TrueBlue, Inc. — FY2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010, comprising 53 weeks; fiscal 2009 comprised 52 weeks. The fourth quarter of 2010 included 14 weeks. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context
TrueBlue provides temporary blue-collar staffing through Labor Ready, Spartan Staffing, CLP Resources, PlaneTechs and Centerline Drivers. It reported one operating segment, served approximately 175,000 customers, and operated 721 branches across the U.S., Puerto Rico and Canada at year-end. Staffing demand is sensitive to economic conditions, and the business typically has higher demand in the second and third quarters.
Key financial results
| Metric | FY2010 | FY2009 |
|---|---|---|
| Revenue | $1,149.4 | $1,018.4 |
| Gross profit / margin | $303.5 / 26.4% | $291.0 / 28.6% |
| Operating income / margin | $28.3 / 2.5% | $11.8 / 1.2% |
| Net income | $19.8 | $8.8 |
| Diluted EPS | $0.46 | $0.20 |
| Cash from operating activities | $42.0 | $33.6 |
- Revenue rose 12.9% year over year; excluding the extra week, growth was 11.5%. Management attributed the increase primarily to economic recovery and customers’ continued preference for flexible staffing.
- FY2010 gross margin declined 2.2 percentage points. Management cited customer and brand mix, pricing pressure, increased payroll taxes and higher workers’ compensation expense. Workers’ compensation expense was 3.8% of revenue, versus 3.1% in 2009.
- SG&A fell to $258.7 million from $262.2 million, and to 22.5% of revenue from 25.7%, reflecting revenue leverage and cost controls. Operating income improved substantially.
- Fourth-quarter revenue was $311.9 million versus $262.2 million in 2009; net income was $4.0 million versus $2.2 million, and diluted EPS was $0.09 versus $0.05. The periods were not the same length: Q4 2010 had 14 weeks versus 13 weeks in Q4 2009. Fourth-quarter same-branch growth was 15.9%, excluding the extra week.
Cash, liquidity and obligations
- Year-end cash and cash equivalents were $163.2 million, up from $124.4 million; restricted cash was $120.1 million. Working capital was $207.6 million, versus $163.2 million.
- Operating cash flow was $42.0 million. Investing cash outflow was $3.4 million, including $7.1 million of capital expenditures; financing cash outflow was $0.8 million.
- The company reported $233.8 million in total liabilities, including a $187.3 million workers’ compensation reserve. No material revolver borrowings are reported; the $80 million revolving facility had $11 million of letters of credit outstanding and $69 million of unused availability. It expires in June 2012.
- Workers’ compensation collateral commitments totaled $140.6 million, including cash collateral, letters of credit and surety bonds. The facility requires at least $30 million of liquidity; reported liquidity was $228.5 million, and the company stated it was compliant with facility covenants.
- Management expected approximately $8 million of capital expenditures in 2011 and stated cash and capital resources should cover requirements for the next 12 months. Contractual cash obligations totaled $21.7 million, primarily operating leases and purchase obligations.
Outlook, risks and unusual items
- Management expected continued revenue growth in 2011, while noting limited visibility and tougher comparisons. FY2011 would have 52 weeks, compared with FY2010’s 53; the extra week added approximately $14 million to FY2010 revenue.
- Boeing accounted for 9.4% of FY2010 revenue, or approximately $113 million, down from 13.4% in 2009. Management expected lower Boeing project revenue as multiyear projects concluded; its estimate for Q1 2011 was $20 million.
- Management estimated that 2011 unemployment-tax increases could reduce gross margin by 0.6% of revenue absent mitigation. The HIRE Act benefit expired in 2010; its net benefit was $1.9 million. Management viewed workers’ compensation expense near 4% of revenue as a reasonable 2011 expectation.
- Other principal risks include economic and customer-demand volatility, competitive pricing and margin pressure, worker availability and employment-related claims, insurance and collateral requirements, and dependence on information systems. The company disclosed functionality problems and delays in implementing a replacement for a key proprietary system.
- Workers’ compensation reserves depend on actuarial estimates; a 10% change in claim frequency or cost per claim would affect expense by approximately $4.7 million. Some historical excess-claim insurance receivables relate to insurers in liquidation; the company had a $7.6 million valuation allowance against those receivables.
- Management said ordinary-course legal proceedings were not expected to materially affect results or financial condition. The 2008 $61.0 million goodwill and intangible impairment was non-cash; no impairment was recorded in 2009 or 2010. No cash dividends had been declared.
- Independent auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether 2011 revenue growth and margin recovery offset lower Boeing work, the shorter fiscal year and unemployment-tax increases.
- Customer concentration and Boeing project timing, including the Q1 2011 revenue estimate and subsequent project run-off.
- Workers’ compensation claims development, reserve assumptions, collateral demands and recoverability of insurance receivables.
- Progress and remaining implementation risks for the replacement management information system.
- Actual revolver usage, covenant headroom and the availability of cash given restricted balances and working-capital needs.