LRW Labor Ready

Labor Ready, Inc. (NYSE:LRW) reported revenue for the second quarter ended June 30, 2006 increased 15.1 percent to $339.8 million compared to revenue of $295.2 million for the second quarter of 2005. Net income for the quarter increased 21 percent to $18.6 million or $0.35 per diluted share, as compared to $15.4 million or $0.30 per diluted share for the second quarter of 2005. "Revenue was in line with our expectations for the second quarter," said Labor Ready President and CEO Steve Cooper. "We executed our strategies of improving same branch revenue growth while controlling operating expenses which resulted in net income growth of 25 percent, excluding incremental stock-based compensation expense, on same branch revenue growth of 8 percent." CLP Resources, a leading skilled construction trades staffing firm acquired by Labor Ready in May 2005, provided 7.3 percentage points of Labor Ready's 15.1 percent revenue growth for the quarter. Referring to the completion of one year of combined results with CLP Resources, Cooper said, "The operating results for the first year were in line with expectations and we remain excited about the growth opportunities available for CLP Resources." Gross profit as a percentage of revenue improved 80 basis points compared to the same quarter a year ago as a result of lower workers' compensation costs. "Our increased focus in safety and risk management programs over the past few years continues to result in lower injury rates and ultimately lower costs," said Cooper. "As expected, selling, general and administration costs for the quarter increased by 1.0 percent of revenue compared to the same quarter a year ago," said Cooper. "This increase was primarily the result of incremental stock-based compensation expenses related to the implementation of FAS 123R and the impact to the company of adding CLP Resources' higher cost structure." The company opened a total of 17 new branches and closed two branches during the quarter and plans to open six additional branches during the second half of fiscal year 2006. The company currently operates 923 branches. During the quarter the company also completed the planned repurchase of 2.16 million shares previously approved by its Board of Directors. For the third quarter of 2006, Labor Ready estimates revenue in the range of $380 million to $385 million and net income per diluted share between $.45 and $.48. For the year, the company estimates revenue in the range of $1.37 billion to $1.38 billion. Net income per diluted share for the year is expected to be between $1.33 and $1.38, unchanged from previous estimates. These estimates include incremental stock-based compensation expense of $0.07 per diluted share for fiscal year 2006. According to Cooper, "We remain confident with our business model and optimistic about the demand for both skilled and unskilled labor. Although there is some uncertainty in the economy, we believe our diverse customer and industry mix will allow us to continue to show year-over-year revenue growth. Our focus remains growing our existing branch revenue, leveraging our fixed cost structure, and increasing profits." Management will discuss second quarter 2006 results on a conference call at 8 a.m. (PT) Thursday, July 20, 2006. The conference call can be accessed on Labor Ready's web site at www.laborready.com. This news release contains forward-looking statements, such as statements about the ranges of revenues, gross margins and net income anticipated for future periods, improvements in safety and workers' compensation claims and costs, strategies for increasing revenue and net income, and other factors that may affect Labor Ready's financial results and operations in the future. Labor Ready's actual results are, however, subject to a number of risks, including without limitation the following: 1) national and global economic conditions; 2) Labor Ready's ability to continue to attract and retain customers and maintain profit margins in the face of new and existing competition; 3) potential new laws and regulations that could have a materially adverse effect on Labor Ready's operations and financial results; 4) significant labor disturbances which could disrupt industries Labor Ready serves; 5) increased costs and collateral requirements in connection with Labor Ready's insurance obligations, including workers' compensation insurance; 6) the adequacy of Labor Ready's financial reserves; 7) Labor Ready's continuing ability to comply with financial covenants in its lines of credit and other financing agreements; 8) Labor Ready's ability to attract and retain competent employees in key positions or to find temporary employees or skilled trade workers to fulfill the needs of our customers; 9) Labor Ready's ability to successfully complete and integrate acquisitions that it may make from time to time; and 10) other risks described in Labor Ready's filings with the Securities and Exchange Commission, including its most recent Form 10-K and Form 10-Q filings. About Labor Ready Labor Ready is an international provider of temporary employees for manual labor, light industrial and skilled trades, operating under the brand names of Labor Ready, Workforce, Spartan Staffing, and CLP Resources. Labor Ready's customers are primarily small- to mid-sized businesses in the construction, warehousing, hospitality, landscaping, transportation, light manufacturing, retail, wholesale, facilities and sanitation industries. Annually, Labor Ready serves approximately 300,000 customers and puts more than 600,000 people to work through its more than 900 branch locations in the United States, Canada, and the United Kingdom. For additional information, visit Labor Ready's website at www.laborready.com. -0- *T LABOR READY, INC. SUMMARY CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) (Unaudited) Thirteen Weeks Ended Twenty-six Weeks Ended June 30, July 1, June 30, July 1, 2006 2005 2006 2005 Revenue from services $ 339,777 $295,208 $ 636,844 $ 538,424 Cost of services 230,326 202,535 434,476 369,613 Gross profit 109,451 92,673 202,368 168,811 Selling, general and administrative expenses 79,509 66,253 153,733 125,667 Depreciation and amortization 2,672 2,189 5,468 4,395 Income from operations 27,270 24,231 43,167 38,749 Interest and other income, net 3,001 711 5,747 1,186 Income before tax expense 30,271 24,942 48,914 39,935 Income tax 11,655 9,498 18,832 15,135 Net income $ 18,616 $ 15,444 $ 30,082 $ 24,800 Net income per common share: Basic $ 0.35 $ 0.35 $ 0.56 $ 0.57 Diluted $ 0.35 $ 0.30 $ 0.56 $ 0.49 Weighted average shares outstanding: Basic 53,277 44,611 53,478 43,557 Diluted 53,775 53,535 54,039 53,254 LABOR READY, INC. SUMMARY CONSOLIDATED BALANCE SHEETS As of June 30, December 30, 2006 2005 (Unaudited) Assets Current assets Cash and cash equivalents $ 60,337 $ 82,155 Marketable securities 94,864 93,510 Accounts receivable, net 127,985 121,959 Other current assets 21,877 21,039 Total current assets 305,063 318,663 Property and equipment, net 29,005 26,615 Other assets 235,046 226,798 Total assets $ 569,114 $ 572,076 Liabilities and shareholders' equity Current liabilities $ 98,324 $ 100,014 Long-term liabilities 132,683 123,464 Total liabilities 231,007 223,478 Shareholders' equity 338,107 348,598 Total liabilities and shareholders' equity $ 569,114 $ 572,076 LABOR READY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS In Thousands (Unaudited) Twenty-six Weeks Ended June 30, July 1, 2006 2005 Cash Flows from Operating activities: Net income $ 30,082 $ 24,800 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,468 4,749 Provision for doubtful accounts 2,999 3,180 Deferred income taxes (13,262) (5,604) Stock-based compensation 3,891 540 Excess tax benefits from stock-based compensation (3,505) - Tax benefit on stock options - 3,248 Other operating activities 414 42 Changes in operating assets and liabilities, exclusive of business acquired: Accounts receivable (9,025) (17,627) Income tax 11,119 5,839 Other assets 1,225 173 Accounts payable (6,128) 2,965 Accrued wages and benefits 495 3,490 Workers' compensation claims reserve 10,460 7,154 Other current liabilities (38) (151) -------- --------- Net cash provided by operating activities 34,195 32,798 -------- --------- Cash Flows from Investing activities: Capital expenditures (6,808) (2,744) Purchases of marketable securities (36,255) (50,888) Maturities of marketable securities 34,916 52,822 Increase in restricted cash and other assets (2,087) (10,705) Purchase of CLP Holdings Corp., net of cash acquired - (45,892) Other (167) 36 -------- --------- Net cash used in investing activities (10,401) (57,371) -------- --------- Cash Flows from Financing activities: Purchase and retirement of common stock (51,833) - Net proceeds from sale of stock through options and employee benefit plans 2,869 6,608 Excess tax benefits from stock-based compensation 3,505 - Payments on debt (829) (1,141) -------- --------- Net cash (used in) provided by financing activities (46,288) 5,467 -------- --------- Effect of exchange rates on cash 676 (765) -------- --------- Net change in cash and cash equivalents (21,818) (19,871) Cash and cash equivalents, beginning of period 82,155 87,555 -------- --------- Cash and cash equivalents, end of period $ 60,337 $ 67,684 ======== ========= *T