SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 1995 Commission File number 0-23828 Labor Ready, Inc. (Exact Name of Registrant as specified in its charter) Washington 91-1287341 (State of Incorporation) (Federal I.R.S. No.) 2156 Pacific Avenue, Tacoma, Washington 98402 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number 206-383-9101 Securities registered pursuant to Section 12(b) or 12(g) of the Act: Common Stock, No Par Value Indicate by checkmark 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___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-Q or any amendment to this Form 10-Q. (X). The aggregate market value of the voting stock held by nonaffiliates of the registrant on September 30, 1995 was $51,407,874. As of September 30, 1995, the Registrant had 3,878,415 shares of Common Stock and 854,082 shares of Preferred Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: NONE PART I - FINANCIAL INFORMATION Item 1- Financial Statements LABOR READY, INC. CONSOLIDATED FINANCIAL STATEMENTS INDEX Consolidated Statements of Financial Position at September 30, 1995 and December 31, 1994 FS1 - FS2 Consolidated Statement of Operations for the Nine Months and the Three Months Ended September 30, 1995 and 1994 FS3 Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1995 and 1994 FS4 - FS5 Page 2 LABOR READY, INC. Consolidated Statement of Financial Position at September 30, 1995 and December 31, 1994 ASSETS 1995 1994 CURRENT ASSETS: Cash and equivalents $ 848,524 $ 603,977 Workmen's compensation deposits 1,130,575 Accounts receivable, net of allowance for doubtful accounts of $558,059 and $365,927 14,223,147 5,162,830 Workers, compensation credits receivable 262,600 206,794 Prepaid expenses and other 680,426 348,814 Notes receivable 228,800 Deferred income tax 118,590 118,590 ---------- --------- Total Current Assets 16,362,087 7,571,580 ---------- --------- DEPRECIABLE ASSETS AND LAND: Cost 3,026,218 1,071,070 Accumulated depreciation 505,695 244,497 --------- --------- Total Property and equipment 2,520,523 826,573 --------- --------- WORKER'S COMPENSATION RENT-A-CAPTIVE ASSETS 1,769,648 --------- OTHER ASSETS: Intangible assets, less amortization of $92,723 and $69,020 182,846 191,431 Workers, compensation credits receivable, less current portion 382,044 105,832 Deferred income tax 175,145 94,366 Other 140,779 122,194 ------- ------- Total Other Assets 880,813 513,823 -------- -------- TOTAL ASSETS $21,533,071 $8,911,976 =========== ========== Page 3 (FS1) LABOR READY, INC. Consolidated Statement of Financial Position at September 30, 1995 and December 31, 1994 LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 CURRENT LIABILITIES: Accounts payable $ 645,349 $ 268,932 Accrued wages and benefits 1,464,499 390,607 Accrued taxes, other than income 1,104,766 430,880 Accrued interest 75,234 53,002 Accrued workmens' compensation 625,926 708,869 Income taxes payable 936,027 497,000 Note payable, accounts receivable financing 7,731,789 3,160,580 Dividends payable 32,028 42,705 Current portion of long-term debt 339,071 78,291 ---------- --------- Total Current Liabilities 12,954,689 5,630,866 ---------- --------- LONG-TERM LIABILITIES: Long-term debt, less current maturities 959,754 244,250 14% Convertible debentures 75,000 --------- --------- Total Long Term Liabilities 959,754 319,250 --------- --------- WORKER'S COMPENSATION RENT-A-CAPTIVE LIABILITIES 1,204,316 --------- STOCKHOLDERS' EQUITY: Preferred stock, $1 par value: 5,000,000 shares authorized; Issued and outstanding 854,082 854,082 Common stock, no par value: 25,000,000 shares authorized; Issued and outstanding: 3,878,415 and 3,314,729 shares 5,518,964 3,540,187 Cumulative foreign currency translation adjustment (5,438) (2,853) Accumulated earnings (deficit) 46,705 (1,429,556) ---------- ---------- Total Stockholders' Equity 6,414,312 2,961,860 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,533,071 $8,911,976 =========== ========== Page 4 (FS2) LABOR READY, INC. Consolidated Statement of Operations for the Nine Months and the Three Months Ended September 30, 1995 and 1994 Nine Months Ended Three Months Ended 1995 1994 1995 1994 REVENUES $63,240,036 $25,635,755 $30,872,700 $12,099,977 COST OF REVENUES 51,066,172 20,298,766 24,689,547 9,409,288 ---------- ---------- ---------- --------- 12,173,864 5,336,989 6,183,153 2,690,689 OPERATING EXPENSES 9,158,043 4,133,823 3,515,036 1,917,591 --------- --------- --------- --------- INCOME FROM OPERATIONS 3,015,821 1,203,166 2,668,117 773,098 OTHER (DEDUCTIONS) (659,121) (272,018) (367,950) (133,019) ---------- --------- ---------- --------- INCOME BEFORE INCOME TAX 2,356,700 931,148 2,300,167 640,079 INCOME TAX PROVISION 848,412 316,590 829,191 217,989 ---------- --------- ---------- --------- NET INCOME $1,508,288 $ 614,558 $1,470,976 $ 422,090 ========== ========= ========== ========= EARNINGS PER COMMON SHARE:Net Income $ .37 $ .21 $ .36 $ .14 ========== ========= ========== ========= Weighted average shares outstanding 4,014,182 2,715,771 4,054,215 2,944,074 ========== ========= ========= ========= Page 5 (FS3) LABOR READY, INC. Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1995 and 1994 Nine Months Ended 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME (LOSS): Consolidated operations $1,508,288 $ 614,558 Adjustments to Reconcile Net Income to Net Cash Applied to Operating Activities: Depreciation & amortization 284,901 89,386 Provision for doubtful account 192,132 Changes in Assets & Liabilities: Account receivable (9,252,449) (3,754,618) Worker's compensation credits receivable (332,018) (112,774) Prepaid income taxes 9,308 Other current assets (472,659) Restricted cash and worker's compensation deposits 1,130,575 Prepaid expenses and other (357,635) Accounts payable 376,417 193,069 Accrued wages and benefits 1,073,892 (51,105) Accrued taxes, other than income 673,886 444,552 Accrued interest 22,232 59,026 Accrued workmens' compensation (82,943) 454,704 Income taxes payable 439,027 298,160 Change in deferred income taxes (80,779) ---------- ---------- NET CASH USED IN OPERATING ACTIVITIES (4,404,474) (2,228,392) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Net investment rent-a-captive (565,332) Capital expenditures (1,137,248) (375,419) ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES (1,702,580) (375,419) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on note payable 4,571,209 2,567,634 Proceeds from issuance of common stock 114,998 473,350 Proceeds from stock subscriptions 51,708 Proceeds from warrants exercised 1,552,300 Dividends paid (42,705) (50,154) Borrowings on long-term debt 300,000 Payments on long-term debt (141,616) (150,854) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 6,354,186 2,891,684 --------- --------- EFFECT OF EXCHANGE RATES (2,585) --------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 244,547 287,873 CASH AND EQUIVALENTS: BEGINNING OF PERIOD 603,977 229,259 --------- --------- END OF PERIOD $ 848,524 $ 517,132 ========= ========= Page 6 (FS4) LABOR READY, INC. Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1995 and 1994 SUPPLEMENTAL DISCLOSURES: Interest Paid $ 798,260 $ 219,992 Income Taxes Paid $ 490,164 Issuance of common stock for conversion of convertible debentures $ 75,000 Issuance common stock for payment accounts payable $ 7,679 Acquisition of Building and Land in exchange of debt $ 817,900 $ 47,500 Page 7 (FS5) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations. The Company increased revenues from services to $63,240,036 from $25,635,755, for the nine months ended September 30, 1995 compared to the nine months ended September 30, 1994. This represents an increase of $37,604,281 or 147%. The sales increase came from an increase in same store sales, and from opening new locations, as indicated below: Same store sales increase $ 5,952,364 New locations 31,651,917 ----------- Total increase $37,604,281 =========== The increase in revenues also resulted in an increase in net profit for the nine months ended September 30, 1995 of $1,508,288 compared to a net profit of $614,558 for the same period a year earlier. This represents an increase of $893,730 or 145%. The increase in net profits is primarily the result of a high level of growth in revenues. The high levels of growth have required that the Company continue to incur corresponding levels of operating expenses. Consequently, as a percentage of revenues, net profit has stayed relatively constant at 2.4% of revenues for the nine months ended September 30, 1995 and 1994. Management anticipates high levels of growth through 1996, and expects that net profits as a percentage of revenues will remain relatively constant during this period. The Company grew from fifty-one operating dispatch locations at December 31, 1994 to one hundred operating locations at September 30, 1995, an increase of forty-nine operating dispatch locations for the nine month period. Opening costs for new dispatch locations; which are expensed, are estimated to have averaged $35,000 per location in 1995 and $25,000 in 1994. In the aggregate, a total of $1,715,000 was expended on new location openings for the nine months ended September 30, 1995, compared to $625,000 for the nine months ended September 30, 1994. The Company estimates that two thirds of these new location opening costs are included in cost of sales and one third of these new location opening costs are classified as operating expenses. Cost of revenues increased to $51,066,172 for the nine months ended September 30, 1995 from $20,298,766 for the same period in 1994, an increase of $30,767,406 or 152%. Cost of revenues as a percentage of revenues increased to 80.7% for the nine months ended September 30, 1995, from 79.2% for the nine months ended September 30, 1994, an increase of 1.5%. This increase is primarily the result of an increase in labor costs. Operating expenses increased from $4,133,823 to $9,158,043, an increase of $5,024,220 or 122%. As a percentage of revenues, operating expenses decreased to 14.5% for the nine months ended September 30, 1995, from 16.1% for the same period a year earlier. This percentage decrease in operating expenses partially offset the percentage increase on cost of revenues, and resulted primarily from more efficient administrative operations. Page 8 Liquidity and Financial Condition. At September 30, 1995 the Company had $3,407,398 of working capital to finance its operations. Accounts receivable as a percentage of the previous quarters sales has remained relatively static as a result of the Company's ongoing accounts receivable collection practices. The Company continues to experience a low rate of uncollectible accounts and expects that accounts receivable as a percentage of sales will remain relatively steady in coming periods. A comparison of accounts receivable as a percentage of revenues for the nine month periods ending on September 30, 1995 and 1994, respectively, follows: September 30 September 30 1995 1994 Comparable quarter sales $30,872,700 $12,099,977 Accounts receivable, net 14,223,147 5,661,454 Percentage 46% 47% Management intends to open an estimated one hundred new dispatch locations by the end of 1996. To finance these projected new locations and related increases in selling and overhead expenses, the Company recently completed a private placement financing of long-term subordinated debt in the amount of $10,000,000. A temporary increase in the accounts receivable operating line of credit to $9,000,000 was completed in August 1995. In connection with the private placement debt financing, the accounts receivable operating line of credit was reduced to $5,000,000, and the term was extended through June of 1996. Page 9 PART II - OTHER INFORMATION Item 1. Legal Proceedings. None Item 2. Changes in Securities. None Item 3. Defaults Upon Senior Securities. None Item 4. Submission of matters to a vote of Security Holders. None Item 5. Other information. None Item 6. Exhibits and Reports on Form 8-K. None SIGNATURES The unaudited interim financial statements furnished by management reflect all adjustments which are, in the position of management, necessary for a fair presentation of financial position and results of operation. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LABOR READY, INC. Registrant By : /s/ Glenn Welstad 11/9/95 -------------------------------- Glenn A. Welstad Date President Chief Executive Officer Acting Chief Financial Officer Page 10