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Article by DailyStocks_admin    (05-30-08 06:11 AM)

The Daily Magic Formula Stock for 05/30/2008 is TrueBlue Inc. According to the Magic Formula Investing Web Site, the ebit yield is 18% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

Description of the Business

TrueBlue, Inc. ("TrueBlue," "we," "us," "our") is an international provider of temporary blue-collar staffing with four primary brands. We operate branches and provide temporary labor services under the Labor Ready brand for general labor, on-demand services, Spartan Staffing brand for light industrial services, CLP brand for skilled construction trades services, and PlaneTechs brand for skilled aircraft maintenance staffing. Our customers are primarily small to mid-sized businesses who require temporary blue-collar staffing. Annually, we serve more than 300,000 customers and put approximately 600,000 people to work through our brands.

We began operations in 1989 under the name Labor Ready, Inc. providing on-demand, general labor staffing services. Starting in 2004, we began acquiring additional brands to increase our ability to serve the customers of the blue-collar staffing market. Effective December 18, 2007, Labor Ready, Inc. changed its name to TrueBlue, Inc. The name change reflects our vision to be the leading provider of blue-collar staffing with multiple brands serving the temporary staffing industry. Our former company name of Labor Ready remains as our primary brand name for on-demand, general labor staffing services. We believe renaming the parent company helps better position us to fulfill our vision of becoming "the leading national provider of blue-collar staffing" for the following reasons:


Clarity of vision. Differentiating the parent company name from its brand names provides clarity of our vision to our customers, employees and stakeholders. While we have added brands to serve additional niches of blue-collar staffing, our company is often incorrectly defined exclusively by the Labor Ready brand. We believe separating the name of the parent company and the Labor Ready brand helps unify the direction and focus of our brands in becoming the leading provider of blue-collar staffing.


Reduce the risk of brand dilution. We value the significant brand awareness that has been built around the Labor Ready brand over nearly two decades of servicing our customers. Our intent is to preserve and continue to build strength within the Labor Ready brand. A separate parent company name helps us avoid diluting the Labor Ready brand with the other brands we offer.


Niche approach. We believe that a niche approach with separate brands is the best way to achieve our vision. This approach tailors our staffing services to more specifically meet the needs of our customers.

Temporary Staffing Industry

The temporary staffing industry evolved out of the need to minimize the inconvenience and expense of hiring and administering permanent employees in response to temporary changes in business conditions. The demand for temporary employees has been driven primarily by the need to satisfy peak production and service requirements and to temporarily replace full-time employees absent due to illness, vacation or abrupt termination. Competitive pressures have forced businesses to focus on reducing costs, including converting fixed, permanent labor costs to variable or flexible costs.

The temporary staffing industry includes a number of sectors focusing on business needs that vary widely in duration of assignment and level of technical specialization. We operate within the industrial staffing, or blue-collar staffing, sector of the temporary staffing industry. This sector is fragmented among a large number of providers and presents opportunities for larger, well-capitalized companies to compete effectively. Our competitive advantages include:


Specialized focus on blue-collar staffing;

Multi-location servicing of regional and national customers;

Worker safety programs and risk management;

Proprietary systems and automation that efficiently process a high volume of transactions;

Ability to fulfill customer orders and meet quality expectations;




Management and employee development programs; and

Leverage of infrastructure support of multi-location activities.

Strategy for Profitable Growth

Our business strategies are to:


Grow faster than the blue-collar markets we serve;

Be the industry customer service leader; and

Operate multiple blue-collar brands.

We believe we are the gateway to individual growth for our temporary workers and the gateway for our customers seeking to grow their businesses.

We plan to grow faster than the industrial staffing market by executing on the following objectives:

Our primary objective is to increase existing branch revenue by utilizing the strong operating leverage within our business model. Additional same branch revenue generally drives increasing operating margins due to the fixed costs in our business. We believe our success in increasing same branch revenue is largely tied to our strategy of becoming the service leader in our industry, which is discussed in more depth in our service leadership strategy below.

Our second objective is to add new branches. Our goal is to open new branches each year equal to about 5% of our existing branch count, assuming favorable economic conditions. We are committed to only opening branches that can quickly reach or exceed performance standards, and closing branches that are under-performing. During less favorable economic conditions, we will likely reduce branch openings and increase the number of branch closings. We believe this type of flexibility and discipline improves the overall return for our investors. During 2007, we opened 22 new branches and closed 58 branches. During 2008, we currently plan to open three branches, all of which are expected to be in the CLP brand and in markets with robust economic activity. While we plan to open new Labor Ready branches in new markets, we plan to focus more of our new openings in the CLP Resources and Spartan Staffing brands to build a national presence for these two brands. We continually analyze individual branch results, and may close branches in 2008 that do not meet specific performance standards.

Our third objective is to expand into new markets by making strategic acquisitions. We continue to look at acquisitions in the blue-collar staffing market that can produce strong returns on investment, which we believe is a key measure of value for our shareholders. Our focus is on the large but fragmented light industrial market, which is a subset within the blue-collar staffing market. Likewise, we continue to evaluate skilled trades niches that can expand or enhance our skilled trades staffing services.


In April 2007 we purchased all of the stock of Skilled Services Corporation ("SSC") adding 17 branches to our network. SSC is a skilled construction trades staffing provider, similar to CLP Resources, that has been "tucked in" under the CLP brand.

In December 2007 we purchased substantially all of the assets of PlaneTechs, LLC ("PlaneTechs"), a leading aircraft maintenance staffing provider that services the maintenance, repair, and overhaul ("MRO") market across the United States through a centralized recruiting model located in Chicago, Ill. We believe this acquisition provides us with potential to grow within aviation staffing as well as potential growth into other blue-collar end markets that have a need for mechanics and technicians.

We plan to be the service leader by executing on the following objectives:

We are building a sales culture with a commitment to capturing and cultivating customer loyalty. We have and plan to continue to invest in training that teaches our employees methods to create demand with potential and existing customers as opposed to more common practices within the industry of simply making prospective customers aware of our services. At the heart of this strategy is building a relationship of trust with the customer, obtaining a firm understanding of their needs, finding solutions, and ensuring our service delivery meets or exceeds expectations.

Maintaining a quality temporary workforce with ample supply is a key objective in our strategy to be the service leader. Our ability to provide the right worker, at the right time, and for the right amount of time is important to meeting our customers' needs. A key area of focus for us has been maintaining a safe work environment for our employees through our safety and risk management programs.

Another important objective is continuing to develop methods to attract and retain quality permanent employees. Examples of our efforts include training in company values, management skills, and leadership development. We also believe that recurring reviews of our compensation and incentive systems are key processes to aid in recruiting quality candidates and reducing future turnover.

We plan to operate with multiple blue-collar brands.

We plan to achieve a dominant market position in each of our blue-collar brands. We have achieved a dominant position with our general labor brand Labor Ready. That blueprint for success is being applied to Spartan Staffing, CLP Resources and PlaneTechs. We believe these brands can be expanded into a national presence with dominant market positions.

We will continue to invest in building effective and efficient support services. Those support services are leveraged across brands whenever practicable to provide cost efficient support services to our operations. This includes integrating services across brands where practicable, investing in technology, and challenging current methods of doing business.

Brand Operations

Labor Ready – On-Demand, General Labor Services. Labor Ready provides general labor on an on-demand basis. Our customers' needs are generally project based and only last a few days. Of primary importance to our customers is our ability to supply the general laborers needed each day on time and often on same day or next day notice. Our service is especially important to customers that value a commitment to compliance with applicable laws and regulations. In 1994, we expanded our Labor Ready brand for on-demand labor into Canada. We subsequently expanded our international operations to include the United Kingdom in 1998. At the end of 2007, the Labor Ready brand had in aggregate 774 branches in all 50 states, Puerto Rico, Canada and the United Kingdom. Our international operations are in the Labor Ready brand. The following table lists the number of Labor Ready brand branches by country for each of the last five years.

Spartan Staffing – Light Industrial Temporary Services. Spartan Staffing provides workers to the light industrial market which includes, among others, manufacturing, logistics, and warehousing. Spartan Staffing enables our customers to have access to a wide variety of workers. Spartan Staffing was acquired in 2004 and has grown from 10 branches at the date of acquisition to 32 branches at the end of 2007.

CLP Resources ("CLP") – Skilled Construction Trade Services. This brand provides skilled trades people primarily to the commercial construction market. Customers value CLP's ability to supply high-quality skilled trades people. This enables our customers to obtain immediate value by placing a highly productive and skilled employee on the job site. The staffing assignments are project based but typically last several weeks since the tradesperson is often needed for a substantial amount of the construction process. CLP was acquired in 2005 and has grown from 50 branches at the date of the acquisition to 75 branches at the end of 2007.

PlaneTechs – Skilled Aircraft Maintenance Services. In December 2007 we purchased substantially all of the assets of PlaneTechs, LLC ("PlaneTechs"), a leading provider of aircraft maintenance staffing. PlaneTechs operates out of a single facility in Chicago, Ill. and draws from a national database of skilled aviation technicians. The acquisition of PlaneTechs continues our diversification strategy within blue-collar staffing and adds a new element of growth and specialization to our skilled trades services. We believe PlaneTechs delivers an innovative approach to the flexible workforce requirements of the aviation industry.

Information about Business Segments

TrueBlue operations are one reportable segment. Our operations are all in the blue-collar staffing sector of the temporary labor market and focus on supplying customers with temporary employees. All our brands have the following similar characteristics:


They service businesses and provide temporary labor services;

They primarily serve small to medium-sized customers who have a need for temporary staff to perform tasks which do not require a permanent employee;

They each build a temporary work force through recruiting, screening and hiring. Temporary workers are dispatched to customers where they work under the supervision of our customers; and

Profitability is driven largely by bill rates to our customers and pay rates to our workers. The difference between the bill rate and pay rate is a key metric used to drive the business in all our brands. Profitable growth requires increased volume or bill rates which grow faster than pay rates. Profitable growth is also driven by leveraging our cost structure across all brands.

We expect similar operating margins for our brands based on historical experience. The long-term performance expectations of all our brands are similar as are the underlying financial and economic metrics used to manage those brands.

Our international operations are not significant to our total operations for segment reporting purposes.

Operations

Branch operations are organized into geographic areas. Each area is under the supervision of a manager who oversees branch performance. Within an area, multi-unit managers supervise branch operations and meet regularly with branch managers to discuss new customers, customer satisfaction, temporary workforce recruitment and retention, and operating performance. Similar meetings are conducted at the corporate level with regional management.

Branches are generally open five days a week, with extended hours as required to meet customer needs. Branch locations are generally staffed with a branch manager and two or more additional employees that focus on customer service, temporary worker recruiting and screening. Branches follow standardized and detailed operating procedures.

We have our own proprietary front-end software systems to process all required credit, billing, collection and temporary worker payroll, together with other information and reporting systems necessary for the management of hundreds of thousands of temporary employees and operations in multiple locations. The systems maintain all of our key databases, from the tracking of work orders to payroll processing to maintaining worker records. The current systems regularly exchange all point of sale information between the corporate headquarters and the branches, including customer credit information and outstanding receivable balances. Branch staff can run a variety of reports on-demand, such as receivables aging, margin reports and customer activity reports. Regional, area, and district managers are able to monitor their territories from remote locations.

We believe that one of the most critical factors determining the success of a branch is selecting, hiring and retaining an effective branch manager. Each branch manager has the responsibility for recruiting and retaining a quality temporary workforce and capturing and cultivating customer loyalty. Each branch manager has the responsibility for managing the operations of the branch which include the recruiting, dispatch and payment of temporary employees, meeting the needs of our customers with a guarantee of customer satisfaction, selling our services to new customers, as well as cost control through accident prevention, and compliance with the laws and regulations. We commit substantial resources to the training, development, and operational support of our branch managers.

Our Customers

The majority of our customers require temporary employees for peak production and service requirements and to temporarily replace absent full time employees. We currently derive our revenue from a large number of customers and we are not dependent on any individual customer for more than 2% of our annual revenue. During 2007, we served over 300,000 customers. Our ten largest customers accounted for approximately 4% of total revenue in 2007, 2006 and 2005. While a single branch may derive a substantial percentage of its revenue from an individual customer, the loss of that customer would not have a significant impact on our total revenue.

Our Temporary Employees

During 2007, we put approximately 600,000 people to work. We recruit temporary employees daily so that we can be responsive to the planned as well as unplanned needs of the customers we serve. Our customers know we can respond quickly to their labor needs. Under our "satisfaction guaranteed" policy, temporary employees unsatisfactory to our customer are promptly replaced and the customer is not charged for their time if the customer notifies us within an established timeframe, which is different for each brand. We attract our pool of temporary employees through advertisements and word of mouth. We believe our focus on locating branches in areas convenient for our temporary employees is particularly important in attracting temporary employees. We consider our relations with temporary employees to be good.

Seasonality

Our business experiences seasonal fluctuation. Construction and landscaping businesses and, to a lesser degree, other customer businesses typically increase activity in spring, summer and early fall months and decrease activity in late fall and winter months. Inclement weather can slow construction and landscaping activities in such periods. As a result, we generally experience an increase in temporary labor demand in the spring, summer and early fall months, and lower demand in the late fall and winter months. Additionally, our gross profit has generally fluctuated as our mix of business changes from quarter to quarter.

Competition

The blue-collar staffing sector of the temporary services industry is highly competitive with limited barriers to entry. Several very large full-service and specialized temporary staffing companies, as well as small local companies, compete with us in the staffing industry. A large percentage of temporary staffing companies serving the industrial staffing sector are local operations with fewer than five branches. Within local or regional markets, these firms actively compete with us for business. In most areas, no single company has a dominant share of the market. One or more of these competitors may decide at any time to enter or expand their existing activities in the industrial staffing sector short-term labor market and provide new and increased competition to us. While entry to the market has limited barriers, lack of working capital frequently limits the growth of smaller competitors.

We believe that the primary competitive factors in obtaining and retaining customers are the cost of temporary labor, the ability to provide the temporary worker requested, the quality of the temporary employees provided, the responsiveness of the temporary staffing company to provide the requested amount of temporary employees on time, and the number and location of branches. Competition in some markets is intense, particularly with regard to recruiting workers, and these competitive forces limit our ability to raise prices to our customers. Competitive forces have historically limited our ability to raise our prices to immediately and fully offset increased costs of doing business, including increased labor costs, costs for workers' compensation and state unemployment insurance. As a result of these forces, we have in the past faced pressure on our operating margins. See Item 1A below of this Form 10-K – Risk Factors.

Government Regulations

We are in the business of employing people and placing them in the workplaces of other businesses. As a result, we are subject to a number of federal, state and local laws and regulations regulating our industry. Some of the most important areas of regulation include the following:


Wage and hour regulation. We are required to comply with applicable state and federal wage and hour laws. These laws require us to pay our employees minimum wage and overtime at applicable rates. When our temporary employees are employed on public works projects we are generally required to pay prevailing wages and to comply with additional reporting obligations.


Regulation concerning equal opportunity. We are required to comply with applicable state and federal laws prohibiting harassment and discrimination on the basis of race, gender and other legally-protected factors in the employment of our temporary and permanent employees.


Workplace safety. We are subject to a number of state and federal statutes and administrative regulations pertaining to the safety of our employees. These laws generally require us to provide general safety awareness and basic safety equipment to our temporary employees.

Patents and Trademarks

Our business is not presently dependent on any patents, licenses, franchises or concessions. "TrueBlue," "Labor Ready," "Spartan Staffing," "CLP Resources," "PlaneTechs" and certain service marks and other trademarks are registered with the U.S. Patent and Trademark Office.

Fiscal Year End

Our fiscal year is based on a 52/53-week year ending on the last Friday in December. Prior to fiscal 2006, our fiscal year was based on a 52/53-week year ending on the Friday closest to December 31 st . Fiscal year 2007 ended on the same day that it would have under the old policy. Consistent with the old policy, in fiscal years consisting of 53 weeks the final quarter will consist of 14 weeks while in 52-week years all quarters will consist of 13 weeks.

CEO BACKGROUND

Steven C. Cooper , 45, has served as a Director and the Company’s Chief Executive Officer since 2006, and has served as President since 2005. From 2001 to 2005, Mr. Cooper served as the Company’s Executive Vice President and Chief Financial Officer. Prior to joining the Company in 1999, Mr. Cooper held senior management positions in various professional services organizations, and with a NYSE-listed retail company.

Keith D. Grinstein , 47, has served as a Director of the Company since 2004. He has held a number of senior executive positions at Nextel International, Inc., a telecommunications company, serving as its President and Chief Executive Officer from 1996 to 1999 and a member of its Board of Directors from 1996 until 2002. Mr. Grinstein’s other past experience includes positions at AT&T Wireless Services, Inc. (formerly McCaw Communications). He is currently a Partner of Second Avenue Partners, a venture capital fund, and a Director of F5 Networks, Inc., Coinstar, Inc., and Car Toys, Inc.

Thomas E. McChesney , 61, has served as a director of the Company since 1995. Since 2004, Mr. McChesney has been President of SR Footwear, LLC. From 1998 to 2005, he was Director of Investment Banking with Blackwell Donaldson and Company. He is also a Director of Nations Express, Inc. and Stonestreet One, Inc.

Gates McKibbin , 61, has served as a Director of the Company since 2001. Since 1996, Ms. McKibbin has been self-employed as a consultant developing comprehensive strategy and leadership programs for large, nationally respected organizations. Prior to 1996 Ms. McKibbin held numerous executive and consulting positions.

Joseph P. Sambataro, Jr. , 57, has served as a Director since 2000. Mr. Sambataro served as the Company’s Chief Executive Officer from 2001 until 2006, and served as the Company’s President from 2001 until 2005. Mr. Sambataro joined the Company in 1997 and served as Chief Financial Officer, Treasurer and Assistant Secretary until 2001 and as Executive Vice President until March 2001. Prior to joining the Company, he worked with BDO Seidman, LLP, KPMG Peat Marwick and in senior management of biotechnology firms in Seattle.

William W. Steele , 71, has served as a Director of the Company since 2001. Mr. Steele is currently a Director, Audit Committee member, and Chairman of the Executive Committee of ABM Industries, a large facilities services contractor traded on the New York Stock Exchange. In the course of his 43-year career with ABM Industries, Mr. Steele was appointed its President in 1991 and its Chief Executive Officer in 1994, and served in those capacities until his retirement in October of 2000.

Robert J. Sullivan , 77, has served as Chairman of the Board of the Company since 2000 and as a Director since November 1994. Mr. Sullivan’s career included 12 years at American Express Company and related companies, where he served as a Financial Officer and Division General Manager. He served three years as Chief Financial Officer of Cablevision, Inc., and was general manager of the Long Island cable television system. He also spent 10 years as a financial consultant to small businesses, including TrueBlue from 1993 to 1994.

Craig E. Tall , 62, has served as a Director of the Company since 2006. Mr. Tall has been employed by Washington Mutual since 1985 and has served as the Vice Chair of Corporate Development for Washington Mutual since 1999. Mr. Tall was a member of Washington Mutual’s Executive Committee from 1985 to 2005. Mr. Tall’s management responsibilities included a variety of assignments, such as mergers and acquisitions, commercial banking, consumer finance, managing Washington Mutual’s life insurance company, strategic planning, and real estate. Before joining Washington Mutual, Mr. Tall was president of Compensation Programs, Inc., a national employee benefits consulting firm.

MANAGEMENT DISCUSSION FROM LATEST 10K

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide the 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 an international provider of temporary blue-collar staffing with four primary brands. Effective December 18, 2007, we changed our name from Labor Ready, Inc. to TrueBlue, Inc. We operate branches and provide temporary labor services under the Labor Ready brand for general labor, on-demand services, Spartan Staffing brand for light industrial services, CLP brand for skilled construction trades services, and PlaneTechs brand for skilled aircraft maintenance staffing. Our customers are primarily small to mid-sized businesses who require temporary blue-collar staffing. Annually, we serve more than 300,000 customers and put approximately 600,000 people to work through our brands.

During 2007 we took the following actions:


Corporate name change. In December 2007 we changed our name from Labor Ready, Inc. to TrueBlue, Inc. The name change reflects our vision to be the leading provider of blue-collar staffing with multiple brands serving the temporary staffing industry.

Share purchases. During 2007 we purchased 7.6 million shares of our common stock for $150.3 million, including commissions. At the end of 2007, we had $37.5 million available to us to purchase shares of our common stock under the current authorization.

Purchases of Skilled Services Corporation and PlaneTechs, LLC. During April 2007 we purchased Skilled Services Corporation ("SSC"), a privately-held skilled construction trades staffing provider for $26.3 million. During December 2007 we purchased substantially all of the assets of PlaneTechs, LLC ("PlaneTechs"), a leading provider of aircraft maintenance staffing for $50.6 million.

Branch openings and closures. During less favorable economic conditions, we tend to reduce branch openings and increase the number of branch closings. We believe this type of flexibility and discipline improves the overall return for our investors. During 2007, we opened 22 new branches and closed 58 branches.

Revenue for 2007 was $1.4 billion, an increase of 2.7% over the prior year. Net income decreased 13.4% to $66.2 million, or $1.44 per diluted share. The 2007 revenues were higher primarily as a result of revenue growth from acquired branches.

Gross profit decreased slightly during 2007. Gross profit was 31.9% of revenue in 2007 compared to 32.1% of revenue during 2006. Lower workers' compensation expense was offset by an increase in wages paid to temporary workers and pricing pressure. The improvement in workers' compensation expense is primarily due to improvements in accident prevention and risk management. The increase in wages paid to our temporary workers was heavily driven by numerous statutory minimum wage increases. While we have increased the bill rates to our customers for these pay increases, we have not yet 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.

Selling, General and Administrative ("SG&A") expenses increased to 24.3% of revenue for 2007 compared to 23.6% of revenue during 2006. SG&A expense was higher during 2007 due to:


Lease termination and other costs related to closing branches;

Transition and integration costs related to acquisitions;

Sales development expenses; and

Decrease in same store branch revenue coupled with general increases in our cost structure.


Net income was $66.2 million during 2007, or $1.44 per diluted share, compared to $76.5 million or $1.45 per diluted share for 2006. Other items affecting net income and net income per diluted share not discussed above include a lower income tax expense during 2006 and a decrease in weighted average shares outstanding at the end of 2007 as compared to 2006. Our 2006 effective tax rate was lower than our 2007 rate due to the retroactive renewal of certain tax credits and favorable resolution of other income tax matters during the fourth quarter of 2006. We also undertook a significant share purchase effort in 2007 by purchasing $150.3 million of our common stock, including commissions. These purchases have resulted in lower weighted average shares outstanding at the end of 2007 as compared to 2006. Since the beginning of 2006 we have purchased approximately 11.8 million shares of our common stock at a cost of $239.0 million, including commissions.

RESULTS OF OPERATIONS

Branches and Revenue from services. The number of branches decreased to 894 at December 28, 2007 from 912 locations at December 29, 2006, a net decrease of 18 branches or 2.0%. Revenue for 2007 increased 2.7% compared to 2006. The change in revenue was made up of the following five components:


a 0.2% decline in same store branch revenue, defined as those branches opened one year or longer;

a 2.7% increase due to acquired branches;

a 1.7% decline in revenue related to branches closed over the past twelve months;

a 1.3% increase in revenue from new branches opened less than one year, excluding the acquired branches; and

a net 0.6% increase from currency and other miscellaneous factors.

The number of branches increased to 912 at December 29, 2006 from 887 locations at December 30, 2005, a net increase of 25 branches or 2.8%. Revenue for 2006 increased 9.1% compared to 2005. The change in revenue was made up of the following five components:


a 4.0% increase in same store branch revenue, defined as those branches opened one year or longer;

a 4.3% increase due to acquired branches;

a 0.8% decline in revenue related to branches closed over the past twelve months;

a 1.5% increase in revenue from new branches opened less than one year, excluding the acquired branches; and

a net 0.1% increase from other miscellaneous factors.

Revenue from our international operations for 2007 was approximately 7.0% of our total revenue compared to 6.3% and 6.5%, respectively, for 2006 and 2005.

Gross profit. Gross profit was 31.9% of revenue for 2007 compared to 32.1% and 31.7% for 2006 and 2005, respectively. Workers' compensation costs for 2007 were approximately 4.7% of revenue compared to 5.6% of revenue for 2006. The improvement in workers' compensation expense is due primarily to the success of our accident prevention and risk management programs that have been implemented over several years. The decrease in workers' compensation costs was partially offset by an increase in wages paid to temporary workers. There were 45 state minimum wage increases during 2007 as well as increases in Canada and the United Kingdom. While we have increased the bill rates to our customers for these pay increases, we have not yet fully passed through our standard markup due to an increased level of price sensitivity

with our customers associated with slower economic conditions. As a result, our average pay rate increased 4.0% while our average bill rate increased 2.3%.

The increase in gross profit in 2006 compared to 2005 was due to the reduction to our workers' compensation costs as a result of safety and risk management programs reducing the frequency and severity of accidents.

Selling, general, and administrative expenses. SG&A expenses were 24.3% of revenue for 2007 and 23.6% and 23.2% of revenue for 2006 and 2005, respectively. The increase during 2007 was primarily attributable to four factors:


Lease termination and other costs related to closing branches. During 2007 we closed 58 branches;

Transition and integration costs related to acquisitions;

Sales development expenses; and

Decrease in same store branch revenue coupled with general increases in our cost structure.

The increase in SG&A expenses during 2006 compared to 2005 was primarily attributable to three factors:


Increased stock-based compensation related to the adoption of SFAS 123R and an increase in restricted stock expense. Effective December 31, 2005, the first day of our 2006 fiscal year, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised), Share-Based Payment , using the modified-prospective transition method;

The mix of the 50 new branch openings during 2006. CLP and Spartan brands comprised the majority of new branch openings. These brands have a higher initial cost structure, longer break-even period and ultimately a higher average branch revenue than the Labor Ready brand; and

The increase to our sales and safety teams. We added sales resources to generate revenue growth and safety personnel to reduce accident rates.

Depreciation and amortization expense. Depreciation and amortization expense increased to $12.2 million for 2007 from $10.4 million and $9.6 million for 2006 and 2005, respectively. The increase during 2007 was primarily due to depreciation of our investments in technology and increased amortization of intangibles as a result of the SSC and PlaneTechs acquisitions. The increase during 2006 as compared to 2005 was primarily attributable to the depreciation and amortization on acquired CLP assets.

Interest and other income, net. We recorded net interest and other income of $11.0 million for 2007 compared to $11.9 million for 2006 and $4.6 million for 2005. During 2007 we have used cash to purchase our common stock and for the acquisition of SSC and PlaneTechs which has resulted in a decrease in the amount of cash available for investment. The increase during 2006 compared to 2005 was attributable to increasing average cash and restricted cash balances, the rise in short-term interest rates, and increased rates of return on our restricted cash. In 2005 we also recorded interest expense for our Convertible Subordinated Notes that we redeemed in the second quarter of 2005.

Income tax. Our effective income tax rate was 36.7% in 2007 compared to 34.2% in 2006 and 38.1% in 2005. The principal difference between the statutory federal income tax rate of 35.0% and our effective income tax rate results from state income taxes, federal tax credits, tax exempt interest income, and certain non-deductible expenses. Our 2006 effective tax rate was lower than our 2007 and 2005 rates due to the retroactive renewal of certain tax credits and favorable resolution of other income tax matters during the fourth quarter of 2006.

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, seasonal sales patterns and profit margins.

Over the past three years, cash from operations provided approximately $312.2 million


Stock-based compensation increased starting in 2006 primarily due to the expensing of stock options in accordance with our adoption of SFAS 123R. The adoption of SFAS 123R also changed our reporting of tax benefits on stock options in the statement of cash flows. We now report on the line "Excess tax benefit from stock-based compensation" the gross increases in the pool of windfall tax benefits as a cash outflow for operating activities and a cash inflow for financing activities. We are no longer required to report tax benefits from stock options on an individual line.


The change in deferred taxes during 2007 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.

Cash flows from investing activities


Capital expenditures in 2007 and 2006 included work associated in upgrading information technology projects and leasehold improvements. During 2006 capital expenditures also included costs related to the upgrade of security systems. Work on information technology projects will continue in 2008. We anticipate that total capital expenditures will be approximately $18.0 million in 2008.


We had net maturities of marketable securities in 2007 and 2006 and net purchases of marketable securities in 2005. Net maturities of marketable securities were higher in 2007 as funds that would have been used to purchase additional marketable securities were used to fund share purchases and the acquisitions of SSC and PlaneTechs. We had net purchases of marketable securities in 2005 as we did not purchase our common stock in 2005 as we did in 2007 and 2006.


During April 2007 we purchased SSC, a privately-held skilled construction trades staffing provider for $26.3 million. During December 2007 we purchased substantially all of the assets of PlaneTechs, a leading provider of aircraft maintenance staffing for $50.6 million.


The change in restricted cash was higher in 2007 compared to 2006 due to a decrease in the collateral requirements for our workers' compensation program. The change in restricted cash for 2005 was primarily the result of providing

additional workers' compensation collateral associated with the purchase of CLP as well as for our ongoing worker's compensation program.

Cash flows from financing activities

Capital resources

We have an $80.0 million credit agreement with certain unaffiliated financial institutions (the "Revolving Credit Facility") that expires in November 2008. The Revolving 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. The amounts we may borrow (our borrowing capacity) under this agreement are largely a function of the levels of our accounts receivable from time to time, supplemented by pledged collateral. Under the terms of the Revolving 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 December 28, 2007, our margin was 0.50% and our unused capacity fee was 0.15%. At December 28, 2007 we had $34.5 million of letters of credit issued against that borrowing capacity leaving us with $45.5 million available for future borrowings. The Revolving 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 Revolving Credit Facility.

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 December 28, 2007 we had restricted cash in our Workers' Assurance Program totaling $126.8 million. Of this cash, $126.4 million was committed to insurance carriers leaving $0.4 million available for future needs.

Included in cash and cash equivalents at December 28, 2007 and December 29, 2006 is cash held within branch cash dispensing machines ("CDMs") for payment of temporary payrolls in the amount of $19.0 million and $19.6 million, respectively.

We believe that cash provided from operations and our capital resources will be adequate to meet our cash requirements over the next twelve months.

Workers' compensation collateral and claims reserves

We provide workers' compensation insurance for our temporary and permanent employees. Our workers' compensation insurance policies must be renewed annually. Our current coverage with American International Group, Inc. ("AIG") is for occurrences during the period from July 2007 to July 2008. While we have primary responsibility for all claims, our insurance coverage provides reimbursement for certain losses and expenses beyond the deductible limits. For workers' compensation claims originating in self-insured states, the majority of our current workers' compensation insurance policies cover claims for a particular event above a $2.0 million deductible, 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.

We are required by our insurance carriers and certain state workers' compensation programs to collateralize a portion of our workers' compensation obligation with cash and cash-backed instruments, irrevocable letters of credit, or surety bonds. In connection with the renewal of our policy, insurance carriers annually assess the amount of collateral they will require from us relative to our workers' compensation obligation for which they become responsible should we become insolvent. Such amounts can increase or decrease independent of our assessments and reserves.

The amount of collateral that our insurance carrier required us to post for our annual renewal at July 1, 2007 was substantially less than the previous year. To the extent that our insurance carrier's initial requirement was underestimated, we could be required to post substantially more collateral in the future.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

RESULTS OF OPERATIONS

Branch Offices and Revenue from Services . The number of branches decreased to 901 at March 28, 2008 from 913 locations at March 30, 2007, a net decrease of 12 branches. Revenue for the thirteen weeks ended increased 11.6% compared to the thirteen weeks ended March 30, 2007. The change in revenue was made up of the following five components:

• a 1.6% decline in same store branch revenue, defined as those branches opened one year or longer;

• a 15.0% increase due to acquired branches;

• a 3.2% decline in revenue related to branches closed over the past twelve months;

• a 1.3% increase in revenue from new branches opened less than one year, excluding the acquired branches; and

• a net 0.1% increase from currency offset by the timing impact of the Easter holiday. The Easter holiday occurred in the first quarter of 2008 as compared to the second quarter of 2007.



Gross profit . Gross profit was 30.4% of revenue for the thirteen weeks ended March 28, 2008 compared to 32.0% of revenue for the thirteen weeks ended March 30, 2007. The decrease in gross profit was primarily related to acquisitions made over the last twelve months and pay rates to our temporary employees increasing faster than bill rates to our customers offset by a decline in workers’ compensation expense. Pay rates have been growing faster than bill rates for several quarters as a result of minimum wage increases, a competitive pricing environment associated with a slowing economy, and a decrease in the mix of residential construction. Pay rates increased 4.3% and bill rates increased 2.8% this quarter in comparison with the same quarter last year. The gap between pay rates and bill rates declined to 1.4% in the first quarter of 2008. Gross profit was also lower as a percentage of revenue for the current year period due to acquisitions over the last twelve months that have lower gross profits than our core business. Workers’ compensation costs for the thirteen weeks ended March 28, 2008 were approximately 4.2% of revenue compared to 5.0% of revenue for the thirteen weeks ended March 30, 2007. The improvement in workers’ compensation expense is due primarily to the continued success of our accident prevention and risk management programs that have been implemented over several years.



Selling, General, and Administrative Expenses . Selling, general and administrative (“SG&A”) expenses as a percentage of revenue were 25.5% for the thirteen weeks ended March 28, 2008 compared to 26.7% for the thirteen weeks ended March 30, 2007. SG&A expenses were lower as a percentage of revenue compared to the prior year period primarily as a result of branches closed within the last twelve months and acquisitions made over the last twelve months, offset by branches opened within the last twelve months and a decline in our same branch sales. During 2007 we closed 58 branches, and we closed 6 branches in the first quarter of 2008. SG&A as a percentage of revenue for the companies we acquired over the last twelve months was lower than that of our core business resulting in a decrease in the overall SG&A percentage. We opened 25 new branches since the beginning of 2007 which increases our overall SG&A percentage due to the initial low revenue volume of new branches. Likewise, the decline in same branch revenue produced negative leverage in our SG&A as a percentage of revenue due to the fixed costs in our business.

Depreciation and Amortization Expenses . Depreciation and amortization expense increased to $3.9 million for the thirteen weeks ended March 28, 2008 compared to $2.4 million for the thirteen weeks ended March 30, 2007. The increase during 2008 was primarily due to increased amortization of intangibles from acquisitions made over the last twelve months.



Interest and Other Income, net . We recorded net interest and other income of $1.9 million for the thirteen weeks ended March 28, 2008 compared to $3.3 million during the thirteen weeks ended March 30, 2007. The decrease is related to a lower cash balance as well as lower investment yields. The decrease in cash is primarily related to the use of cash to purchase our common stock and fund the acquisition of new businesses.



As of March 28, 2008, approximately 54% 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 2008. The interest rate for the period July 2007 to July 2008 was 5.2%. Our best estimate of the interest rate for our restricted cash subject to reset on July 1, 2008 is based on the current one year Treasury yield. Based on the one year Treasury yield on April 28, 2008, the interest rate would have been set at 2.2%



Income Tax . Our effective tax rate on earnings for the thirteen weeks ended March 28, 2008 was 36.5%, compared to 36.5% for the thirteen weeks ended March 30, 2007. The principal difference between the statutory federal income tax rate of 35.0% and our effective income tax rate results from state income taxes, federal tax credits, tax exempt interest income, and certain non-deductible expenses.



Liquidity and Capital Resources





Cash Flows from Operating Activities

Net cash provided by operating activities was $13.4 million for the thirteen weeks ended March 28, 2008 and was primarily due to our net income. Net income totaled $8.8 million for the thirteen weeks ended March 28, 2008. Cash used by operating assets and liabilities during the first quarter of 2008 was the result of a decrease in income taxes payable due to timing differences associated with income tax payments. Timing differences associated with income tax payments are also the primary reason for the decrease in net cash provided by operating activities for the thirteen weeks ended March 28, 2008 as compared to the prior year period.

Net cash provided by investing activities was $5.0 million for the thirteen weeks ended March 28, 2008. For the thirteen weeks ended March 28, 2008, net maturities of marketable securities and a decrease in restricted cash was offset by the acquisition of TLC Drivers and capital expenditures primarily related to investments in technology.



Cash Flows from Financing Activities

We purchased $76.7 million of our common stock during the thirteen weeks ended March 30, 2007. We did not purchase any shares of our common stock during the thirteen weeks ended March 28, 2008. As of March 28, 2008 we had $37.5 million of common stock available to us for future repurchases under the current authorization.



Capital Resources

As of March 28, 2008 we had an $80.0 million credit agreement with certain unaffiliated financial institutions (the “Revolving Credit Facility”) expiring in November 2008. The Revolving Credit Facility, which is secured by substantially all our assets except our real estate, provided us with access to loan advances and letters of credit. The amounts we could borrow (our borrowing capacity) under this agreement were largely a function of the levels of our accounts receivable from time to time, supplemented by pledged collateral. Under the terms of the Revolving 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 28, 2008, our margin was 0.50% and our unused capacity fee was 0.15%. At March 28, 2008, we had $34.5 million of letters of credit issued against that borrowing capacity leaving us with $45.5 million available for future borrowings. The Revolving 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 Revolving Credit Facility.

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