Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 26, 2008

or

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 001-14543

 

 

TrueBlue, Inc.

(Exact name of registrant as specified in its charter)

 

 

Washington		91-1287341
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)
1015 A Street, Tacoma, Washington		98402
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code:                    (253) 383-9101

 

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 x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer x   Accelerated filer o Non-accelerated filer o Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

 

As of October 24, 2008, there were 43,371,491 shares of the registrant’s common stock outstanding.

 

Documents incorporated by reference:  None.

 

 

TrueBlue, Inc.

 

Index

 

Part I.   Financial Information
	Item 1.	Financial Statements (unaudited)
		Consolidated Balance Sheets September 26, 2008 and December 28, 2007	3
		Consolidated Statements of Income Thirteen and Thirty-Nine weeks ended September 26, 2008 and September 28, 2007	4
		Consolidated Statements of Cash Flows Thirty-Nine weeks ended September 26, 2008 and September 28, 2007	5
		Notes to Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 4.	Controls and Procedures	24
Part II.   Other Information
	Item 1.	Legal Proceedings.	25
	Item 1A.	Risk Factors	25
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
	Item 3.	Defaults Upon Senior Securities	25
	Item 4.	Submission of Matters to a Vote of Security Holders	25
	Item 5.	Other Information	25
	Item 6.	Exhibits	26
	Signatures		27

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PART I.  Financial Information

 

Item 1.        Financial Statements

 

TrueBlue, Inc.

 

Consolidated Balance Sheets

 

In Thousands (Except Par Values)

 

		September 26,			December 28,
		2008			2007
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	57,480		$	57,008
Marketable securities		--			10,954
Accounts receivable, net of allowance for doubtful accounts		155,652			140,027
Prepaid expenses, deposits and other current assets		12,648			14,032
Deferred income taxes		15,089			7,487
Total current assets		240,869			229,508
Property and equipment, net		58,184			44,909
Restricted cash		127,785			132,497
Deferred income taxes		10,131			9,998
Goodwill		82,646			71,065
Intangible assets, net		43,210			40,739
Other assets, net		18,619			16,533
Total assets		$	581,444		$	545,249
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued expenses		$	25,388		$	25,026
Accrued wages and benefits		25,743			25,207
Current portion of workers’ compensation claims reserve		51,585			52,360
Income tax payable		4,962			7,377
Other current liabilities		1,179			4,568
Total current liabilities		108,857			114,538
Workers’ compensation claims reserve, less current portion		154,309			145,042
Other non-current liabilities		1,932			1,842
Total liabilities		265,098			261,422
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.131 par value, 20,000 shares authorized;
No shares issued and outstanding		--			--
Common stock, no par value, 100,000 shares authorized;
43,352 and 43,917 shares issued and outstanding		1			1
Accumulated other comprehensive income		3,841			3,738
Retained earnings		312,504			280,088
Total shareholders’ equity		316,346			283,827
Total liabilities and shareholders’ equity		$	581,444		$	545,249

 

See accompanying notes to consolidated financial statements

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TrueBlue, Inc.

 

Consolidated Statements of Income

 

In Thousands (Except Per Share Data)

 

(Unaudited)

 

		Thirteen weeks ended						Thirty-nine weeks ended
		September 26,			September 28,			September 26,			September 28,
		2008			2007			2008			2007
Revenue from services		$	387,914		$	390,672		$	1,082,640		$	1,032,040
Cost of services		272,736			265,168			758,564			701,858
Gross profit		115,178			125,504			324,076			330,182
Selling, general and administrative expenses		86,226			89,077			253,279			248,355
Depreciation and amortization		3,988			3,402			11,863			8,661
Income from operations		24,964			33,025			58,934			73,166
Interest expense		(295)			(116)			(678)			(803)
Interest and other income		1,344			2,620			5,247			9,026
Interest and other income, net		1,049			2,504			4,569			8,223
Income before tax expenses		26,013			35,529			63,503			81,389
Income tax expense		9,678			12,806			21,639			29,545
Net Income		$	16,335		$	22,723		$	41,864		$	51,844
Net income per common share:
Basic		$	0.38		$	0.51		$	0.97		$	1.12
Diluted		$	0.38		$	0.51		$	0.97		$	1.11
Weighted average shares outstanding:
Basic		42,460			44,487			43,005			46,484
Diluted		42,695			44,784			43,176			46,775

 

See accompanying notes to consolidated financial statements

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TrueBlue, Inc.

 

Consolidated Statements of Cash Flows

 

In Thousands

 

(Unaudited)

 

		Thirty-nine weeks ended
		September 26,			September 28,
		2008			2007
Cash flows from operating activities:
Net Income		$	41,864		$	51,844
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		11,863			8,661
Provision for doubtful accounts		6,697			7,543
Stock-based compensation		6,229			5,457
Excess tax benefits from stock-based compensation		--			(1,293)
Deferred income taxes		(7,102)			(4,458)
Other operating activities		530			105
Changes in operating assets and liabilities, exclusive of businesses acquired:
Accounts receivable		(11,394)			(34,904)
Income taxes		(4,350)			9,957
Other assets		--			298
Accounts payable and other accrued expenses		(1,663)			1,696
Accrued wages and benefits		(2,654)			(342)
Workers’ compensation claims reserve		4,106			5,621
Other liabilities		(3,216)			872
Net cash provided by operating activities		40,910			51,057
Cash flows from investing activities:
Capital expenditures		(20,009)			(16,311)
Purchases of marketable securities		(27,158)			(146,901)
Maturities of marketable securities		38,087			227,706
Acquisitions of businesses, net of cash acquired		(21,270)			(26,456)
Change in restricted cash		4,712			809
Other		--			(167)
Net cash provided by (used in) investing activities		(25,638)			38,680
Cash flows from financing activities:
Purchases and retirement of common stock		(15,997)			(148,233)
Net proceeds from sale of stock through options and employee benefit plans		3,173			5,046
Shares withheld for taxes upon vesting of restricted stock		(918)			(954)
Excess tax benefits from stock-based compensation		--			1,293
Payments on debt		(193)			(842)
Other		(229)			--
Net cash used in financing activities		(14,164)			(143,690)
Effect of exchange rates on cash		(636)			1,893
Net change in cash and cash equivalents		472			(52,060)
CASH AND CASH EQUIVALENTS, beginning of period		57,008			107,944
CASH AND CASH EQUIVALENTS, end of period		$	57,480		$	55,884

 

See accompanying notes to consolidated financial statements

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Notes to Consolidated Financial Statements

 

NOTE 1: ACCOUNTING PRINCIPLES AND PRACTICES

 

The accompanying unaudited consolidated financial statements are prepared in accordance with generally accepted accounting principles for interim financial information and rules and regulations of the Securities and Exchange Commission.  Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.  The unaudited consolidated financial statements reflect all adjustments, including normal recurring adjustments, which in the opinion of management are necessary to fairly state the financial position, results of operations and cash flows for the interim periods presented.  These financial statements should be read in conjunction with the consolidated financial statements and related notes included in our annual report on Form 10-K for the year ended December 28, 2007. Operating results for the thirty-nine week period ended September 26, 2008 are not necessarily indicative of the results that may be expected for the year ending December 26, 2008.

 

The consolidated financial statements are presented on a 52/53-week fiscal year end basis, with the last day of the fiscal year ending on the last Friday of December. Fiscal years 2008 and 2007 are 52-week years.

 

Revenue recognition

Revenue from services is recognized at the time the service is provided and is net of adjustments related to customer credits.  Revenue includes cash dispensing machine fees, billable travel, and other reimbursable costs, which are immaterial for all periods presented.  Sales coupons or other incentives are recognized in the period the related revenue is earned.

 

Cost of services

Cost of services primarily includes wages of temporary employees and related payroll taxes and workers’ compensation expenses.  Cost of services also includes billable travel and other reimbursable costs, which are immaterial for all periods presented.

 

Accounts receivable and allowance for doubtful accounts

Accounts receivable are recorded at the invoiced amount together with interest for certain past due accounts.  The allowance for doubtful accounts is determined based on historical write-off experience and current economic data and represents our best estimate of the amount of probable credit losses.  The allowance for doubtful accounts is reviewed quarterly and past due balances are written-off when it is probable the receivable will not be collected.  Our allowance for doubtful accounts was $5.3 million and $6.0 million as of September 26, 2008 and December 28, 2007, respectively.

 

Property and equipment

Property and equipment are stated at cost and consist of the following (in millions):

 

		September 26,			December 28,
		2008			2007
Buildings and land		$	24.7		$	23.7
Computers and software		26.5			23.5
Cash dispensing machines		12.4			13.7
Furniture and equipment		10.0			9.6
Construction in progress		28.6			13.1
		102.2			83.6
Less accumulated depreciation and amortization		(44.0)			(38.7)
		$	58.2		$	44.9

 

Construction in progress consists primarily of internally developed software. We capitalize cost incurred to develop internal-use software during the application development stage.  Capitalization of software development costs occurs after the preliminary project stage is complete, management authorizes the project, and it is probable that the project will be completed and the software will be used for the function intended.  We expense costs incurred in the post-implementation stage for training and  maintenance.

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Purchases and retirement of our common stock

Purchases of our common stock are not displayed separately as treasury stock on the Consolidated Balance Sheets in accordance with the Washington Business Corporation Act, which requires the retirement of purchased shares.  As a result, shares of our common stock that we purchase are retired immediately.  It is our accounting policy to first record these purchases as a reduction to our Common stock account.  Once the Common stock account has been reduced to a nominal balance, remaining purchases are recorded as a reduction to our Retained earnings account.

 

Shares outstanding

Shares outstanding for reportable purposes include shares of unvested restricted stock.  Unvested restricted stock included in reportable shares outstanding was 0.9 million shares and 0.7 million shares as of September 26, 2008 and December 28, 2007, respectively. Shares of unvested restricted stock are excluded from our calculation of basic net income per common share, but their dilutive impact is added back in the calculation of diluted net income per common share.

 

Reclassifications

Certain amounts in the consolidated financial statements for the thirty-nine weeks ended September 28, 2007 have been reclassified to conform to the 2008 presentation.  These reclassifications had no effect on the operating results of either period.

 

Recently adopted accounting pronouncements

On December 29, 2007, we adopted  the provisions of Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.  SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value.  The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option.  However, the amendment to FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, modifies certain presentation and disclosure requirements in the Consolidated Balance Sheets and applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.  The adoption of SFAS No. 159 did not have a material effect on our consolidated financial position, results of operations or cash flows.

 

On December 29, 2007, we partially adopted SFAS No. 157, Fair Value Measurements.  Our partial adoption is in accordance with FASB Staff Position (“FSP”) on Statement 157 “Effective Date of FASB Statement No. 157” (FSP 157-2).  FSP 157-2 delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed on a recurring basis, to fiscal years beginning after November 15, 2008.  SFAS No. 157 establishes a framework for measuring fair value and requires expanded disclosure about the information used to measure fair value.  SFAS No. 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.  As a basis for considering such assumptions, SFAS No. 157 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value.  Our partial adoption of SFAS No. 157 did not have a material effect on our consolidated financial position, results of operations or cash flows nor do we anticipate further adoption of the provision for nonfinancial assets and liabilities to have a material impact on our consolidated financial position, results of operations or cash flows.  See Note 6 for additional information.

 

Recent Accounting Pronouncements Not Yet Adopted

In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The FSP is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited.  The adoption of FSP 142-3 will not have a material effect on our consolidated financial position, results of operations or cash flows.

 

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS 162 identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for non-governmental entities.  SFAS 162 is effective November 15, 2008.  The adoption of SFAS No. 162 will not have a material effect on our consolidated financial position, results of operations or cash flows.

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NOTE 2: BUSINESS COMBINATIONS

 

We account for acquired businesses using the purchase method of accounting.  Under the purchase method, our consolidated financial statements reflect an acquired business starting from the completion of the acquisition.  In addition, the assets acquired and liabilities assumed are recorded at the date of acquisition at their respective estimated fair values, with any excess of the purchase price over the estimated fair values of the net assets acquired recorded as goodwill.

 

Effective April 28, 2008, we acquired Personnel Management, Inc. (“PMI”), a light industrial staffing company. The total adjusted cost of the acquisition was $15.8 million, which included $8.4 million of goodwill.  The acquisition expands our presence in the light industrial staffing niche.  Founded in 1986, PMI provides light industrial staffing to warehousing, manufacturing, and distribution clients. PMI currently serves the marketplace through 42 branches located in Indiana, Kentucky, Tennessee, Georgia, South Carolina, North Carolina, Florida, Michigan, and Texas.

 

NOTE 3: RESTRICTED CASH

 

Restricted cash consists primarily of cash held by our insurance carrier as collateral for our workers’ compensation program.  We have agreements with certain financial institutions through our wholly-owned and consolidated subsidiary, Workers’ Assurance of Hawaii, Inc. (our “Workers’ Assurance Program”), that allow us to restrict cash for the purpose of providing cash-backed instruments for our workers’ compensation collateral.  These instruments include cash-backed letters of credit, cash held in trusts and cash deposits held by our insurance carriers.  Committed collateral represents instruments that have been provided or pledged to an insurance company for either the direct payment of claims, or to cover the cost of claims in the event we are unable to make payment.  The majority of our collateral is held by AIG Commercial Insurance (“AIGCI”) a subsidiary of American International Group, Inc. (“AIG”).

 

The following is a summary of restricted cash (in millions):

 

		September 26,			December 28,
		2008			2007
Workers’ Assurance Program - committed collateral		$	121.8		$	126.4
Cash collateralizing surety bonds and deposits - committed collateral		5.0			5.1
Other		1.0			1.0
Total Restricted Cash		$	127.8		$	132.5

 

NOTE 4: WORKERS’ COMPENSATION INSURANCE AND RESERVES

 

We provide workers’ compensation insurance for our temporary and permanent employees.  While we have primary responsibility for all claims, our insurance coverage provides reimbursement for certain losses and expenses beyond the self insured limits.  Our workers’ compensation insurance policies are renewed annually. We had coverage with AIGCI for occurrences during the period from July 2007 to July 2008 and renewed our coverage with AIGCI effective July 2008 to July 2009. For workers’ compensation claims originating in states where we are self-insured, the majority of our current workers’ compensation insurance policies cover any claims for a particular event above a $2.0 million self insured limit, on a “per occurrence” basis.  This results in our being substantially self-insured. Furthermore, we have full liability for all further payments on claims which originated between January 2001 and June 2003, without recourse to any third party insurer as the result of a novation agreement we entered into with Kemper Insurance Company in December 2004.

 

Our workers’ compensation insurance policies are with various insurance subsidiaries of AIGCI.  AIGCI holds the majority of the restricted cash collateralizing our high-deductible workers’ compensation policies.  AIG has stated publicly and on its website as recently as October 24, 2008, that its insurance companies remain financially strong and well-capitalized and that its insurance companies are able to pay all valid claims.  However, if the commercial insurance operations of the AIGCI subsidiaries do experience financial distress then they may not be able to satisfy their coverage obligations to us and we may be forced to satisfy some or all of those claims directly.  In addition, we could be required to provide additional collateral to a new insurance carrier in order to acquire workers’ compensation insurance for our workers.  This in turn, could harm our financial condition or results from operations.

 

Our workers’ compensation reserve is discounted to its estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments, which are evaluated on a quarterly basis.  At September 26, 2008, our reserves are discounted at rates ranging from 3.32% to 4.83%.  Included in the accompanying Consolidated Balance Sheets as of September 26, 2008 and December 28, 2007 are discounted workers’ compensation claims reserves in the amounts of $205.9 million and $197.4 million, respectively.

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For workers’ compensation claims originating in Washington, North Dakota, Ohio, Wyoming, Canada and Puerto Rico (our “monopolistic jurisdictions”) we pay workers’ compensation insurance premiums and obtain full coverage under government-administered programs (with the exception of our Labor Ready brand in the state of Ohio where we are self insured).  Accordingly, because we are not the primary obligor, our financial statements do not reflect the liability for workers’ compensation claims in these monopolistic jurisdictions.  As of July 1, 2008 we are self insured in the state of West Virginia. Claims originating in the state of West Virginia prior to July 1, 2008 are covered under the government-administered programs.

 

Our workers’ compensation reserves include not only estimated expenses for claims within our self-insured layer but also estimated expenses related to claims above our self insured limits (“excess claims”).  We record an estimated receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance companies.  We discount this receivable to its estimated net present value using the risk-free rates associated with the weighted average lives of our excess claims.  The weighted average claim lives are actuarially determined.  When appropriate, based on our best estimate, we record a valuation allowance against the insurance receivable to reflect amounts that may not be realized. Two of the workers’ compensation insurance companies (“Troubled Insurance Companies”) with which we formerly did business are in liquidation and have failed to pay a number of excess claims to date.  These excess claims have been presented to the state guaranty funds of the states in which the claims originated.  Certain of these excess claims have been rejected by the state guaranty funds due to statutory eligibility limitations.  Our valuation allowance against receivables from Troubled Insurance Companies as of September 26, 2008 and December 28, 2007 is $7.3 million and $7.1 million, respectively.  Total discounted receivables from insurance companies, net of related valuation allowance, as of September 26, 2008 and December 28, 2007 are $16.8 million and $14.9 million, respectively and are included in Other assets, net in the accompanying Consolidated Balance Sheets.

 

Workers’ compensation expense totaling $16.3 million and $18.3 million was recorded for the thirteen weeks ended September 26, 2008 and September 28, 2007, respectively.  Workers’ compensation expense totaling $44.9 million and $50.7 million was recorded for the thirty-nine weeks ended September 26, 2008 and September 28, 2007, respectively. Workers’ compensation expense includes self-insurance reserves net of changes in discount, monopolistic jurisdictions premiums, insurance premiums, any changes in the valuation allowance related to receivables from insurance companies, and other miscellaneous expenses.

 

NOTE 5: INTANGIBLE ASSETS

 

The following table presents our purchased intangible assets other than Goodwill (in millions):

 

		September 26, 2008												December 28, 2007
		Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount				Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
Amortizable intangible assets (1):
Customer relationships		$	39.9			$	(9.1	)		$	30.8			$	35.3			$	(5.2	)		$	30.1
Trade name/trademarks		4.1				(0.8		)		3.3				3.2				(0.2		)		3.0
Non-compete agreements		4.0				(1.4		)		2.6				1.3				(0.2		)		1.1
		$	48.0			$	(11.3	)		$	36.7			$	39.8			$	(5.6	)		$	34.2
Indefinite-lived intangible assets:
Trade name/trademarks		$	6.5			$	--			$	6.5			$	6.5			$	--			$	6.5

 

(1) Excludes intangible assets that are fully amortized.

 

Effective April 28, 2008, we acquired Personnel Management, Inc. (“PMI”), a light industrial staffing company, for $15.8 million.  Intangible assets other than goodwill recorded as a result of the PMI acquisition totaled $4.7 million.  Intangible assets other than goodwill totaling $2.8 million were recorded in the first quarter of 2008 in conjunction with a separate acquisition.

 

Total amortization expense was $1.9 million for the thirteen weeks ended September 26, 2008 and $0.9 million for the thirteen weeks ended September 28, 2007.  Amortization expense was $5.1 million for the thirty-nine weeks ended September 26, 2008 and $2.1 million for the thirty-nine weeks ended September 28, 2007.

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Amortization expense of intangible assets for the next five years and thereafter is as follows (in millions):

 

 

NOTE 6: FAIR VALUE MEASUREMENT

 

Effective December 29, 2008, we partially adopted Statement of Financial Accounting Standards  No. 157, Fair Value Measurements (“SFAS 157”). Our partial adoption is in accordance with FASB Staff Position No. FAS 157-2, which allows for the delay of the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities.

 

SFAS 157 requires certain disclosures regarding fair value based on the inputs used to measure fair value. The following is a list of the defined levels in the fair value hierarchy based on the data and/or methods used to determine fair value:

·                  Level 1: Quoted market prices in active markets for identical assets or liabilities

·                  Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data

·                  Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions

 

Our cash equivalents and investment instruments are classified within Level 1 of the fair value hierarchy.  Our Level 1 investments are valued using quoted market prices in active markets.  As of September 26, 2008, our Level 1 investments consisted of money market accounts totaling $29.7 million and were recorded as Cash and cash equivalents in our Consolidated Balance Sheet.  We had no Level 2 or Level 3 investments as of September 26, 2008.

 

NOTE 7: COMMITMENTS AND CONTINGENCIES

 

Revolving credit facility

On April 15, 2008, we entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”), with Wells Fargo Bank and Bank of America which amended and restated the previous revolving credit facility.  The Amended and Restated Credit Agreement extends the term of the revolving credit facility from November 2008 to April 2011.  In addition, we may request (in no more than three instances) that the Amended and Restated Credit Agreement be increased from $80 million up to $160 million in the aggregate, subject to bank approval.  The Amended and Restated Credit Agreement also eliminated the asset coverage ratio covenant that was contained in the previous revolving credit facility.  Except as set forth above, the Amended and Restated Credit Agreement did not materially change the terms of the previous revolving credit facility. The Amended and Restated Credit Agreement, which is secured by substantially all our assets except our real estate, provides us with access to loan advances and letters of credit.  Under the terms of the Amended and Restated Credit Agreement, we pay a variable rate of interest based on a margin above LIBOR for borrowings and a variable unused commitment fee, both based on a consolidated leverage ratio of consolidated total debt to consolidated EBITDA.  Fees for letters of credit are based on the margin in effect plus a fee of 0.05%.  As of September 26, 2008, our margin was 0.50% and our unused capacity fee was 0.125%.  At September 26, 2008, we had $52.8 million of letters of credit issued against that borrowing capacity leaving us with $27.2 million available for future borrowings.  The Amended and Restated Credit Agreement requires that we comply with certain financial covenants.  Among other things, these covenants require us to maintain certain leverage and coverage ratios.  We are currently in compliance with all covenants related to the Amended and Restated Credit Agreement.

 

Workers’ compensation commitments

We are required by our insurance carriers and certain state workers’ compensation programs to collateralize a portion of our workers’ compensation obligation with cash and cash-backed instruments, irrevocable letters of credit, or surety bonds. The letters of credit issued against the Revolving Credit Facility bear fluctuating annual fees of approximately 0.55% of the principal amount of the letters of credit outstanding as of September 26, 2008.  The letters of credit issued related to our Workers’ Assurance Program bear fluctuating annual fees of approximately 0.58% of the principal amount of the letters of credit outstanding as of September 26, 2008.  The surety bonds bear annual fees based on a percentage of the bond, which are determined by each independent surety carrier but do not exceed 2.0% of the bond amount, subject to a minimum charge.

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At September 26, 2008 and December 28, 2007 we had provided our insurance carriers and certain states with commitments in the form and amounts listed below (in millions):

 

		Workers’ Compensation Commitments as of:
		September 26,			December 28,
		2008			2007
Workers’ Assurance Program - committed collateral (1)		$	121.8		$	126.4
Letters of credit		52.8			34.5
Surety bonds (2)		17.2			17.2
Other cash-backed instruments		1.2			1.2
Total Collateral Commitments		$	193.0		$	179.3

 

(1) The majority of our committed collateral is held at AIGCI

(2) We had $3.8 and $4.0 million of restricted cash collateralizing our surety bonds at September 26, 2008 and December 28, 2007, respectively

 

Legal contingencies and developments

From time to time we are subject to compliance audits by federal, state and local authorities relating to a variety of regulations including wage and hour laws, taxes, workers’ compensation, immigration and safety.  From time to time we are also subject to legal proceedings in the ordinary course of our operations. A summary of our most significant pending litigation and regulatory proceedings is set forth below. It is not possible at this time for us to determine fully the effect of all legal proceedings on our consolidated financial position, results of operations or liquidity; however, to the extent possible, where legal liabilities can be reasonably estimated and are considered probable, we have recorded a liability. To the extent that an insurance company is contractually obligated to reimburse us for a liability, we record a receivable for the amount of the probable reimbursement. We have established reserves for our contingent legal and regulatory liabilities in the amount of $4.5 million at September 26, 2008 and $4.8 million at December 28, 2007. We believe that none of the currently pending legal proceedings, individually or in the aggregate, will have a material adverse impact on our financial position, results of operations or cash flows beyond amounts that have been accrued in the financial statements, although we can make no assurances in this regard.

 

On July 16, 2003, Alecia Recio, Elizabeth Esquivel, Debbie Owen and Barry Selbts, each a current or former employee of ours, jointly filed an action in United States District Court for the Central District of California, alleging failure to pay overtime under state and federal law and seeking unspecified damages and certification of a class of similarly situated employees (this matter now includes the claims of Scott Romer and Shawna Clark previously pursued in a separate action). On September 23, 2003, the court dismissed the case for improper venue. On October 1, 2003, Recio re-filed her case in California State Court, Los Angeles County, seeking similar relief on behalf of our employees employed in the State of California.  The case went to mediation on September 27, 2007 and on October 12, 2007.  Subsequently, the parties entered into a settlement which resolved all claims.  The settlement received final approval from the court on September 22, 2008.  All amounts related to the settlement are accounted for in our established reserves for our contingent legal and regulatory liabilities.

 

On January 12, 2005, the New Jersey Division of Taxation (the “Division”) filed a Notice of Assessment Related to Final Audit Determination asserting that we owe $7.0 million for delinquent sales taxes, penalties and interest for the period October 1, 2000 through September 30, 2004. The amount of the assessment is based on the Division’s assertion that 100% of our revenue from New Jersey operations is subject to sales tax. We disputed the Division’s position that we provide taxable services under New Jersey law and filed an administrative protest.  The administrative protest was handled internally by the Division and did not involve any outside or independent governmental bodies.  On September 19, 2006, the Division issued a final determination on our administrative protest increasing the amount that we allegedly owe for delinquent sales taxes, penalties and interest to $8.1 million.  Interest continues to accrue on this amount.  We have sought independent review of this determination by filing a complaint with the Tax Court of New Jersey on December 15, 2006.  On September 17, 2008, the Court heard our motion for summary judgment, as well as a cross-motion for summary judgment by the Division, and ordered the parties to conduct additional discovery.

 

NOTE 8: STOCK BASED COMPENSATION

 

We account for stock-based compensation under the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised), Share-Based Payment, using the modified-prospective transition method.    Compensation cost for all stock-based awards is recognized using the straight-line method.  Total stock-based compensation expense recognized in the consolidated financial statements for the thirteen weeks ended September 26, 2008 was $1.7 million, before income taxes, compared to total stock-based compensation expense for the thirteen weeks ended September 28, 2007 of $1.5 million, before income taxes. Total stock-based compensation expense recognized in the consolidated financial statements for the thirty-nine weeks ended September 26, 2008 was $6.2 million, before income taxes, compared to total stock-based compensation expense for the thirty-nine weeks ended September 28, 2007 of $5.5 million, before income taxes.

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Stock options

We have stock option and incentive plans for directors, officers, and employees, which provide for nonqualified stock options and incentive stock options.  We issue new shares of common stock upon exercise of stock options.  The majority of our unvested stock options “cliff vest” in three-years from the date of grant and expire if not exercised within seven years from the date of grant.  The maximum contractual term for our outstanding awards is ten years.

 

A summary of the weighted average assumptions and results for options granted during the periods presented is as follows:

 

		Thirty-nine weeks ended
		September 26,		September 28,
		2008		2007
Expected life (in years)		3.48		3.48
Expected volatility		43.5%		40.5%
Risk-free interest rate		2.2%		4.9%
Expected dividend yield		0.0%		0.0%
Weighted average fair value of options
granted during the period		$5.07		$6.74

 

Stock option activity follows (shares in thousands):

 

		Thirty-nine weeks ended
		September 26, 2008
		Shares		Price (1)
Outstanding at beginning of period		1,025		$	16.88
Granted		239		$	14.85
Exercised		(224)		$	11.69
Forfeited		(31)		$	19.11
Expired		(17)		$	21.24
Outstanding at the end of the period		992		$	17.40
Exercisable at the end of the period		458		$	17.53

 

(1) Weighted average exercise price.

 

As of September 26, 2008, total unrecognized stock-based compensation expense related to nonvested stock options was approximately $1.9 million, which is expected to be recognized over a weighted average period of 1.8 years through 2012.

 

Restricted Stock

Restricted stock is granted to directors, officers, and key employees and vests over periods ranging from three to four years.  Compensation cost of restricted stock is calculated based on the grant-date market value.  We recognize compensation cost on a straight line basis over the vesting period for the awards that are expected to vest.

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Restricted stock activity follows (shares in thousands):

 

		Thirty-nine weeks ended
		September 26, 2008
					(1)
		Shares			Price
Nonvested at beginning of period		663			$	19.70
Granted		472			$	14.37
Vested		(204	)		$	20.00
Forfeited		(71	)		$	19.24
Nonvested at the end of the period		860			$	16.56

(1) Weighted average market price on grant date.

 

As of September 26, 2008, total unrecognized stock-based compensation expense related to non-vested restricted stock was approximately $11.4 million, which is expected to be recognized over a weighted average period of 1.8 years through 2012.

 

Employee stock purchase plan

Our Employee Stock Purchase Plan (the “ESPP”) provides substantially all permanent employees who have completed six months of service and meet certain limited qualifications, an opportunity to purchase shares of our common stock through payroll deductions.  The ESPP permits payroll deductions up to 10% of eligible after-tax compensation.  Participant account balances are used to purchase shares of common stock at the lesser of 85% of the fair market value of shares on either the first day or the last day of each month.  Under the ESPP, 1.9 million shares of common stock have been reserved for purchase under the ESPP, of which 1.5 million shares have been issued and 0.4 million shares remain available for future issuance.  The ESPP expires on June 30, 2010. During the thirty-nine weeks ended September 26, 2008 and September 28, 2007, participants purchased 97,000 and 63,000 shares in the ESPP for cash proceeds of $1.1 million and $1.1 million, respectively.

 

We consider our ESPP to be compensatory under SFAS No. 123R and accordingly we recognize compensation expense over the requisite service period for stock purchases made under the plan.  The requisite service period begins on the enrollment date and ends on the purchase date, the duration of which is one month.

 

NOTE 9:  INCOME TAXES

 

The effective tax rate was 37.2% and 34.1% respectively, for the thirteen and thirty-nine weeks ended September 26, 2008.  The principal difference between the statutory federal income tax rate of 35% and our effective income tax rate, excluding the recognition of non recurring benefits, results from state and foreign income taxes, federal tax credits, tax exempt interest income and certain nondeductible expenses.  During the second quarter ended June 27, 2008, we reached agreements with state tax authorities to resolve matters related to prior years.  As a result, we reduced our unrecognized tax benefits and recognized a tax provision reduction of $2.4 million during the second quarter ended June 27, 2008.  As of September 26, 2008 we had remaining unrecognized tax benefits of $1.2 million in accordance with Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) related to various tax jurisdictions.  FIN 48 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods and disclosures.

 

NOTE 10: STOCK PURCHASES

 

Under our authorized share purchase program, we purchased and retired 1.2 million shares of our common stock during the thirty-nine weeks ended September 26, 2008 for a total amount of $16.0 million, including commissions.  As of September 26, 2008, $21.5 million of common stock remains available for repurchase under the current authorization, which has no expiration date. Under our authorized share purchase program, we purchased and retired 7.5 million shares of our common stock during the thirty-nine weeks ended September 28, 2007 for a total amount of $148.2 million, including commissions.

 

NOTE 11: NET INCOME PER SHARE

 

Basic net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted net income per share is calculated by dividing net income by the weighted average number of common shares and potential common shares outstanding during the period.  Potential common shares include the dilutive effects of outstanding options and non-vested restricted stock except where their inclusion would be anti-dilutive.

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Anti-dilutive shares associated with our stock options relate to those stock options with a grant price higher than the average market value of our stock during the periods presented.  Anti-dilutive shares also include in-the-money options for which the sum of the assumed proceeds, including unrecognized compensation expense, exceeds the average stock price during the quarter.  The weighted average number of anti-dilutive stock options and non-vested restricted stock not considered as part of our diluted net income per share calculation was 1.1 million during the thirteen weeks ended September 26, 2008 and 0.5 million during the thirteen weeks ended September 28, 2007.  The weighted average number of anti-dilutive stock options and non-vested restricted stock not considered as part of our diluted net income per share calculation was 1.3 million during the thirty-nine weeks ended September 26, 2008 and 0.6 million during the thirty-nine weeks ended September 28, 2007.

 

The following tables present the calculation of Net income per common share - Basic and Diluted (in thousands, except per share data):

 

		Thirteen weeks ended						Thirty-nine weeks ended
		September 26,			September 28,			September 26,			September 28,
		2008			2007			2008			2007
Net income		$	16,335		$	22,723		$	41,864		$	51,844
Weighted average number of common shares used in basic net income per common share		42,460			44,487			43,005			46,484
Dilutive effect of outstanding stock options and non-vested restricted stock		235			297			171			291
Weighted average number of common shares used in diluted net income per common share		42,695			44,784			43,176			46,775
Net income per common share:
Basic		$	0.38		$	0.51		$	0.97		$	1.12
Diluted		$	0.38		$	0.51		$	0.97		$	1.11

 

NOTE 12: COMPREHENSIVE INCOME

 

Our comprehensive income is comprised of net income, the foreign currency translation adjustment, net of tax and unrealized gain or loss on marketable securities.  The following is a summary of comprehensive income (in thousands):

 

		Thirteen weeks ended						Thirty-nine weeks ended
		September 26,			September 28,			September 26,			September 28,
		2008			2007			2008			2007
Net income		$	16,335		$	22,723		$	41,864		$	51,844
Other comprehensive income:
Foreign currency translation adjustment, net of tax		$	(10)		1,264			128			1,547
Unrealized gain (loss) on marketable securities		(3)			5			(25)			(8)
Other comprehensive income (loss)		(13)			1,269			103			1,539
Comprehensive income		$	16,322		$	23,992		$	41,967		$	53,383

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Form 10-Q contains forward-looking statements.  These statements relate to our expectations for future events and future financial performance.  Generally, the words “anticipate,” “believe,” “expect,” “intend,” “plan” and similar expressions identify forward-looking statements.  Forward-looking statements involve risks and uncertainties, and future events and circumstances could differ significantly from those anticipated in the forward-looking statements.  These statements are only predictions.  Actual events or results may differ materially.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  Moreover, neither we nor any other person assume responsibility for the accuracy and completeness of the forward-looking statements.  We undertake no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results or to changes in our expectations.

 

Executive Overview

 

TrueBlue, Inc. (“TrueBlue,” “we,” “us,” “our”) is an international provider of temporary blue-collar staffing.  Each year, we put approximately 600,000 people to work through the following brands:  Labor Ready for general labor, Spartan Staffing and PMI for light industrial, and CLP Resources, PlaneTechs, and TLC Drivers for skilled trades.  Headquartered in Tacoma, Washington, we serve more than 300,000 small to mid-sized businesses in the construction, warehousing, hospitality, landscaping, transportation, light manufacturing, retail, wholesale, facilities, sanitation, and aviation industries.

 

Revenue for the thirteen weeks ended September 26, 2008 of $387.9 million decreased 0.7% compared to $390.7 million for the thirteen weeks ended September 28, 2007. The 0.7% revenue decline for the quarter consisted of 16.5 percent growth from acquisitions completed within the last 12 months offset by a 17.2 percent decrease in organic revenue, which consists of total revenue growth less growth from acquisitions.

 

During the third quarter we closed eight branches and opened no new branches.  We have announced plans to close an additional 17 branches during the fourth quarter.  During less favorable economic conditions, we generally reduce branch openings and increase the number of branch closings.  We believe this type of flexibility and discipline improves the overall return for our investors.

 

The gross profit rate as a percentage of revenue was 29.7% for the thirteen weeks ended September 26, 2008 compared to 32.1% for the thirteen weeks ended September 28, 2007.  The decrease in the gross profit rate was primarily due to acquisitions made within the last twelve months and pay rates to our temporary employees increasing faster than the bill rates charged to customers, which were partially offset by a decline in our workers’ compensation expense as a percentage of revenue.  The gross profit rate for the companies we acquired over the last twelve months was lower than that of our core business resulting in a decrease in the overall gross profit rate.

 

Selling, general and administrative (“SG&A”) expenses as a percentage of revenue were 22.2% of revenue for the thirteen weeks ended September 26, 2008 compared to 22.8% for the thirteen weeks ended September 28, 2007.  SG&A as a percentage of revenue was lower during the current year period primarily due to acquisitions completed over the last twelve months, branch closures over the past twelve months and other cost control measures implemented over the last twelve months.  SG&A as a percentage of revenue for the companies we acquired over the last twelve months was lower than that of our core business resulting in a decrease in the overall SG&A percentage.

 

Net income was $16.3 million, or $0.38 per diluted share, for the thirteen weeks ended September 26, 2008 which was a decrease of 28.1% compared to net income of $22.7 million, or $0.51 per diluted share, for the thirteen weeks ended September 28, 2007.  Net income per diluted share has been impacted by a decrease in our weighted average shares outstanding due to a significant share repurchase effort over the past twelve months.   Net income was lower during the current year period partly due to the decline in same branch revenue, amortization associated with the acquisitions over the last twelve months, and a decline in interest income.

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Results of Operations

 

Thirteen Weeks Ended September 26, 2008 Compared to Thirteen Weeks Ended September 28, 2007

 

The following table presents selected consolidated financial data (in thousands, except per share amounts):

 

		Thirteen weeks ended
		September 26,			September 28,
		2008			2007
Revenue from services		$	387,914		$	390,672
Total revenue (decline) growth %		(0.7%)			4.4%
Gross profit as a % of revenue		29.7%			32.1%
SG&A as a % of revenue		22.2%			22.8%
Operating Income (1)		$	28,952		$	36,427
Operating Income as % of revenue (1)		7.5%			9.3%
Depreciation and amortization		$	3,988		$	3,402
Interest and other income, net		$	1,049		$	2,504
Effective income tax rate		37.2%			36.0%
Net income		$	16,335		$	22,723
Net income as a % of revenue		4.2%			5.8%
Net income per diluted share		$	0.38		$	0.51

 

(1) Income from operations before depeciation and amortization.

 

Revenue from Services.  Revenue for the thirteen weeks ended September 26, 2008 decreased 0.7% compared to the thirteen weeks ended September 28, 2007.  The change in revenue was made up of the following five components:

 

		Thirteen weeks ended
		September 26,		September 28,
		2008		2007
Same branch (1)		(14.7%)		1.2%
New branches (2)		0.6%		1.1%
Closed branches		(3.0%)		(1.4%)
Currency and other		(0.1%)		0.5%
Total organic revenue growth (decline)		(17.2%)		1.4%
Acquisitions within last 12 months		16.5%		3.0%
Total sales growth (decline)		(0.7%)		4.4%

 

(1) Same branch revenue is defined as those branches opened one year or longer.

(2) New branches are defined as those branches opened less than one year.

 

As noted in the table above, the net decline in revenue included growth in revenue of 16.5 percentage points from acquisitions completed in the last twelve months.  Since fiscal May 2007, we have completed four acquisitions:  Skilled Services in fiscal May 2007 to grow our CLP brand; PlaneTechs in December 2007 to enter the aviation mechanic staffing market; TLC Drivers in February 2008 to enter the truck driver staffing market; and PMI in fiscal May 2008 to expand our geographic presence in the light industrial staffing market.  Revenue growth from acquisitions was partially offset by a decline in same branch revenue.  We did not open any new branches in the third quarter and closed eight branches.  The total number of branches decreased to 919 at September 26, 2008.

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Our monthly same branch revenue trends this quarter in comparison with the same period last year are as follows:

 

		Same Branch
		Growth/(Decline)
			2008				2007
July		(12.2%)				0.5%
August		(14.7%)				1.5%
September		(16.5%)				1.7%

 

Gross profit.  The gross profit rate was 29.7% of revenue for the thirteen weeks ended September 26, 2008 compared to 32.1% of revenue for the thirteen weeks ended September 28, 2007.  The decrease in the gross profit rate was primarily related to acquisitions made over the last twelve months and pay rates to our temporary employees increasing faster than bill rates to our customers, which were partially offset by a decline in workers’ compensation expense.  Pay rates have been growing faster than bill rates for several quarters as a result of minimum wage increases, a competitive pricing environment associated with a slowing economy, and a decrease in the mix of residential construction.  Pay rate inflation increased 2.8% and bill rate inflation increased 1.9% this quarter in comparison with the same quarter last year.  The gross profit rate was also lower as a percentage of revenue for the current year period due to acquisitions over the last twelve months that have lower gross profit rates than our core business.  Workers’ compensation costs for the thirteen weeks ended September 26, 2008 were approximately 4.2% of revenue compared to 4.7% of revenue for the thirteen weeks ended September 28, 2007.  The improvement in workers’ compensation expense is due to acquisitions which have lower workers’ compensation costs than our core business and the continued success of our accident prevention and risk management programs that have been implemented over several years.

 

Selling, General, and Administrative Expenses.  Selling, general and administrative (“SG&A”) expenses as a percentage of revenue were 22.2% for the thirteen weeks ended September 26, 2008 compared to 22.8% for the thirteen weeks ended September 28, 2007.  SG&A expenses were lower as a percentage of revenue compared to the prior year period primarily as a result of acquisitions made within the last twelve months, branches closed within the last twelve months, and other cost control measures implemented over the last twelve months. We incurred $2.8 million of restructuring expense during the third quarter of 2008 related to branch closures and other matters.  Over the last twelve months we closed 59 branches, of which 8 were closed in the third quarter of 2008.  SG&A as a percentage of revenue for the companies we acquired over the last twelve months was lower than that of our core business resulting in a decrease in the overall SG&A percentage. The impact from acquisitions on SG&A as a percentage of revenue has been somewhat offset by the decline in same branch revenue which has increased our SG&A as a percentage of revenue due to the fixed costs in our business being spread across a lower same branch revenue base.  Accordingly, in addition to branch closures, we have implemented a variety of initiatives to lower our cost structure.

 

Depreciation and Amortization Expenses.  Depreciation and amortization expense increased to $4.0 million for the thirteen weeks ended September 26, 2008 compared to $3.4 million for the thirteen weeks ended September 28, 2007. The increase during 2008 was primarily due to increased amortization of intangibles from acquisitions made over the last twelve months.

 

Interest and Other Income, net. We recorded net interest and other income of $1.0 million for the thirteen weeks ended September 26, 2008 compared to $2.5 million during the thirteen weeks ended September 28, 2007.  The decrease is related to a lower cash balance as well as lower investment yields. The decrease in cash is primarily related to the use of cash to purchase our common stock, fund the acquisition of new businesses, and to fund operations.

 

Approximately 57% of our restricted cash was subject to an annual interest rate reset by our insurance carrier on July 1, 2008.  The interest rate on the cash subject to reset was approximately 5.2% for the period July 2007 to July 2008.  Based on the July 1, 2008 annual interest rate reset, the rate from July 2008 to July 2009 will be 2.6% as a result of market declines in interest rates.

 

Income Tax. Our effective tax rate on earnings for the thirteen weeks ended September 26, 2008 was 37.2%, compared to 36.0% for the thirteen weeks ended September 28, 2007.  The principal difference between the statutory federal income tax rate of 35% and our effective income tax rate, excluding the recognition of non recurring benefits, results from state and foreign income taxes, federal tax credits, tax exempt interest income and certain nondeductible expenses.

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Results of Operations

 

Thirty-Nine Weeks Ended September 26, 2008 Compared to Thirty-Nine Weeks Ended September 28, 2007

 

The following table presents selected consolidated financial data (in thousands, except per share amounts):

 

		Thirty-nine weeks ended
		September 26,			September 28,
		2008			2007
Revenue from services		$	1,082,640		$	1,032,040
Total revenue growth %		4.9%			2.1%
Gross profit as a % of revenue		29.9%			32.0%
SG&A as a % of revenue		23.4%			24.1%
Operating Income (1)		$	70,797		$	81,827
Operating Income as % of revenue (1)		6.5%			7.9%
Depreciation and amortization		$	11,863		$	8,661
Interest and other income, net		$	4,569		$	8,223
Effective income tax rate		34.1%			36.3%
Net income		$	41,864		$	51,844
Net income as a % of revenue		3.9%			5.0%
Net income per diluted share		$	0.97		$	1.11

 

(1) Income from operations before depeciation and amortization.

 

Revenue from Services.  Revenue for the thirty-nine weeks ended September 26, 2008 increased 4.9% compared to the thirty-nine weeks ended September 28, 2007.  The change in revenue was made up of the following five components:

 

		Thirty-nine weeks ended
		September 26,		September 28,
		2008		2007
Same branch (1)		(9.7%)		(0.2%)
New branches (2)		0.9%		1.3%
Closed branches		(3.1%)		(1.3%)
Currency and other		0.3%		0.4%
Total organic revenue growth (decline)		(11.6%)		0.2%
Acquisitions within last 12 months		16.5%		1.9%
Total sales growth		4.9%		2.1%

 

(1) Same branch revenue is defined as those branches opened one year or longer.

(2) New branches are defined as those branches opened less than one year.

 

Of the revenue growth of 4.9%, 16.5 percentage points are from acquisitions completed in the last twelve months.  Since fiscal May 2007, we have completed four acquisitions:  Skilled Services in May 2007 to grow our CLP brand; PlaneTechs in December 2007 to enter the aviation mechanic staffing market; TLC Drivers in February 2008 to enter the truck driver staffing market; and PMI in May 2008 to expand our geographic presence in the light industrial staffing market.  Revenue growth from acquisitions was partially offset by a decline in same branch revenue and closed branches.  We opened 3 branches and closed 32 branches during the thirty-nine weeks ended September 26, 2008.  The total number of branches was 919 at September 26, 2008 and September 28, 2007.

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