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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
XX ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the year ended December 31, 1995.
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _______________.
Commission File Number 0-23828
LABOR READY, INC.
(Exact name of registrant as specified in its Charter)
Washington 91-1287341
(State of Incorporation or Organization) (I.R.S. I.D. Number)
2156 Pacific Avenue, Tacoma, Washington 98402
(Address of Principal Executive Offices) (Zip Code)
(206)383-9101
(Registrant's Telephone Number)
Securities Registered Under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities Registered Under Section 12(g) of the Act:
Common Stock, No Par Value
(Title of class)
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 any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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 last ninety days. YES XX NO _____
The aggregate market value (based on the average between the bid and ask
prices) of the voting stock held by non-affiliates (4,076,306 shares) of the
Registrant at March 20, 1996 was approximately $79,487,967. As of March 20,
1994, there were 6,029,133 shares of Registrant's common stock outstanding.
No Documents are incorporated herein by reference.
LABOR READY, INC.
FORM 10-K
PART I.
Item 1. Business.
Organizational History. The Company was incorporated under the
laws of the State of Washington on March 18, 1985. Since 1989, the
Company has been engaged in the temporary help business. Operations
prior to 1989 are reported in the Company's Form 10 Registration
Statement, SEC File Number 0-23828.
P.N.L.F., Inc. ("PNLF") was organized on January 17, 1989. Labor
Ready of So. Calif., Inc.("LRSC") was organized on March 12, 1990, as a
wholly owned subsidiary of PNLF. In April, 1992, PNLF spun the stock
ownership of LRSC out to PNLF's shareholders. Labor Ready Franchise
Development Corporation ("LRFD") was organized on November 21, 1991.
Labour Ready Temporary Services Limited was formed as a wholly owned
subsidiary of the Company on February 10, 1994, to conduct business in
Canada.
During 1994, the Company reached a settlement in a legal dispute
involving two of the Series A Preferred Stockholders. As a result of the
settlement, 149,006 Series A Preferred Shares were canceled. Effective
January 1, 1995, PNLF and LRSC were merged into Labor Ready, Inc.
Current Business Operations. The Company is engaged in the
business of providing temporary help primarily to construction,
warehousing, landscaping and manufacturing businesses. The temporary
help industry addresses the fact that businesses frequently experience
times when the work load temporarily exceeds the workforce available.
In these circumstances, the business must either hire additional people,
work existing employees overtime and pay the overtime rate, refuse to
accept the work, or develop a backlog and deliver the product or service
late. Each of these alternatives may have undesirable results to the
long-term profitability of the business. In this environment, the
temporary help business offers an acceptable temporary solution while
avoiding some of the draw backs of the traditional alternatives. By
engaging a temporary service, businesses are not exposed to workers
compensation claim risks, or to the litigation risks of hiring and
terminating employees.
The Company focuses primarily on temporary help for construction,
warehousing, landscaping and manufacturing businesses. This market
niche is attractive to the Company for a number of reasons. First, the
users' requirements are typically for low to medium skilled workers, and
the Company has been able to develop a large pool of laborers in this
category. In addition, there are a large number of users of this type of
temporary help. The customers involved in construction, warehousing,
landscaping and manufacturing operations tend to be seasonal or subject
to regular cyclic fluctuations in work flow. The cost of temporary
labor to the company is significantly less than the cost of adding
permanent positions to meet fluctuating needs.
The Company operates its locations as dispatch halls. Interested
laborers report to the dispatch hall prior to being assigned to jobs.
Space in the dispatch hall is available for the workers to wait for job
assignments. When a customer requests temporary help, the dispatch
hall manager assigns the available workers to the position openings, and
the workers are dispatched to the job site. The workers are provided
with a labor ticket which they must return to the dispatch hall for
payment. Temporary laborers are paid daily, and the customers are
billed weekly. The worker is employed by the Company which must pay all
related payroll taxes and maintain all payroll records, including W-2's which
are prepared at year end. The Company also provides workers compensation
insurance to each temporary laborer. The Company maintains a computer based
software package to maintain the various types of information needed to
process all required payroll information and related payroll tax returns. The
Company processed 1.1 million payroll checks written to 100,000 temporary
laborers in 1995.
The Company is responsible for workers' compensation insurance.
Therefore, it is critical for the Company to monitor and control
workers' compensation claims arising from injuries suffered by the
Company's employees in the course of performing the temporary jobs. The
Company controls workers' compensation costs through training of its
management employees and office staff, safety sessions with employees,
issuance of safety equipment, monitoring of job sites, and communication
with customers to assure that the job request order is one that can be
safely accomplished.
The Company maintains workers' compensation benefit coverage. To
maintain the coverage, the Company has established a separate workers'
compensation department at its corporate headquarters in Tacoma
Washington, to oversee Company policy. The Company has recently hired
two individuals, one with 18 years of claim closing experience, and one
with 20 years of experience dealing with a captive and self insurance
program for a company with requirements similar to those of Labor Ready.
On August 1, 1994, the Company went to a captive insurance program in
all non-monopolistic states. Monopolistic states are those states that
require coverage to be administered by a state plan. At that time, the
Company engaged a national insurance company to act as administrator of
the plan. The Company incurs a large number of claims, the majority of
which are closed within ninety days. The average claim paid is between
$1,000 and $2,000. The Company provides light duty work so that lost
time claims are minimized.
The Company employs in-house specialists in its insurance,
workers' compensation, marketing, accounting, collection, computer
hardware, education, and computer software departments to monitor
company wide performance and address performance issues as they arise.
The Company holds an area director training seminar on a quarterly basis
and one of the focuses of area director training is to monitor and
control workers' compensation claims. In addition, the Company holds a
planning session each year to prepare a one year and six year plan and
to establish budgets and projections. The Company's Regional Directors
are in regular communication with the Area Directors and the Regional
Directors provide a further source of monitoring and control for
workers' compensation costs.
Labor Ready University, the Company's training division, operates
out of a training center in Tacoma, Washington, which is also the
dispatch location for Tacoma. Labor Ready University was formed in
February, 1995, to train managers. The Company hired an experienced
trainer from a national company to write the necessary training manuals,
organize the facility, and coordinate the hiring and training of its managers.
By operating the training center as part of an ongoing dispatch location, the
managers receive training under actual and simulated dispatch conditions.
In 1992, the Washington State division of the Company entered into
a State retro program and has received rebates of its workers'
compensation costs because the Company's State loss experience rating is
less than premium rates charged for coverage.
The business of temporary labor is one that is easily entered by
small operators. Certain economies of scale can be achieved, however,
by the expansion of the operations beyond small local sites.
Additionally, larger temporary help companies also have the financial
ability to hire in house insurance and other specialists. This helps to
assure that various claims, such as workers' compensation, unemployment,
and garnishment claims, are controlled and processed in a timely
fashion. The Company has already expended the time and effort necessary
to develop computer software and hardware systems for monitoring company
performance, and is capable of producing reports to single location
detail as needed. The Company's systems for monitoring and controlling
workers' compensation claims also affords the company a competitive
advantage over smaller operators with less sophisticated systems.
The Company has grown, in part, through acquisition of existing
operations and/or hiring employees of businesses which have ceased
operations. Of the 119 dispatch halls open at March 20, 1996, 113
dispatch halls have been operated from inception as company owned
dispatch halls. Additional dispatch halls will be acquired or opened
when attractive market opportunities are identified. The Company has
standardized the basic dispatch hall concept and can now open new
dispatch halls in four to six weeks while maintaining control over
start-up costs.
When penetrating new markets, the Company allows for an initial
advertising budget to generate an awareness of the new business. The
Company also attempts to follow initial penetration with additional
dispatch halls as warranted by the area demographics. This expansion
allows a rapid build up of the temporary labor base needed to operate
successfully in a given area.
Economic Conditions. Historically, the general level of economic
activity in the Company's markets has significantly affected the demand
for temporary labor in the construction and manufacturing trades. As
economic activity increases, temporary employees are often added to the
work force before permanent employees are hired. As economic activity
slows, the use of temporary personnel is generally curtailed before
permanent employees are laid off. The Company has been expanding
rapidly as general economic conditions have improved. No assurances can
be given, however, that general economic activity will continue to
improve, that the Company will benefit from such improvement, or that
the Company's rapid expansion will continue. A slow down in general
economic activity would have a material adverse effect on the Company's
business and results of operations, and could create material cash flow
shortages.
Competition. The Company markets its temporary labor to customers
primarily in the construction and manufacturing trades. Marketing is
accomplished through yellow pages advertising and direct mail campaigns.
Word of mouth also provides a significant source of new business for the
Company. The temporary services industry is highly competitive with
limited barriers to entry. The Company competes in national and local
markets with other suppliers of temporary help. Many of these
competitors have substantially greater financial and marketing resources
than those of the Company. The availability to the Company's customers
of multiple temporary service providers creates significant pricing
pressure as competitors compete for the available demand, and this
pricing pressure adversely impacts operating margins. Increasing
competition in the future will limit the Company's ability to maintain
or increase its market share or maintain its operating margins, and
could have a material adverse effect on the Company's business,
financial condition and operating results.
At the present time, the Company is a growing international
temporary help business in a market dominated by large international
companies. To minimize direct competition with the large national temporary
service companies, the Company has focused on a market niche available for
dispatch halls to provide temporary help on very short notice. This
niche has been largely ignored by the large national companies, who
choose instead to rely on telephone marketing for customer orders in
advance of the need. The Company's use of the dispatch hall concept
allows the Company to provide temporary help on the day of the order.
The Company opens its dispatch halls at 5:30 a.m. for this purpose and
laborers available for work wait on location for an assignment.
Other Operational Considerations. The Company is not dependent on
any individually large customers for a majority of its revenues. While
a single dispatch hall may derive a majority of its revenues from a
single customer, the loss of that customer on the overall organization
would not have a significant impact on revenues. At present, the
Company has in excess of 40,000 customers.
The Company currently employs a total of 80 administrative and
executive staff in the corporate office, and 370 personnel in the
dispatch halls as managers and support staff. The Company operates with
a pool of temporary laborers numbering between 4,000 and 8,000
depending on seasonal fluctuations and demand.
The Company's business is not presently dependent on any patents,
licenses, franchises, or concessions. The Company's name, "Labor Ready,
Inc." and associated trademarks are protected within its region of
operation, and the Company is licensed to offer franchises. To date the
Company has only one franchisee with three locations, and is not currently
pursuing other franchising operations. The Company's name and trademarks will
continue to be protected so long as the Company utilizes the name and
trademarks in its operations.
The Company's business operations focus on providing temporary
help to the construction and manufacturing trades. The construction
trade in particular, and other customer businesses to a lesser degree,
are significantly affected by the weather. The construction trade
activity increases in the spring and summer, and then tapers off as late
fall and winter weather hinders outdoor activities. Inclement weather
during the normally mild spring and summer months can also slow
construction activities. Conversely, mild fall and winter periods can
result in greater than usual construction business. The Company
anticipates a significant increase in temporary labor demand in the
spring and summer, and a slow down of the demand in the winter months.
An adverse weather cycle could have a material adverse impact on the
Company's revenues in any given period, and could materially adversely
affect future operations.
Additionally, general economic conditions impact revenues over
time. In periods of improving economic conditions, the demand for
temporary labor rises as companies staff to meet their own rising
revenues activities. When a general economic slowdown occurs, the
temporary labor is generally the first group of workers terminated, and
the Company experiences the termination as a slow down in revenues. The
current economic climate in the Company's region of operation is
generally trending up, and the Company has been experiencing increased
revenues at existing dispatch halls. Should economic conditions change,
this trend could reverse and adversely affect the Company's revenues and
results of operations.
The Company is responsible for and pays workers' compensation
costs and unemployment insurance premiums for its temporary employees.
As part of the presently contemplated health care reform, recent federal
and state legislative proposals have included provisions that would
mandate health care coverage for the Company's temporary personnel who are
not presently covered under another health care plan. There can be no
assurance that the Company will be able to increase fees charged to its
customers to offset the increased costs if workers' compensation rates or
unemployment insurance premiums increase, or if the Company is required
to provide health care coverage for its temporary employees. Currently,
the Company does not provide health care coverage to its temporary
workers. A material increase in these costs could, therefore, have a
material effect on the Company's financial condition and results of
operations. It is likely that any impact from health care legislation which
affects the Company, would also affect other temporary service providers, and
the Company's competitive position in the industry would not necessarily be
adversely affected.
The Company has experienced significant growth in revenues during
1993, 1994, and 1995, and expects this growth to continue. This growth
requires substantial working capital to fund operating activities,
capital expenditures, and establishing new dispatch halls. Moreover,
the ability of the Company to continue to increase revenues will depend
on a number of factors, including general economic conditions, existing
and emerging competition, availability of workforce, and the
availability of working capital to support the growth. The Company may
face pricing pressures that will make it more difficult to maintain
operating margins. There can be no assurances that the Company will be
able to obtain the necessary working capital or to recruit and train
qualified personnel to staff continued growth, or that it will be able
to hold costs in line with historical levels as, and if the growth
continues.
The Company is currently expanding its operations through the
addition of new dispatch hall locations. The Company is also operating
with limited capital and the costs of expansion create a continuing
drain on existing cash flows. The Company is a growing international
provider of temporary help services competing against larger regional
and international companies, and is faced with all of the usual business
risks associated with a growth oriented business in a competitive
market. There can be no assurances that the Company's efforts at
expansion can be successfully accomplished, or that the expansion will
be profitable.
Planned Operational Growth. The Company intends to continue
expansion through the year 2000 through the opening of new start-up
dispatch halls. As the business grows, the Company is continuing to
upgrade its proprietary computer software used to control Company
operations and maintain employee records. From January 1, 1995, through
December 31, 1995, the Company opened 55 additional dispatch halls, and
13 new dispatch halls were opened by March 20, 1996.
Item 2. Properties.
In February, 1995, the Company purchased a labor dispatch building which
doubles as a training center and supplies inventory warehouse facility
in Tacoma, Washington. In March, 1995, the Company also purchased a
24,000 square foot facility in Tacoma, Washington which serves as its
headquarters and administrative office building. The headquarters
location is currently being remodeled to accommodate the Company's
continuing expansion. The new headquarters building replaces the facility
located at 2342 Tacoma Avenue South, in Tacoma, Washington. The 2342 Tacoma
Avenue location is owned by the Company, but is listed for lease, at this
time, and is not being used in operations. The Company owns dispatch buildings
in Kent, Washington, and Kansas City, Missouri. Prior to March, 1996, the
Company also owned its dispatch building in Spokane, Washington. In
March, 1996, the Company sold the building, and now leases facilities
in Spokane. All other dispatch offices are leased, and the leases
generally include ninety day buyout clauses. The Company presently
operates dispatch halls in 32 states and Canada. All of the Company's
facilities are currently believed by management to be suitable for their
intended use. At present growth rates, management anticipates that the
Company will outgrow its existing corporate facilities in 1998.
Item 3. Legal Proceedings.
The Company is involved in various lawsuits arising in the ordinary course of
business which will not, in the opinion of management, either individually or
in the aggregate have a material effect on the Company's results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the security holders during the fourth
quarter of the year ended December 31, 1995.
PART II
Item 5. Market Price of, and Dividends on the Registrant's Common Equity
and Related Stockholder Matters.
The Company's common stock is traded over-the-counter and has limited
liquidity. The high and low bids for the last two years were as follows:
Quarter Ended High* Low*
March 31, 1994 $2.67 $1.34
June 30, 1994 3.67 2.67
September 30, 1994 5.17 3.67
December 31, 1994 6.50 5.17
March 31, 1995 7.50 6.00
June 30, 1995 15.33 6.67
September 30, 1995 14.33 11.58
December 31, 1995 19.00 12.50
*Dollar amounts are adjusted to reflect a three for
two forward stock split which was effective on
November 22, 1995.
The Company had 655 shareholders of record as of December 31, 1995. The
quotation information has been derived from the Electronic Bulletin Board
Quotation System operated by the National Association of Securities Dealers,
Inc. The bid price is the price between broker/dealers and does not include
retail markups or markdowns or commissions. The bid price does not reflect
prices in actual transactions. No cash dividends have been declared on the
Company' Common Stock to date and the Company does not intend to pay a cash
dividend on common stock in the foreseeable future. Future earnings will be
used to finance the growth and development of the Company.
Item 6. Selected Financial Information.
The following selected consolidated financial data of the Company has been
derived from its Consolidated Financial Statements. The Consolidated Financial
Statements for the years ended December 31, 1995 and December 31, 1994 were
audited by BDO Seidman, LLP, whose report thereon appears elsewhere herein.
The Consolidated Statements of Operations, Changes in Stockholders' Equity,
and Cash Flows for the year ended December 31, 1993, have been examined by
Terrence J. Dunne, CPA, independent certified public accountant, whose report
thereon appears elsewhere herein. The data should be read in conjunction with
the Company's Consolidated Financial Statements and the notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein.
Dollars in Thousands Except Per Share Amounts
- ------------------------------------------------------------------------------
INCOME STATEMENT DATA
Year Ended December 31 1995 1994 1993 1992 1991
------ ------ ------ ------ ------
REVENUE
Revenues from services $94,361 $38,951 $15,659 $ 8,424 $ 6,020
Cost of services 76,643 30,713 12,401 6,485 4,831
------ ------ ------ ------ ------
Gross profit 17,718 8,238 3,258 1,939 1,189
EXPENSES
Selling, general, &
administrative expenses 13,639 6,593 2,652 1,482 1,717
------ ------ ------ ------ ------
Income from operations 4,079 1,645 607 457 (528)
Interest and other , net (866) (457) (354) (278) (187)
------ ------ ------ ------ ------
INCOME (LOSS) BEFORE INCOME
TAX AND EXTRAORDINARY ITEM 3,213 1,188 253 180 (715)
INCOME TAX 1,152 336 32 21 --
EXTRAORDINARY ITEM, NET OF TAX -- -- 48 -- --
------ ------ ------ ------ ------
NET INCOME (LOSS) 2,062 852 269 159 (715)
EARNINGS (LOSS) PER COMMON SHARE
Income before extraordinary item $0.34 $0.18 $0.04 $0.06 $(0.26)
Extraordinary item -- -- 0.02 -- --
Net income $0.34 $0.18 $0.06 $0.06 $(0.26)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Primary) 5,862 4,455 3,669 2,702 2,721
- ------------------------------------------------------------------------------
BALANCE SHEET DATA
At December 31 1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Total current assets 20,216 7,572 2,313 1,454 812
Total assets 26,182 8,912 3,153 1,880 1,149
Total current liabilities 7,956 5,631 1,706 1,086 436
Total long term liabilities 9,695 319 777 577 733
Total Liabilities 17,650 5,950 2,483 1,664 1,168
Stockholder's Equity 8,531 2,962 670 216 (19)
Working capital 12,260 1,941 607 368 377
- ------------------------------------------------------------------------------
Item 7. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Results of Operations.
1995 Compared to 1994. The Company's revenues increased to $94,361,629
from the $38,950,683 for the year ended December 31, 1995, as compared
to the year ended December 31, 1994. This represents an increase of
$55,410,946 or 142%. The sales increase came from an increase in same
store sales, and from the opening of new locations, as indicated below:
Same store sales $13,741,807
New locations $41,669,139
-----------
Total increase $55,410,946
The increase in revenues also resulted in an increase in net profit for
the year ended December 31, 1995 of $2,061,807 compared to a net profit
of $851,805 for the same period a year earlier. This represents an
increase of $1,210,002 or 142%. 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 as a percentage of revenues at
2.2% in 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 106 operating locations at December 31, 1995, an increase of
fifty-five operating dispatch locations for the year.
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 $1,925,000 was expended on new
location openings for the year ended December 31, 1995, compared to
$850,000 for the year ended December 31, 1994. The costs of opening new
dispatch locations continues to increase. The increases are primarily the
result of a longer manager training period at Labor Ready University and
the added opening costs related to the upgraded computer software.
In order to maintain pace with the Company's growth, during 1995, the Company
underwent a significant upgrade of its computer systems. The upgraded system
is now designed to accommodate continuing growth, and provides management with
all of the informational tools needed to manage the increasing number of
locations. The costs of the computer system upgrades have been capitalized and
are reflected as fixed assets on the balance sheet.
Cost of revenues increased to $76,642,962 for the year ended December
31, 1995 from $30,712,945 for the same period in 1994, an increase of
$45,930,017 or 150%. Cost of revenues as a percentage of revenues
increased to 81.2% for the year ended December 31, 1995, from 78.8% for
the year ended December 31, 1994, an increase of 2.4%. This increase in costs
as a percentage of revenues is primarily the result of the Company's use of
lower introductory rates to attract new customers at new stores.
Operating expenses increased to $13,639,034 from $6,592,555 in 1995
compared to 1994, an increase of $7,046,479 or 107%. As a percentage of
revenues, operating expenses decreased to 14.5% for the year ended
December 31, 1995, from 16.9% 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, and economies of scale which
have accompanied the high levels of growth.
The Company has a net deferred tax asset of $715,407 at December 31, 1995,
resulting primarily from temporary timing differences. 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 benefit from the
asset will be realized in the current period based on the historical levels of
pre-tax income.
1994 Compared to 1993. The Company earned a net income for the year
ended December 31, 1994 of $851,805 vs. a net income of $ 269,008 for
the same period a year earlier; a difference of $582,797.
The primary factor creating the net increase in profits was the fact
that management made the decision to rapidly expand its operations in
1994. This expansion resulted in an increase in revenues. The Company
grew from seventeen operating dispatch halls at December 31, 1993 to
fifty-one operating and reporting dispatch halls at December 31, 1994 .
The Company had a negative cash flow from operating activities for 1994
in the amount of $2,250,551, and a net cash outlay for capital
expenditures in the amount of $593,460. The total of $2,844,111 was
financed by borrowings in the amount of $2,062,188 and net proceeds from
the issuance of equity securities in the amount of $1,130,223, leaving a
net cash surplus for the year.
For the year ended December 31, 1994 revenues increased to $38,950,683 from
$15,658,832 for the year earlier period, an increase of $23,291,851 or 149%.
Costs of revenues and related selling, general, and administrative expenses
increased proportionately. Thirty-four new dispatch halls were opened in
the year ended December 31, 1994 which generated revenues of $13,255,922.
A summary of the revenues for the years ended 1994 and 1993 follow:
1994 1993
Revenues Per Hall Revenues Per Hall
17 existing dispatch halls $ 25,694,761 $1,511,457 $ 15,658,832 $ 921,108
34 new dispatch halls $ 13,255,922 $ 389,880
Selling, general, and administrative expenses increased from $2,651,702
to $6,592,555, an increase of $3,940,853 or 149%, reflecting additional
salaries and expenses needed for the Company's continued growth and expansion.
In the aggregate, as a percentage of revenues, selling, general, and
administrative expenses did not change. Salaries increased to $1,130,168 from
$517,588. The increase represents normal salary adjustments which occur on an
annual basis. Administrative expenses increased in 1994 compared to 1993 as a
result of the Company's continuing growth. Increases within line item
categories are either proportional to the increase in revenues or are not
material.
Repairs and maintenance increased as a percentage of revenues, from .5%
to 1.2 %. The increase was due to the updating of existing dispatch
halls and new dispatch location expansion. Contract and professional
fees increased as a percentage of revenues to 2.0% from 1.2%. The
increase was primarily related to the increased need for professional
services in connection with expansion activities, workers' compensation
advisory services, employee testing, general corporate governance
activities, and legal and auditing costs. Uncollectible accounts
decreased as a percentage of revenues to .9% from 1.7%. The decrease
was due in part to the Company's development of computer software for
control management of customer credit. Management continues to monitor
uncollectible accounts and the Company continues with a policy of
aggressively pursuing delinquent accounts in order to control future
uncollectibles.
In 1994, the Company incurred interest charges on borrowings of
$510,772, an increase of $155,753 over 1993. The impact of the increase
in interest charges was lessened somewhat by a reduction in the
effective rate charged the Company for its operating line of credit.
The reduction resulted in a decrease in interest charges to 1.3% from
2.3%, as a percentage of revenues.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," (SFAS No. 109), effective
December 31, 1993. SFAS No. 109 requires a company to recognize deferred tax
assets and liabilities for the expected future income tax consequences of
events that have been recognized in a company's financial statements. Under
this method, deferred tax liabilities and assets are determined based on the
temporary differences between the financial statement carrying amounts and tax
bases of assets and liabilities using enacted tax rates in effect in the years
in which the temporary differences are expected to reverse.
Liquidity and Capital Resources.
During 1995 and 1994, the Company used net cash in operating activities of
$3.7 million and $2.25 million, respectively, an increase of 64.4%, reflecting
the significant growth in the Company's revenues and accounts receivable, and
opening of 54 new offices. Management anticipates continuing cash flow
deficits from operations while the Company's growth in the number of offices
continues at a rapid rate. Management expects such cash flow deficits will be
financed by short term lines of credit, long term debt and sale of additional
equity securities.
The Company financed its operations and growth in 1995 primarily through debt
financing. In early 1995, holders of outstanding warrants to purchase the
Company's common stock agreed to exercise 474,960 warrants for 474,960 shares
of common stock with an aggregate exercise price of $1.78 million. In
August 1995, the Company and its lender agreed to expand the size of its
operating line of credit (secured by accounts receivable) from $6 million to
$9 million.
In October 1995, the Company completed a private placement financing of $10
million in 13.0% Senior Subordinated Notes (the "Notes") which netted the
Company $9.2 million. Under the terms of the Notes, which require principal
payments beginning in 1998 and mature in 2002, the Company pledged its
remaining assets as collateral and agreed to issue warrants to the purchasers
of the Notes to purchase 10% of the outstanding common stock of the Company at
an exercise price of $11.67 per shares (as adjusted for the Company's recent 3
for 2 stock split). The warrants are exercisable at any time prior to the
seventh anniversary of the Notes and six years from the date the Notes are
paid in full.
In connection with the issuance of the Notes, the amount of the Company's
operating line of credit was reduced to $5 million and the terms extended
through June 1996. Subsequent to year end, the Company refinanced its
existing line of credit. The Company obtained from U.S. Bank of Washington
a new revolving credit facility which provides for borrowing of up to $10
million secured by accounts receivable. As of March 28, 1996, the Company
borrowed $4.4 million against this line. The U.S. Bank line of credit bears
interest at a rate of prime plus 1/4%
There is some uncertainty in connection with government regulation and
health care proposals, and the effects such proposals would have on the
temporary help industry if new laws were enacted. It is generally believed
that health care reform would have the effect of increasing costs of
temporary employees to the Company and no assurances can be given that such
increased costs could be passed on to the Company's customers. The Company is
also aware that workers' compensation costs and unemployment insurance
premiums are generally increasing. The Company has not, however, experienced
a significant variance in its rates due to its efforts to hold such costs
down through internal monitoring and control, as well as its participation
in a cooperative workers' compensation rebate association. At present, the
Company is not aware of any material trends or uncertainties that will have
a material impact on short or long-term liquidity, other than those discussed
above.
During 1996, the Company expects to continue opening new dispatch halls.
The capital requirement of such openings costs $30,000 to $50,000, and
new location start-up costs will be a continuing drain on liquidity.
The Company intends to finance new dispatch halls with available cash
from lines of credit and internally generated cash flows. To the extent
that the Company's resources are not sufficient to finance new location
start-ups, or are not sufficient to open all currently targeted dispatch
halls, the Company would scale back its expansion plans. In such event,
the Company's growth rate would slow or cease, and operating results
could be adversely affected. At present, the Company has adequate
capital to open all dispatch halls for which it has made commitments.
Inflation is not expected to have a material impact on the Company's
operations in the near future. As inflation continues to affect pricing in
the general economy, the cost of labor will likely increase. As labor costs
generally increase, Management believes that the Company will be in a position
to increase its pricing to its customers at a corresponding rate. As a result,
inflation may impact the Company's total revenues, but should not impact to
any significant degree, the bottom line.
Recent Accounting Pronouncements
In October, 1995, the Financial Accounting Standards Board (FASB), issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which requires that companies recognize the cost of
stock-based employee compensation on the fair value of the stock options. SFAS
No. 123 is effective for financial statements issued for fiscal years
beginning after December 15, 1995, and is not expected to have a significant
impact on the Company's financial statements.
In March, 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
statement requires that long-lived assets and certain intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. The measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be
based on the fair value of the asset. SFAS No. 121 is effective for financial
statements for fiscal years beginning after December 15, 1995, and is not
expected to have a significant impact on the Company's financial statements.
Item 8. Financial Statements and Supplementary Data.
The financial statements are located on pages 15 through 35 of this
Form 10-K. The financial statements Table of Contents is located on
page 15.
LABOR READY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
Independent Auditors' Report 16-17
Consolidated Balance Sheets
at December 31, 1995 and 1994 18-19
Consolidated Statements of Income
for the Years Ended December 31, 1995, 1994 and 1993 20
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1995, 1994 and 1993 21
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1995, 1994 and 1993 22-23
Summary of Accounting Policies 24-26
Notes to Consolidated Financial Statements 27-35
All financial statement schedules are omitted because they are not
applicable, not required, or the information required to be set forth
therein is included in the financial statements or the notes thereto.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
The Board of Directors and Stockholders of
Labor Ready, Inc.
We have audited the accompanying consolidated balance sheets of Labor
Ready, Inc. and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of income, stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Labor Ready, Inc. and subsidiaries at December 31, 1995 and
1994 and the consolidated results of their operations and their cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
Spokane, Washington /s/BDO Seidman, LLP
March 6, 1996
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders of
Labor Ready, Inc.
I have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Labor Ready, Inc. for the year
ended December 31, 1993. These financial statements are the
responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted an audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. I believe that my audit
provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows for the year ended December 31, 1993 of Labor
Ready, Inc. in conformity with generally accepted accounting principles.
Terrence J. Dunne
Certified Public Accountant
February 7, 1994
As restated June 22, 1994
LABOR READY, INC. Consolidated Balance Sheets
ASSETS
December 31, 1995 1994
- ------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 5,359,113 $ 603,977
Accounts receivable, less allowance
for doubtful accounts of
$868,607 and $365,927 (Notes 2 and 12) 12,182,806 5,162,830
Workers' compensation deposits and
credits (Note 1) 1,886,644 1,337,369
Prepaid expenses and other 602,052 348,814
Deferred income taxes (Note 9) 185,011 118,590
--------- --------
Total current assets 20,215,626 7,571,580
Property and equipment (Note 3):
Buildings and land 1,536,086 366,920
Computers and software 2,005,985 704,150
--------- --------
3,542,071 1,071,070
Less accumulated depreciation 690,648 244,497
Property and equipment, net 2,851,423 826,573
--------- --------
Other assets:
Intangible assets, less amortization
of $114,588 and $69,020 962,632 191,431
Workers' compensation deposits and credits,
less current portion (Note 1) 1,427,905 105,832
Deferred income taxes (Note 9) 530,396 94,366
Other 193,653 122,194
--------- --------
Total other assets 3,114,586 513,823
--------- --------
Total assets (Notes 2 and 4) $26,181,635 $ 8,911,976
- ------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated
financial statements
LABOR READY, INC. Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 1995 1994
- ------------------------------------------------------------------------------
Current liabilities:
Checks issued against future deposits $ 514,842 $ -
Accounts payable 1,118,081 364,639
Accrued wages and related expenses 1,588,147 821,487
Workers' compensation claims (Note 1) 1,943,338 708,869
Income taxes payable (Note 9) 1,161,000 497,000
Note payable (Note 2) 1,591,206 3,160,580
Current maturities of long-term debt (Note 3) 39,117 78,291
----------- ----------
Total current liabilities 7,955,731 5,630,866
----------- ----------
Long-term liabilities:
Long-term debt, less current maturities (Note 3) 953,937 244,250
Subordinated debt, less unamortized discount
of $1,259,377 (Note 4) 8,740,623 -
Convertible debentures (Note 6) - 75,000
----------- ----------
Total long-term liabilities 9,694,560 319,250
----------- ----------
Total liabilities: 17,650,291 5,950,116
----------- ----------
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $0.667 par value (Note 7):
5,000,000 shares authorized; issued
and outstanding 1,281,123 shares 854,082 854,082
Common stock, no par value (Note 8)
25,000,000 shares authorized; issued and
outstanding, 5,879,133 and 4,971,594 shares 7,116,422 3,540,187
Cumulative foreign currency translation adjustment (28,707) (2,853)
Retained earnings (accumulated deficit) 589,547 (1,429,556)
Total stockholders' equity 8,531,344 2,961,860
Total liabilities and stockholders' equity $26,181,635 $ 8,911,976
- ------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
LABOR READY, INC. Consolidated Statements of Income
Year Ended December 31, 1995 1994 1993
Revenues from services $94,361,62 $38,950,683 $15,658,832
Costs and expenses:
Cost of services 76,642,962 30,712,945 12,400,599
Selling, general and administrative 13,639,034 6,592,555 2,651,702
Interest and other, net 866,113 457,378 353,569
---------- ---------- ----------
Income before taxes on income
and extraordinary item 3,213,520 1,187,805 252,962
Taxes on income (Note 9) 1,151,713 336,000 31,775
---------- ---------- ----------
Income before
extraordinary item 2,061,807 851,805 221,187
Extraordinary item - forgiveness of debt
(net of income tax effect of $24,635) - - 47,821
--------- ---------- ----------
Net income $2,061,807 $ 851,805 $ 269,008
--------- ----------- ----------
Earnings per common share:
Income before extraordinary item $ 0.34 $ 0.18 $0.04
Extraordinary item - - $0.02
--------- ----------- ---------
Net income $ 0.34 $ 0.18 $0.06
---------- ---------- ----------
Weighted average shares outstanding 5,861,500 4,454,883 ,668,585
- ------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
LABOR READY, INC. Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993.
Cumulative
Retained Foreign
Earnings Currency
Common Stock Preferred Stock (Accumulated Translation
Shares Amount Shares Amount Deficit) Adjustment
- ------------------------------------------------------------------------------------------------------------------------
Balance, Jan. 1, 1993 2,524,902 $1,819,756 1,504,632 $1,003,088 ($2,606,516) $ -
- ------------------------------------------------------------------------------------------------------------------------
Net income for the year - - - - 269,008 -
Common stock exchanged for:
Equipment from related
party 60,000 8,000 - - - -
Notes 142,500 95,000 - - - -
Services 8,100 2,850 - - - -
Real estate 49,341 37,500 - - - -
Software 4,500 7,500 - - - -
Common stock sold
for cash 22,500 11,250 - - - -
Common stock options
exercised 1,079,310 143,908 - - - -
Debentures converted 13,158 10,000 - - - -
Preferred stock dividend - - - - (50,154) -
- ------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1993 3,904,311 2,135,764 1,504,632 1,003,088 (2,387,662) -
- ------------------------------------------------------------------------------------------------------------------------
Net income for the year - - - - 851,805 -
Debentures converted 356,843 271,200 - - - -
Common stock issued
from private placement 712,440 1,130,223 - - - -
Preferred stock canceled - - (223,509) (149,006) 149,006 -
Common stock canceled
on lapsing subscriptions (3,500) (2,000) - - - -
Common stock issued
for services 1,500 5,000 - - - -
Foreign currency translation - - - - - 2,853)
Preferred stock dividend - - - - (42,705) -
- ------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1994 4,971,594 3,540,187 1,281,123 854,082 (1,429,556) (2,853)
- ------------------------------------------------------------------------------------------------------------------------
Net income for the year - - - - 2,061,807 -
Common stock issued on
conversion of debt 119,972 382,364 - - - -
Common stock issued
for 401(k) Plan 1,197 7,679 - - - -
Common stock issued
from private placement 14,000 69,998 - - - -
Common stock issued on
warrants exercised 742,370 1,781,100 - - - -
Common stock issued on
the exercise of options 30,000 45,000 - - - -
Detachable stock warrants - 1,290,094 - - - -
Preferred stock dividend - - - - (42,704) -
Foreign currency translation - - - - - (25,854)
- ----------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1995 5,879,133 $7,116,422 1,281,123 $854,082 $589,547 $(28,707)
- -----------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated financial statements.
LABOR READY, INC. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993.
Increase (Decrease) in Cash and Cash Equivalents
Year Ended December 31 1995 1994 1993
Cash flows from operating activities:
Net income: $2,061,807 $ 851,805 $ 269,008
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 522,436 178,416 65,135
Common stock issued for services - 5,000 2,850
Provision for doubtful accounts 1,084,526 341,799 119,049
Forgiveness of debt, extraordinary - - (72,456)
Deferred income taxes (502,451) (260,000) 47,044
Changes in assets and liabilities:
Accounts receivable (8,104,502) (3,597,793) (1,045,788)
Workers' compensation deposits
and credits (1,871,348) (1,265,962) (177,239)
Prepaid expenses and other (324,697) (234,221) (44,224)
Accounts payable 753,442 239,186 46,353
Accrued wages and benefits 774,339 535,281 188,021
Accrued workers'
compensation claims 1,234,469 458,938 173,038
Income taxes payable 664,000 497,000 (20,717)
- ------------------------------------------------------------------------------
Net cash used in operating activities (3,707,979) 2,250,551) 449,926)
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (2,471,001 (549,959) (176,383)
Intangible assets acquired - (43,501) -
- -----------------------------------------------------------------------------
Net cash used in investing activities (2,471,001) (593,460) (176,383)
- -----------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
LABOR READY, INC. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993.
Increase (Decrease) in Cash and Cash Equivalents
Year Ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings on note payable (1,569,374) 2,177,409 163,771
Checks issued against future deposits 514,842 - -
Proceeds from issuance of common stock 69,998 1,130,223 11,250
Proceeds from warrants exercised 1,781,100 - -
Proceeds from options exercised 45,000 - -
Debt issue costs (816,769) - -
Proceeds from stock subscriptions - 79,325 13,675
Proceeds from issuance of
convertible debentures - - 356,200
Borrowings on long-term debt 11,529,951 74,000 10,000
Payments on long-term debt (552,074) (189,221) (103,075)
Dividends paid (42,704) (50,154) -
- ----------------------------------------------------------------------------
Net cash provided by financing activities 10,959,970 3,221,582 451,821
- ----------------------------------------------------------------------------
Effect of exchange rates (25,854) (2,853) -
Net increase (decrease) in cash
and cash equivalents 4,755,136 374,718 (174,488)
Cash and cash equivalents:
Beginning of year 603,977 229,259 403,747
- -----------------------------------------------------------------------------
End of year $5,359,113 $ 603,977 $ 229,259
- -----------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $1,302,929 $ 513,497 $ 344,302
========== ========= =========
Income taxes paid $ 990,164 $ 99,000 $ 46,552
========== ========= =========
Non-cash investing and financing activities:
Issuance of common stock for subscriptions,
assets and debt - - $ 278,233
=========
Issuance of common stock for conversion
of promissory notes $ 307,364 - -
==========
Contribution of common stock to employer
401(k) plan $ 7,679 - -
==========
Assets acquired in exchange for note - $ 35,000
=========
Debt forgiven - - $ 2,456
=========
Cancellation of preferred stock - $ 149,006 -
=========
Issuance of common stock for conversion
of convertible debentures $ 75,000 $ 271,200 $ 10,000
========== ========= =========
Refinance of note payable, net - $ 2,000 -
=========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
LABOR READY, INC.
Notes to Consolidated Financial Statements
Organization
The consolidated financial statements include the accounts of Labor Ready,
Inc. and its wholly-owned subsidiary Labour Ready Temporary Services
Limited (collectively referred to as "the Company"). The Company's
principal business activity involves providing temporary help services to
construction and small manufacturing companies in the United States and
Canada. The Company was incorporated under the laws of the State of
Washington on March 19, 1985.
All intercompany balances and transactions have been eliminated in
consolidation.
Revenue recognition
Revenues from services and the related cost of services are recorded in the
period in which the services are performed. Franchise activity and fees
are minimal.
Cash and cash equivalents
The Company considers all highly liquid instruments purchased with a
remaining maturity of three months or less to be cash equivalents.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the respective
assets.
Intangible assets
The intangible assets primarily consist of deferred financing costs,
customer lists, and non-compete agreements. The deferred financing costs
resulted from the issuance of subordinated debt. The deferred financing
costs are being amortized over the life of the subordinated debt.
Amortization of the other intangible assets is computed using the straight
line method over periods not exceeding ten years. Management evaluates, on
an ongoing basis, the carrying value of the intangible assets and makes a
specific provision against the asset when an impairment is identified.
Income taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". Deferred income taxes are provided for temporary
differences between the financial reporting and tax basis of assets and
liabilities. Deferred taxes are measured using enacted tax rates in effect
in the years in which the temporary differences are expected to reverse.
Tax credits are accounted for as a reduction of income taxes in the year in
which the credit originates.
LABOR READY, INC.
Notes to Consolidated Financial Statements
Earnings per share
The primary earnings per common share was computed by dividing the net
income less preferred stock dividends by the weighted average number of
shares of common stock and common stock equivalents outstanding for all
periods presented. Fully diluted earnings per share does not differ
materially from primary earnings per share. In 1995, the Company declared
a stock split which has been retroactively applied for 1994 and 1993, in
the determination of the weighted average number of shares of common stock
and common stock equivalents outstanding.
Foreign currency translation
Assets and liabilities of Labour Ready Temporary Services Limited are
translated at the rate of exchange in effect on the balance sheet date;
income and expenses are translated at the weighted average rates of
exchange prevailing during the year. The related translation adjustments
are reflected in the accumulated translation adjustment section of the
stockholders' equity.
Workers' Compensation
The Company is generally self-insured for losses and liabilities related to
workers' compensation claims. The Company establishes for provisions for
future claim liabilities based on the estimates of the ultimate cost of
claims and claim losses (including future claim adjustment expenses) that
have been reported but not settled, and of losses that have been incurred
but not reported. Adjustments to the claims reserve are charged or
credited to expense in the periods in which they are made.
Management's Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Advertising Costs
The company adopted Statement of Position 93-7, "Reporting on Advertising
Costs." This statement was issued by the American Institute of Certified
Public Accountants and requires the Company to expense the costs of
advertising as incurred or the first time that the advertising takes place.
The adoption of this standard did not have a significant effect on the
financial statements of the Company.
LABOR READY, INC.
Notes to Consolidated Financial Statements
Stock-Based Compensation
In October, 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires that companies recognize the cost of stock-
based employee compensation plans based on the fair value of the stock
options. SFAS No. 123 is effective for financial statements issued for
fiscal years beginning after December 15, 1995, and is not expected to have
a significant impact on the Company's financial statements.
Accounting for Long-Lived Assets
In March, 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This statement requires that long-lived assets and certain
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The measurement of an
impairment loss for long-lived assets and identifiable intangibles that an
entity expects to hold and use should be based on the fair value of the
asset. SFAS No. 121 is effective for financial statements for fiscal years
beginning after December 15, 1995, and is not expected to have a
significant impact on the Company's financial statements.
Reclassification
Certain items in the 1994 and 1993 consolidated financial statements have
been reclassified to conform to the classifications used in 1995.
LABOR READY, INC.
Notes to Consolidated Financial Statements
NOTE 1 - WORKERS' COMPENSATION CREDITS RECEIVABLE
As required by the laws in the various states in which Labor Ready, Inc.
does business, the Company provides workers' compensation insurance to its
temporary labor force and office staff. Each state has specific workers
compensation programs and requirements regarding the deposit of funds for
the payment of workers compensation claims and related claim settlement and
administrative expenses. In Washington, Nevada and Ohio (the
"monopolistic" states), the Company is required to make payments at a pre-
established rate directly with the state employed workers' compensation
administrator who in turn disburses funds for the settlement of claims and
related expenses. Amounts paid with these state administered programs
which are not expected to be disbursed for claims and claim related
expenses are returned to the Company over a one-year period beginning one
year from the end of the period covered. At December 31, 1995 and 1994,
the Company had recorded workers' compensation deposits and credits
receivables from the monopolistic states of $967,644 and $312,626.
Workers' compensation claims in the remaining states (the "non-
monopolistic" states) are administered by a third party administrator
engaged by the Company. These non-monopolistic states allow a fronting
insurance company to guarantee Labor Ready's ability to pay these claims
and related expenses as they occur, and allow the use of Company managed or
selected claims administrators.
In 1995, the Company deposited $4.6 million with a foreign off-shore
company for the payment of workers' compensation claims and related
expenses on claims originating in the non-monopolistic states. At December
31, 1995, $2.3 million remains on deposit for the payment of future claims
and is recorded as workers' compensation deposits and credits. Estimated
incurred losses and related settlement and administrative expenses to be
paid from those deposits of $1,380,000 are recorded as current workers'
compensation claims payable at December 31, 1995.
In 1994, the workers' compensation for non-monopolistic states was
administered by a domestic third party administrator and insured by the
various states in which the Company employed workers. Workers compensation
expense of $5,907,771 and $3,126,601 was recorded in 1995 and 1994 as a
component of cost of services.
NOTE 2 - NOTE PAYABLE
The Company pledged its accounts receivable to a private financing company
for an accounts receivable revolving credit line. On October 31, 1995, the
Company renegotiated its loan agreement which changed the nature of the
borrowings to an asset based loan limited to the lesser of 80% of eligible
receivables (as defined in the credit agreement) or $5,000,000. Borrowings
under the line, which expires on April 30, 1996, are secured by the
Company's accounts receivable. Interest on borrowings is charged at prime
plus two percent plus a facility fee of one percent per annum and an
administrative fee equal to one-fifth of one percent per month. The
LABOR READY, INC.
Notes to Consolidated Financial Statements
agreement requires compliance with certain financial covenants principally
relating to working capital, debt to equity, and dividend payment
restrictions. As of December 31, 1995, the Company was in compliance with
the covenants except for the dividend payment restrictions, for which a
waiver was obtained.
Short-term borrowing activity was as follows:
1995 1994
- ------------------------------------------------------------------------------
Balance outstanding at year-end $1,591,206 $3,160,580
Stated interest rate at
year-end, including applicable fees 11.95% 11.25%
Maximum amount outstanding
at any month end $7,731,789 $4,483,762
Average amount outstanding $5,907,364 $2,898,549
Weighted average interest rate
during the year, including applicable fees 16.49% 15.27%
The average amount outstanding and the weighted average interest rate
during the year were computed based upon the average daily balances and
rates.
On February 15, 1996, the Company entered into an agreement with US Bank to
provide Labor Ready, Inc. with a $10,000,000 revolving line of credit with
an interest rate of prime plus one quarter of one percent maturing on
September 30, 1996. At the option of the Company, the interest rate can be
locked at the rate in effect as of the date this option is exercised. This
agreement replaces the Company's former line of credit. The line of credit
will be collateralized by all the Company's accounts, chattel paper,
contract rights and general intangibles.
LABOR READY, INC.
Notes to Consolidated Financial Statements
NOTE 3 - LONG-TERM DEBT
The Company's long-term debt at December 31 consists of the following:
1995 1994
- ------------------------------------------------------------------------------
Mortgage note payable - secured by a building in Tacoma,
Washington, payable at $4,721 per month through
May, 2005, including interest at 9.71% $523,124 $ -
Mortgage note payable - secured by a building in Tacoma,
Washington, payable at $1,736 per month through
January, 2015, including interest at 8.5% 196,707 -
Mortgage note payable - secured by a building in
Tacoma, Washington, payable at $1,637 per month
through February, 2004, including interest at 8% 112,366 122,589
Mortgage note payable - secured by a building in Kansas
City, Missouri, payable at $988 per month through
June, 2005, including interest at 10.5% 70,757 -
Mortgage note payable - secured by a building in
Kent, Washington, payable at $1,142 per month through
January, 2000, including interest at 9% 46,671 55,000
Mortgage note payable - secured by a building in Kansas
City, Missouri, payable at $601 per month through
March, 2004, including interest at 8% 43,429 46,999
Unsecured note payable to Washington State
Department of Labor & Industries, payable at
$4,342 per month through October, 1996,
including interest at 12%. Paid in full in 1995. - 85,953
Other notes payable - 12,000
- -----------------------------------------------------------------------------
Long-term debt 993,054 322,541
Less current maturities 39,117 78,291
- -----------------------------------------------------------------------------
Total long-term debt $953,937 $244,250
=============================================================================
LABOR READY, INC.
Notes to Consolidated Financial Statements
Scheduled long-term debt maturities at December 31, 1995 are as follows:
Year ending December 31, Amount
- ------------------------------------------------------------------------------
1996 $ 39,117
1997 45,360
1998 47,690
1999 52,097
2000 43,881
Thereafter 764,909
- ------------------------------------------------------------------------------
Total $ 993,054
==============================================================================
NOTE 4 - SUBORDINATED DEBT
In November, 1995, the Company issued subordinated debt with detachable
stock warrants in exchange for $10,000,000. The debt, which is secured by
substantially all assets of the Company, bears interest at 13% and is to be
repaid in 17 quarterly installments of $588,235 commencing in October 1998.
The Company recorded a debt discount and allocated $1,259,377 of the
proceeds to the value of the detachable stock warrants. (See note 8.) In
connection with arranging the debt agreement, the Company incurred costs of
approximately $800,000, which have been included in other assets and will
be amortized over the life of the debt. The debt agreement contains
various financial covenants, primarily related to minimum net worth,
capital additions and cash flow requirements, with which the Company was in
compliance at December 31, 1995.
Scheduled maturities of the subordinated debentures at December 31, 1995
are as follows:
Year ending December 31, Amount
1996 $ 0
1997 0
1998 588,235
1999 2,352,940
2000 2,352,940
Thereafter 4,705,885
- -----------------------------------------------------------------------------
Total 10,000,000
Less unamortized discount (1,259,377)
- -----------------------------------------------------------------------------
Subordinated debt, net of discount $ 8,740,623
==============================================================================
LABOR READY, INC.
Notes to Consolidated Financial Statements
NOTE 5 - RELATED PARTY DEBT
In 1995, officers of the Company provided cash in exchange for short term
notes payable. These notes payable were at an interest rate of 12% with
aggregated loans of $424,687. These notes payable were paid in full during
1995.
In January 1993, the officers used $143,908 of the related long-term debt
due related parties outstanding at December 31, 1992 to exercise common
stock options. The officers forgave $72,456 of this debt which is
reflected as an extraordinary item in 1993.
NOTE 6 - CONVERTIBLE DEBENTURES
In 1993, the Company sold $356,200 of convertible debentures. The
debentures were convertible into common stock at prices which increase at
$.09 per year from $.76 per share through June 30, 1994 to $1.13 per share
through June 30, 1998. In 1994, $271,200 of the debentures was converted
into 356,843 shares at $.76 per share. In 1995, the remaining $75,000 of
convertible debentures were converted to 87,893 shares of common stock at
the established conversion rate of $.85.
NOTE 7 - PREFERRED STOCK
The Company has authorized 5,000,000 shares of blank check preferred stock.
The preferred stock is issuable in one or more series, each with such
designations, preferences, rights, qualifications, limitations and
restrictions as the Board of Directors of the Company may determine and set
forth in supplemental resolutions at the time of issuance, without further
shareholder action.
The initial series of preferred stock of the corporation authorized by the
Board of Directors in accordance with the Articles of Incorporation, was
designated as Preferred Stock, Series A. At December 31, 1995 and 1994,
the Company had 1,281,123 outstanding shares of the "Series A" preferred
stock with the following terms:
Par value $.662/3, each share of Series A Preferred stock shall be entitled
to one vote in all matters submitted to a vote of the shareholders of the
Company. The Series A Preferred stock will vote on par with the common
shares as a single class unless the action being considered involves a
change in the rights of the Series A Preferred stock. The Series A
Preferred stock bears a cumulative annual dividend rate of five percent
accrued on December 31 of each year, is redeemable at par value plus
accumulated dividends at the option of the Company at any time after
December 31, 1994 and contains an involuntary preferential liquidation
distribution equivalent to the par value plus all accumulated dividends
remaining unpaid.
LABOR READY, INC.
Notes to Consolidated Financial Statements
In February, 1996, the Board of Directors authorized a three-for-two
preferred stock split. This preferred stock split was effected in the form
of three shares of preferred stock issued for every two shares of preferred
stock outstanding as of the date of declaration. All applicable share and
per share data have been adjusted for the stock split.
During 1994, 223,509 shares of preferred stock outstanding were canceled as
a result of settlement of litigation. There is no established market for
the Company's preferred stock and management estimated the value of these
canceled shares to be insignificant.
A preferred stock dividend in the amount of $42,704 was accrued December
31, 1995 and 1994, and paid in January, 1996 and 1995.
NOTE 8 - COMMON STOCK
In 1995, the Board of Directors granted options to purchase 54,900 shares
of the Company's common stock at a price equal to 85% of the common stock's
bid price at the date of grant ($5.45 to $13.60), based on a rate of one
option for one share of common stock. These options will vest evenly over
a four year period from the date of grant and generally expire five years
from the date of grant.
In November, 1995, the Board of Directors declared a three-for-two common
stock split. This common stock split was effected in the form of three
shares of common stock issued for every two shares of common stock
outstanding, as of the date of declaration. All applicable share and per
share data have been adjusted for the stock split.
In 1994, the Board of Directors granted options to purchase 226,500 shares
of the Company's common stock. Of these options, 46,500 are exercisable at
85% of the common stock's bid price at the date of grant ($2.27 to $4.82),
based on a rate of one option for one share of common stock. The options
will vest at a rate of 25% annually, beginning one year from the date of
grant and generally expire five years from the date of grant. The
remaining 180,000 of stock options outstanding at December 31, 1994 are
exercisable at prices at or above the common stock's market price at the
date of grant ($1.83 to $5.00), based on a rate of one option for one share
of common stock. These options were fully vested upon grant and expire two
years from the date of grant.
On September 30, and October 31, 1994, respectively, the Company issued
287,700 and 424,740 shares of common stock for $1.67 per share in a private
placement. Included with each share of common stock issued, were detachable
warrants for one share of common stock each. Warrants are exercisable for
three years at a price of $2.50 per share and the warrants are callable at
a price of $2.50 per share.
In connection with the issuance of $10,000,000 of subordinated debt in
1995 (see note 4), the Company issued warrants to purchase 742,370 shares
LABOR READY, INC.
Notes to Consolidated Financial Statements
of common stock at an exercise price of $11.67 per share. The warrants
expire in October, 2002.
NOTE 9 - INCOME TAXES
Temporary differences which gave rise to the deferred tax assets
(liabilities) at December 31 are:
1995 1994
- -----------------------------------------------------------------------------
Allowance for doubtful accounts $ 323,990 $143,635
Prepaid expenses (161,385) (114,277)
Workers' compensation credits receivable (360,931) (125,050)
Workers' compensation reserves 207,976 153,475
Net operating loss carryforwards 126,985 146,653
Workers' compensation deposits and credits 513,919 -
Vacation accrual 20,515 -
Foreign net operating loss carryforwards 75,166 -
Other, net (30,828) 8,520
- ------------------------------------------------------------------------------
Total deferred tax assets, net 715,407 212,956
Less non-current deferred tax assets, net 530,396 94,366
- ------------------------------------------------------------------------------
Current deferred tax assets, net $185,011 $ 118,590
==============================================================================
The Company has assessed its past earnings history and trends, budgeted
sales, expiration dates of loss carryforwards, and its ability to implement
tax planning strategies which are designed to accelerate or increase
taxable income. Based on the results of this analysis, no valuation
allowance has been established as management believes that it is more
likely than not that the deferred tax asset of $715,407 will be realized.
As of December 31, 1995, the Company has operating loss carryforwards
totaling $340,444, limited to use of $26,188 per year, the majority of
which expire in 2006.
LABOR READY, INC.
Notes to Consolidated Financial Statements
The provision (benefit) for income taxes consists of:
1995 1994 1993
- -----------------------------------------------------------------------------
Current:
Federal $1,419,728 $ 506,919 $ -
State 234,436 89,081 9,366
- ------------------------------------------------------------------------------
Total current 1,654,164 596,000 9,366
- ------------------------------------------------------------------------------
Deferred:
Federal (482,051) (221,074) 47,044
State (20,400) (38,926) -
- ------------------------------------------------------------------------------
Total deferred (502,451) (260,000) 47,044
- ------------------------------------------------------------------------------
Total taxes on income $1,151,713 $ 336,000 $56,410
==============================================================================
A reconciliation between taxes computed at the United States federal
statutory tax rate, and the consolidated effective tax rate is as follows:
1995 1994 1993
Amount % Amount % Amount %
- -----------------------------------------------------------------------------
Income tax expense based on
statutory rate $1,092,597 34 $ 403,853 34 $ 110,642 34
Increase (decrease) resulting from:
State income taxes, net of
federal benefit 106,046 3 71,268 6
Change in valuation allowance - (157,128) (13)
Utilization of net operating losses
not previously benefited (46,930) (1) - (58,794) (18)
Other, net - 18,007 1 4,562 1
- ------------------------------------------------------------------------------
Total taxes on income $1,151,713 36 $ 336,000 28 $ 56,410 17
==============================================================================
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company rents certain properties for temporary labor dispatching
operations. The leases are all short term with ninety day buy-out
provisions and expire at various dates. Certain of these leases require
additional payments for taxes, insurance, maintenance and renewal options.
Lease commitments for 1996 at December 31, 1995 total $358,000. Lease
expenses for 1995, 1994, and 1993 totaled $1,113,000, $380,000, and
$162,000 respectively.
LABOR READY, INC.
Notes to Consolidated Financial Statements
The Company is involved in various lawsuits arising in the ordinary course
of business which will not, in the opinion of management, have a material
effect on the Company's results of operations.
The Board of Directors entered into an executive employment agreement with
a key officer of the Company. The agreement is for a period of time
commencing on October 31, 1995, and ending December 31, 1998, and which
contains certain restrictions on the covered employee. Officer
compensation under this agreement has been set by the Board at $375,000 per
year and shall be increased annually on the first of each calendar year to
110% of the preceding years' salary.
NOTE 11 - RETIREMENT PLAN
Effective October 1, 1994, the Company established a 401(k) savings plan
for qualifying employees. Employee contributions to the 401(k) plan are
matched by the Company $0.25 for every $1 up to the legal maximum eligible
employee's gross earnings. Employees are eligible the calendar quarter
following the completion of one year of service and are fully vested in the
401(k) plan after five years of service. The amount charged to expense
under the 401(k) plan totaled $48,150 and $7,800 in 1995 and 1994
respectively.
NOTE 12 - VALUATION AND QUALIFYING ACCOUNTS
Allowance for doubtful accounts activity was as follows:
1995 1994
- -----------------------------------------------------------------------------
Balance at beginning of year $ 365,927 $ 149,361
Charged to expense 1,084,526 341,799
Write-offs, net of recoveries (581,846) (125,233)
- -----------------------------------------------------------------------------
Balance at end of year $ 868,607 $ 365,927
=============================================================================
LABOR READY, INC.
Notes to Consolidated Financial Statements
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
at December 31, were as follows:
1995 1994
- -----------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ------------------------------------------------------------------------------
Cash and cash equivalents 5,359,113 5,359,113 603,977 603,977
Short-term borrowings 1,591,206 1,591,206 3,160,580 3,160,580
Long-term debt 993,054 1,012,248 322,541 304,248
Subordinated debt 8,740,623 8,709,000 - -
Warrants - 1,290,000 - -
- ------------------------------------------------------------------------------
The following methods and assumptions were used by the Company in
estimating fair values for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheets for cash and cash equivalents approximates fair value.
Short-term borrowings: The carrying amounts of the short-term borrowings
approximates fair value due to the short-term maturity of the debt.
Long-term debt: The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to the Company for debt of the same
maturities.
Subordinated debt: The fair value of the subordinated debt, representing
the amount at which the debt could be exchanged on the open market, are
determined based on the Company's current incremental borrowing rate for
similar types of borrowing arrangements.
Warrants: The fair value of the warrants is based on the difference
between the face value of the related debt and the present value of the
future stream of debt payments.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
There have been no disagreements with the Company's outside auditor on
accounting and financial disclosures during the periods covered by this Form
10-K.
As previously reported on Form 8-K, on June 22, 1994, the Company
engaged BDO Seidman, LLP, as independent accountants to audit the Company's
financial statements as of and for the years ended December 31, 1995 and
1994. BDO Seidman, LLP, replaced Terrence J. Dunne, CPA, as the Company's
independent auditor. Mr. Dunne audited the Company's financial statements for
the year ended December 31, 1993.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Tenure of Directors and Officers
All members of the Board of Directors hold office until the annual
meeting of shareholders or until their successors are duly elected and
qualified. The Executive Officers serve at the pleasure of the Board of
Directors.
Identification of Directors, Officers and Key Employees
Name Age Position
Glenn A. Welstad 52 Director & President
Ronald Junck 48 Director & Secretary
Robert J. Sullivan 65 Director & Treasurer
Thomas McChesney 49 Director
Ralph Peterson 60 Director, Chief Financial Officer, and
Assistant Secretary
Business Experience
The business experience and brief resumes on each of the Directors,
Executive Officers, and significant employees are as follows:
Glenn Welstad: Mr. Welstad is the Chief Executive Officer, Chairman of
the Board of Directors and President of the Company. Mr. Welstad has held that
position since February, 1988. From September , 1969 through March 1984, Mr.
Welstad was active in the restaurant business. Starting with one restaurant in
1969, Mr. Welstad expanded operations and incorporated Northwest Management
Corporation. Doing business in five states and twenty-two locations,
operations included eight Hardees Hamburger Restaurants, as well as pizza and
Mexican restaurants. In March 1984, Mr. Welstad sold all of his outstanding
shares of Northwest Management Corporation to North Central Foods, Inc. From
February, 1987 to March 1989, Mr. Welstad was an officer of Body Toning, Inc.,
W.I.T. Enterprises, and Money Mailer.
Robert J. Sullivan: Mr. Sullivan was elected as a director at the calendar
1994 annual meeting held on July 20, 1995. From November, 1994, until his
election in July, 1995, Mr. Sullivan served as an appointed member of the
Board, serving out the remainder of the term of a former director. Prior to
joining the Board, Mr. Sullivan served for two years in a consulting capacity
for the Company and is familiar with the Company's operations. Mr. Sullivan
has had an extensive career in financial management, as both a CPA-audit
manager, and as a member of the executive office. Most recently, Mr. Sullivan
has served as a business and financial consultant to a number of emerging
growth companies. A listing of Mr. Sullivan's employment history includes:
1957 - 1966, Price Waterhouse & Co. - CPA, audit manager; 1966 - 1968,
American Express Company - Senior Financial Manager; 1968 - 1972, Bush
Universal, Inc. - CFO, New York Stock Exchange Listed Company; 1972 - 1982,
American Express Company - Senior Financial Manager; 1982 - 1985, Cablevision
Systems, Inc. - General Manager and CFO; 1986 - 1987, Financial Consultant to
three companies; 1987 - 1989, Micron Products, Inc. - CFO and later President
of American Stock Exchange listed company - medical products manufacturing and
distribution; 1990 - 1991, Unifast Industries, Inc. - CFO of manufacturing
business; 1992 - 1993, Reserve Supply Company of Long Island - General Manager
of building supplies business; and 1993 -1994, Labor Ready, Inc. - financial
consultant.
Thomas E. McChesney: Mr. McChesney was elected as a Director of the
Company on July 20, 1995. Until July 1995, Mr. McChesney was employed by
Paulson Investment Co. and in this capacity, over the last 19 years managed in
excess 50 offerings, raising over 400 million dollars. In July 1995, Mr.
McChesney left Paulson Investment Co. to open his own investment banking and
consulting firm. Mr. McChesney has served on the Board of Directors of
Paulson Capital Corp. and Paulson Investment Co., both publicly held companies
and currently serves on the Board of Directors of Ciclo Sports, a Portland
based retailer of bicycles.
Ralph E. Peterson: Mr. Peterson was appointed Chief Financial Officer in
January, 1996. Mr. Peterson had served since 1991 as Executive Vice President
and Chief Financial Officer of Rax Restaurant, an Ohio-based restaurant
company that operates and frnachises Rax Roast Beef restaurants in the
Midwest, and operates as a franchisee of the Hardee's hamburger chain in North
Carolina, South Carolina and Georgia. Prior to Rax, Mr. Peterson had served
for 13 years as Executive Vice President and Chief Financial Officer and a
member of the Board of Directors of Hardee's Food Systems, Inc., a restaurant
company operating and franchising 4,000 restaurants located throughout the
United States and abroad.
Ronald Junck: Mr. Junck is an attorney in Phoenix, Arizona. He is a
legal advisor to the Company and is familiar with the Company's operations.
Mr. Junck has practiced law continuously since 1974, specializing in business
law and commercial transactions. He is legal advisor and counsel to a large
number of corporations on a wide range of issues.
Mr. Junck is a member of the Arizona Bar Association and has been
elected to fellowship in the Arizona Bar Foundation. He is licensed to
practice before the Arizona Supreme Court, the U.S. District Courts for
Arizona, the U.S. Court of Appeals for the Ninth Circuit in San Francisco and
the U.S. Claims Court.
Section 16(a) Compliance.
Section 16(a) of the Securities Exchange Act of 1934 requires the
directors and executive officers, and persons who own beneficially more than
ten percent of the Common Stock of the Company, to file reports of ownership
and changes in ownership, with the Securities and Exchange Commission. Copies
of all reports are required to be furnished to the Company pursuant to Section
16(a). Based on the reports received by the Company, and on written
representations from the reporting persons, the Company believes that the
directors, officers, and greater than ten percent beneficial owners, complied
with all applicable reporting requirements during the year ended December 31,
1995, except as noted below.
Two directors were appointed during the year, and in the course of
implementing the Company's Section 16 Compliance policies, the directors were
not advised of and steps were not taken to assist the Directors in preparing
and filing the Initial Statement of Beneficial Ownership on Form 3. In
addition, because these new directors were not yet included in the compliance
process, certain sales which took place after these individuals became
directors, were not reported on Form 4, Statement of Changes in Beneficial
Ownership, in a timely fashion. Mr. Thomas McChesney's Form 3 was due on July
31, 1995, as a result of his election to the Board of Directors on July 20,
1995. Through an oversight, the Form 3 was not filed until December 5, 1995.
In addition, sales of 2,000 shares on August 24, 1995, 1,000 shares on
September 12, 1995, and 1,000 shares on October 3, 1995, should have been
reported on Form 4's due on September 10, October 10, and November 10, 1995,
respectively. These Form 4's were filed at the same time as the Form 3 on
December 5, 1995. Since filing the delinquent forms, Mr. McChesney has filed
all other required reports in a timely manner. Mr. Robert Sullivan's Form 3
was due on April 25, 1995, but was not filed until December 14, 1995. All
required Form 4's were timely filed by Mr. Sullivan. At this time, to the
knowledge of Management of the Company, all required reports under Section
16(a) have been filed by the Company's officers and directors.
While primary responsibility for Section 16(a) compliance rests with the
reporting persons, the Company anticipates that the implementation of its
Section 16(a) compliance program will substantially alleviate the non-
compliance issues addressed above. The Company has now provided each officer
and director with a Memorandum and various forms designed to assist them in
complying with Section 16(a) in the future.
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------
Long-term Compensation
----------------------------------------------------
Annual Compensation Awards Payouts
-------------------------------- --------------------------- -----------------------
Other Securities
Annual Restricted Underlying LTIP All Other
Name & Position Year Salary Bonus Compensation Stock Awards Options/SAR's Payouts Compensation
- ------------------ ------ -------- -------- ------------ ------------ ------------- --------- ------------
Glenn Welstad, 1995 $375,000 0 0 0 0 0 0
CEO, Director 1994 216,653 0 0 0 0 0 0
1993 120,000 0 0 0 459,970 0 0
John Coghlan 1995 $110,558 0 $27,800 0 0 0 0
Former CFO, 1994 59,192 0 $21,400 0 0 0 0
Director Note 1 1993 30,000 0 $26,400 0 128,446 0 0
Notes to Summary Compensation Table:
Note (1) The "Other Compensation" listed for John Coghlan includes
$27,800 in 1995, $21,400 in 1994 and $26,400 in 1993, respectively, of
compensation paid for consulting services as the Company's accountant.
Management has represented that the amount paid is comparable to the
cost of such services if rendered by an unrelated party, and the amount
paid is the fair market value of the services received. Effective on
October 31, 1995, Mr. Coghlan converted from an employee of the Company
to a consultant, and resigned as an officer and director of the Corporation.
The Company's Chief Executive Officer and the Chief Financial Officer
received the compensation set forth below during 1995. None of the other
executive officers of the Company received direct compensation in excess of
$100,000 in 1995.
The stock options granted to the named executives in 1993 were
exercised on the date of the grant and the shares have been issued.
Consequently, the executives will realize the value of appreciation in the
shares, if any.
The Company's executives also received $40,080 in 1995, 1994 and 1993
in preferred stock dividends declared payable to the preferred shareholders
in December,1995 1994, and 1993, and paid in January, 1995, 1994, and 1993,
respectively.
The Compensation Committee.
The Company's executive compensation is determined by a compensation
committee comprised of the three members of the Board of Directors.
Compensation is determined by the Directors using comparative statistics
from other temporary help businesses. On January 1, 1994, the Company
entered into employment agreements with its Chief Executive Officer and its
Chief Financial Officer. The terms of the employment agreements were
intended to provide an objective basis on which future compensation can be
determined. The compensation committee determined that the employment
agreements were reasonable at the time executed and that the compensation
formula set out meets the criteria for fair compensation in future periods.
Employment Agreements.
During 1995, the Company negotiated a new employment agreement with
Glenn Welstad, the Company's president, which provides for annual
compensation of $31,250 per month, subject to annual increases on the
anniversary date of the agreement of 10% of the prior periods base salary.
In addition, the employment agreement provides for a bonus, as determined by
the compensation committee, based on Mr. Welstad's performance, and the
overall performance of the Company. This employment agreement replaces the
previous employment agreement between the Company and Mr. Welstad which was
effective on January 1, 1994. The term of Mr. Welstad's employment agreement
runs from October 31, 1995 through December 31, 1998.
Mr. John Coghlan was previously employed by the Company under an
employment agreement dated January 1, 1994. At the time the Company
negotiated a private debt financing in the amount of $10,000,000 in October,
1995, and pursuant to negotiations with the lender, Mr. Coghlan's employment
agreement was voluntarily terminated by the parties and Mr. Coghlan entered
into a consulting agreement with the Company. The consulting agreement
provides for monthly consulting fees not in excess of $12,500 per month
subject to an annual increase of 10% on January 1, 1997 and January 1, 1998.
The agreement also provides for reimbursement of expenses. The term of the
agreement is through December 31, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Common stock ownership of all directors and officers of the Company and all
persons known by management to be owners of five percent or more of the
Company's outstanding equity securities, as of March 20, 1996, is set forth
below. There are no other individuals known to management to be owners of five
percent or more of the outstanding shares of any class of the Company's
securities. Percentages reflected below are based on 6,029,133 common shares
and 1,281,123 preferred shares outstanding on March 20, 1996. Both share
amounts outstanding reflect a three shares for two forward stock split which
occurred prior to March 20, 1996.
Amount of
Name & Address of Title Beneficial Percent of
Beneficial Owner of Class Ownership Class
- -------------------------- ---------------- ---------- ----------
Glenn Welstad Common Stock 1,263,671 20.9%
2156 Pacific Avenue
Tacoma, Washington 98402 Preferred Stock 872,325 68.1%
Robert Sullivan Common Stock 9,000 *
323 Woodbury Road
Huntington, New York 11743 Preferred Stock -0- 0.0%
Thomas McChesney Common Stock 31,158 *
1118 S.W. Myrtle Drive
Portland, Oregon 97201 Preferred Stock -0- 0.0%
Ronald Junck Common Stock 46,158 *
1202 E. Missouri, #100
Phoenix, Arizona 85014 Preferred Stock -0- 0.0%
Ralph E. Peterson Common Stock 10,000 *
2156 Pacific Avenue
Tacoma, Washington 98402 Preferred Stock -0- 0.0%
John R. Coghlan Common Stock 585,394 9.7%
5102 S. Morrill Lane
Spokane, Washington 99223 Preferred Stock -0- 0.0%
Pauline Ferrell Common Stock 118,302 2.0%
6736 N. 58th.
Scottsdale, Arizona 85253 Preferred Stock 165,032 12.9%
Sandra F. Jacques, Trustee Common Stock -0- 0.0%
M. Jack Ferrell Trust
c/o David Hega Preferred Stock 165,032 12.9%
2800 North Central, # 1100
Phoenix, Arizona 85004
Dwight Enget Common Stock 23,900 *
3400 S. Mill Ave., Ste. 128
Tempe, Arizona 85286 Preferred Stock 78,734 6.1%
All Officers and Directors Common Stock 1,359,987 22.6%
as a group Preferred Stock 872,325 68.1%
* Less than 1%.
Item 13. Certain Relationships and Related Transactions.
During 1995, certain executives of the Company loaned an aggregate of $424,687
to the Company in exchange for short term notes bearing interest at the rate
of 12% per annum. The loans provided short term cash used to cover cash flow
deficits during periods when the Company was experiencing substantial growth.
The loans were paid in full prior to the end of the year, and the Company is
not currently indebted to any of its officers or directors. Management
represented that the loans were on terms at least as favorable as those
available from unrelated third parties.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
The Financial Statements are found on pages 17 through 37 of this Form 10-K.
The Financial Statement Table of Contents is on Page 17. The Exhibit Index is
found on Page 45 of this Form 10-K. Cross references to Financial Statement
Schedules are found on Page 47.
No reports on Form 8-K were filed during the quarter ended December 31, 1995.
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.
LABOR READY, INC.
/s/Glenn Welstad 3/29/96
Signature Date
By: Glenn Welstad, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
/s/Glenn Welstad 3/29/96
Signature Date
Glenn Welstad, President and Director
/s/Ralph E. Peterson 3/29/96
Signature Date
Ralph E. Peterson, Chief Financial Officer and Director
/s/Robert Sullivan 3/29/96
Signature Date
Robert Sullivan, Director
/s/Ronald Junck 3/29/96
Signature Date
Ronald Junck, Secretary and Director
/s/Thomas McChesney 3/29/96
Signature Date
Thomas McChesney, Director
FORM 10-K
Labor Ready, Inc.
EXHIBIT INDEX
Exhibit Number Description Sequential Page
3 Articles of Incorporation & Bylaws *
4 Instruments Defining Rights of Security Holders *
10 Material Contracts
10.1 Note Purchase Agreement **
10.2 Warrant Purchase Agreement **
10.3 Form of Warrant **
10.4 Shareholder Agreement **
10.5 Security Agreement (LR,LRN,LRFD) **
10.6 Intercreditor and Subordination Agreement **
10.7 Executive Employment Agreement between LR
and Glenn A. Welstad **
10.8 Independent Contractor Agreement between LR
and John R. Coghlan **
10.9 Employment Agreement between LR and
Scott Sabo **
11 Computation of Earnings Per Shares **
* As previously filed in the Company's Form 10 Registration
Statement, SEC File No. 0-23828.
** Exhibits filed with the Securities & Exchange Commission
in electronic format under the EDGAR Reporting System. Page
numbers are omitted in accordance with EDGAR Regulations.
Copies of Exhibits may be obtained upon request directed to
Mr. Ralph E. Peterson, Labor Ready, Inc., 2156 Pacific Avenue,
Tacoma, Washington 98402.