The following discussion should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements and the Notes included in Item 1 of Part I in this Quarterly Report on Form 10-Q, the audited Consolidated Financial Statements and Notes and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the most recently filed Annual Report on Form 10-K for the fiscal year ended December 30, 2011. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in "Item 1A, Risk Factors."

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect future results. Our MD&A is presented in six sections:

• Overview

• Results of Operations

• Liquidity and Capital Resources

• Contractual Obligations and Commitments

• Summary of Critical Accounting Policies and Estimates

• New Accounting Standards

Overview

TrueBlue, Inc. ("TrueBlue," "we," "us," "our") is a leading provider of temporary blue-collar staffing. We provide a wide range of specialized blue-collar staffing services. We have a network of 710 branches in all 50 states, Puerto Rico and Canada which supply our customers with temporary workers. In 2011, we connected approximately 325,000 people to work through the following blue-collar staffing brands: Labor Ready for general labor, Spartan Staffing for light industrial services, CLP Resources for skilled trades, PlaneTechs for aviation and diesel mechanics and technicians, and Centerline Drivers for dedicated and temporary drivers. Headquartered in Tacoma, Washington, we serve approximately 175,000 businesses primarily in the services, construction, transportation, manufacturing, retail, and wholesale industries.

Revenue grew to $311.2 million, a 13% increase compared to the first quarter of 2011. Our revenue growth is primarily due to the continued success with our vertical market sales and service strategy. Our dedicated sales leaders have expertise in the specific industries we serve. These dedicated industry sales leaders partner with our national sales and service teams to meet the specific project needs of our national customers. Likewise, they provide our branches with best practice industry knowledge, including sales and service methods for each industry.

We grew revenue across most major industries and geographies including a growing presence in the construction of renewable energy projects. While we continued to experience growth in non-residential construction, the residential construction market continues to be weak.

Gross profit as a percent of revenue for the first quarter of 2012 was unchanged from the comparable quarter in 2011. The first quarter of 2011 included HIRE Act incentives for hiring and retaining workers by exempting the employer share of the social security tax on wages paid to qualified individuals of approximately 0.4% of revenue. Excluding that benefit, gross margin as a percent of revenue improved due to increased bill rates which more than offset increases for minimum wages and unemployment taxes in the first quarter of 2012.

Net income grew by 100% to $1.5 million, or $0.04 per diluted share, compared to a net income of $0.8 million, or $0.02 per diluted share, for the first quarter of 2011. Our strong revenue growth continues to produce higher operating margin and net income as we leverage our national network and supporting cost structure.

We are in a strong financial position to fund working capital needs for planned 2012 growth and expansion opportunities. We have cash and cash equivalents of $125 million at March 30, 2012. As of March 30, 2012, the maximum $80 million was available under the Revolving Credit Facility and $8 million of letters of credit had been issued against the facility, leaving an unused portion of $72 million.

Customer demand for blue-collar staffing services is dependent on the overall strength of the labor market and trends towards greater workforce flexibility within the blue-collar markets in which we operate. Improving economic growth typically results in increasing demand for labor, resulting in greater demand for our staffing services. During periods of increasing demand, we are able to produce strong incremental operating margins by leveraging the increase in revenue across our fixed cost structure. Future

growth trends will be dependent on whether the underlying economy continues to improve, trends in customer preference towards a more flexible workforce continue, and our ability to effectively serve customer needs.

Due to the seasonal nature of our business, interim results are not necessarily indicative of the results that may be expected for the entire fiscal year. Demand for our staffing services is generally higher during the second and third quarters of the year with demand peaking in the third quarter and lower during the first and fourth quarters, in part due to limitations to outside work during the winter months.

Results of Operations

The following table presents selected financial data (in millions, except per
share amounts):
                                                                    Thirteen weeks ended
                                                                 March 30,         April 1,
                                                                    2012             2011
Revenue from services                                          $     311.2       $     274.3
Total revenue growth %                                                13.4 %            14.4 %

Gross profit as a % of revenue                                        25.5 %            25.5 %

Selling, general and administrative expenses                   $      72.1       $      65.2
Selling, general and administrative expenses as a % of revenue        23.2 %            23.8 %

Income from operations                                         $       2.4       $       1.0
Income from operations as a % of revenue                               0.8 %             0.3 %

Net Income                                                     $       1.5       $       0.8
Net Income per diluted share                                   $      0.04       $      0.02

Revenue

Revenue from services in comparison with the same period in the prior year was
as follows (in millions):
                                       Thirteen weeks ended
                                      March 30,       April 1,
                                        2012            2011
First quarter revenue from services $    311.2       $  274.3
First quarter revenue growth %            13.4 %         14.4 %

Revenue grew to $311.2 million, a 13.4% increase compared to the first quarter of 2011. Our revenue growth is primarily due to the continued success with our vertical market sales and service strategy. Our dedicated sales leaders have expertise in the specific industries we serve. These dedicated industry sales leaders partner with our national sales and service teams to meet the specific project needs of our national customers. Likewise, they provide our branches with best practice industry knowledge, including sales and service methods for each industry. We grew revenue across most major industries and geographies including a growing presence in the construction of renewable energy projects. Demand for residential construction remains weak.

Gross profit

Gross profit in comparison with the same period in the prior year was as follows (in millions):

                                  Thirteen weeks ended
                                 March 30,       April 1,
                                   2012            2011
Gross profit                   $     79.2       $   70.0
Gross profit as a % of revenue       25.5 %         25.5 %

Gross profit represents revenues from services less direct costs of services, which consist of payroll, payroll taxes, workers' compensation insurance costs, and reimbursable costs. Gross profit as a percent of revenue for the first quarter of 2012 was unchanged from the comparable quarter in 2011 due to offsetting factors. HIRE Act credits were 0.4% of revenue for the first quarter of 2011. The HIRE Act provided incentives for hiring and retaining workers by exempting the employer share of the social security tax on wages paid to qualified individuals. Excluding the benefit of those net HIRE Act credits, gross profit as a percent of revenue for the current quarter has improved by 0.4%. The improvement is primarily due to the success of our disciplined pricing and increased billing rates which more than offset increases to minimum wage and unemployment taxes.

Workers' compensation expense was 3.7% of revenue for the first quarter of 2012, which is unchanged from the comparable quarter in 2011. We continue to actively manage the safety of our temporary workers with our risk management programs and work together with our network of service providers to control costs.

Selling, general and administrative expenses

Selling, general and administrative ("SG&A") expenses were as follows (in millions):

                                                Thirteen weeks ended
                                               March 30,       April 1,
                                                 2012            2011
Selling, general and administrative expenses $     72.1       $   65.2
Percentage of revenue                              23.2 %         23.8 %

SG&A increased $7 million or 11% over the prior year, while revenue increased $37 million or 13%. SG&A declined to 23.2% as a percentage of revenue as we continued our focus on leveraging our cost structure across additional revenue and delivering improved operating margins. The increase in SG&A spending for the first quarter of 2012 is primarily due to two factors. First are the variable selling and other operating expenses associated with the $37 million increase in revenue over the same period a year ago. Second, we made a variety of people-related investments during 2011. These investments included specialized sales and marketing personnel to sell to and serve our vertical market customer groups, filling open sales and service positions in local markets, and making a variety of market adjustment increases to compensation to retain our key performers. Staffing levels have increased from recessionary lows and our turnover has declined. We believe these investments have contributed to our revenue growth trends.
Depreciation and amortization and interest

Depreciation and amortization and interest were as follows (in millions):

                                       Thirteen weeks ended
                                      March 30,           April 1,
                                        2012                2011
Depreciation and amortization  $       4.8               $     3.9
Interest and other income, net $       0.3               $     0.3

Depreciation and amortization for the first quarter of 2012 increased over the prior year by $0.9 million resulting primarily from increased capital spending focused on enterprise technology improvement projects. These projects are designed to further improve our efficiency and effectiveness in recruiting and retaining our temporary workers and attracting and retaining our customers.

Income taxes

The effective income tax rate was as follows (in millions):

                             Thirteen weeks ended
                           March 30,       April 1,
                              2012           2011
Income tax expense        $     1.1       $     0.5
Effective income tax rate      42.2 %          39.1 %

Our effective tax rate on earnings for the first quarter of 2012 was 42.2% compared to 39.1% for the same period in 2011. The increase in the effective income tax rate is due primarily to expired federal payroll tax credits. The principal difference between the statutory federal income tax rate of 35% and our effective income tax rate results from state income taxes, federal tax credits and certain non-deductible expenses.

Future outlook for results of operations

The following highlights represent our expectations in regard to operating trends for the remainder of fiscal year 2012. These expectations are subject to revision as our business changes with the overall economy:

• Due to our industry's sensitivity to economic factors, the inherent difficulty in forecasting the direction and strength of the economy and the short term nature of staffing assignments, our visibility for future demand is limited. As a result, we monitor a number of economic indicators as well as certain trends to estimate future revenue. Based on these anticipated trends, we expect continued revenue growth in 2012 assuming stable economic and customer conditions. However, our revenue growth percentage will likely diminish due to more challenging prior period revenue comparisons versus the prior period comparables for 2011.

• Our top priority remains to increase revenue through our existing branch network. This should produce strong incremental operating margins as we leverage our cost structure across additional revenue. We will continue to invest in our sales and customer service programs, which we believe will enhance our ability to capitalize on further revenue growth and customer retention.

• Revenue associated with our largest customer was approximately $29 million or 9% of first quarter 2012 revenue. While we expect continued revenue from this customer, our work is project based and the completion of certain projects will impact our revenue. We are actively pursuing other project opportunities with our largest customer and other customers in related industries.

• As the economy grows, we will continue to evaluate opportunities to expand our market presence. All of our multi-location brands have opportunities to expand through new physical locations or by sharing existing locations. Where possible, we plan to expand the presence of our brands by sharing existing locations to achieve cost synergies. We plan to build on our success with centralized recruitment and dispatch of our temporary workers to locations without physical branches and expand our geographic reach. We will also evaluate strategic acquisitions in the blue-collar staffing market that can produce strong returns on investment. Our focus is on acquisitions that can accelerate the building of a national presence for a particular brand or that provide an opportunity to serve a new, but sizable portion of the blue-collar staffing market.

• Minimum wage and certain unemployment taxes increased again in 2012. Assuming no action on our part, these increases would negatively impact gross margin by 0.4%. However, we have put in place programs to pass these costs through to our customers and have experienced success in doing so during the first quarter of 2012. Until the economy fully recovers and state unemployment funds have been replenished and related federal loans have been repaid by certain states, we expect continued increases to our unemployment taxes and our customers could be resistant to price increases to cover these costs. Additionally, fiscal 2011 benefited from certain nonrecurring benefits that will negatively impact our quarterly comparisons. HIRE Act credits were 0.4% of revenue in the first quarter of 2011 and resolution of a payroll tax matter in the second quarter of 2011 resulted in a benefit of 0.5% of revenue.

• The federal Work Opportunity Tax Credit has largely expired. This income tax credit was designed to encourage employers to hire workers from certain targeted groups with higher-than-average unemployment rates. The elimination of this benefit has increased our effective income tax rate in comparison with 2011.

Liquidity and Capital Resources

Our principal source of liquidity is operating cash flows. Our net income and,
consequently, our cash provided from operations are impacted by sales volume,
timing of collections, seasonal sales patterns and profit margins. Cash provided
by operations was $17.7 million for the first quarter of 2012.

Cash flows from operating activities

Our cash flows from operating activities were as follows (in millions):
                                                                 Thirteen weeks ended
                                                             March 30,          April 1,
                                                                2012              2011
Net income                                                 $       1.5       $        0.8
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization                                      4.8                3.9
Provision for doubtful accounts                                    1.0                0.6
Stock-based compensation                                           2.9                2.6
Deferred income taxes                                             (1.0 )              0.7
Other operating activities                                        (0.4 )             (0.5 )
Changes in operating assets and liabilities:
Accounts receivable                                                8.4              (12.3 )
Income taxes                                                       1.0               (1.3 )
Accounts payable and other accrued expenses                       (1.1 )              1.1
Workers' compensation claims reserve                              (0.9 )             (0.6 )
Other assets and liabilities                                       1.5                0.4
Net cash provided by (used in) operating activities        $      17.7       $       (4.6 )

Net cash provided by operating activities was $17.7 million for the period ended March 30, 2012 as compared to net cash used in operating activities of $4.6 million for the same period in 2011.

• Accounts receivable followed normal seasonal patterns in the first quarter of 2012 by declining from the beginning of the quarter, producing a source of cash. The first quarter of 2011 was a use of cash due to a low beginning balance of accounts receivable resulting from significant large customer payments received at the end of the fourth quarter of 2010.

Cash flows from investing activities

Our cash flows from investing activities were as follows (in millions):

                                                       Thirteen weeks ended
                                                      March 30,       April 1,
                                                        2012            2011
Capital expenditures                                $     (3.7 )     $   (1.7 )
Change in restricted cash and cash equivalents             3.5           (0.6 )
Purchase of restricted investments                        (7.6 )         (3.1 )
Maturities of restricted investments                       3.9              -
Net cash provided by (used in) investing activities $     (3.9 )     $   (5.4 )

• Capital expenditures in 2012 and 2011 were primarily related to investments made to upgrade our proprietary information systems. We anticipate that total capital expenditures will be approximately $14 million in 2012.

• Restricted cash and investments consist primarily of collateral that has been provided or pledged to insurance carriers and state workers' compensation programs. The change in restricted cash and cash equivalents when combined with purchases of restricted investments net of maturities of restricted investments increased by $0.2 million for the period ended March 30, 2012.

Cash flows from financing activities

Our cash flows from financing activities were as follows (in millions):

                                                                Thirteen weeks ended
                                                             March 30,         April 1,
                                                                2012             2011
Net proceeds from sale of stock through options and
employee benefit plans                                     $       2.9       $       0.4
Common stock repurchases for taxes upon vesting of
restricted stock                                                  (1.8 )            (1.4 )
Payments on debt                                                     -              (0.1 )
Other                                                              0.6               0.5
Net cash provided by (used in) financing activities        $       1.7       $      (0.6 )

Capital Resources

We have a credit agreement with Bank of America, N.A. and Wells Fargo Capital Finance, LLC for a secured revolving credit facility of up to a maximum of $80 million (the "Revolving Credit Facility"). The Revolving Credit Facility expires in September 2016.

The maximum amount we can borrow under the Revolving Credit Facility is subject to certain borrowing limits. Specifically, we are limited to the sum of 85% of our eligible accounts receivable and 75% of the liquidation value of our Tacoma headquarters office building not to exceed $15 million. This borrowing base limit amount is then further reduced by the sum of a reserve in an amount equal to the payroll and payroll taxes for our temporary employees for one payroll cycle and other reserves if deemed applicable. As of March 30, 2012, the maximum $80 million was available and letters of credit in the amount of $8 million had been issued against the facility, leaving an unused portion of $72 million. The letters of credit collateralize a portion of our workers' compensation obligation.

The Revolving Credit Facility requires that we maintain liquidity in excess of $12 million. We are required to satisfy a fixed charge coverage ratio in the event we do not meet that requirement. Liquidity is defined as the amount we are entitled to borrow as advances under the Revolving Credit Facility plus the amount of cash and cash equivalents held in accounts subject to a control agreement benefiting the lenders. The amount we were entitled to borrow at March 30, 2012 was $72 million and the amount of cash and cash equivalents under control agreements was $125 million for a total of $197 million, which is well in excess of the liquidity requirement. We are currently in compliance with all covenants related to the Revolving Credit Facility.

Under the terms of the Revolving Credit Facility, we pay a variable rate of interest on funds borrowed that is based on LIBOR or the Prime Rate, at our option, plus an applicable spread based on excess liquidity as set forth below:

Excess Liquidity:                   Prime Rate Loans: LIBOR Rate Loans:
Greater than $40 million                  0.50%             1.50%
Between $20 million and $40 million       0.75%             1.75%
Less than $20 million                     1.00%             2.00%

A fee on borrowing availability of 0.25% is also applied against the unused portion of the Revolving Credit Facility. Letters of credit are priced at the margin in effect for LIBOR loans, plus a fronting fee of 0.125%.

Obligations under the Revolving Credit Facility are secured by substantially all of our domestic personal property and our headquarters located in Tacoma, Washington.

We have agreements with certain financial institutions that allow us to restrict cash and cash equivalents and investments for the purpose of providing collateral instruments to our insurance carriers to satisfy workers' compensation claims. The majority of our collateral is held in a trust ("Trust") at Bank of New York Mellon. At March 30, 2012, we had restricted cash and investments totaling approximately $130.7 million.

Workers' Compensation Commitments, Insurance and Collateral

Workers' Compensation Insurance
We provide workers' compensation insurance for our temporary and permanent employees. Our workers' compensation insurance policies are renewed annually. We renewed our coverage with Chartis effective July 2011 to July 2012. For all prior years, we had coverage with Chartis and other insurance providers. For certain states we pay workers' compensation insurance premiums and obtain full coverage under government-administered programs.
The majority of our current workers' compensation insurance policies cover 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. While . . .