TBI

TrueBlue, Inc. 2009 Annual Report (10-K) Summary

Business Context and Reporting Period

Company: TrueBlue, Inc. (NYSE: TBI)
Reporting Period: Fiscal year ended December 25, 2009 (52 weeks)
Industry: Temporary blue-collar staffing
Operations: TrueBlue operates through five primary brands: Labor Ready (general labor), Spartan Staffing (light industrial), CLP Resources (skilled trades), PlaneTechs (aviation/diesel mechanics), and Centerline (drivers). The company serves approximately 175,000 businesses across the U.S., Puerto Rico, and Canada. In 2009, the company connected approximately 300,000 temporary workers to jobs.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Revenue decreased 26.4% year-over-year to $1,018.4 million, driven by a 27.8% decline in organic revenue due to the global recession and reduced customer demand. This was partially offset by 1.4% growth from acquisitions.
• Return to Profitability: The company returned to net income of $8.8 million in 2009, compared to a net loss of $4.2 million in 2008. The 2008 loss included a non-cash goodwill and intangible asset impairment charge of $61.0 million; no such charge occurred in 2009.
• Cost Reductions: Selling, general, and administrative (SG&A) expenses decreased by $70.0 million (21.1%) to $262.2 million. This was achieved by closing 105 branches (net reduction of 96 branches for the year) and consolidating management and support functions.
• Customer Concentration: Revenue concentration increased. The ten largest customers accounted for 21.3% of total revenue in 2009, up from 10.7% in 2008. Specifically, The Boeing Company and affiliates accounted for 13.4% of 2009 revenue.

Guidance, Outlook, and Risks

Outlook: Management expects revenue to remain relatively flat compared to 2009 levels in 2010, though they believe the staffing industry has the potential to return to growth. Gross profit margins are expected to face pressure from customer cost-control efforts and increased state unemployment taxes. SG&A expenses are not expected to fluctuate significantly from 2009 levels.

Liquidity and Capital: The company maintains a strong balance sheet with $124.4 million in cash and cash equivalents. It has a secured revolving credit facility of up to $80 million, with $66.0 million available as of year-end. The company has no current plans to open new branches and will continue to tightly control capital expenditures.

Key Risks:

• Economic Sensitivity: Continued weakness in the economy, particularly in construction and transportation, could further reduce demand.
• Customer Concentration: A substantial portion of revenue is tied to The Boeing Company; a decline in this relationship could materially impact results.
• Insurance and Collateral: The company is substantially self-insured for workers' compensation with a $2.0 million deductible per occurrence. It must maintain significant collateral (cash and letters of credit) totaling $150.8 million. Financial distress of its primary insurer (Chartis/AIG) poses a risk to collateral and coverage.
• Margin Pressure: Competitive forces limit the ability to pass through increased labor costs and statutory minimum wage hikes to customers.

Investor Verification Checklist

• Boeing Exposure: Verify the stability of the contract with The Boeing Company, which represented 13.4% of total revenue.
• Workers' Compensation Reserves: Review the adequacy of the $189.5 million reserve and the status of the $150.8 million in collateral commitments, particularly regarding the insurer Chartis.
• Branch Rationalization: Assess the impact of closing 105 branches on future revenue recovery and operating leverage.
• Credit Facility Covenants: Confirm continued compliance with the fixed charge coverage ratio and liquidity requirements of the $80 million revolving credit facility.
• Seasonality: Monitor Q2 and Q3 performance, as the majority of cash flow is generated during these summer months.