</TABLE>
THIRTEEN WEEKS ENDED OCTOBER 1, 1999 COMPARED TO THIRTEEN WEEKS ENDED
OCTOBER 2, 1998
DISPATCH OFFICES
The number of offices remained constant at 687 for the thirteen weeks ended
October 1, 1999. During the thirteen weeks ended October 2, 1998, the number
of offices grew to 485 from 481 locations at July 3, 1998, a net increase of
4 dispatch offices, or 0.1%. The Company has met its target for 1999 office
openings and does not expect to open any material number of offices during
the balance of the year.
REVENUES FROM SERVICES
The Company's revenues from services increased to $251.8 million for the
thirteen weeks ended October 1, 1999, as compared to $191.9 million for the
thirteen weeks ended October 2, 1998, an increase of $59.9 million or 31.2%.
The increase in revenues is due primarily to the increase in the number of
dispatch offices and continued increases in revenues from mature dispatch
offices. Included in revenues from services for the thirteen weeks ended
October 1, 1999 and October 2, 1998 are CDM fees of $2.4 million and $1.2
million, respectively.
COST OF SERVICES
Cost of services increased to $175.4 million for the thirteen weeks ended
October 1, 1999 as compared to $134.5 million for the thirteen weeks ended
October 2, 1998, an increase of $40.9 million or 30.4%. This increase is
directly related to the corresponding increase in revenues during the period.
Cost of services was 69.7% of revenue in the third quarter of 1999 compared
to 70.1% of revenue in the third quarter of 1998. Cost of services as a
percentage of revenues decreased 0.4% as compared to the third quarter of
1998 because the Company experienced a decline in workers compensation
expense due to continuous improvements in workers' compensation claims
experience and an increase in CDM revenues. Fluctuations in cost of services
may be expected as the Company pursues further aggressive growth.
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Page 10
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $59.1 million in the third
quarter of 1999 as compared to $41.4 million in the third quarter of 1998, an
increase of $17.7 million or 42.8%. The increase is commensurate with the
31.2% increase in revenue from 1998 to 1999. Selling, general and
administrative expenses were 23.5% of revenues for the third quarter of 1999
as compared to 21.6% of revenues in the third quarter of 1998. The increase
in selling, general and administrative expenses as a percentage of revenue in
the third quarter of 1999 is due mainly to an increase in bad debt expense of
approximately 1.0% of sales over the same quarter a year ago and an increase
in recruiting fees related to hiring additional branch managers and sales
representatives. Included in selling, general and administrative expense for
the thirteen weeks ended October 1, 1999 and October 2, 1998 are CDM related
expenses of $.7 million and $0.5 million, respectively.
The Company expects that selling, general and administrative expenses as a
percentage of revenues may fluctuate in future periods as the Company from
time to time adjusts its staffing model at the dispatch offices and upgrades
its operating and administrative capabilities to accommodate anticipated
revenue and dispatch office growth.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense was $1.3 million in the third quarter
of 1999 and $1.4 million in the third quarter of 1998, a decrease of $0.1
million or 7.1%. The decrease in quarterly depreciation and amortization
expense is primarily the result of the elimination of amortization expense
when the Company adopted the provisions of SOP 98-5. Beginning in 1999, SOP
98-5 requires the Company to expense as incurred, pre-opening costs for new
dispatch offices, and recognize as a cumulative effect of a change in
accounting principle, a one-time charge for the unamortized balance of
pre-opening costs. Prior to the change, the Company had capitalized
pre-opening costs and amortized them over two years. Offsetting this decrease
is a higher level of depreciation resulting from the addition of $2.6 million
of property and equipment since the second quarter of 1999. These additions
primarily include computer equipment, software, and other equipment needed to
expand the Company's data processing capabilities to accommodate the growth
in dispatch offices. Included in depreciation and amortization expense for
the thirteen weeks ended October 1, 1999 and October 2, 1998 are depreciation
on CDMs of $0.4 million and $0.3 million, respectively.
INTEREST EXPENSE, NET
The Company recorded net interest expense of $410,000 in the third quarter of
1999 as compared to net interest expense of $170,000 in the third quarter of
1998, an increase of $240,000 or 141.2%. The increase in net interest expense
was the result of increases in interest expense on CDM leases, higher letter
of credit and line of credit fees than in 1998 as a result of providing
additional collateral to the Company's workers' compensation insurers and
increasing the line of credit to $60 million. Additionally, cash balances
held in the CDMs for payment of temporary worker payrolls, will continue to
reduce cash available for investing.
The Company expects to incur less interest expense during the balance of
1999, as the collection of receivables from the Company's busiest time of
year should allow the Company to reduce its borrowings on the revolving line
of credit.
TAXES ON INCOME
Taxes on income increased to a provision of $6.1 million in the third quarter
of 1999 from a provision of $5.8 million in the third quarter of 1998, an
increase of $0.3 million. The increase in taxes was due to the increase in
income before taxes of $15.6 million in the third quarter of 1999 from pretax
income of $14.4 million in the third quarter of 1998. The Company's effective
tax rate was 39.2% in the third quarter of 1999 as compared to 40.5% in the
third quarter of 1998. The decrease in the effective rate was primarily due
to reductions in the Company's expected state income tax rates. The principal
difference between the statutory federal income tax rate and the Company's
effective income tax rate results from state income taxes and certain
non-deductible expenses.
The Company had a net deferred tax asset of approximately $12.3 million at
October 1, 1999, resulting primarily from workers' compensation claims
reserves. 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 the historical
levels of pre-tax income and expected future taxable income.
- --------------------------------------------------------------------------------
Page 11
<PAGE>
NET INCOME
The Company reported net income of $9.5 million for the thirteen weeks ended
October 1, 1999, as compared to net income of $8.5 million, for the thirteen
weeks ended October 2, 1998, an increase of $1.0 million. As a percentage of
revenues from services, net income was 3.8% for the third quarter of 1999,
which compares to 4.5% for the third quarter of 1998, a decrease of 0.7%.
This decrease in net income as a percentage of revenue was related to the
increase in selling, general and administrative expenses as a percentage of
sales.
THIRTY-NINE WEEKS ENDED OCTOBER 1, 1999 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 2, 1998
DISPATCH OFFICES
The company opened 201 dispatch offices during the thirty-nine weeks ended
October 1, 1999 as compared to 169 opened during the same period of the prior
year. The total number of offices grew to 687 at October 1, 1999 from 485
locations at October 2, 1998, a net increase of 202 dispatch offices, or
41.7%. The company has met its target for 1999 office openings and does not
expect to open any material number of offices during the balance of the year.
The Company estimates that its aggregate costs of opening 201 new dispatch
offices in the first three quarters of 1999 were approximately $9.1 million,
an average of approximately $45,000 per dispatch office. For the same period
in 1998 the estimated aggregate costs to open 169 new offices was
approximately $8.5 million, an average of approximately $50,000 per dispatch
office. A portion of the 1998 costs was capitalized under the Company's then
accounting policy. The decrease in per-store costs in 1999 was primarily the
result of a decline in equipment costs.
REVENUES FROM SERVICES
The Company's revenues from services increased to $616.1 million for the
thirty-nine weeks ended October 1, 1999, as compared to $428.9 million for
the thirty-nine weeks ended October 2, 1998, an increase of $187.2 million or
43.6%. The increase in revenues is due primarily to the increase in the
number of dispatch offices and continued increases in revenues from mature
dispatch offices. Additionally, the Company opened more offices in the first
three quarters of 1999 than in the same period in 1998. The Company continues
to consolidate its position in the marketplace and build brand awareness.
Included in revenues from services for the thirty-nine weeks ended October 1,
1999 and October 2, 1998 are CDM fees of $5.3 million and $2.3 million,
respectively.
COST OF SERVICES
Cost of services increased to $424.5 million for the thirty-nine weeks ended
October 1, 1999 as compared to $300.8 million for the thirty-nine weeks ended
October 2, 1998, an increase of $123.7 million or 41.1%. This increase is
directly related to the corresponding increase in revenues during the period.
Cost of services was 68.9% of revenue in the thirty-nine weeks ended October
1, 1999 compared to 70.1% of revenue for the same period in 1998. Cost of
services as a percentage of revenues decreased 1.2% as compared to 1998. The
Company experienced a decline in workers' compensation expense due to
continuous improvements in workers' compensation claims experience.
Fluctuations in cost of services may be expected as the Company pursues
further aggressive growth.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $151.8 million for the
thirty-nine weeks ended October 1, 1999 as compared to $103.2 million for the
thirty-nine weeks ended October 2, 1998, an increase of $48.6 million or
47.1%. The increase was largely due to the 43.7% increase in revenue from
1998 to 1999. Selling, general and administrative expenses were 24.6% of
revenues for the thirty-nine weeks ended October 1, 1999 as compared to 24.1%
of revenues for the thirty-nine weeks ended October 2, 1998. The increase in
selling, general and administrative expenses as a percentage of revenue for
the first three quarters of 1999 is due mainly to an increase in bad debt
expense and recruiting fees related to hiring additional branch managers and
sales representatives. Included in selling, general and administrative
expense for the thirty-nine weeks ended October 1, 1999 and October 2, 1998
are CDM related expenses of $2.0 million and $0.9 million, respectively.
The Company expects that selling, general and administrative expenses as a
percentage of revenues may fluctuate in future periods as the Company from
time to time adjusts its staffing model at the dispatch offices and upgrades
its operating and administrative capabilities to accommodate anticipated
revenue and dispatch office growth.
- --------------------------------------------------------------------------------
Page 12
<PAGE>
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense was $3.1 million for the thirty-nine
weeks ended October 1, 1999 and $4.5 million for the same period in 1998, a
decrease of $1.4 million or 31.1%. The decrease in depreciation and
amortization expense is primarily the result of the elimination of
amortization expense when the Company adopted the provisions of SOP 98-5.
Beginning in 1999, SOP 98-5 requires the Company to expense as incurred,
pre-opening costs for new dispatch offices, and recognize as a cumulative
effect of a change in accounting principle, a one-time charge for the
unamortized balance of pre-opening costs. Prior to the change, the Company
had capitalized pre-opening costs and amortized them over two years.
Offsetting this decrease is higher levels of depreciation resulting from the
addition of $12.0 million of property and equipment since the beginning of
1999. These additions primarily include the CDMs and computer equipment,
software, and other equipment needed for the new offices opened during the
period and to expand the Company's data processing capabilities to
accommodate the growth in dispatch offices. Included in depreciation and
amortization expense for the thirty-nine weeks ended October 1, 1999 and
October 2, 1998 are depreciation on CDMs of $0.6 million and $0.6,
respectively.
INTEREST EXPENSE, NET
The Company recorded net interest expense of $491,000 for the thirty-nine
weeks ended October 1, 1999 as compared to net interest expense of $58,000
for the same period in 1998, an increase of $433,000. The increase in net
interest expense was the result of increases in interest expense on CDM
leases, higher letter of credit and line of credit fees than in 1998 as a
result of providing additional collateral to the Company's workers'
compensation insurers and increasing the line of credit to $60 million, and
an increase in borrowings on the line of credit. Additionally, cash balances
held in the CDMs for payment of temporary worker payrolls, will continue to
reduce cash available for investing.
The Company expects to incur less interest expense during the balance of
1999, as the collection of receivables from the Company's busiest time of
year should allow the Company to reduce its borrowings on the revolving line
of credit.
TAXES ON INCOME
Taxes on income increased to a provision of $14.2 million for the first three
quarters of 1999 from a provision of $8.2 million in the first three quarters
of 1998, an increase of $6.0 million. The increase in taxes was due to the
increase in income before taxes and cumulative effect of accounting change to
$36.2 million for the first three quarters of 1999 from pretax income of
$20.3 million for the first three quarters of 1998. The Company's effective
tax rate was 39.1% for the first three quarters of 1999 as compared to 40.7%
for the first three quarters of 1998. The decrease in the effective rate was
primarily due to reductions in the Company's expected state income tax rates.
The principal difference between the statutory federal income tax rate and
the Company's effective income tax rate result from state income taxes and
certain non-deductible expenses.
The Company had a net deferred tax asset of approximately $12.3 million at
October 1, 1999, resulting primarily from workers' compensation claims
reserves. 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 the historical
levels of pre-tax income and expected future taxable income.
NET INCOME
The Company reported net income of $20.6 million for the thirty-nine weeks
ended October 1, 1999, as compared to net income of $12.0 million, for the
thirty-nine weeks ended October 2, 1998, an increase of $8.6 million. As a
percentage of revenues from services, net income increased to 3.3% for the
first three quarters of 1999, which compares to 2.8%, for the first three
quarters of 1998, an increase of 0.5%. This increase in net income is
primarily the result of increased revenues and gross margins and decreases in
amortization expense, offset by a one-time charge of $1.5 million related to
the change in accounting principle for dispatch office pre-opening costs
discussed above.
- --------------------------------------------------------------------------------
Page 13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $23.5 million for the period ended
October 1, 1999 compared to $10.3 million for the period ended October 2,
1998. The increase in cash used in operations in 1999, is largely due to the
increase in accounts receivable, workers' compensation deposits and credits
and prepaid expenses along with the decrease in accounts payable, offset by
an increase in net income and the reserve for workers' compensation.
The Company used net cash in investing activities of $11.0 million in the
first three quarters of 1999, compared to $6.7 million in the first three
quarters of 1998. The increase in cash used in investing activities in 1999
as compared to 1998 is due primarily to an increase in capital expenditures
to open 201 new offices and increase the Company's data processing
capabilities to accommodate the growth in dispatch offices and upgrade
computer systems in existing locations. The Company's cash used for capital
expenditures in 1999 and 1998 include property and equipment acquired other
than through capital lease.
Net cash provided by financing activities was $23.0 million for the period
ended October 1, 1999 and $20.4 million for the period ended October 2, 1998.
The increase in cash provided by financing activities in 1999 as compared to
1998 is due mainly to net borrowings on the line of credit and proceeds from
the exercise of employee stock options and warrants.
In February 1999, the Company entered into a new line of credit agreement
with U.S. Bank. The new agreement allows the company to borrow up to the
lesser of $60 million or 80% of eligible accounts receivable, as defined by
the bank, with interest at the lesser of the bank's prime rate (8.25% at
October 1, 1999) or the London Inter-Bank Offering Rate (LIBOR) plus 1.25%.
The line of credit is secured primarily by the Company's accounts receivable
and is due in full on June 30, 2001. The line of credit agreement requires
that the Company maintain certain minimum net worth and working capital
amounts and ratios. The Company was in compliance with the requirements at
October 1, 1999.
As discussed further in Note 2 to the consolidated financial statements, the
Company is required by the workers' compensation program to collateralize a
portion of its workers' compensation liability with irrevocable letters of
credit. At October 1, 1999, the Company had provided its insurance carriers
with letters of credit totaling $24.6 million. The letters of credit bear
fees of 0.75% per year and are supported by an equal amount of available
borrowings on the line-of-credit. Accordingly, at October 1, 1999, $20.1
million was outstanding on the line-of-credit, $24.6 million was committed by
the letters of credit and $15.3 million was available for borrowing.
During the first quarter of 1999, the Company entered into an agreement to
lease approximately 200 automated CDMs for installation in the Company's
dispatch offices opened in 1999. The fair market value of the CDMs at
inception of the lease is approximately $2.6 million. The lease is payable
over 72 months with an imputed interest rate of 6.5% and a residual payment
equal to 20% of the CDMs' original cost. The leases are secured by the CDMs.
During the thirty-nine weeks ended October 1, 1999, the Company installed
approximately 200 CDMs in dispatch offices throughout the United States.
Accordingly, the Company recorded assets under capital lease and capital
lease obligations totaling $2.6 million with future minimum lease payments
over the next 6 years of approximately $0.4 million per year.
Included in cash and cash equivalents at October 1, 1999, is approximately
$14.4 million as compared to $17.9 million at October 2, 1998, of cash which
is located in the CDMs for payment of temporary worker payrolls.
Historically, the Company has financed its operations through cash generated
by external financing including term loans, credit lines and stock offerings.
The principal use of cash is to finance the growth in receivables, and fund
the cost of opening new dispatch offices. The Company may experience cash
flow deficits from operations and investing activities while the Company
expands its operations, including opening new dispatch offices. Management
expects cash flow deficits to be financed by profitable operations, the use
of the Company's line of credit, and may consider other equity or debt
financings as necessary. The Company analyzes acquisition opportunities from
time to time and may pursue acquisitions in certain circumstances. Any
acquisitions the Company enters into may require additional equity or debt
financing.
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Page 14
<PAGE>
INFORMATION PROCESSING SYSTEMS AND THE YEAR 2000
As the year 2000 approaches, there are uncertainties concerning whether
computer systems and electronic equipment with date functions will properly
recognize date-sensitive information when the year changes to 2000. Systems
that do not properly recognize such information could generate erroneous data
or fail. Due to the Company's reliance on its management information systems,
failure of the management information systems for any reason (including year
2000 noncompliance) could result in the loss of communications with its
dispatch offices and could result in unforeseeable but potentially material
losses to the Company. However, management believes that the year 2000 does
not pose a significant operational problem for the Company's computer
systems.
Management has identified three systems with potential year 2000 problems:
(1) its proprietary management information system, (2) the communication
system currently used to exchange point of sale information between corporate
headquarters and the dispatch offices, and (3) the payroll system for
permanent employees (not used for temporary employees dispatched to
customers.) The Company has developed and implemented a significant upgrade
to its proprietary management information system to address the dramatic
growth (and expected future growth) in the number of the Company's dispatch
offices and provide certain enhanced features. The Company has also
implemented a solution for the year 2000 problem related to its system for
communicating point of sale information with an upgrade supplied by the
vendor. The Company is in the process of upgrading the payroll system by
year-end, but will use, if necessary, a third party capable of providing
payroll services. Through October 1, 1999, the Company has incurred
approximately $1.6 million in development costs which is included in the
accompanying consolidated balance sheets in "Computers and Software". The
Company anticipates an additional $0.2 million will be spent prior to the
year ending December 31, 1999.
The Company has tested and will continue to test other computer components
and software including its non-information processing systems such as its
data and phone communications systems for year 2000 compliance. Based on such
testing, the Company has replaced its voice mail system. Testing to date has
indicated no other year 2000 compliance problems. If other systems fail, the
Company will be required to replace them. Replacement systems are mass
produced and available from a large number of vendors and would constitute an
immaterial expense relative to the operating budget of the Company.
Management believes that as a result of the nature of the Company's business
the Company bears little exposure to risk of year 2000 non-compliance by
third parties. The Company acquires supplies (e.g., personal safety
equipment, office supplies) that are mass-produced and readily available from
a large number of suppliers. None of the Company's customers represent more
than 2% of the Company's revenues, so that, unless a significant number of
the Company's customers experience complete disruptions to their business,
the Company is unlikely to experience significant loss of revenue.
Nevertheless, the Company has completed its survey of its largest vendors and
customers and is assessing the readiness of these third parties with which it
deals. If the Company determines that any of its vendors are unable to
adequately address year 2000 issues, the Company believes that alternatives
could be found before the year 2000.
The Company has a contingency plan for certain year 2000 issues, however, the
Company believes that its systems will be year 2000 compliant by year end, if
not before, and that the year 2000 issue will not materially impact its
operations. The forward looking statements referenced above, including the
preceding sentence, are subject to a number of risks and uncertainties,
including the ability of customers, vendors and other third parties to solve
timely their year 2000 issues, the accuracy of year 2000 testing methods and
that remediation of year 2000 issues will be correctly implemented.
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Page 15
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
THE FOLLOWING EXHIBIT IS BEING FILED AS A PART OF THIS REPORT:
EXHIBIT NO. DESCRIPTION
27. Financial Data Schedules as of October 1,
1999 and for the thirty-nine week period
then ended.
27.1 Financial Data Schedules as of October 2,
1998 and for the thirty-nine week period
then ended.
(b) REPORTS ON FORM 8-K
None.
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Page 16
<PAGE>
SIGNATURES
Pursuant to the requirements 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 November 15, 1999
-------------------------------------- -----------------
Glenn A. Welstad Date
Chairman of the Board, Chief Executive
Officer and President
By: /s/ Joseph P. Sambataro, Jr. November 15, 1999
-------------------------------------- -----------------
Joseph P. Sambataro, Jr. Date
Executive Vice President,
Chief Financial Officer, Treasurer
and Assistant Secretary
- --------------------------------------------------------------------------------
Page 17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE OCTOBER
1, 1999 CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> OCT-01-1999
<CASH> 14,402
<SECURITIES> 0
<RECEIVABLES> 122,770
<ALLOWANCES> (6,856)
<INVENTORY> 0
<CURRENT-ASSETS> 148,094
<PP&E> 38,382
<DEPRECIATION> (9,149)
<TOTAL-ASSETS> 184,974
<CURRENT-LIABILITIES> 50,482
<BONDS> 0
0
854
<COMMON> 61,410
<OTHER-SE> 46,054
<TOTAL-LIABILITY-AND-EQUITY> 184,974
<SALES> 0
<TOTAL-REVENUES> 616,097
<CGS> 0
<TOTAL-COSTS> 424,522
<OTHER-EXPENSES> 145,683
<LOSS-PROVISION> 9,213
<INTEREST-EXPENSE> 491
<INCOME-PRETAX> 36,188
<INCOME-TAX> 14,152
<INCOME-CONTINUING> 22,036
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,453)
<NET-INCOME> 20,583
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.47
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE OCTOBER
2, 1998 CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-Q
AND IS QUALFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> OCT-02-1998
<CASH> 25,583
<SECURITIES> 0
<RECEIVABLES> 83,971
<ALLOWANCES> (3,587)
<INVENTORY> 0
<CURRENT-ASSETS> 116,679
<PP&E> 24,430
<DEPRECIATION> (5,076)
<TOTAL-ASSETS> 140,737
<CURRENT-LIABILITIES> 54,229
<BONDS> 0
0
854
<COMMON> 52,832
<OTHER-SE> 17,582
<TOTAL-LIABILITY-AND-EQUITY> 140,737
<SALES> 0
<TOTAL-REVENUES> 428,879
<CGS> 0
<TOTAL-COSTS> 300,750
<OTHER-EXPENSES> 103,220
<LOSS-PROVISION> 4,567
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> 20,284
<INCOME-TAX> 8,249
<INCOME-CONTINUING> 12,035
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,035
<EPS-BASIC> 0.29<F1>
<EPS-DILUTED> 0.28<F1>
<FN>
<F1>ADJUSTED FOR THE COMPANY'S 3 FOR 2 STOCK SPLIT EFFECTIVE JUNE 24, 1999.
</FN>
</TABLE>
