ABLEST INC.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 2006
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSISTION PERIOD FROM TO
Commission File Number 1-10893
Ablest Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State of Incorporation)
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65-0978462
(I.R.S.Identification No.) |
1511 N. Westshore Boulevard, Suite 900
Tampa, Florida 33607
(813) 830-7700
(Address, including zip code, and telephone number, including area code, of principal
executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one): the Registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act).
Large accelerated filer o Accelerated filer o Non-accelerated filer þ
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of outstanding shares of the Registrants Common Stock at November 10, 2006 was
2,930,639.
ABLEST INC.
Table of Contents
2
ITEM 1. FINANCIAL STATEMENTS
ABLEST INC.
Condensed Balance Sheets
(amounts in thousands except share data)
(Unaudited)
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October 1, 2006 |
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December 25, 2005 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
4,251 |
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$ |
1,931 |
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Accounts receivable, net |
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16,301 |
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18,760 |
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Prepaid expenses and other current assets |
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704 |
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469 |
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Current deferred tax asset |
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1,017 |
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1,246 |
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Total current assets |
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22,273 |
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22,406 |
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Property and equipment, net |
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2,661 |
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1,732 |
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Deferred tax asset |
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867 |
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863 |
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Goodwill |
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1,283 |
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1,283 |
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Other assets |
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63 |
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171 |
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Total assets |
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$ |
27,147 |
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$ |
26,455 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
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$ |
203 |
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$ |
841 |
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Accrued insurance |
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2,417 |
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2,536 |
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Accrued wages |
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2,948 |
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2,738 |
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Other current liabilities |
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518 |
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514 |
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Total current liabilities |
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6,086 |
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6,629 |
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Other liabilities |
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265 |
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432 |
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Total liabilities |
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6,351 |
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7,061 |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS EQUITY |
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Preferred stock of $.05 par value; 500,000 shares authorized, none issued
or
outstanding at October 1, 2006 and December 25, 2005 |
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Common stock of $.05 par value; 7,500,000 shares authorized, 3,387,118 and
3,334,344 shares issued and outstanding including shares held in
treasury at October 1, 2006 and December 25, 2005, respectively |
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169 |
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167 |
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Additional paid-in capital |
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5,636 |
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5,265 |
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Retained earnings |
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17,101 |
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16,072 |
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Treasury stock at cost; 457,729 shares held at October 1, 2006
and December 25, 2005 |
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(2,110 |
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(2,110 |
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Total stockholders equity |
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20,796 |
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19,394 |
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Total liabilities and stockholders equity |
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$ |
27,147 |
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$ |
26,455 |
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See accompanying Notes to Financial Statements
3
ABLEST INC.
Condensed Statements of Income
(amounts in thousands except share and per share data)
(Unaudited)
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For the Thirteen Week |
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For the Forty Week |
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For the Thirty Nine Week |
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Periods Ended |
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Period Ended |
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Period Ended |
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October 1, 2006 |
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September 25, 2005 |
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October 1, 2006 |
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September 25, 2005 |
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Net service revenues |
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$ |
34,672 |
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$ |
34,873 |
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$ |
104,876 |
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$ |
98,459 |
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Cost of services |
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28,491 |
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29,107 |
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86,642 |
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81,974 |
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Gross profit |
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6,181 |
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5,766 |
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18,234 |
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16,485 |
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Selling, general and administrative expenses |
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5,528 |
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5,177 |
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16,545 |
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14,541 |
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Operating income |
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653 |
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589 |
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1,689 |
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1,944 |
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Other: |
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Interest income, net |
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13 |
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22 |
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Miscellaneous income (expense), net |
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1 |
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21 |
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(2 |
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Other income (expense) |
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13 |
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1 |
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43 |
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(2 |
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Income before income taxes |
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666 |
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590 |
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1,732 |
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1,942 |
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Income tax expense |
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270 |
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223 |
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703 |
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737 |
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Net income |
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$ |
396 |
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$ |
367 |
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$ |
1,029 |
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$ |
1,205 |
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Basic net income per common share |
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$ |
0.14 |
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$ |
0.13 |
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$ |
0.36 |
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$ |
0.42 |
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Diluted net income per common share |
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$ |
0.13 |
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$ |
0.13 |
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$ |
0.35 |
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$ |
0.41 |
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Weighted average number of common shares
in computing net income per common |
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Basic |
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2,879,566 |
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2,863,168 |
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2,879,073 |
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2,860,418 |
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Diluted |
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2,972,953 |
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2,930,644 |
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2,961,314 |
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2,922,079 |
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See accompanying Notes to Financial Statements
4
ABLEST INC.
Condensed Statements of Cash Flows
(amounts in thousands)
(Unaudited)
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For the Forty Week |
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For the Thirty Nine Week |
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Period Ended |
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Period Ended |
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October 1, 2006 |
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September 25, 2005 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
1,029 |
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$ |
1,205 |
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Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation |
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384 |
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243 |
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Loss on disposal of property and equipment |
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10 |
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Deferred income taxes |
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225 |
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702 |
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Stock compensation |
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199 |
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326 |
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Changes in assets and liabilities (see below) |
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1,796 |
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(245 |
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Net cash provided by operating activities |
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3,643 |
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2,231 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Additions to property and equipment |
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(1,323 |
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(283 |
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Net increase in cash and cash equivalents |
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2,320 |
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1,948 |
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CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD |
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1,931 |
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1,357 |
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CASH AND CASH EQUIVALENTS
END OF PERIOD |
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$ |
4,251 |
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$ |
3,305 |
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Changes in assets and liabilities
providing (using) cash: |
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Accounts receivable, net |
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$ |
2,459 |
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$ |
(210 |
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Prepaid expenses |
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(235 |
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(288 |
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Other assets |
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108 |
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(5 |
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Accounts payable |
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(638 |
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261 |
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Accrued insurance |
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(119 |
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(1,145 |
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Accrued wages |
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210 |
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1,067 |
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Other current liabilities |
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4 |
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192 |
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Other liabilities |
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7 |
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(117 |
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Total changes in assets and liabilities
providing cash |
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$ |
1,796 |
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$ |
(245 |
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See accompanying Notes to Financial Statements
5
ABLEST INC.
Notes to Condensed Financial Statements
(Unaudited)
1. |
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COMPANY BACKGROUND |
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Ablest Inc. (Company) offers staffing services in the United States. Staffing services are
principally provided through 60 service locations in the Eastern United States and selected
Southwestern markets with the capability to supply staffing services for the clerical, light
industrial, information technology, finance and accounting needs of their customers.
Positions often filled include, but are not limited to, data entry, office administration,
telemarketing, light industrial assembly, order picking and shipping, network
administration, database administration, program analyst (both mainframe and client server),
web development, project management, technical writing, accounting, financial analysis and
internal auditing. The Company does not service any specific industry or field; instead, its
services are provided to a broad-based customer list. |
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SIGNIFICANT ACCOUNTING POLICIES |
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Basis of Presentation |
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These interim financial statements have been prepared in accordance with accounting
principles generally accepted (GAAP) in the United States for interim financial
information, the instructions to Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation
S-X and should be read in conjunction with our Annual Report on Form 10-K for the year ended
December 25, 2005. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. |
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All adjustments, consisting of only normal recurring adjustments, considered necessary for
fair presentation have been reflected in these condensed financial statements. The
operating results for the thirteen and forty week period ended October 1, 2006 are not
necessarily indicative of the results that may be expected for the fiscal year ending
December 31, 2006. |
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Fiscal Periods |
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The Companys fiscal year to date for 2006 and 2005 consists of forty and thirty nine weeks,
respectively. |
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Cash Equivalents |
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All highly liquid investments with original maturities of three months or less are considered
cash equivalents. As of October 1, 2006, there was $1.5 million in cash equivalents. There were
no equivalents as of December 25, 2005. |
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Revenue Recognition |
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The Companys revenues are derived from providing staffing services to its customers.
Substantially all revenue is billed on a direct cost plus markup basis. Revenue is recognized at
the time the service is performed. In addition, the Company bills revenues under piecework
contracts and permanent placement services. Piecework contracts are billed to the customer on a
cost per unit basis versus an hourly basis. Revenue from piecework contracts is recognized at the
time service is performed. Permanent placement services are fee-based services to recruit and fill
regular staff positions for customers. Revenue from permanent placement services is recognized
when a candidate begins full-time employment. |
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Allowance for Doubtful Accounts |
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The Company must make estimates of the collectibility of accounts receivables. Management
analyzes historical bad debts, customer concentrations, customer credit-worthiness, current |
6
ABLEST INC.
Notes to Condensed Financial Statements
(Unaudited)
economic trends and changes in the customers payment tendencies when evaluating the
adequacy of the allowance for doubtful accounts. The Company maintains an allowance for
probable losses based upon managements analysis of historical write-off levels, current
economic trends, routine assessments of its clients financial strength and any other known
factors impacting collectibility. Recoveries are recognized in the period in which they are
received. The ultimate amount of accounts receivable that become uncollectible could differ
from those estimated; however, such losses have been generally within managements
expectations.
Self-Insurance Reserves
The Company is self-insured for the deductible amount of its general liability and workers
compensation coverages. To derive an estimate of the Companys ultimate claims liability,
established loss development factors are applied to current claims information. The Company
maintains reserves for its workers compensation using actuarial methods to estimate the
remaining undiscounted liability for the deductible portion of these claims, including those
incurred but not reported. Annually, an independent actuary calculates an estimated
ultimate liability and determines loss development factors for future periods. The
calculated ultimate liability is then reduced by cumulative claims payments to determine the
required reserve. Management evaluates the accrual on a quarterly basis and adjusts as
needed to reflect the required reserve calculation. Whereas management believes the
recorded liabilities are adequate, there are inherent limitations in the estimation process
whereby future actual losses may differ from projected loss rates, which could materially
affect the financial condition and results of operations of the Company. There can be no
assurance that changes to managements estimates will not occur due to limitations inherent
in the estimation process.
Goodwill and Other Intangible Assets
The Company has adopted Financial Accounting Standards No. 142 (SFAS No. 142), Goodwill and
Other Intangible Assets. Under SFAS No. 142, goodwill and indefinite lived intangible
assets are no longer amortized but are reviewed at least annually for impairment. SFAS No.
142 prescribes a two-phase process for impairment testing of goodwill. The first phase
screens for impairment; while the second phase (if necessary), measures the impairment. No
impairment losses were recognized by the Company during the periods ended October 1, 2006 or
September 25, 2005.
At October 1, 2006, the Company did not have indefinite lived intangible assets other than
goodwill and did not have any intangible assets with definite lives.
Impairment of Long-Lived Assets
The Company has adopted Financial Accounting Standards No. 144 (SFAS No. 144), Accounting
for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and also requires a company
to review long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. No impairment losses
were recognized by the Company during the periods ended October 1, 2006 or September 25,
2005.
Income Taxes
Income taxes are accounted for by the asset and liability method. Under the asset and
liability method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to operating loss and credit carryforwards and differences between
the financial
7
ABLEST INC.
Notes to Condensed Financial Statements
(Unaudited)
statement carrying amounts of existing assets and liabilities and their respective tax
bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized as income or expense in the period that includes the enactment date.
In assessing the realizability of deferred tax assets, management considers, within each
taxing jurisdiction, whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and projections
for future taxable income over the years in which the deferred tax assets are deductible,
management provided valuation allowances as needed for those deferred tax assets that were
not expected to be realized.
Income Per Common Share
Basic income per common share is computed by using the weighted average number of common shares
outstanding. Diluted income per share is computed by using the weighted average
number of common shares outstanding plus the dilutive effect, if any, of stock options.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting periods. Actual results could differ
from those estimates.
Stock Option Plans
The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 123 (revised 2004) Share-Based Payment (SFAS 123 (R)). SFAS 123 (R)
replaces FASB Statement No. 123 Accounting for Stock-Based Compensation, and supersedes
APB Opinion No 25 Accounting for Stock Issued to Employees. The statement establishes
standards for accounting for share-based payment transactions. Share-based payment
transactions are those in which an entity exchanges its equity instruments for goods or
services, or in which an entity incurs liabilities in exchange for goods or services, which
are based on the fair value of the entitys equity instruments or that may be settled by the
issuance of those equity instruments. SFAS 123(R) covers a wide range of share-based
compensation arrangements including share options, restricted share plans, performance-based
awards, share appreciation rights and employee share purchase plans. SFAS 123(R) requires a
public entity to measure the cost of employee services received in exchange for an award of
equity instruments based on the fair value of the award on the grant date (with limited
exceptions). That cost will be recognized in the entitys financial statements over the
period during which the employee is required to provide services in exchange for the award.
The Company adopted SFAS 123(R) in the first quarter of fiscal 2006, however, as of
8
ABLEST INC.
Notes to Condensed Financial Statements
(Unaudited)
November 3, 2005, the Board of Directors of the Company accelerated the vesting of all
unvested stock options. By accelerating the vesting of these options, the Company has no
obligations outstanding which would require compensation expense under SFAS 123(R) to be
recorded.
Prior to the adoption of SFAS 123(R), the Company applied the intrinsic value-based method
of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations, in accounting for its fixed
plan stock options. As such, compensation expense would be recorded on the date of the
grant if the current market price of the underlying stock exceeded the exercise price.
Statement of Financial Accounting Standards No. 123 (SFAS No. 123) Accounting for Stock
Based Compensation, established accounting and disclosure requirements using a fair
value-based method of accounting for stock-based employee compensation plans. As allowed by
SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method
of accounting described above, and has adopted the disclosure requirements of SFAS No. 123.
Resent Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued interpretation
No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement
No. 109 (FIN 48), which clarifies the accounting for and disclosure of uncertainty in tax
positions. FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and transition associated
with tax positions. The provisions on FIN 48 are effective for fiscal years beginning after
December 15, 2006. The Company is currently evaluating the effects of adoption on its
financial statements and the impact, if any, is not known at this time.
In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin (SAB) No. 108, considering the Effects of Prior Year Misstatements when
Qualifying Misstatements in current Year Financial Statements, which provides interpretive
guidance on how the effects of the carryover or reversal of prior year misstatements should
be considered in quantifying a current year misstatement. SAB 108 is effective for the
fiscal years ending after November 15, 2006. The company is currently evaluating the
effects of adoption on its financial statements and the impact is not expected to be
material.
9
3. |
|
SHORT-TERM BORROWINGS |
|
|
|
On August 2, 2005, the Company entered into a Modification Agreement with Manufacturers and
Traders Trust Company (M&T) that extends for three years the $7,500,000 Committed
Revolving Credit Facility (Facility) originally signed on August 13, 2003. The Company
elects the interest rate on borrowings under the Facility at the time of borrowing at either
the banks prime rate or the thirty, sixty or ninety day LIBOR (as defined in the agreement)
plus 125 basis points. The Facility expires on August 12, 2008 and is renewable with the
consent of both parties. The Company believes that the Facility will be sufficient to cover
foreseeable operational funding requirements until expiration of the Facility. The Facility
requires the Company to maintain certain financial covenants including a tangible net worth
ratio among other restrictions. The most restrictive covenant is the limitation of total
indebtedness which caps total funded indebtedness to 3.5 times the four most recent
quarters EBITDA, as defined in the agreement. During the third quarter of 2006, the
Company had no borrowings against the Facility and was in compliance with all covenants.
It is anticipated that existing funds, cash flows from operations and available borrowings
will be sufficient to cover working capital requirements, organic growth and capital
expenditure requirements. |
|
4. |
|
STOCKHOLDERS EQUITY |
|
|
|
The changes in stockholders equity for the forty week period ended October 1, 2006 are
summarized as follows. Amounts are presented in thousands, except share data. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Common |
|
|
paid-in |
|
|
Retained |
|
|
Treasury |
|
|
stockholders |
|
|
|
stock |
|
|
capital |
|
|
earnings |
|
|
stock |
|
|
equity |
|
|
|
|
Balance at December 25, 2005 |
|
$ |
167 |
|
|
$ |
5,265 |
|
|
$ |
16,072 |
|
|
$ |
(2,110 |
) |
|
$ |
19,394 |
|
Net Income |
|
|
|
|
|
|
|
|
|
|
1,029 |
|
|
|
|
|
|
|
1,029 |
|
Restricted Stock Plan |
|
|
2 |
|
|
|
359 |
|
|
|
|
|
|
|
|
|
|
|
361 |
|
Directors Restricted Stock Plan |
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
Balance at October 1, 2006 |
|
$ |
169 |
|
|
$ |
5,636 |
|
|
$ |
17,101 |
|
|
$ |
(2,110 |
) |
|
$ |
20,796 |
|
|
|
|
10
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Statements made in this Quarterly Report on Form 10-Q, other than those concerning historical
information, should be considered forward-looking and are subject to certain risks and
uncertainties that could cause actual results to differ materially from those anticipated. This
notice is intended to take advantage of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to such forward-looking statements. These
forward-looking statements (such as when we describe what will, may or should occur, what we
plan, intend, estimate, believe, expect or anticipate will occur, and other similar
statements) include, but are not limited to, statements regarding future revenues and operating
results; future prospects; anticipated benefits of proposed (or future) new branches, products or
services; growth; the capabilities and capacities of our business operations and information
systems; financing needs or plans; any financial or other guidance and all statements that are not
based on historical fact, but rather reflect our current expectations concerning future results and
events. We make certain assumptions when making forward-looking statements, any of which could
prove inaccurate, including, but not limited to, statements about our business plans. The ultimate
correctness of these forward-looking statements is dependent upon a number of known and unknown
risks and events, and is subject to various uncertainties and other factors that may cause our
actual results, performance or achievements to be different from any future results, performance or
achievements expressed or implied by these statements. The following important factors, among
others, could affect future results and events, causing those results and events to differ
materially from those expressed or implied in our forward-looking statements: business conditions
and competitive factors in our customers industries, our ability to successfully expand into new
markets and offer new service lines, the availability of qualified personnel, the non-exclusive,
short-term nature of our customers commitments, economic and political conditions and unemployment
levels in the United States and other countries, increases in payroll related costs, including
state unemployment insurance and workers compensation insurance, obsolescence or impairment of our
information systems, our ability to successfully invest in and implement information systems, the
cost of and our ability to comply with Section 404 of the Sarbanes-Oxley Act of 2002, liabilities
under our self-insurance program, and other factors that we may not have currently identified or
quantified.
All forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of
the date of this Quarterly Report on Form 10-Q, and we do not undertake any obligation to publicly
update or correct any forward-looking statements to reflect events or circumstances that
subsequently occur or which we hereafter become aware of. You should read this document and the
documents that we incorporate by reference into this Quarterly Report on Form 10-Q completely and
with the understanding that our actual future results may be materially different from what we
expect. We may not update these forward-looking statements, even if our situation changes in the
future. All forward-looking statements attributable to us are expressly qualified by these
cautionary statements.
Critical Accounting Policies
The preparation of the Companys financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions affecting the amounts and disclosures reported within those financial statements.
These estimates are evaluated on an ongoing basis by management and generally affect revenue
recognition, collectibility of accounts receivable, workers compensation costs, income taxes and
goodwill. Managements estimates and assumptions are based on historical experience and other
factors believed to be reasonable under the circumstances. However, actual results under
circumstances and conditions different than those assumed could result in differences from the
estimated amounts in the financial statements.
11
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Companys critical accounting policies are described in Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations and in the notes to the consolidated
financial statements in the Companys previously filed Annual Report on Form 10-K for the fiscal
year ended December 25, 2005. There were no changes to these policies during the forty week period
ended October 1, 2006.
Results of Operations:
The following discussion compares the quarter ended October 1, 2006 to the quarter ended September
25, 2005, and should be read in conjunction with the Condensed Financial Statements, including the
related notes thereto, appearing elsewhere in this Report.
Three Months Quarter Ended October 1, 2006 Compared with September 25, 2005
Revenues decreased to $34.7 million for the thirteen week quarter period ended October 1, 2006 as
compared to $34.9 million for the thirteen week quarter period ended September 25, 2005. The
decrease was caused by lower billable hours notwithstanding an increase in average billing rate.
We are experiencing reduced demand for labor in certain industries including home building,
furniture manufacturing and consumer products. We also discontinued service to certain customers
that were not meeting our margin and volume targets and at the same time have increased our focus
on improved pricing both with existing and new customers.
Gross profit was $6.2 million for the thirteen week third quarter period of 2006 compared to $5.8
million for the thirteen week third quarter period in 2005, an increase of $0.4 million or 7.2% for
the quarter. Gross profit as a percentage of revenue was 17.8% for the quarter period as compared
to 16.5% prior years quarter period, respectively. The improvement in quarterly gross profit is
attributable to increased hourly billing rates and lower state unemployment insurance rates. In
addition, gross profit also increased as a result of additional permanent placement fees. These
increases offset a decrease in total billable hours for the quarter.
Selling, general and administrative expenses increased by $351,000 or 6.8% for the quarter period
ended October 1, 2006, as compared to the quarter period ended September 25, 2005. The quarter
period increase is primarily attributable to the cost of establishing and staffing new office
locations. Over the last twelve months, six new offices were opened. In addition, the hiring of
additional sales and business development staff at our headquarters office contributed to the
increase.
Other income, net increased due to cash equivalent earnings and other miscellaneous income.
Income tax expense of $270 thousand was recorded for the quarter ended October 1, 2006, as compared
to $223 thousand for the quarter ended September 25, 2005. The effective tax rates were 40.5% and
37.8%, respectively. The increase in the tax rate is due to deferred timing differences.
12
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Nine Months Ended October 1, 2006 Compared with September 25, 2005
Revenues increased 6.5% to $104.9 million for the forty week year to date period ended October 1,
2006 as compared to $98.5 million for the thirty nine week year to date period ended September 25,
2005, respectively. The improvement in year to date revenue is primarily attributable to the
additional week of operations included in the 2006 results. Adjusting for the additional week,
billed hours for the thirty nine week year to date period ended October 1, 2006 are below the
equivalent thirty nine week year to date period ended September 25, 2005. The reduction in billed
hours has been offset by an increase in average billing rate. As noted above in the quarter
comparison above, we are experiencing reduced demand for labor in certain industries including home
building, furniture manufacturing and consumer products. We also discontinued service to certain
customers that were not meeting our margin and volume targets and at the same time have increased
our focus on improving pricing both with existing and new customers.
Gross profit was $18.2 million for the forty week year to date period of 2006 compared to $16.5
million for the thirty nine week year to date period in 2005, an increase of $1.7 million or 10.6%
for the year to date period. The improvement in year to date gross profit is partly attributable
to the additional week of operations in the first quarter 2006 and an increase in gross profit per
labor hour. This increase reflects increased hourly billing rates and lower state unemployment
insurance rates. In addition, gross profit increased as a result of additional permanent placement
fees. These gains were partially offset by an increase to our workers compensation reserve in the
second quarter of 2006. This increase is primarily due to an increase in the severity, frequency
and probable ultimate value of claims incurred in 2006. Gross profit as a percentage of revenue
was 17.4% for the year to date period as compared to 16.7% for the prior years year to date
period.
Selling, general and administrative expenses increased by $2.0 million or 13.8% for the year to
date period ended October 1, 2006, as compared to the same period ended September 25, 2005. The
year to date increase is primarily attributable to the cost of establishing and staffing new office
locations and the additional week of operations in the first quarter 2006. Over the
last twelve months six new offices were opened. In addition, the hiring of additional sales and
business development staff at our headquarters office contributed to the increase as well as the
write-off of certain uncollectible accounts.
Other income, net increased due to cash equivalent earnings and other miscellaneous income.
Income tax expense of $703 thousand was recorded for the year ended October 1, 2006, as compared to
$737 thousand for the year ended September 25, 2005. The effective tax rates were 40.5% and 38.0%,
respectively. The increase in the tax rate is due to deferred timing differences.
Liquidity and Capital Resources:
The quick ratio was 3.4 to 1 and 3.1 to 1 at October 1, 2006 and December 25, 2005, respectively,
and the current ratio was 3.7 to 1 and 3.4 to 1, for the same respective periods. The primary
source of funding is generated from results of operations. Net working capital increased by $0.4
million to $16.2 million for the current year to date period as a result of operations. Reference
should be made to the Condensed Statements of Cash Flows, which details the sources and uses of
cash.
Capital expenditures year-to-date were approximately $1.3 million. In the fourth quarter 2006, the
Company plans to purchase approximately an additional $110 thousand over the rest of the fiscal
year, of new front office software.
13
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
On August 2, 2005, the Company entered into a Modification Agreement with Manufacturers and Traders
Trust Company (M&T) that extends for three years the $7,500,000 Committed Revolving Credit
Facility (Facility) originally signed on August 13, 2003. The Company elects the interest rate
on borrowings under the Facility at the time of borrowing at either the banks prime rate or the
thirty, sixty or ninety day LIBOR plus 125 basis points, a reduction of 75 basis points from the
expiring agreement. The Facility expires on August 12, 2008 and is renewable with the consent of
both parties. The Company believes that the Facility will be sufficient to cover foreseeable
operational funding requirements until expiration of the Facility. The Facility requires the
Company to maintain certain financial covenants including a tangible net worth ratio among other
restrictions. The most restrictive covenant is the limitation of total indebtedness which caps
total funded indebtedness to 3.5 times the four most recent quarters EBITDA, as defined in the
agreement. The Company had no borrowings during the period ended October 1, 2006. It is
anticipated that existing funds, cash flows from operations and available borrowings will be
sufficient to cover working capital requirements, organic growth and capital expenditure
requirements.
Outlook
We will continue to focus on improving our gross margin and growing revenue through implementing
more favorable pricing and discontinuing certain customer relationships not meeting our
profitability targets. We also intend to continue our focus on expanding further into new and
existing commercial and professional staffing markets during the remainder of 2006 and 2007.
Material Commitments
The Companys contractual cash obligations as of October 1, 2006 are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable |
|
Payable |
|
Payable |
|
Payable |
|
|
|
|
during 2006 |
|
2007 - 2008 |
|
2009 - 2011 |
|
after 2011 |
|
Total |
Operating leases (1) |
|
$ |
596 |
|
|
$ |
1,793 |
|
|
$ |
1,391 |
|
|
$ |
406 |
|
|
$ |
4,186 |
|
Capital expenditures (2) |
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165 |
|
|
|
|
|
Total |
|
$ |
761 |
|
|
$ |
1,793 |
|
|
$ |
1,391 |
|
|
$ |
406 |
|
|
$ |
4,351 |
|
|
|
|
(1) |
|
Includes minimum lease payment obligations for equipment and real property leases in
effect as of October 1, 2006. |
|
(2) |
|
Purchase obligations for capital expenditure projects in progress. |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not believe that its exposure to fluctuations in interest rates is material.
14
ITEM 4. CONTROLS AND PROCEDURES
We carried out an evaluation under the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this quarterly report.
Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded
that our disclosure controls and procedures were effective for the period covered by this quarterly
report filed under the Securities Exchange Act within the time periods specified by the Securities
and Exchange Commissions rules and forms.
During the last fiscal quarter, there have not been any changes in the Companys internal controls
over financial reporting or in other factors to the Companys knowledge that could materially
affect, or is reasonably likely to materially affect the internal control over financial reporting,
including any corrective action with regard to significant deficiencies and material weaknesses.
The design of any system of controls and procedures is based in part upon certain assumptions about
the likelihood of future events.
Effective May 15, 2006, the Company implemented Great Plains® software for use in connection with
the Companys back-office systems, including its corporate accounting, finance, human resources and
customer service processes. Management has reviewed then changed in internal controls associated
with the new system and plans to complete its testing of the internal control changes prior to
December 31, 2006.
Effective October 2, 2006, the Company implemented new front-office staffing software, StaffSuite®,
to be utilized in connection with the Companys commercial and professional staffing operations to
house sales and process employee payroll information. Management has reviewed then changed in
internal controls associated with the new payroll system and plans to complete its testing of the
internal control changes prior to December 31, 2006.
15
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 1A RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS
Exhibits
|
|
|
10.1
|
|
Employment agreement with John Horan, Vice President and chief Financial Officer, dated
April 17, 2006. |
|
|
|
10.2
|
|
2006 Non-Employee Directors Equity Rights Plan. |
|
|
|
31.1
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
16
SIGNATURE
Pursuant to the requirements 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.
|
|
|
|
|
|
|
|
|
ABLEST INC. |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ John Horan
John Horan
|
|
|
|
|
|
|
Vice President and Chief Financial Officer |
|
|
|
|
|
|
(On behalf of the Registrant and as |
|
|
|
|
|
|
Principal Financial Officer) |
|
|
Date: November 10, 2006
17
Exhibit Index
|
|
|
Exhibit |
|
|
Number |
|
Description of Document |
|
10.1
|
|
Employment agreement with John Horan, Vice President and Chief Financial Officer, dated April
17, 2006. |
|
|
|
10.2
|
|
2006 Non-Employee Directors Equity Rights Plan. |
|
|
|
31.1
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
18