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.

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

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%

(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.

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.

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

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%

(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.

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

                  Same Branch
               Growth/(Decline )
                2008         2007
January        (0.2%)       (6.6%)
February       (0.1%)       (4.0%)
March          (3.8%)        0.1%
April          (6.7%)       (0.8%)
May           (11.2%)        1.3%
June          (12.6%)        1.3%
July          (12.2%)        0.5%
August        (14.7%)        1.5%
September     (16.5%)        1.7%

Gross profit. The gross profit rate was 29.9% of revenue for the thirty-nine weeks ended September 26, 2008 compared to 32.0% of revenue for the thirty-nine 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 3.4% and bill rate inflation increased 2.4% for the thirty-nine weeks ended September 26, 2008 in comparison with the same period one year ago. 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 thirty-nine weeks ended September 26, 2008 were 4.1% of revenue compared to 4.9% of revenue for the thirty-nine 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. SG&A expenses as a percentage of revenue were 23.4% for the thirty-nine weeks ended September 26, 2008 compared to 24.1% for the thirty-nine 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, which were partially offset by a decline in our same branch sales and corresponding leverage of our cost structure. 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 32 were closed in 2008. In addition to branch closures, we have implemented a variety of initiatives to lower our cost structure. 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.

Depreciation and Amortization Expenses. Depreciation and amortization expense increased to $11.9 million for the thirty-nine weeks ended September 26, 2008 compared to $8.7 million for the thirty-nine 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 $4.6 million for the thirty-nine weeks ended September 26, 2008 compared to $8.2 million during the thirty-nine 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 thirty-nine weeks ended September 26, 2008 was 34.1%, compared to 36.3% for the thirty-nine weeks ended September 28, 2007. The decrease to the year to date effective tax rate is primarily due to nonrecurring benefits recorded 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 recognized a tax provision reduction of $2.4 million. 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.

Liquidity and Capital Resources



Cash Flows from Operating Activities



Our cash flows provided by operating activities were as follows (in thousands):



                                                           Thirty-nine weeks ended
                                                    September 26,           September 28,
                                                         2008                   2007

Net Income                                           $       41,864          $       51,844
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                            (19,171 )               (16,802 )
Net cash provided by operating activities            $       40,910          $       51,057

Net cash provided by operating activities was $40.9 million for the thirty-nine weeks ended September 26, 2008 and was primarily due to our net income of $41.9 million for the thirty-nine weeks ended September 26, 2008. Year-to-date cash flow from operations decreased by $10.1 million in comparison with the same period last year. The decrease was primarily due to the decline in net income, which was partially offset by timing differences associated with income tax payments and higher amortization expense due to acquisition related intangible assets acquired over the last year.

Cash Flows from Investing Activities



Our cash flows provided by (used in) investing activities were as follows (in
thousands):



                                                              Thirty-nine weeks ended
                                                        September 26,          September 28,
                                                             2008                  2007

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

Net cash used in investing activities was $25.6 million for the thirty-nine weeks ended September 26, 2008. For the thirty-nine weeks ended September 26, 2008, net maturities of marketable securities and a decrease in restricted cash was offset by the acquisition of TLC Drivers, Personnel Management, and capital expenditures primarily related to investments in technology.

Cash Flows from Financing Activities



Our cash flows used in financing activities were as follows (in thousands):



                                                        Thirty-nine weeks ended
                                                 September 26,          September 28,
                                                      2008                  2007

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 )

We purchased $16.0 million of our common stock during the thirty-nine weeks ended September 26, 2008. As of September 26, 2008 we had $21.5 million of common stock available to us for future repurchases under the current authorization.

Capital Resources

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 . . .