TrueBlue, Inc. — FY2012 Form 10-K
Reporting period: Fiscal year ended December 28, 2012 (52 weeks). TrueBlue provides temporary blue-collar staffing through Labor Ready, Spartan Staffing, CLP Resources, PlaneTechs and Centerline Drivers, operating 691 branches in the U.S., Puerto Rico and Canada. The filing also presents unaudited fourth-quarter results.
Financial performance and liquidity
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $1,389.5 million | $1,316.0 million |
| Gross profit / gross margin | $372.4 million / 26.8% | $347.0 million / 26.4% |
| Operating income / operating margin | $53.0 million / 3.8% | $47.8 million / 3.6% |
| Net income | $33.6 million | $30.8 million |
| Diluted earnings per share | $0.84 | $0.73 |
| Net cash from operating activities | $52.3 million | $30.6 million |
| Capital expenditures | $17.8 million | $9.7 million |
- FY2012 SG&A was $300.5 million, or 21.6% of revenue, versus $282.8 million, or 21.5%, in FY2011. Net margin was approximately 2.4%.
- At year-end, cash and cash equivalents were $129.5 million; working capital was $203.6 million; total assets were $601.7 million and total liabilities were $268.1 million.
- The company reported $72.8 million of unused revolving-credit availability after letters of credit, under an $80 million facility expiring September 2016. It was in compliance with covenants and reported $201.1 million of covenant-defined liquidity. No funded revolving-credit balance is clearly stated in the provided filing text.
- Restricted cash and investments were $136.3 million, principally supporting workers’ compensation collateral. The workers’ compensation reserve was $195.6 million.
- FY2012 fourth-quarter revenue was $344.6 million versus $350.2 million in Q4 2011; net income was $7.4 million versus $7.6 million.
Material changes versus prior year
- Annual revenue increased 5.6%, a slowdown from 14.5% growth in 2011. Excluding a large customer, management reported 8.6% growth.
- Revenue from a large, project-based customer fell approximately $30 million year over year; FY2012 revenue from that customer was about $76 million. Management attributed slower second-half growth to that decline, manufacturing weakness and softer growth trends.
- Gross margin rose 0.4 percentage points, as higher customer bill rates more than offset minimum-wage and unemployment-tax increases. Workers’ compensation expense declined to 3.8% of revenue from 3.9%.
- Net income increased 9.2%; operating income rose to $53.0 million from $47.8 million. The effective tax rate increased to 38.4% from 37.6%, principally because federal Work Opportunity Tax Credits largely expired at the end of 2011.
- Operating cash flow increased, partly reflecting higher earnings and a smaller increase in accounts receivable than in 2011. Cash used for share repurchases fell to $4.4 million from $56.9 million.
Outlook, commentary and risks
- Management expected continued economic uncertainty and pressure on revenue in 2013, while citing an improving construction market and renewable-energy projects as opportunities. Demand visibility is limited by the short-term nature of staffing assignments and economic sensitivity.
- On February 4, 2013, after year-end, TrueBlue acquired substantially all of MDT Personnel’s assets. MDT had 105 branches and more than 15 on-site locations in 25 states. The stated base price was $48 million, comprising $12 million cash and $36 million in a note payable and assumed debt; an additional amount reimbursed excess working capital. Purchase accounting was still underway.
- Management expected approximately $10 million of capital expenditures in 2013 and planned to deploy mobile technology during mid-2013, anticipating efficiency benefits in the second half. Benefits and timing remain uncertain.
- The American Taxpayer Relief Act, enacted in January 2013, retroactively restored the Work Opportunity Tax Credit. Management expected to recognize an approximately $3.2 million FY2012 tax benefit in 2013 and anticipated a lower 2013 effective tax rate than in 2012.
- Key risks include cyclical staffing demand, competitive pricing and wage pressure, worker availability, employment and workplace claims, extensive regulation, and workers’ compensation costs and collateral requirements. Most current workers’ compensation coverage is subject to a $2 million per-occurrence deductible; the company is substantially self-insured. Certain former insurers in liquidation had unpaid excess claims, against which a $5.6 million valuation allowance was recorded.
- The company reported no material expected effect from ordinary-course legal proceedings. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether the large customer’s project revenue continued to decline as anticipated, and the resulting effect on growth and utilization.
- MDT’s final purchase-price allocation, integration and branch-consolidation costs, and the terms and servicing of the acquisition note and assumed debt.
- Workers’ compensation reserve development, collateral demands, and recoverability of receivables from former insurers in liquidation.
- Whether planned mobile-technology deployment produced the expected productivity, revenue and cost benefits.
- 2013 realization of the $3.2 million tax benefit and the effect of renewed tax credits on the effective tax rate.
- Cash availability and covenant headroom after the MDT acquisition; distinguish unrestricted cash from restricted collateral balances.