LRW Labor Ready

Labor Ready, Inc. (NYSE: LRW) reported record revenue for the fourth quarter ended Dec. 30, 2005 of $337.2 million, an increase of 23.9 percent from $272.1 million for the fourth quarter of 2004. Record net income for the fourth quarter of $15.4 million, or $0.28 per diluted share, improved 56 percent from $9.9 million, or $0.20 per diluted share, during the same quarter a year ago. Record revenue for 2005 of $1.236 billion increased 18.4 percent from $1.044 billion in 2004. Record net income of $62.0 million, or $1.18 per diluted share, improved 71 percent from $36.3 million, or $0.75 per diluted share, for fiscal 2004. "We delivered powerful fourth quarter and year-end results reflecting the strength of our business model and our ability to sustain growth," said Labor Ready CEO Joe Sambataro. "We are well positioned to continue to deliver high value as an international provider of temporary employees for manual labor, light industrial and skilled trades with our family of brands, Labor Ready, Workforce, Spartan Staffing, and CLP Resources." Revenue for the quarter from branches open 12 months or longer grew 9.6 percent over the comparable period a year ago. The CLP Resources branches Labor Ready acquired during the second quarter of 2005 provided 12.9 percent of additional revenue for the company over the same quarter a year ago and continued to make a positive contribution to Labor Ready's quarterly net income results. Gross margin for the fourth quarter of 2005 was 32.6 percent compared to 31.4 percent in the fourth quarter of 2004. According to Labor Ready President Steve Cooper, the gross margin improvement was primarily a result of Labor Ready's continued progress in reducing overall workers' compensation expense through its safety and risk management programs. Cooper stated, "Claim frequency has decreased by approximately 10 percent over the prior year each of the last three years. We will continue our diligent focus on improving safety for our employees in 2006." Operating expenses for the fourth quarter 2005 increased by 1.0 percentage point of revenue in comparison with the same quarter a year ago. This increase was primarily due to the company's agreement to resolve various legal proceedings arising out of events from prior years. Labor Ready closed six branches during the quarter and currently operates 887 branches. Labor Ready anticipates opening approximately 40 new branch locations in 2006, including 10 Spartan branches, 18 Labor Ready branches in the U.S., and 12 CLP Resources branches. For the first quarter of 2006, Labor Ready estimates revenue in the range of $294 million to $297 million, with net income per diluted share for the quarter in the range of $0.18 to $0.19. Revenue for the year 2006 is estimated to be in the range of $1.37 billion to $1.4 billion and net income per diluted share in the range of $1.30 to $1.35. These estimates include incremental expense of $0.06 per diluted share for the year 2006 and $0.02 for the first quarter of 2006 in comparison with the same period a year ago related to our adoption in 2006 of FAS 123R, Share Based Payments. Management will discuss fourth quarter 2005 results on a conference call at 8:00 a.m. (PT) Thursday, Feb. 2, 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 our financial results and operations in the future. Our actual results are, however, subject to a number of risks, including without limitation the following: 1) national and global economic conditions; 2) our 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 our operations and financial results; 4) significant labor disturbances which could disrupt industries we serve; 5) increased costs and collateral requirements in connection with our insurance obligations, including workers' compensation insurance; 6) the adequacy of our financial reserves; 7) our continuing ability to comply with financial covenants in our lines of credit and other financing agreements; 8) our ability to attract and retain competent employees in key positions; 9) our ability to successfully complete and integrate acquisitions that we have made and may make from time to time; and 10) other risks described in our filings with the Securities and Exchange Commission, including the Reports on Form 10-Q filed during 2005. 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 transportation, warehousing, hospitality, landscaping, construction, 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 887 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) Thirteen Weeks Ended Fiscal Years Ended Dec. 30, Dec. 31, Dec. 30, Dec. 31, 2005 2004 2005 2004 Revenue from services $337,201 $272,134 $1,236,070 $1,044,236 Cost of services 227,263 186,811 844,448 727,059 Gross profit 109,938 85,323 391,622 317,177 Selling, general and administrative expenses 84,302 65,215 286,460 244,606 Depreciation and amortization 2,739 3,588 9,603 10,127 Income from operations 22,897 16,520 95,559 62,444 Interest and other income (expense), net 2,029 (562) 4,636 (2,599) Income before tax expense 24,926 15,958 100,195 59,845 Income tax 9,497 6,075 38,174 23,532 Net income $ 15,429 $ 9,883 $ 62,021 $ 36,313 Net income per common share: Basic $ 0.29 $ 0.23 $ 1.28 $ 0.87 Diluted $ 0.28 $ 0.20 $ 1.18 $ 0.75 Weighted average shares outstanding: Basic 53,327 42,082 48,421 41,674 Diluted 54,148 52,827 53,793 52,289 LABOR READY, INC. SUMMARY CONSOLIDATED BALANCE SHEETS In Thousands As of December 30, December 31, 2005 2004 Assets Current assets Cash and cash equivalents $157,197 $128,817 Marketable securities 18,468 11,947 Accounts receivable, net 121,959 94,313 Other current assets 21,039 25,981 Total current assets 318,663 261,058 Property and equipment, net 26,615 25,174 Other assets 226,798 157,875 Total assets $572,076 $444,107 Liabilities and shareholders' equity Current liabilities $100,014 $76,508 Long-term liabilities 123,464 165,205 Total liabilities 223,478 241,713 Shareholders' equity 348,598 202,394 Total liabilities and shareholders' equity $572,076 $444,107 LABOR READY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS In Thousands Fiscal Years Ended December 30, December 31, 2005 2004 Cash Flows from Operating activities: Net income $ 62,021 $ 36,313 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,087 10,902 Provision for doubtful accounts 9,569 9,599 Deferred income taxes (658) 14,168 Tax benefit on stock options 6,031 2,471 Other operating activities 1,787 317 Changes in operating assets and liabilities, exclusive of business acquired: Accounts receivable (24,173) (24,292) Workers' compensation claims reserve 18,253 23,454 Income taxes 12,314 (14,699) Other assets (4,808) 259 Other current liabilities 15,019 5,229 -------- -------- Net cash provided by operating activities 105,442 63,721 -------- -------- Cash Flows from Investing activities: Capital expenditures (5,260) (5,247) Purchases of marketable securities (41,102) (15,379) Maturities of marketable securities 34,579 28,639 Purchase of Spartan Staffing, Inc. - (9,890) Purchase of CLP, net of cash acquired (45,963) - Increase in restricted cash and other assets (24,072) (17,805) Other (301) (153) -------- -------- Net cash used in investing activities (82,119) (19,835) -------- -------- Cash Flows from Financing activities: Proceeds from sale of stock through options and employee benefit plans 8,649 7,370 Payments on debt (2,327) (2,750) Checks issued against future deposits - (4,197) -------- -------- Net cash provided by financing activities 6,322 423 -------- -------- Effect of exchange rates on cash (1,265) 1,396 -------- -------- Net change in cash and cash equivalents 28,380 45,705 Cash and cash equivalents, beginning of period 128,817 83,112 -------- -------- Cash and cash equivalents, end of period $157,197 $128,817 ======== ======== *T