TBI

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 28, 2001, and the thirty-nine weeks ended on that date for Labor Ready, Inc. (Note: The input metadata referenced "Trueblue, Inc.", but the filing text identifies the registrant as Labor Ready, Inc.). The company is the nation's leading provider of temporary manual labor, operating 811 dispatch offices as of the period end. The business is seasonal, with higher demand in spring, summer, and early fall, and is heavily influenced by construction and landscaping activity.

Key Financial Metrics

Note: Debt figures derived from "Current maturities of long-term debt" ($1.8M) and "Long-term debt, less current maturities" ($5.5M) as of September 28, 2001.

Material Changes vs. Prior Period

• Revenue Decline: Revenues decreased 8.2% in the quarter and 2.2% for the thirty-nine weeks compared to the prior year. This was driven by a 4.8% reduction in the number of dispatch offices (net closure of 41 offices year-to-date) and a 4% decrease in revenue per office.
• Cost Management: Cost of services decreased 9.4% in the quarter, improving the gross margin slightly. Selling, general, and administrative (SG&A) expenses decreased 5.5% in the quarter, largely due to fewer offices and reduced overhead, though partially offset by $2 million in accrued costs for office closures.
• Debt Reduction: The company significantly reduced its debt load, paying off a $6.2 million secured credit facility in February 2001 and making $7.5 million in payments on long-term debt during the thirty-nine week period.
• Asset Sales: The company sold real property in Tacoma, Washington, in June 2001, realizing a pretax gain of $0.8 million.

Guidance, Outlook, and Risks

• Office Strategy: Management expects to close approximately 50 additional offices during the remainder of 2001 while continuing to serve customers from neighboring locations. The average cost to open a new office decreased to $30,000 in 2001.
• Liquidity: The company maintains a $100 million accounts receivable securitization facility. As of September 28, 2001, $25.5 million was available for future borrowing after committing $54.9 million for letters of credit to insurance carriers.
• Seasonality and Weather: Approximately 30% of customers are in construction and landscaping, making the business sensitive to weather conditions and seasonal demand fluctuations.
• Leadership Change: Richard L. King resigned as President and CEO on September 25, 2001. Joseph P. Sambataro, Jr. was appointed as the new President and CEO.
• Accounting Standards: The company is evaluating the impact of new FASB standards (SFAS 141, 142, 143, and 144) regarding business combinations, goodwill, and asset retirement obligations.

Investor Verification Checklist

• Office Closure Impact: Verify the financial impact of the planned closure of 50 additional offices and the associated one-time costs already accrued.
• Workers' Compensation Reserves: Review the adequacy of the $60.6 million workers' compensation claims reserve, which is a significant liability and subject to actuarial estimation.
• Receivables Quality: Assess the allowance for doubtful accounts ($7.7 million) given the economic slowdown and the company's reliance on weekly billing cycles.
• CDM Cash Balances: Confirm the liquidity status of the $15.8 million held in Cash Dispensing Machines (CDMs), which is restricted for payroll and not available for general corporate use.
• Leadership Transition: Monitor the strategic direction and execution under the new CEO, Joseph P. Sambataro, Jr.