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 June 26, 2009 of $247.0 million decreased 33.4% compared to $370.7 million for the thirteen weeks ended June 27, 2008. The 33.4% revenue decline for the quarter consisted of a 34.2% decrease in organic revenue offset by 0.8% growth from acquisitions completed within the last 12 months. Growth from acquisitions resulted from the acquisition of Personnel Management, Inc., a light industrial staffing company in April 2008. While our year-over-year revenue trends continue to experience recessionary pressure, we experienced improvement in the rate of decline of our year-over-year monthly same branch revenue trends. The improvement in our same branch revenue trends was due to work associated with one large customer, as well as improvements across the rest of our customer base.

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. During 2008, we closed 73 branches and sold the remaining 29 branches in the United Kingdom. During 2009, we closed 77 branches, of which 36 were closed during the second quarter. 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.

Gross profit as a percentage of revenue was 29.5% for the thirteen weeks ended June 26, 2009 compared to 29.8% for the thirteen weeks ended June 27, 2008. The impact of pricing pressures resulting from the current economic recession, increased wages paid to our temporary workers due to statutory minimum wage increases, and acquisitions are the primary causes for the decline in gross profit as a percentage of revenue. Pricing pressure on gross profit as a percentage of revenue was partially offset by a decrease to workers' compensation reserves established in prior years which totaled 1.8% of revenue. The decrease in reserves are due to continued improvements resulting from a variety of risk management programs.

Selling, general and administrative ("SG&A") expenses as a percentage of revenue were 25.7% of revenue for the thirteen weeks ended June 26, 2009 compared to 22.8% for the thirteen weeks ended June 27, 2008. Commencing in 2008, we have taken aggressive cost management actions across all levels of the organization. SG&A expenses have declined by 25.1% compared to the second 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.

Net income was $3.7 million, or $0.09 per diluted share, for the thirteen weeks ended June 26, 2009 compared to net income of $16.7 million, or $0.39 per diluted share, for the thirteen weeks ended June 27, 2008. The change year over year is due primarily to the decline in same branch revenue. Same branch revenue is defined as those branches open twelve months or longer.

On June 22, 2009, we entered into a Credit Agreement with Wells Fargo Foothill, LLC and Bank of America, N.A. for a secured revolving credit facility of up to a maximum of $80 million. The Revolving Credit Facility, which expires June 2012, replaces our previous $80 million revolving credit facility with Wells Fargo Bank, N.A. and Bank of America, N.A., which was set to expire in April of 2011. Borrowing availability is principally

based on accounts receivable and the value of the company's corporate building whereas borrowing availability under the previous facility was based on EBITDA. We believe the new credit facility provides more borrowing availability during challenging economic conditions in comparison with the previous credit facility.

On July 22, 2009, we filed a $100 million Shelf Registration Statement with the Securities and Exchange Commission which, when effective, will allow us to sell various securities in amounts and prices determined at the time of sale. The filing will enable us to access capital efficiently and quickly if needed, however, we have no current plans to make an offering.

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 which could continue into fiscal 2010. 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 June 26, 2009 Compared to Thirteen Weeks Ended June 27,
2008

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



                                                 Thirteen weeks ended
                                             June 26,           June 27,
                                               2009               2008
Revenue from services                        $   247,011        $   370,710
Total revenue growth (decline) %                  (33.4% )             5.6%
Gross profit as a % of revenue                     29.5%              29.8%
SG&A as a % of revenue                             25.7%              22.8%
Income from operations                       $     5,167        $    22,007
Income from operations as a % of revenue            2.1%               5.9%

Depreciation and amortization                $     4,280        $     3,967
Interest and other income, net               $       712        $     1,624
Effective income tax rate                          36.6%              29.2%
Net income                                   $     3,730        $    16,728
Net income as a % of revenue                        1.5%               4.5%
Net income per diluted share                 $      0.09        $      0.39

Revenue from services. Revenue for the thirteen weeks ended June 26, 2009 decreased 33.4% compared to the thirteen weeks ended June 27, 2008. The revenue decline consisted of a 34.2% decrease in organic revenue offset by 0.8% growth from acquisitions completed within the last 12 months. Growth from acquisitions resulted from the acquisition of Personnel Management, Inc., a light industrial staffing company in April 2008. Same branch revenues declined 27.4% during the thirteen weeks ended June 26, 2009 compared to a decline of 10.9% for the same thirteen week period in 2008. While our year-over-year revenue trends continue to experience recessionary pressure, we have seen some moderation in the rate of decline of our year-over-year trends.

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
April   (31.2%)    (6.7%)
May     (29.3%)    (11.2%)
June    (23.9%)    (12.6%)

The improvement in the rate of decline of our year-over-year monthly same branch revenue trends was due to work associated with one large customer, as well as improvements across the rest of our customer base. The same branch revenue decline for the quarter was 27.4%. Excluding the impact associated with the one large customer, the same branch revenue decline for the quarter would have been 33.9%.

Revenue declines associated with closed branches during the thirteen weeks ended June 26, 2009 were 8.2% compared to 3.3% for the same thirteen week period in 2008. We remained focused on aggressive cost management and maintaining a strong balance sheet. During the second quarter, we closed 36 branches for a total of 155 branches over the last twelve months decreasing our total branch count to 775 at June 26, 2009. Primary factors influencing which branches we closed 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.

Gross profit. Gross profit was 29.5% of revenue for the thirteen weeks ended June 26, 2009 compared to 29.8% of revenue for the thirteen weeks ended June 27, 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 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 3.9% and bill rate inflation increased 6.3% this quarter in comparison with the same quarter last year. Bill rate inflation exceeded pay rate inflation due to a change in sales mix as our higher bill rate work has experienced a less severe revenue impact. However, we continue to experience pricing pressure within each of our individual brands.

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 June 26, 2009 were approximately 2.8% of revenue compared to 4.1% of revenue for the thirteen weeks ended June 27, 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. We continued to experience positive trends in our accident rates and management of prior year claims. We believe we can maintain our positive momentum throughout 2009 in our risk management programs 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 25.7% for the thirteen weeks ended June 26, 2009 compared to 22.8% for the thirteen weeks ended June 27, 2008. Commencing in 2008, we have taken aggressive cost management actions across all levels of the organization. Over the last twelve months we closed 155 branches, of which 36 were closed in the second quarter of 2009. Further, we have consolidated branch management and substantially all back office support activities. SG&A expenses have declined by 25.1% compared to the second 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 $4.3 million for the thirteen weeks ended June 26, 2009 compared to $4.0 million for the thirteen weeks ended June 27, 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 $0.7 million for the thirteen weeks ended June 26, 2009 compared to $1.6 million during the thirteen weeks ended June 27, 2008. The decrease is primarily related to lower investment yields.

As of June 26, 2009, approximately 59.1% 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. The interest rate for the period July 2008 to July 2009 was 2.58%. Based on the July 1, 2009 annual interest rate reset, the rate from July 2009 to July 2010 will be 0.74% as a result of market declines in interest rates.

Income tax. Our effective tax rate on earnings for the thirteen weeks ended June 26, 2009 was 36.6%, compared to 29.2% for the thirteen weeks ended June 27, 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 and certain nondeductible expenses. The increase to the effective tax rate is primarily due to nonrecurring benefits

recorded during the thirteen weeks ended June 27, 2008. The non recurring benefits relate primarily to reaching agreements with several state tax authorities to resolve matters related to prior years.

Operations

Twenty-Six Weeks Ended June 26, 2009 Compared to Twenty-Six Weeks Ended June 27,
2008

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



                                                       Twenty-six weeks ended
                                                    June 26,           June 27,
                                                      2009               2008
Revenue from services                               $   471,425        $   694,726
Total revenue growth (decline) %                         (32.1% )             8.3%
Gross profit as a % of revenue                            28.7%              30.1%
SG&A as a % of revenue                                    27.9%              24.0%
Income (loss) from operations                       $    (4,618 )      $    33,970
Income (loss) from operations as a % of revenue           (1.0% )             4.9%

Depreciation and amortization                       $     8,425        $     7,875
Interest and other income, net                      $     1,913        $     3,520
Effective income tax rate                                 41.8%              31.9%
Net income (loss)                                   $    (1,573 )      $    25,529
Net income (loss) as a % of revenue                       (0.3% )             3.7%
Net income (loss) per diluted share                 $     (0.04 )      $      0.59

Revenue from services. Revenue for the twenty-six weeks ended June 26, 2009 decreased 32.1% compared to the twenty-six weeks ended June 27, 2008. The revenue decline consisted of a 34.9% decrease in organic revenue offset by a 2.8% growth from acquisitions completed within the last 12 months. 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 29.6% during the twenty-six weeks ended June 26, 2009 compared to a decline of 6.7% for the same twenty-six week period in 2008. While our year-over-year revenue trends continue to experience recessionary pressure, we have seen some moderation in the rate of decline of our year-over-year trends.

Our monthly same branch revenue trends 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%)
April      (31.2%)    (6.7%)
May        (29.3%)    (11.2%)
June       (23.9%)    (12.6%)

The improvement in the rate of decline of our year-over-year monthly same branch revenue trends was due to work associated with one large customer, as well as improvements across the rest of our customer base. The same branch revenue decline year-to-date was 29.6%. Excluding the impact associated with the one large customer, the same branch revenue decline year-to-date would have been 33.5%.

Revenue declines associated with closed branches during the twenty-six weeks ended June 26, 2009 were 6.7% compared to 3.2% for the same twenty-six week period in 2008. We remained focused on aggressive cost management and maintaining a strong balance sheet. We closed 155 branches over the last twelve months decreasing our total branch count to 775 at June 26, 2009. Primary factors influencing which branches we closed 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.

Gross profit. Gross profit was 28.7% of revenue for the twenty-six weeks ended June 26, 2009 compared to 30.1% of revenue for the twenty-six weeks ended June 27, 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 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 3.3% and bill rate inflation increased 4.4% for the twenty-six weeks ended June 26, 2009 in comparison with the same period one year ago. Bill rate inflation exceeded pay rate inflation due to a change in sales mix as our higher bill rate work has experienced a less severe revenue impact. However, we continue to experience pricing pressure within each of our individual brands.

Pricing pressure on gross profit as a percentage of revenue was partially offset by the improvement in workers' compensation. Workers' compensation costs for the twenty-six weeks ended June 26, 2009 were approximately 3.3% of revenue compared to 4.1% of revenue for the twenty-six weeks ended June 27, 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. We continued to experience positive trends in our accident rates and management of prior year claims. We believe we can maintain our positive momentum throughout 2009 in our risk management programs which could lower our workers' compensation expense.

Selling, general, and administrative expenses. SG&A expenses as a percentage of revenue were 27.9% for the twenty-six weeks ended June 26, 2009 compared to 24.0% for the twenty-six weeks ended June 27, 2008. Commencing in 2008, we have taken aggressive cost management actions across all levels of the organization. Over the last twelve months we closed 155 branches. Further, we have consolidated branch management and substantially all back office support activities. We incurred $2.6 million of SG&A expense during the twenty-six weeks ended June 26, 2009 related to our down sizing activities. SG&A expenses have declined by 21.2% compared to the same twenty-six weeks in 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 $8.4 million for the twenty-six weeks ended June 26, 2009 compared to $7.9 million for the twenty-six weeks ended June 27, 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 $1.9 million for the twenty-six weeks ended June 26, 2009 compared to $3.5 million during the twenty-six weeks ended June 27, 2008. The decrease is primarily related to lower investment yields.

As of June 26, 2009, approximately 59.1% 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. The interest rate for the period July 2008 to July 2009 was 2.58%. Based on the July 1, 2009 annual interest rate reset, the rate from July 2009 to July 2010 will be 0.74% as a result of market declines in interest rates.

Income tax. Our effective tax rate on earnings for the twenty-six weeks ended June 26, 2009 was 41.8%, compared to 31.9% for the twenty-six weeks ended June 27, 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 and certain nondeductible expenses. The increase to the effective tax rate is primarily due to nonrecurring benefits

recorded during the twenty-six weeks ended June 27, 2008. The non recurring benefits relate primarily to reaching agreements with several state tax authorities to resolve matters related to prior years.

Liquidity and Capital Resources

Cash Flows from Operating Activities

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



                                                             Twenty-six weeks ended
                                                        June 26,                June 27,
                                                          2009                    2008

Net income (loss)                                       $   (1,573 )            $   25,529
Depreciation and amortization                                8,425                   7,875
Provision for doubtful accounts                              3,923                   4,453
Stock-based compensation                                     4,024                   4,504
Deferred income taxes                                        3,561                  (2,087 )
Other operating activities                                   1,181                     146
Changes in operating assets and liabilities,
exclusive of business acquired:
Accounts receivable                                         (6,969 )                (2,475 )
Income taxes                                                 7,610                  (6,092 )
Workers' compensation                                       (5,406 )                 3,141
Accounts payable and accrued expenses                       (4,793 )                (2,502 )
Accrued wages and benefits                                    (985 )                 1,633
Other                                                       (1,277 )                  (205 )

Net cash provided by operating activities               $    7,721              $   33,920

• Net cash flow from operating activities was $7.7 million for the twenty-six weeks ended June 26, 2009 or a decline of $26.2 million as compared to the prior year. The reduction to cash provided by operating activities is primarily due to our net loss. Our net income declined by $27.1 million.

• Changes in operating assets and liabilities are due to the recession and decline in business. Changes to 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 in 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 due to the recession, generally decreases our workers' compensation reserve over time. The success of our accident prevention programs has also reduced our workers' compensation exposure.

• Change in income tax receivable is primarily due to receipt of a refund of estimated tax payments. The change in net deferred tax assets relates primarily to decreases in the workers' compensation reserve, acquisition related amortization, accelerated deductions for internally developed software, reserves and contingencies that are not deductible until paid.

. . .