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 JULY 3, 1998 COMMISSION FILE NUMBER 0-23828 LABOR READY, INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as specified in its charter) Washington 91-1287341 - ---------------------------------- -------------------------------- (State of Incorporation) (Employer Identification No.) 1016 S. 28TH Street, Tacoma, Washington 98409 - ------------------------------------------------- ---------------- (Address of Principal Executive Offices) (Zip Code) (253) 383-9101 - -------------------------------------------------------------------------------- (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 ( ) ------ ------ As of July 27, 1998, the Registrant had 27,778,159 shares of Common Stock outstanding. - ------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE: None. LABOR READY, INC. INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets July 3, 1998 and December 31, 1997....................... 2 Consolidated Statements of Income Twenty-Six and Thirteen Weeks Ended July 3, 1998 and June 30, 1997........................... 4 Consolidated Statements of Cash Flows Twenty-Six Weeks Ended July 3, 1998 and June 30, 1997........................................ 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 4. Submission of Matters to a Vote of Security Holders..... 15 Item 6. Exhibits and Reports on Form 8-K........................ 16 SIGNATURES........................................................ 16 LABOR READY, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
(UNAUDITED) JULY 3, DECEMBER 31, 1998 1997 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 15,289 $ 22,117 Accounts receivable, less allowance for doubtful accounts of $3,253 and $2,851 . . . . . . . . . . . . . . . . . . . . . . . . . 58,066 36,614 Workers' compensation deposits and credits . . . . . . . . . . . . . . . 2,336 1,082 Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . 3,963 2,660 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 1,745 3,144 ---------- ------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 81,399 65,617 ---------- ------- PROPERTY AND EQUIPMENT: Buildings and land . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,794 4,448 Computers and software . . . . . . . . . . . . . . . . . . . . . . . . . 11,165 8,220 Cash dispensing machines . . . . . . . . . . . . . . . . . . . . . . . . 6,369 -- Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . . 585 497 --------- ------- 22,913 13,165 Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . 4,180 2,839 --------- ------- Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . 18,733 10,326 --------- ------- OTHER ASSETS: Intangible assets and other, less amortization of $5,330 and $3,569 . . . . . . . . . . . . . . . . . . . . . . . . . 3,030 3,076 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 2,520 1,212 Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 136 --------- -------- Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,671 4,424 --------- -------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 105,803 $ 80,367 --------- -------- --------- --------
See accompanying notes to consolidated financial statements. Page 2 LABOR READY, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED) JULY 3, DECEMBER 31, 1998 1997 ----------- ------------ CURRENT LIABILITIES: Checks issued against future deposits .................................. $ 6,223 $ -- Line of credit ......................................................... 2,200 -- Accounts payable ....................................................... 4,013 3,711 Accrued wages and benefits ............................................. 5,384 4,080 Reserve for workers' compensation claims ............................... 7,661 7,109 Income taxes payable ................................................... 1,264 875 Current maturities of long-term debt ................................... 511 13 -------- ------- Total current liabilities ............................................ 27,256 15,788 -------- ------- LONG-TERM LIABILITIES: Long-term debt, less current maturities ................................ 5,023 76 Reserve for workers' compensation claims ............................... 11,052 6,462 -------- ------- Total long-term liabilities .......................................... 16,075 6,538 -------- ------- Total liabilities .................................................... 43,331 22,326 -------- ------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, $0.197 par value 20,000 shares authorized; 4,324 shares issued and outstanding ..................................... 854 854 Common stock, no par value 100,000 shares authorized; 27,727 and 27,662 shares issued and outstanding ......................... 50,894 49,694 Cumulative other comprehensive income (expense): Cumulative foreign currency translation adjustment .................... (155) 86 Retained earnings ....................................................... 10,879 7,407 -------- ------- Total shareholders' equity ............................................ 62,472 58,041 -------- ------- Total liabilities and shareholders' equity ............................ $105,803 $80,367 -------- ------- -------- -------
See accompanying notes to consolidated financial statements. Page 3 LABOR READY, INC. CONSOLIDATED STATEMENTS OF INCOME (In Thousands Except Per Share Amounts) (Unaudited)
TWENTY-SIX WEEKS ENDED THIRTEEN WEEKS ENDED JULY 3, JUNE 30, JULY 3, JUNE 30, 1998 1997 1998 1997 -------- -------- -------- ------- Revenues from services. . . . . . . . . $237,028 $129,334 $142,997 $77,620 Cost of services. . . . . . . . . . . . 166,284 90,169 100,588 53,247 -------- -------- -------- ------- Gross profit. . . . . . . . . . . . . . 70,744 39,165 42,409 24,373 Selling, general and administrative expense. . . . . . . . 61,824 36,328 34,910 20,911 Depreciation and amortization . . . . 3,103 2,083 1,723 1,154 -------- -------- -------- ------- Income from operations. . . . . . . . . 5,817 754 5,776 2,308 Interest income (expense), net . . . . 112 278 (96) 81 -------- -------- -------- ------- Income before taxes on income . . . . . 5,929 1,032 5,680 2,389 Taxes on income . . . . . . . . . . . . 2,436 446 2,331 1,011 -------- -------- -------- ------- Net income. . . . . . . . . . . . . . . $ 3,493 $ 586 $ 3,349 $ 1,378 -------- -------- -------- ------- -------- -------- -------- ------- Earnings per common share: Basic . . . . . . . . . . . . . . . . $ .13 $ .02 $ .12 $ .05 -------- -------- -------- ------- Diluted . . . . . . . . . . . . . . . $ .12 $ .02 $ .12 $ .05 -------- -------- -------- ------- -------- -------- -------- ------- Weighted average shares: Basic . . . . . . . . . . . . . . . . 27,727 27,721 27,767 27,617 -------- -------- -------- ------- -------- -------- -------- ------- Diluted . . . . . . . . . . . . . . . 28,741 27,847 28,985 27,708 -------- -------- -------- ------- -------- -------- -------- -------
See accompanying notes to consolidated financial statements. Page 4 LABOR READY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
TWENTY-SIX WEEKS ENDED JULY 3, 1998 JUNE 30, 1997 ------------ ------------- CASH FLOWS FROM OPERATING ACTVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 3,493 $ 586 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization . . . . . . . . . . . . . . . 3,102 2,083 Provision for doubtful accounts . . . . . . . . . . . . . . 562 1,555 Deferred income taxes . . . . . . . . . . . . . . . . . . . 92 (1,333) Gain on restricted fund investments . . . . . . . . . . . . -- (22) Changes in assets and liabilities Accounts receivable . . . . . . . . . . . . . . . . . . . . (22,091) (13,869) Workers' compensation deposits and credits. . . . . . . . . (1,254) (1,051) Prepaid expenses and other. . . . . . . . . . . . . . . . . (1,303) 173 Accounts payable. . . . . . . . . . . . . . . . . . . . . . 396 69 Accrued wages and benefits. . . . . . . . . . . . . . . . . 1,304 37 Reserve for workers' compensation claims. . . . . . . . . . 5,142 3,907 Income taxes payable. . . . . . . . . . . . . . . . . . . . 676 2,757 -------- ------- Net cash used in operating activities . . . . . . . . . . . . (9,881) (5,108) -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures . . . . . . . . . . . . . . . . . . . (5,795) (5,581) Restricted cash . . . . . . . . . . . . . . . . . . . . . . 14 (727) -------- ------- Net cash used in investing activities . . . . . . . . . . . . (5,781) (6,308) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on line of credit. . . . . . . . . . . . . . 2,200 -- Checks issued against future deposits . . . . . . . . . . . 6,078 (1,008) Proceeds from options and warrants exercised . . . . . . . 549 15 Proceeds from sale of stock through Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . 249 145 Purchase and retirement of common stock . . . . . . . . . . -- (1,155) Dividends paid. . . . . . . . . . . . . . . . . . . . . . . -- (21) Payments on capital lease obligations . . . . . . . . . . . (217) -- Payments on long-term debt. . . . . . . . . . . . . . . . . (6) (7) -------- ------- Net cash provided by (used in) financing activities . . . . . 8,853 (2,031) Effect of exchange rates on cash . . . . . . . . . . . . . (19) (6) -------- ------- Net decrease in cash and cash equivalents . . . . . . . . . . (6,828) (13,453) CASH AND CASH EQUIVALENTS, beginning of period . . . . . . . 22,117 17,598 -------- ------- CASH AND CASH EQUIVALENTS, end of period . . . . . . . . . . $ 15,289 $ 4,145 -------- ------- -------- -------
See accompanying notes to consolidated financial statements. Page 5 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 the Company's 1997 annual report on Form 10-K. 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 twenty-six week period ended July 3, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. NOTE 2. WORKERS' COMPENSATION The Company provides workers' compensation insurance to its temporary workers and regular employees. In Washington, Ohio and West Virginia (the monopolistic states), the Company is required to make payments into state administered programs, at rates established by each state, based upon the job classification of the insured workers and the previous claims experience of the Company. The Washington program provides for a retroactive adjustment of workers' compensation payments based upon actual claims experience. Upon adjustment, overpayments to the program are returned to the Company and underpayments, if any, are assessed. At July 3, 1998 and December 31, 1997, the Company recorded workers' compensation credit receivables of $1.4 million and $1.1 million and workers' compensation liabilities of $0.5 million and $0.6 million related to the monopolistic states. For workers' compensation claims originating in the remaining states (the non-monopolistic states), the Company self-insures the deductible amount per claim to a maximum aggregate stop-loss limit and has engaged a third party administrator to manage the claims and related claims expense. The deductible amount was $250,000 per claim to an aggregate maximum of approximately $5.0 million, $6.5 million and $19.0 million in 1995, 1996 and 1997, respectively. In January 1998, the Company renewed its insurance program, the terms of which included a reduction of the 1995 and 1996 aggregate maximums to $4.5 million and $5.2 million, respectively. Additionally, for claims arising in 1998, the per claim deductible was increased to $350,000 and the maximum aggregate stop-loss limit was reduced from the 1997 limit of $11.60 per $100 of temporary worker payroll to $10.41. In years prior to 1998, the Company was required to deposit with its workers compensation carrier, cash collateral in the amount of its total estimated claims remaining to be paid. In December 1997, the Company replaced its cash deposits required by the workers' compensation program with irrevocable letters of credit totaling $15.9 million. During the twenty-six weeks ended July 3, 1998, the company increased the letters of credit to $21.7 million. The letters of credit bear fees of .75% per year and are supported by an equal amount of available borrowings on the Company's $40 million line of credit. Accordingly, at July 3, 1998, borrowings of $2.2 million were outstanding on the line-of-credit, and $21.7 million was committed by the letters of credit. During the third quarter of 1998, the Company expects to obtain a surety bond in an amount not to exceed 50% of its estimated unpaid estimated workers compensation claims reserve. The bond will bear fees of .5% per year and may be renewed annually. The remaining portion of the Company's estimated unpaid workers' compensation claims reserve will continue to be collateralized with letters of credit, however with the surety bond, the company expects to reduce its need for letters of credit through the end of 1998 by approximately $10.0 million. The Company establishes provisions for future claim liabilities based upon 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 sheet as of July 3, 1998 and December 31, 1997, are reserves for claims and claim related expenses arising in non-monopolistic states of $18.2 million and $12.9 million. The reserve for workers' compensation claims was computed using a discount rate of 6.0% at July 3, 1998 and December 31, 1997. Page 6 NOTE 2. WORKERS' COMPENSATION, CONTINUED Workers' compensation expense totaling $7.5 million and $3.9 million was recorded as a component of cost of services in each of the thirteen weeks ended July 3, 1998 and June 30, 1997, respectively. Workers' compensation expense totaling $12.3 million and $6.8 million was recorded as a component of cost of services in each of the twenty-six weeks ended July 3, 1998 and June 30, 1997, respectively. The Company has formed a wholly-owned, off-shore captive, Labor Ready Assurance Company ("Labor Ready Assurance"), for the management and payment of workers' compensation claims and claim related expenses. Labor Ready Assurance reinsures levels of coverage for losses in excess of the aggregate stop-loss limits with unrelated insurance carriers. Funds are deposited with Labor Ready Assurance for the payment of claims and claim related expenses, and annual premiums are paid to Labor Ready Assurance based principally upon the cost of reinsurance and other operating expenses. At July 3, 1998 and December 31, 1997, $121,480 and $136,000 remained on deposit with Labor Ready Assurance and was recorded as restricted cash in the accompanying consolidated balance sheets. The Company has established a risk management department at its corporate headquarters to manage its insurers, third party administrators, and medical service providers. To reduce wage-loss compensation claims, the Company has established a "light duty", transitional return to work program. Workers in the program are employed within the Company in the local dispatch office or on customer assignments that require minimal physical exertion. The Company's information system generates weekly workers' compensation loss minimization reports for both corporate and dispatch office use. The Company has an on-line connection with its third party administrator that allows the Company to maintain visibility of all claims, manage their progress and generate required management information. NOTE 3. RECENTLY ISSUED ACCOUNTING STANDARD Certain pre-opening costs incurred to open new dispatch offices, including salaries, recruiting, testing, training, lease and other related costs, are capitalized and amortized using the straight-line method over two years. In March 1998, the Accounting Standards Executive Committee (the "AcSEC") issued Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" ("the Statement"). The Statement establishes new rules for the financial reporting of start-up costs, and will require the Company to expense the cost of establishing new dispatch offices as incurred and write off, as a cumulative effect of adopting the Statement, any capitalized pre-opening costs in the first quarter of the year adopted. The Statement is effective for years beginning after December 31, 1998 and the Company will adopt it in the first quarter of 1999. The effect of adopting the Statement will be to recognize a non-operating expense, net of tax, of approximately $1.5 million, plus any additional pre-opening costs capitalized during the next two quarters ended December 31, 1998, net of amortization expense recognized during the period. NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION
(AMOUNTS IN THOUSANDS) TWENTY-SIX WEEKS ENDED ---------------------- JULY 3, JUNE 30, 1998 1997 ------ ------- Cash paid during the period for: Interest . . . . . . . . . . . . . . . . . . . . . $ 231 $ 4 Income taxes . . . . . . . . . . . . . . . . . . . $1,551 $ 174 Non-cash investing and financing activities: Tax effect of disqualifying dispositions on options exercised. . . . . . . . . . . . . . . . $ 287 -- Preferred stock dividends accrued . . . . . . . . . $ 21 -- Contribution of common stock to 401(k) plan . . . . $ 116 $ 81 Assets acquired with capital lease obligations. . . $5,667 --
Page 7 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 year. 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 year. 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 data):
TWENTY-SIX WEEKS ENDED THIRTEEN WEEKS ENDED ----------------------- ------------------------ JULY 3, JUNE 30, JULY 3, JUNE 30, 1998 1997 1998 1997 -------- -------- -------- -------- BASIC: Net income. . . . . . . . . . . . . . . . . . . $ 3,493 $ 586 $ 3,349 $ 1,378 Less preferred stock dividends. . . . . . . . . (21) (21) (11) (11) -------- -------- -------- -------- Income allocable to common shareholders. . . . . . . . . . . . . . . . . . 3,472 565 3,338 1,367 -------- -------- -------- -------- Weighted average shares outstanding . . . . . . 27,727 27,721 27,767 27,617 -------- -------- -------- -------- Net income per share. . . . . . . . . . . . . . $ .13 $ .02 $ .12 $ .05 -------- -------- -------- -------- DILUTED: Income allocable to common shareholders. . . . . . . . . . . . . . . . . . $ 3,472 $ 565 $ 3,338 $ 1,367 -------- -------- -------- -------- Weighted average shares outstanding . . . . . . 27,727 27,721 27,767 27,617 Plus options to purchase common stock at end of period. . . . . . . . . . . . . . . . 2,570 982 2,570 982 Less shares assumed repurchased . . . . . . . . (1,556) (856) (1,352) (891) -------- -------- -------- -------- Weighted average shares outstanding including options. . . . . . . . . . . . . . 28,741 27,847 28,985 27,708 -------- -------- -------- -------- Net income per share . . . . . . . . . . . . . $ .12 $ .02 $ .12 $ .05 -------- -------- -------- --------
All share and per share data for 1998 and 1997 have been restated to reflect the Company's 3-for-2 stock splits which were effective on June 9, 1998 and October 24, 1997. NOTE 6. COMPREHENSIVE INCOME The Company's comprehensive income is as follows (amounts in thousands):
TWENTY-SIX WEEKS ENDED THIRTEEN WEEKS ENDED ---------------------- -------------------- JULY 3, JUNE 30, JULY 3, JUNE 30, 1998 1997 1998 1997 ------ ---- ------ ------ Net income. . . . . . . . . . . . . . . . . . . . . . . . . $3,493 $586 $3,349 $1,378 Other comprehensive income(expense) net of income taxes: Foreign currency translation. . . . . . . . . . . . . . . (142) (4) (6) 21 ------ ---- ------ ------ Comprehensive income. . . . . . . . . . . . . . . . . . . . $3,351 $582 $3,343 $1,399 ------ ---- ------ ------ ------ ---- ------ ------
Page 8 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, its plans for opening new offices, and its plans for installing new Cash Dispensing Machines ("CDM") 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, 1997. 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 leading, national provider of temporary workers for manual labor jobs. The Company's customers are primarily in the construction, freight handling, warehousing, landscaping, light manufacturing, and other light industrial industries. The Company has rapidly grown from eight dispatch offices in 1991 to 481 dispatch offices at July 3, 1998. 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 $335 million in 1997 and $237 million for the first half of 1998. This revenue growth has been generated both by opening new dispatch offices in markets throughout the U.S. and Canada and by continuing to increase sales at existing dispatch offices. The Company opened 165 dispatch offices during the first half of 1998 and expects to open at least 200 additional dispatch offices in 1999. The Company expects the average cost of opening each new dispatch office in 1999 to be approximately $50,000. The cost of opening a new dispatch office includes extensive management training, the installation of sophisticated computer and other office systems and a CDM. Further, once open, the Company invests significant amounts of additional cash into the operations of new dispatch offices until they begin to generate sufficient revenue to cover their operating costs, generally in two to six months. The Company pays its temporary workers on a daily basis, and generally bills its customers weekly. Consequently, the Company experiences significant negative cash flow from operations and investment activities during periods of high growth. The Company may continue to experience periods of negative cash flow from operations and investment activities while it rapidly opens dispatch offices and may 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. 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. By July 3, 1998, the Company 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 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 Page 9 no longer required to discount billing rates to attract new customers, significant continuing fluctuations in cost of services can be expected as the Company pursues further aggressive growth. 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 cost of the CDM program. Temporary workers assigned to customers remain Labor Ready employees. Labor Ready is responsible for the employee-related expenses of its temporary workers, including workers' compensation coverage, unemployment compensation insurance, and Medicare and Social Security taxes. 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 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 twenty-six and thirteen weeks ended July 3, 1998 and June 30, 1997 (amounts in thousands):
TWENTY-SIX WEEKS ENDED THIRTEEN WEEKS ENDED ------------------------------ ------------------------------ JULY 3, PERCENT JUNE 30, JULY 3, PERCENT JUNE 30, 1998 CHANGE 1997 1998 CHANGE 1997 -------- ------- -------- -------- ------- -------- Revenues from services . . . . . . . . . . . . . . . . . $237,028 83.3 $129,334 $142,997 84.2 $77,620 Cost of services . . . . . . . . . . . . . . . . . . . . 166,284 84.4 90,169 100,588 88.9 53,247 -------- ----- -------- -------- ------ ------- Gross profit. . . . . . . . . . . . . . . . . . . . . . . 70,744 80.6 39,165 42,409 74.0 24,373 Selling, general and administrative expenses . . . . . . 61,824 70.2 36,328 34,910 66.9 20,911 Depreciation and amortization . . . . . . . . . . . . . . 3,103 49.0 2,083 1,723 49.3 1,154 -------- ----- -------- -------- ------ ------- Income from operations. . . . . . . . . . . . . . . . . . 5,817 671.5 754 5,776 150.3 2,308 Interest income (expense), net . . . . . . . . . . . . . 112 (59.7) 278 (96) (218.5) 81 -------- ----- -------- -------- ------ ------- Income before taxes on income . . . . . . . . . . . . . . 5,929 474.5 1,032 5,680 137.8 2,389 Taxes on income . . . . . . . . . . . . . . . . . . . . . 2,436 446.2 446 2,331 130.6 1,011 -------- ----- -------- -------- ------ ------- Net income . . . . . . . . . . . . . . . . . . . . . . . $ 3,493 496.1 $ 586 $ 3,349 143.0 $ 1,378 -------- ----- -------- -------- ------ ------- -------- ----- -------- -------- ------ -------
THIRTEEN WEEKS ENDED JULY 3, 1998 COMPARED TO THIRTEEN WEEKS ENDED JUNE 30, 1997 DISPATCH OFFICES The number of offices grew to 481 at July 3, 1998 from 420 locations at April 3, 1998, a net increase of 61 dispatch offices, or 14.5%. During the thirteen weeks ended June 30, 1997, the number of offices grew to 300 from 256 locations at March 31, 1997, a net increase of 44 dispatch offices, or 17.2%. The Company has met its target for 1998 dispatch office openings and does not expect to open any material number of offices during the balance of 1998. The Company estimates that its aggregate costs of opening 61 new dispatch offices in the second quarter of 1998 were approximately $3.0 million, an average of approximately $50,000 per dispatch office, compared to aggregate costs of approximately $1.4 million, an average of approximately $33,000 per dispatch office, to open 44 new stores in the second quarter of 1997. The increase in per-store costs in 1998 was primarily the result of the addition of a CDM to each dispatch office. Approximately $.6 million of second quarter 1998 costs includes dispatch office pre-opening costs such as salaries, recruiting, testing, training, lease and other related costs, which are capitalized and amortized using the straight-line method over two years. The remaining approximately $2.4 million includes computer systems and other equipment related costs, CDMs, and leasehold improvements. REVENUES FROM SERVICES The Company's revenues from services increased to $143.0 million for the thirteen weeks ended July 3, 1998, as compared to $77.6 million for the thirteen weeks ended June 30, 1998, an increase of $65.4 million or 84.3%. 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 stores in the first quarter of 1998 than in the same period in 1997, and the Company's management has become more skilled and efficient at opening stores. Finally, the Company continues to consolidate its position in the marketplace and build brand awareness, eliminating the need to discount billing rates to attract new customers at new dispatch offices. Included in revenues from services for the thirteen weeks ended July 3, 1998 and June 30, 1997 are CDM fees of $.9 million and $0, respectively. Page 10 COST OF SERVICES Cost of services increased to $100.6 million for the thirteen weeks ended July 3, 1998 as compared to $53.2 million for the thirteen weeks ended June 30, 1997, an increase of $47.4 million or 89.1%. This increase is directly related to the corresponding increase in revenues during the period. Cost of services was 70.3% of revenue in the second quarter of 1998 compared to 68.6% of revenue in the second quarter of 1997. Cost of services as a percentage of revenues increased 1.7% as compared to the second quarter of 1997 primarily because newly trained managers believed they would attract more skilled workers if they offered a slightly higher pay rate and the changing geographic mix of new and established, more mature markets. Although the Company has implemented new policies and procedures to prevent unplanned increases in pay rates, significant continuing fluctuations in cost of services can be expected as the Company pursues further aggressive growth. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses were $34.9 million in the second quarter of 1998 as compared to $20.9 million in the second quarter of 1997, an increase of $14.0 million or 67.0%. The increase was largely due to the 84.3% increase in revenue from 1997 to 1998. Selling, general and administrative expenses were 24.4% of revenues in the second quarter of 1998 as compared to 26.9% of revenues in the second quarter of 1997. The decrease in selling, general and administrative expenses as a percentage of revenue in the second quarter of 1998 is due mainly to economies of scale on fixed and semi-fixed dispatch office operating and corporate administrative costs. Included in selling, general and administrative expense for the thirteen weeks ended July 3, 1998 and June 30, 1997 are CDM related expenses of $.4 million and $0, 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 upgrades its operating and administrative capabilities to accommodate anticipated revenue and dispatch office growth. DEPRECIATION AND AMORTIZATION EXPENSE Depreciation and amortization expense was $1.7 million in the second quarter of 1998 and $1.2 million in the second quarter of 1997, an increase of $0.5 million or 41.7%. The increase in depreciation and amortization expense is primarily the result of amortization of dispatch office pre-opening costs as the Company continued its rapid expansion by adding 116 stores in 1997 and 165 stores during the twenty-six weeks ended July 3, 1998. Additionally, the Company added approximately $4.0 million in property and equipment during 1997 and $9.7 million in the first half of 1998. These additions primarily include the CDMs and computer equipment, software, and other equipment needed for the new stores opened during the period. Included in depreciation and amortization expense for the thirteen weeks ended July 3, 1998 and June 30, 1997 are depreciation on CDMs of $.2 million and $0, respectively. In March 1998, the Accounting Standards Executive Committee (the "AcSEC") issued Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" ("the Statement"). The Statement establishes new rules for the financial reporting of start-up costs, and will require the Company to expense the cost of establishing new dispatch offices as incurred and write off, as a cumulative effect of adopting the Statement, any capitalized pre-opening costs in the first quarter of the year adopted. The Statement is effective for years beginning after December 31, 1998 and the Company will adopt it in the first quarter of 1999. The effect of adopting the Statement will be to recognize a non-operating expense, net of tax, of approximately $1.5 million, plus any additional pre-opening costs capitalized during the next two quarters ended December 31, 1998, net of amortization expense recognized during the period. INTEREST INCOME (EXPENSE), NET The Company recorded net interest expense of $96,000 in the second quarter of 1998 as compared to interest income of $81,000 in the second quarter of 1997. The increase in interest expense was the result of lower invested cash balances in the second quarter of 1998 as compared to the second quarter of 1997. The decrease in invested cash balances is primarily the result of implementation of the CDM program and the use of cash to fund the Company's 84.3% growth in sales. Additionally, because the Company has recorded the acquisition of the CDMs as a capital lease, during the second quarter of 1998, the Company recorded interest expense of $85,044 as compared to none in the second quarter of 1997. The Company expects to incur interest expense in the third quarter of 1998 as the cash demands of the Company's busiest time of year will require borrowing on the Company's revolving line of credit. Additionally, cash balances of approximately $14 million at July 3, 1998, held in the CDMs for payment of temporary worker payrolls, will continue to reduce cash available for investing. Page 11 TAXES ON INCOME Taxes on income increased to a provision of $2.3 million in the second quarter of 1998 from a provision of $1.0 million in the second quarter of 1997, an increase of $1.3 million or 130.0%. The increase in taxes was due to the increase in pretax income to $5.7 million in the second quarter of 1998 from pretax income of $2.4 million in the second quarter of 1997. The Company's effective tax rate was 41.0% in the second quarter of 1998 as compared to 42.3% in the second quarter of 1997. The decrease in the effective rate was primarily due to changes in estimated prior period amounts in the 1997 tax provision. 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 $4.3 million at July 3, 1998, 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 $3.3 million for the thirteen weeks ended July 3, 1998, as compared to net income of $1.4 million, for the thirteen weeks ended June 30, 1997, an increase of $1.9 million or 135.7%. As a percentage of revenues from services, net income increased to 2.3% for the second quarter of 1998, which compares to 1.8%, for the second quarter of 1997, an increase of .5%. This increase in net income is primarily the result of increased revenues and economies of scale realized on selling, general and administrative expenses, offset by a decrease in the Company's gross margin as a percentage of sales in the second quarter of 1998. TWENTY-SIX WEEKS ENDED JULY 3, 1998 COMPARED TO TWENTY-SIX WEEKS ENDED JUNE 30, 1997 DISPATCH OFFICES The Company opened 165 dispatch offices during the twenty-six weeks ended July 3, 1998 as compared to 105 dispatch offices opened during the same period of the prior year. The total number of dispatch offices grew from 305 at June 30, 1997 to 481 at July 3, 1998, an increase of 57.7%. The Company has met its target for 1998 dispatch office openings and does not expect to open any material number of offices during the balance of 1998. The Company estimates that its aggregate costs of opening 165 new dispatch offices in the first half of 1998 was approximately $8.3 million, an average of approximately $50,000 per dispatch office, compared to aggregate costs of approximately $3.5 million, an average of approximately $33,000 per dispatch office, to open 105 new stores in the first half of 1997. The increase in per-store costs in 1998 was primarily the result of the addition of a CDM to each dispatch office. Approximately $2.1 million of 1998 costs includes dispatch office pre-opening costs such as salaries, recruiting, testing, training, lease and other related costs, which are capitalized and amortized using the straight-line method over two years. The remaining approximately $6.2 million includes computer systems and other equipment related costs, CDMs, and leasehold improvements. REVENUES FROM SERVICES The Company's revenues from services increased to $237.0 million for the twenty-six weeks ended July 3, 1998, as compared to $129.3 million for the twenty-six weeks ended June 30, 1998, an increase of $107.7 million or 83.3%. 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 stores in the first quarter of 1998 than in the same period in 1997, and the Company's management has become more skilled and efficient at opening stores. Finally, the Company continues to consolidate its position in the marketplace and build brand awareness, eliminating the need to discount billing rates to attract new customers at new dispatch offices. Included in revenues from services for the twenty-six weeks ended July 3, 1998 and June 30, 1997 are CDM fees of $1.1 million and $0, respectively. COST OF SERVICES Cost of services increased to $166.3 million for the twenty-six weeks ended July 3, 1998 as compared to $90.2 million for the twenty-six weeks ended June 30, 1997, an increase of $76.1 million or 84.4%. This increase is directly related to the corresponding increase in revenues during the period. Cost of services was 70.2% of revenue in the first half of 1998 compared to 69.7% of revenue in the first half of 1997. Cost of services as a percentage of revenues increased .5% as compared to the first half of 1997 primarily because newly trained managers believed they would attract more skilled workers if they offered a slightly higher pay rate and the changing geographic mix of new and established, more mature markets. Although the Company has implemented new policies and procedures to prevent unplanned increases in pay rates, significant continuing fluctuations in cost of services can be expected as the Company pursues further aggressive growth. Page 12 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses were $61.8 million in the first half of 1998 as compared to $36.3 million in the first half of 1997, an increase of $25.5 million or 70.2%. The increase was largely due to the 83.3% increase in revenue from 1997 to 1998. Selling, general and administrative expenses were 26.1% of revenues in the second half of 1998 as compared to 28.1% of revenues in the second half of 1997. The decrease in selling, general and administrative expenses as a percentage of revenue in the second half of 1998, is due mainly to economies of scale on fixed and semi-fixed dispatch office operating and corporate administrative costs. Included in selling, general and administrative expense for the twenty-six weeks ended July 3, 1998 and June 30, 1997 are CDM related expenses of $.5 million and $0, 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 upgrades its operating and administrative capabilities to accommodate anticipated revenue and dispatch office growth. DEPRECIATION AND AMORTIZATION EXPENSE Depreciation and amortization expense was $3.1 million in the second half of 1998 and $2.1 million in the second half of 1997, an increase of $1.0 million or 47.6%. The increase in depreciation and amortization expense is primarily the result of amortization of dispatch office pre-opening costs as the Company continued its rapid expansion by adding 116 stores in 1997 and 165 stores during the twenty-six weeks ended July 3, 1998. Additionally, the Company added approximately $4.0 million in property and equipment during 1997 and $9.7 million in the first half of 1998. These additions primarily include the CDMs and computer equipment, software, and other equipment needed for the new stores opened during the period. Included in depreciation and amortization expense for the twenty-six weeks ended July 3, 1998 and June 30, 1997 are depreciation on CDMs of $.3 million and $0, respectively. INTEREST INCOME (EXPENSE), NET The Company recorded net interest income of $.1 million in the first half of 1998 as compared to interest income of $.3 million in the first half of 1997, a decrease of .2 million or 66.7%. The decrease in interest income was the result of lower invested cash balances in the first half of 1998 as compared to the first half of 1997. The decrease in invested cash balances is primarily the result of implementation of the CDM program and the use of cash to fund the Company's 83.3% growth in sales. Additionally, because the Company has recorded the acquisition of the CDMs as a capital lease, during the second half of 1998, the Company recorded in interest expense of $.2 million as compared to none in the second half of 1997. The Company expects to incur interest expense in the third quarter of 1998 as the cash demands of the Company's busiest time of year will require continued borrowing on the Company's revolving line of credit. Additionally, cash balances of approximately $14 million at July 3, 1998, held in the CDMs for payment of temporary worker payrolls, will continue to reduce cash available for investing. TAXES ON INCOME Taxes on income increased to a provision of $2.4 million in the first half of 1998 from a provision of $.4 million in the first half of 1997, an increase of $2.0 million or 500.0%. The increase in taxes was due to the increase in pretax income to $5.9 million in the first half of 1998 from pretax income of $1.0 million in the first half of 1997. The Company's effective tax rate was 41.1% in the first half of 1998 as compared to 43.2% in the first half of 1997. The decrease in the effective rate was primarily due to changes in estimated prior period amounts in the 1997 tax provision. 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 $4.3 million at July 3, 1998, 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 $3.5 million for the twenty-six weeks ended July 3, 1998, as compared to net income of $.6 million, for the twenty-six weeks ended June 30, 1997, an increase of $2.9 million or 483.3%. As a percentage of revenues from services, net income increased to 1.5% for the first half of 1998, which compares to 0.4%, for the first half of 1997, an increase of 1.1%. This increase in net income is primarily the result of increased revenues and economies of scale realized on selling general and administrative expenses, offset by a decrease in the Company's gross margin as a percentage of sales in the second half of 1998. Page 13 LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities was $9.9 million in the first half of 1998 compared to $5.1 million in the first half of 1997. The increase in cash used in operations in 1998 is largely due to the increase in accounts receivable as compared to the same period in 1997. Additionally, the net change in workers' compensation deposits and credits, prepaid expenses and income taxes payable was greater than in the first half of 1997. These changes were offset by an increase in net income in 1998, and increases in the deferred income tax asset and workers' compensation claims reserve. The Company used net cash in investing activities of $5.8 million in first half of 1998, compared to $6.3 million in the first half of 1997. The decrease in cash used in investing activities in 1998 as compared to 1997 is due primarily to the replacement of restricted cash held by the Company's captive insurance subsidiary with letters of credit in December 1997, eliminating the need to invest additional cash as capital in the captive. The Company's capital expenditures includes dispatch office pre-opening costs, and property and equipment acquired other than through capital lease. Capital expenditures in the first half of 1998 increased by .2 million over the first half of 1997. This increase does not include the lease-purchase of the CDMs which are accounted for as a non-cash transaction. Net cash provided by (used in) financing activities was $8.9 million in the first half of 1998 and $(2.0) million in the first half 1997. The increase in cash provided by financing activities in 1998 as compared to 1997 is due mainly to the Company's net borrowings on the line of credit and an increase in checks issued against future deposits. In the first half of 1997, the Company used cash of $1.1 million to repurchase shares of its common stock on the open market and recorded a decrease in checks issued against future deposits of $1.0 million. In June 1998, 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 $40 million or 80% of eligible accounts receivable, as defined by the bank, with interest at the lesser of the bank's prime rate (8.5% at July 3, 1998) or the London Inter-Bank Offering Rate (LIBOR) plus 1.44%. The line of credit is secured primarily by the Company's accounts receivable and is due in full on June 30, 2000. 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 July 3, 1998. As discussed further in Note 2 to the consolidated financial statements, in 1997 the Company replaced the cash deposits required by its workers' compensation program with irrevocable letters of credit totaling $15.9 million. During the first half of 1998, the Company increased the letters of credit to $21.7 million. The letters of credit bear annual fees of .75% and are supported by an equal amount of available borrowings on the line-of-credit. Accordingly, at July 3, 1998, borrowings of $2.2 million were outstanding on the line of credit, $21.7 million was committed by the letters of credit and $16.1 million was available for borrowing. During the third quarter of 1998, the Company expects to obtain a surety bond in an amount not to exceed 50% of its estimated unpaid estimated reserve for workers compensation claims. The bond will bear fees of .5% per year and may be renewed annually. The remaining portion of the Company's estimated unpaid workers' compensation claims reserve will continue to be collateralized with letters of credit, however with the surety bond, the company expects to reduce its need for letters of credit through the end of 1998 by approximately $10.0 million. In December 1997, the Company entered into an agreement to lease 450 automated CDMs for installation in all of the Company's dispatch offices. The fair market value of the CDMs at inception of the lease is approximately $6.2 million. The lease is payable over 84 months with an imputed interest rate of 9.0% and is secured by the CDMs. During the twenty-six weeks ended July 3, 1998, the Company installed 408 CDMs in its dispatch offices throughout the United States. Accordingly, the Company recorded assets under capital lease and capital lease obligations totaling $5.7 million with future minimum lease payments over the next 5 years of approximately $1.1 million per year. The Company anticipates installing CDMs at all of its remaining dispatch offices in the United States during 1998 and in all new offices opened in the United States during 1999. Included in cash and cash equivalents at July 3, 1998, is approximately $14.0 million of cash which is located in the CDMs for payment of temporary worker payrolls. The Company anticipates further increases in cash held in the CDMs as it enters the busiest time of its year and completes the installation of CDMs at all of its dispatch offices in the United States. Historically, the Company has financed its operations through cash generated by external financing including term loans, lines-of-credit and a common stock offering completed in 1996. The principal use of cash is to finance the growth in receivables, fund the cost of opening new dispatch offices and to fund the initial deposit of cash into newly installed CDMs. The Company may experience cash flow deficits from operations and investing activities while the Company expands its operations, including the acceleration of 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. Page 14 INFORMATION PROCESSING SYSTEMS AND THE YEAR 2000 As the year 2000 approaches, there are uncertainties concerning whether computer systems 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. Management believes that the year 2000 does not pose a significant operational problem for the Company's computer systems. The Company has completed its assessment of its significant systems and believes them to be year 2000 compliant. Management has not completed its assessment of the systems of third parties with which it deals. While it is not possible at this time to assess the effect of a third party's inability to adequately address year 2000 issues, management does not believe the potential problems associated with year 2000 will have a material effect on its financial condition or results of operations. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 7, 1998, at the Company's Special Meeting of Shareholders ("the Special Meeting"), the shareholders of the Company voted to: (1) amend the Company's Articles of Incorporation to authorize the issuance of up to 100,000,000 shares of common stock and 20,000,000 shares of preferred stock, (2) approve an increase of 1,400,000 shares available for grant under the Company's 1996 Employee Stock Option and Incentive Plan, and (3) approve an increase of 600,000 shares available for grant under the Company's 1996 Employee Stock Purchase Plan. The results of the proposals voted upon at the Special Meeting are as follows (vote totals have not been adjusted for the Company's 3 for 2 stock split, effective June 9, 1998):
FOR AGAINST ABSTAIN ---------- --------- ------- Proposal (1) 11,245,455 2,761,455 114,712 Proposal (2) 13,192,808 853,863 74,951 Proposal (3) 13,313,196 710,146 98,280
On August 5, 1998, at the Company's Annual Meeting of Shareholders ("the Annual Meeting") the shareholders of the Company voted to: (1) elect 6 directors, and (2) to appoint Arthur Andersen LLP as the Company's independent accountants for the year ended December 31, 1998. The results of the proposals voted upon at the Annual Meeting are as follows:
FOR AGAINST WITHHELD ABSTAIN ---------- ------- -------- ------- 1. a) Election of Glenn A. Welstad 26,714,346 -- 399,490 -- b) Election of Robert J. Sullivan 26,714,958 -- 398,878 -- c) Election of Thomas E. McChesney 26,742,001 -- 371,835 -- d) Election of Ralph E. Peterson 26,702,295 -- 411,241 -- e) Election of Ronald J. Junck 26,718,726 -- 395,110 -- f) Election of Richard W. Gasten 26,716,870 -- 396,966 -- 2. Ratification of Arthur Andersen LLP as the Company's independent auditors and accountants 27,033,663 28,309 -- 51,864
Page 15 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS: The following exhibits are being filed as a part of this report: EXHIBIT NO. DESCRIPTION 10.10 Business Loan Agreement between Labor Ready, Inc. and U.S. Bank of Washington, N.A., dated June 18, 1998 27 Financial Data Schedules as of July 3, 1998 and June 30, 1997 and for each of the twenty-six week periods then ended. (b) REPORTS ON FORM 8-K None. 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 August 12, 1998 -------------------------------------- --------------- Glenn A. Welstad Date Chairman of the Board, Chief Executive Officer and President By: /s/ Joseph P. Sambataro, Jr. August 12, 1998 -------------------------------------- --------------- Joseph P. Sambataro, Jr. Date Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary
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