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| TBI > SEC Filings for TBI > Form 10-Q on 30-Oct-2009 | All Recent SEC Filings |
30-Oct-2009
Quarterly Report
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. Last year, we connected 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 and served approximately 250,000 businesses in the wholesale, services, transportion, manufacturing, retail, and construction industries.
The U.S. economy remains weak and as a result we continue to experience a significant decrease in demand for blue collar staffing, which continues to negatively impact 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 2009, we closed 89 branches, of which 12 were closed during the third quarter. During 2008, we closed 73 branches and sold the remaining 29 branches in the United Kingdom. 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.
Revenue for the thirteen weeks ended September 25, 2009 of $284.8 million decreased 26.6% compared to $387.9 million for the thirteen weeks ended September 26, 2008. While our year-over-year revenue trends continue to experience recessionary pressure, the rate of decline of our year-over-year monthly same branch revenue trends has improved. The improvement in these trends is due primarily to revenue stability during the quarter and additional work associated with one large customer.
Gross profit as a percentage of revenue was 29.0% for the thirteen weeks ended September 25, 2009 compared to 29.7% for the thirteen weeks ended September 26, 2008. The primary causes for the decline in gross profit as a percentage of revenue are the impact of pricing pressures resulting from the current economic recession, increased wages paid to our temporary workers due to statutory minimum wage increases, acquistions, and more large account business. The decline in gross profit as a percentage of revenue was partially offset by a decrease in workers' compensation expense which was largely due to the reduction of reserves established in prior periods. The decrease in reserves was 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 22.8% for the thirteen weeks ended September 25, 2009 compared to 22.2% for the thirteen weeks ended September 26, 2008. Commencing in 2008, we have taken aggressive cost management actions across all levels of the organization. SG&A expenses have declined by 24.7% compared to the third quarter of 2008. The decline was associated with a wide spread reduction in employee headcount and other operating costs related to branch closures, field management reductions, and consolidation of corporate services. 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 $8.2 million, or $0.19 per diluted share, for the thirteen weeks ended September 25, 2009 compared to net income of $16.3 million, or $0.38 per diluted share, for the thirteen weeks ended September 26, 2008. The change year over year is due primarily to the decline in same branch revenue. Same branch revenue is defined as revenue from branches open twelve months or longer.
Letters of credit outstanding under the Revolving Credit Facility as of September 25, 2009 decreased by $34.9 million in comparison with the letters of credit outstanding as of June 26, 2009. The reductions were received from workers' compensation insurance carriers largely related to the success of a variety of risk management programs.
Although the economy shows signs of leveling, we expect a difficult economic environment during the remainder of fiscal 2009 and into fiscal 2010. 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. We do not expect a significant improvement in same branch revenue until employers have largely completed the reduction of permanent workforces and the economy improves. Likewise, the lack of recovery in the overall job market would diminish our performance. 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
The following table presents selected consolidated financial data (in thousands,
except per share amounts):
Thirteen weeks ended Thirty-nine weeks ended
September 25, September 26, September 25, September 26,
2009 2008 2009 2008
Revenue from services $ 284,843 $ 387,914 $ 756,268 $ 1,082,640
Total revenue growth (decline) %
over prior year (26.6 %) (0.7 %) (30.1 %) 4.9 %
Gross profit as a % of revenue 29.0 % 29.7 % 28.8 % 29.9 %
SG&A as a % of revenue 22.8 % 22.2 % 26.0 % 23.4 %
Depreciation and amortization 1.5 % 1.0 % 1.7 % 1.1 %
Income from operations $ 13,436 $ 24,964 $ 8,818 $ 58,934
Income from operations as a % of
revenue 4.7 % 6.4 % 1.2 % 5.4 %
Interest and other income, net $ 240 $ 1,049 $ 2,153 $ 4,569
Effective income tax rate 39.8 % 37.2 % 39.2 % 34.1 %
Net income $ 8,239 $ 16,335 $ 6,666 $ 41,864
Net income as a % of revenue 2.9 % 4.2 % 0.9 % 3.9 %
Net income per diluted share $ 0.19 $ 0.38 $ 0.16 $ 0.97
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The U.S. economy remains weak and as a result we continue to experience a significant decrease in demand for blue collar staffing, which continues to negatively impact 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 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. During 2009, we closed 89 branches, of which 12 were closed during the third quarter. During 2008, we closed 73 branches and sold the remaining 29 branches in the United Kingdom. Commensurate with our branch closings, we have aggressively reduced the cost of field management and corporate support services. 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.
Revenue from services:
Revenue decreased 26.6% and 30.1% during the thirteen and thirty-nine weeks ended September 25, 2009, respectively, over the comparable 2008 periods. The following table presents the components in our total revenue growth (decline):
Thirteen weeks ended Thirty-nine weeks ended
September 25, September 26, September 25, September 26,
2009 2008 2009 2008
Major Revenue Trends
Organic revenue decline (26.6 %) (17.2 %) (31.9 %) (11.6 %)
Acquisitions within last 12
months 0.0 % 16.5 % 1.8 % 16.5 %
Total revenue growth
(decline) (26.6 %) (0.7 %) (30.1 %) 4.9 %
Organic Revenue Trends (1)
Same branch (2) (18.8 %) (14.7 %) (25.8 %) (9.7 %)
New branches (3) 0.1 % 0.6 % 0.1 % 0.9 %
Closed branches (9.1 %) (3.6 %) (7.4 %) (3.1 %)
Currency and other (0.4 %) (0.1 %) (0.5 %) 0.3 %
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(1) Percentages for organic revenue components do not sum to total organic revenue growth as same branch growth is determined off a revenue base of branches open for 12 or more months, whereas other organic revenue growth components are measured off a total revenue base.
(2) Same branch revenue is defined as those branches opened one year or longer.
(3) New branches are defined as those branches opened less than one year.
Same branch revenues declined 18.8% and 25.8% during the thirteen and thirty-nine weeks ended September 25, 2009, respectively, over the comparable 2008 periods. 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
Revenue 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 %)
July (20.2 %) (12.2 %)
August (18.4 %) (14.7 %)
September (18.1 %) (16.5 %)
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The improvement in the rate of decline of our year-over-year monthly same branch revenue trends was due primarily to revenue stability during the quarter and additional work associated with one large customer. Excluding the growth impact associated with the one large customer, the same branch revenue decline for the third and second quarters of 2009 would have been 26.4% and 32.4%, respectively.
Gross profit:
Thirteen weeks ended Thirty-nine weeks ended
September 25, September 26, September 25, September 26,
2009 2008 2009 2008
(dollars in thousands) (dollars in thousands)
Gross profit $ 82,623 $ 115,178 $ 218,124 $ 324,076
Gross profit as a % of revenue 29.0 % 29.7 % 28.8 % 29.9 %
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The decline in gross profit as a percentage of revenue is primarily due to the impact of revenue mix, pricing pressures resulting from the current economic recession, and increased wages paid to our temporary workers due to statutory minimum wage increases. 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. The decline is also due to the mix of brand services. Certain brands with a lower gross profit as a percentage of revenue have become a larger portion of our business during the recession. Our mix of blue collar staffing business has adapted to take advantage of opportunities in the marketplace by pursuing business with large customers which typically carry lower gross margins. In our opinion, large customers have fared better during the recession in comparison with smaller customers and have presented more overall revenue opportunities. 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 September 25, 2009 were approximately 2.9% of revenue compared to 4.2% of revenue for the thirteen weeks ended September 26, 2008. Workers' compensation costs for the thirty-nine weeks ended September 25, 2009 were approximately 3.2% of revenue compared to 4.1% of revenue for the thirty-nine weeks ended September 26, 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.
Selling, general, and administrative expenses:
Thirteen weeks ended Thirty-nine weeks ended
September 25, September 26, September 25, September 26,
2009 2008 2009 2008
(dollars in thousands) (dollars in thousands)
Selling, general, and
administration expenses $ 64,950 $ 86,226 $ 196,644 $ 253,279
Percentage of revenue 22.8 % 22.2 % 26.0 % 23.4 %
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Commencing in 2008, we have taken aggressive cost management actions across all levels of the organization. Over the last twelve months we closed 159 branches, of which 12 were closed in the third quarter of 2009. Further, we have consolidated branch management and substantially all back office support activities. Selling, general, and administrative ("SG&A") expenses have declined by 24.7% compared to the third quarter of 2008. We incurred $2.7 million of SG&A expense during the thirty-nine weeks ended September 25, 2009 related to our down sizing activities. SG&A expenses have declined by 22.4% compared to the same thirty-nine 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.
Other:
Thirteen weeks ended Thirty-nine weeks ended
September 25, September 26, September 25, September 26,
2009 2008 2009 2008
(dollars in thousands) (dollars in thousands)
Depreciation and amortization $ 4,237 $ 3,988 $ 12,662 $ 11,863
Interest and other income, net $ 240 $ 1,049 $ 2,153 $ 4,569
Effective income tax rate 39.8 % 37.2 % 39.2 % 34.1 %
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• The depreciation 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.
• The decrease in net interest and other income is primarily related to less cash invested and lower investment yields on our restricted cash.
• 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 for the thirty-nine weeks ended September 25, 2009 as compared to the same period a year ago is primarily due to nonrecurring benefits realized in the prior year associated with 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):
Thirty-nine weeks ended
September 25, September 26,
2009 2008
Net income $ 6,666 $ 41,864
Depreciation and amortization 12,662 11,863
Provision for doubtful accounts 7,969 6,697
Stock-based compensation 5,597 6,229
Deferred income taxes 4,081 (7,102 )
Other operating activities 1,037 530
Changes in operating assets and liabilities,
exclusive of business acquired:
Accounts receivable (33,505 ) (11,394 )
Income taxes 12,917 (4,350 )
Workers' compensation (9,094 ) 4,106
Accounts payable and accrued expenses (4,225 ) (1,663 )
Accrued wages and benefits 1,803 (2,654 )
Other (1,247 ) (3,216 )
Net cash provided by operating activities $ 4,661 $ 40,910
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• Net cash flow from operating activities was $4.7 million for the thirty-nine weeks ended September 25, 2009 or a decline of $36.2 million as compared to the prior year. The reduction to cash provided by operating activities is primarily due to our reduction of net income. Our net income declined by $35.2 million.
• Changes to accounts receivable during 2009 are primarily associated with increased balances as compared to year end 2008 due to the seasonality of our business, change in mix from acquisitions with different payment cycles, and the increased payment cycle associated with one large customer.
• Changes in accounts payable and accrued expenses, wages, and benefits during 2009 are primarily due to less accruals as a result of 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; which we have experienced this year as well as reductions to reserves established in prior years. 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.
Cash Flows from Investing Activities
Our cash flows used in investing activities were as follows (in thousands):
Thirty-nine weeks ended
September 25, September 26,
2009 2008
Capital expenditures $ (10,540 ) $ (20,009 )
Purchases of marketable securities - (27,158 )
Maturities of marketable securities - 38,087
Acquisition of business, net of cash acquired - (21,270 )
Change in restricted cash (5,860 ) 4,712
Other 85 -
Net cash used in investing activities $ (16,315 ) $ (25,638 )
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• Capital expenditures in 2009 and 2008 are primarily related to investments made to upgrade our proprietary information systems. We anticipate that total capital expenditures will be approximately $14.0 million in 2009.
• We held no marketable securities as of year end December 26, 2008 and made no investments in marketable securities for the thirty-nine weeks ended September 25, 2009.
• In March 2008, we purchased substantially all of the assets of TLC, a skilled truck-driver staffing provider for $5.3 million.
• In April 2008, we purchased substantially all of the assets of Personnel Management, Inc, a light industrial staffing provider for $17.1 million.
• Restricted cash decreased in 2008 primarily due to a decrease in the collateral requirements by our workers' compensation insurance providers. We are required by our insurance carriers to collateralize a portion of our workers' compensation obligation with cash and cash backed instruments, letters of credit, or surety bonds. Total collateral decreased for 2009. However, the mix of restricted cash and letters of credit changed resulting in an increase to restricted cash and a decrease to letters of credit.
Cash Flows from Financing Activities
Our cash flows used in financing activities were as follows (in thousands):
Thirty-nine weeks ended
September 25, September 26,
2009 2008
Purchases and retirement of common stock - $ (15,997 )
Net proceeds from sale of stock through options
and employee benefit plans 838 3,173
Shares withheld for taxes upon vesting of
restricted stock (820 ) (918 )
Payments on debt (304 ) (193 )
Other (996 ) (229 )
Net cash used in financing activities $ (1,282 ) $ (14,164 )
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• We purchased $16.0 million of our common stock during the thirty-nine weeks ended September 26, 2008.
• We incurred loan origination fees and other costs of $1.0 million associated with the new Revolving Credit Facility during the thirty-nine weeks ended September 25, 2009.
Capital Resources
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"). The Revolving Credit Facility, which expires in June 2012, replaced our existing $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 (the "Old Revolving Facility").
The amount we can borrow under the Revolving Credit Facility is the sum of 85% of the amount of our eligible accounts receivable plus 60% of the liquidation value of our Tacoma headquarters office building (which shall not exceed $12 million), less a reserve in an amount equal to the payroll and payroll taxes for our temporary employees for one payroll cycle, and less other reserves if deemed applicable in the future. Eligible accounts receivable include all accounts receivable less items such as invoices aged over ninety days, cross-aged receivables, and other items. The maximum amount we can borrow under the . . .
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