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 500,000 people to work through the following brands: Labor Ready for general labor, Spartan Staffing for light industrial services, and CLP Resources, PlaneTechs, and TLC for skilled trades. Headquartered in Tacoma, Washington, we serve approximately 250,000 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 March 27, 2009 of $224.4 million decreased 30.7% compared to $324.0 million for the thirteen weeks ended March 28, 2008. The 30.7% revenue decline for the quarter consisted of 5.0% growth from acquisitions completed within the last 12 months offset by a 35.7% decrease in organic revenue, which consists of total revenue growth less growth from acquisitions. Growth from acquisitions included TLC Services Group, Inc., a professional truck driver staffing provider and Personnel Management, Inc., a light industrial staffing company. The decline in year over year demand for our services accelerated each month during the thirteen weeks ended March 27, 2009 as compared to the prior year. While our year-over-year revenue trends continue to experience recessionary pressure, we have seen some moderation in the rate of deceleration of our year-over-year trends.

The U.S. economy remains in a recession and as a result we continue to experience a significant decrease in demand for blue collar staffing, which has negatively impacted our performance. We believe the markets we serve will continue to remain under pressure until the overall economy stabilizes and begins to grow again. In response to the recession we have increased the number of branch closings. Primary factors influencing which branches to close included financial performance, ability to consolidate with another branch, tenure and quality of branch management, and long-term market potential of the location. During 2008, we closed 73 branches and sold the remaining 29 branches in the United Kingdom. During the first quarter 2009, we closed 40 branches. We continue to focus on providing exceptional service to our customers while balancing the need for aggressive cost management and maintaining a strong balance sheet.

The gross profit rate as a percentage of revenue was 27.9% for the thirteen weeks ended March 27, 2009 compared to 30.4% for the thirteen weeks ended March 28, 2008. The impact of acquisitions, pricing pressures resulting from the current economic recession, and increased wages paid to our temporary workers due to statutory minimum wage increases are the primary causes for the decline in gross profit as a percentage of revenue. The gross profit as a percentage of revenue of acquired companies has been less than that of our core business creating a decrease in the overall blended gross profit as a percentage of revenue. While we have increased the bill rates to our customers for minimum wage increases, we have not fully passed through the amount of our standard markup due to an increased level of price sensitivity with our customers associated with slower economic conditions. Similarly, the overall staffing market is experiencing an increased level of competitive bidding as staffing providers try to maintain market share and customers seek methods to reduce costs. Pricing pressure on gross profit as a percentage of revenue was partially offset by the improvement in workers' compensation expense, which is primarily due to continued improvements in accident prevention and risk management. Our accident rate for the thirteen weeks ended March 27, 2009 decreased by nearly 15% in comparison with the thirteen weeks ended March 28, 2008. We believe we can maintain our positive momentum throughout 2009 in reducing accident rates, in comparison with 2008, which could lower our workers' compensation expense.

Selling, general and administrative ("SG&A") expenses as a percentage of revenue were 30.4% of revenue for the thirteen weeks ended March 27, 2009 compared to 25.5% for the thirteen weeks ended March 28, 2008. Commencing in the prior year, we have taken aggressive cost management actions across all levels of the organization. SG&A expenses have declined by 17.2% compared to the first quarter of 2008. SG&A as a percent of revenue declined at a slower rate than did revenue due to the fixed cost nature of certain SG&A costs Cost management will remain a focus during this recession. Our cost management actions prepare us well to harness the strong operating leverage of our business model as the economy recovers.

Net loss was $5.3 million, or $0.12 per diluted share, for the thirteen weeks ended March 27, 2009 compared to net income of $8.8 million, or $0.20 per diluted share, for the thirteen weeks ended March 28, 2008. The net loss is due primarily to the decline in same branch revenue.

We remain in a severe global recession of uncertain length. We expect a difficult economic environment throughout fiscal 2009. During an economic downturn, as businesses experience a lower level of demand from consumers, businesses generally reduce their use of temporary staffing and then reduce permanent workforces. As a result, we expect to face a challenging fiscal 2009 because of these circumstances. Accordingly, we expect to report negative same branch revenue for fiscal 2009 and do not expect a significant improvement in same branch revenue until employers have largely completed the reduction of permanent workforces and the economy improves. We do not have plans to open new branches and will continue to close branches and take other cost reduction methods until the economy improves.

Results of Operations

Thirteen Weeks Ended March 27, 2009 Compared to Thirteen Weeks Ended March 28,
2008

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



                                                       Thirteen weeks ended
                                                    March 27,         March 28,
                                                      2009              2008

Revenue from services                               $   224,414       $   324,016
Total revenue growth (decline) %                         (30.7% )           11.6%
Gross profit as a % of revenue                            27.9%             30.4%
SG&A as a % of revenue                                    30.4%             25.5%
Income (loss) from operations                       $    (9,785 )     $    11,963
Income (loss) from operations as a % of revenue           (4.4% )            3.7%

Depreciation and amortization                       $     4,145       $     3,908
Interest and other income, net                      $     1,201       $     1,896
Effective income tax rate                                 38.2%             36.5%
Net income (loss)                                   $    (5,303 )     $     8,801
Net income (loss) as a % of revenue                       (2.4% )            2.7%
Net income (loss) per diluted share                 $     (0.12 )     $      0.20

Revenue from services. Revenue for the thirteen weeks ended March 27, 2009 decreased 30.7% compared to the thirteen weeks ended March 28, 2008. The revenue decline consisted of 5.0% growth from acquisitions completed within the last 12 months offset by a 35.7% decrease in organic revenue. Growth from acquisitions included TLC Services Group, Inc, a professional truck driver staffing provider and Personnel Management, Inc., a light industrial staffing company. Same branch revenues declined 32.8% during the thirteen weeks ended March 27, 2009 compared to a decline of 1.6% for the same thirteen week period in 2008. The decline in year over year demand for our services accelerated each month during the thirteen weeks ended March 27, 2009 as compared to the prior year. While our year-over-year revenue trends continue to experience recessionary pressure, we have seen some moderation in the rate of deceleration of our year-over-year trends.

Revenue declines associated with closed branches during the thirteen weeks ended March 27, 2009 was 4.9% compared to 3.2% for the same thirteen week period in 2008. We remain focused on aggressive cost management and maintaining a strong balance sheet. During the first quarter, we closed 40 branches for a total of 136 branches over the last twelve months decreasing our total branch count to 810 at March 27, 2009. Further branch closures are being considered. Primary factors influencing which branches to close included financial performance, ability to consolidate with another branch, tenure and quality of branch management, market potential of branch location, and long-term potential of the location.

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

              Same Branch
            Growth/(Decline)
             2009       2008
January    (30.2%)     (0.2%)
February   (31.9%)     (0.1%)
March      (35.3%)     (3.8%)

Gross profit. Gross profit was 27.9% of revenue for the thirteen weeks ended March 27, 2009 compared to 30.4% of revenue for the thirteen weeks ended March 28, 2008. The impact of acquisitions, pricing pressures resulting from the current economic recession, and increased wages paid to our temporary workers due to statutory minimum wage increases are the primary causes for the decline in gross profit as a percentage of revenue. Gross profit as a percentage of revenue of acquired companies has been less than that of our core business creating a decrease in the overall blended gross profit as a percentage of revenue. While we have increased the bill rates to our customers for these pay increases, we have not fully passed through the amount of our standard markup due to an increased level of price sensitivity with our customers associated with slower economic conditions. Pay rate inflation increased 2.9% and bill rate inflation increased 1.6% this quarter in comparison with the same quarter last year. Pricing pressure on gross profit as a percentage of revenue was partially offset by the improvement in workers' compensation. Workers' compensation costs for the thirteen weeks ended March 27, 2009 were approximately 3.9% of revenue compared to 4.2% of revenue for the thirteen weeks ended March 28, 2008. 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. Our accident rate for the thirteen weeks ended March 27, 2009 decreased by nearly 15% in comparison with the thirteen weeks ended March 28, 2008. We believe we can maintain our positive momentum throughout 2009 in reducing accident rates, in comparison with 2008, which could lower our workers' compensation expense.

Selling, general, and administrative expenses. Selling, general and administrative ("SG&A") expenses as a percentage of revenue were 30.4% for the thirteen weeks ended March 27, 2009 compared to 25.5% for the thirteen weeks ended March 28, 2008. Commencing in 2008, we have taken aggressive cost management actions across all levels of the organization. Over the last twelve months we closed 136 branches, of which 40 were closed in the first quarter of 2009. Further, we have consolidated branch management and substantially all back office support activities. We incurred $2.4 million of SG&A expense during the first quarter of 2009 related to our down sizing activities. SG&A expenses have declined by 17.2% compared to the first quarter of 2008. SG&A declined at a slower rate than did revenue due to the fixed cost nature of certain SG&A costs. Cost management will remain a focus during this recession. Our cost management actions prepare us well to harness the strong operating leverage of our business model as the economy recovers.

Depreciation and amortization expenses. Depreciation and amortization expense increased to $4.1 million for the thirteen weeks ended March 27, 2009 compared to $3.9 million for the thirteen weeks ended March 28, 2008. The increase during 2009 was primarily due to depreciation of our investments in technology. This was partially offset by a decline in amortization of intangibles which were impaired and written down as of the prior year end.

Interest and other income, net. We recorded net interest and other income of $1.2 million for the thirteen weeks ended March 27, 2009 compared to $1.9 million during the thirteen weeks ended March 28, 2008. The decrease is primarily related to a lower investment yields.

As of March 27, 2009, approximately 56.5% of our restricted cash is subject to annual interest rate reset by our insurance carriers. The interest rate resets in conjunction with our July 1 insurance policy renewal. The interest rate is based on the one year U.S. Constant Maturity Treasury yield plus a spread of approximately 20 basis points. With the recent downward pressure on short-term interest rates, we anticipate that interest income could be lower in the future based upon the anticipated interest rate reset in July 2009. The interest rate for the period July 2008 to July 2009 was 2.58%. Our best estimate of the interest rate for our restricted cash subject to reset on July 1, 2009 is based on the current one year Treasury yield. Based on the one year Treasury yield on April 28, 2009, the interest rate would have been set at 0.72%.

Income tax. Our effective tax rate on earnings for the thirteen weeks ended March 27, 2009 was 38.2%, compared to 36.5% for the thirteen weeks ended March 28, 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.

Liquidity and Capital Resources

Cash Flows from Operating Activities

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



                                                              Thirteen weeks ended
                                                        March 27,              March 28,
                                                           2009                   2008

Net income (loss)                                        $   (5,303 )           $    8,801
Depreciation and amortization                                 4,145                  3,908
Provision for doubtful accounts                               1,702                  2,252
Stock-based compensation                                      2,497                  2,768
Deferred income taxes                                        (3,777 )                  421
Other operating activities                                      790                    132
Changes in operating assets and liabilities,
exclusive of business acquired:
Accounts receivable                                          10,390                   (796 )
Income taxes                                                    358                 (6,036 )
Workers' compensation                                        (2,967 )                  602
Accounts payable and accrued expenses                        (2,474 )                 (510 )
Accrued wages and benefits                                   (1,465 )                  463
Other                                                          (316 )                1,430

Net cash provided by operating activities                $    3,580             $   13,435

• The increased depreciation and amortization is primarily due to investments in technology over the past twelve months.

• The change in deferred taxes is due to increases in deferred tax assets related to the increases in the workers' compensation reserve, reserves related to branch closures and contingencies that are not deductible until paid.

• Changes in accounts receivable during 2009 are primarily associated with the decline in revenue.

• Changes in accounts payable and accrued expenses, wages, and benefits during 2009 are primarily due to the cost control measures and response to the economic recession.

• Generally, our workers' compensation reserve for estimated claims increases as we increase temporary labor services provided. Likewise, a decrease in temporary labor services, which we are experiencing, generally creates a decrease in our workers' compensation reserve over time. The success of our accident prevention programs has also reduced our workers' compensation exposure.

• The change in income tax receivable during 2008 is primarily due to timing of estimated tax payments.

Cash Flows from Investing Activities

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



                                                          Thirteen weeks ended
                                                       March 27,        March 28,
                                                          2009             2008

Capital expenditures                                    $   (4,527 )     $   (5,829 )
Purchases of marketable securities                               -          (27,144 )
Maturities of marketable securities                              -           37,055
Acquisition of business, net of cash acquired                    -           (5,319 )
Change in restricted cash                                   (3,280 )          6,199
Other                                                           71               45

Net cash provided by (used in) investing activities     $   (7,736 )     $    5,007

• Capital expenditures in 2009 and 2008 are primarily related to investments made to upgrade our proprietary systems. We anticipate that total capital expenditures will be approximately $14.0 million in 2009.

• We had net maturities of marketable securities in 2008. We held no marketable securities as of year end December 26, 2008.

• In March 2008, we purchased substantially all of the assets of TLC, a skilled truck-driver staffing provider for $5.3 million.

• Restricted cash increased during the first quarter 2009 as we make monthly installment payments to fund the collateral requirements of our workers' compensation program. Restricted cash decreased in 2008 primarily due to a decrease in the collateral requirements for our workers' compensation program.

Cash Flows from Financing Activities

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



                                                               Thirteen weeks ended
                                                          March 27,            March 28,
                                                             2009                 2008

Net proceeds from sale of stock through options
and employee benefit plans                                  $    322             $    544
Shares withheld for taxes upon vesting of
restricted stock                                                (591 )               (617 )
Payments on debt                                                (133 )                (64 )

Net cash used in financing activities                       $   (402 )           $   (137 )

Capital Resources

We have a revolving credit facility ("Credit Facility") with Wells Fargo Bank and Bank of America. Under the terms of the Credit Facility we may request (in no more than three instances) that the Credit Facility be increased from $80 million up to $160 million in the aggregate, subject to bank approval. The Credit Facility, 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 Credit Facility, 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 March 27, 2009, our margin was 0.55% and our unused capacity fee was 0.125%. At March 27, 2009, we had $51.8 million of letters of credit issued against that borrowing capacity leaving us with $28.2 million available for future borrowings. The Credit Facility 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 Credit Facility. The Credit Facility expires in April 2011.

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, as well as cash deposits held by our insurance carriers. At March 27, 2009, we had restricted cash in our Workers' Assurance Program totaling $118.1 million. Of this cash, $117.9 million was committed to insurance carriers leaving $0.2 million available for future needs. The majority of our collateral is held by AIU Holdings, Inc. ("AIU") formerly known as AIG Commercial Insurance, a subsidiary of American International Group, Inc. ("AIG").

We believe that cash provided from operations and our capital resources will be adequate to meet our cash requirements over the next twelve months. However, should economic conditions further deteriorate, our financial results would be adversely impacted and we may need to seek additional sources of capital. These additional sources of financing may not be available, or may not be available on commercially reasonable terms, or at all.

Workers' Compensation Collateral and Claims 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 our deductible limits. Our workers' compensation insurance policies are renewed annually. We have coverage with AIU for occurrences during the period from 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 deductible 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 reserve is established using estimates of the future cost of claims and related expenses that have been reported but not settled, as well as those that have been incurred but not reported. Generally, our workers' compensation reserve for estimated claims increases as temporary labor services are provided and decreases as payments are made on these claims. Although the estimated claims are expensed as incurred, the claim payments are made over a weighted average period of approximately 6.5 years. We maintain reserves for workers' compensation claims, including the excess claims portion above our deductible limits, using actuarial estimates of the future cost of claims and related expenses. Our workers' compensation claims reserves are discounted to their estimated net present value using discount rates based on average returns of "risk-free" U.S. Treasury instruments with maturities comparable to the weighted average lives of our workers' compensation claims. At March 27, 2009 our reserves are discounted at rates ranging from 4.03% to 6.48%.

Our workers' compensation reserves include not only estimated expenses for claims within our self-insured limit but also estimated expenses related to claims above our deductible limits. 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.

Throughout the year, management evaluates the adequacy of the workers' compensation reserves in conjunction with an independent quarterly actuarial assessment. Factors we consider in establishing and adjusting these reserves include the estimates provided by our independent actuaries, appropriate discount rates, and estimated payment patterns. Factors that have caused our estimated losses for prior years to change include, among other things,
(1) inflation of medical and indemnity costs at a rate higher than originally anticipated, (2) regulatory and legislative developments that have increased benefits and settlement requirements in several states, (3) a different mix of business than previously anticipated, (4) the impact of safety initiatives implemented, and (5) positive or adverse development of claim reserves. Adjustments to prior period reserves are charged or credited to expense in the period in which the estimate changes. Due to the timing difference between . . .