TRUEBLUE, INC., 10-Q filed on 7/30/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
6 Months Ended
Jul. 01, 2018
Jul. 16, 2018
Document and Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jul. 01, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
Entity Registrant Name TBI  
Entity Central Index Key TrueBlue, Inc.  
Current Fiscal Year End Date 0000768899  
Well-Known Seasoned Issuer --12-30  
Voluntary Filer Yes  
Reporting Status No  
Filer Category Yes  
Filer Category Large Accelerated Filer  
Common Stock Shares Outstanding (in shares)   40,627,334
v3.10.0.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Jul. 01, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 33,408 $ 28,780
Accounts receivable, net of allowance for doubtful accounts of $6,153 and $4,344 370,588 374,273
Prepaid expenses, deposits and other current assets 21,006 20,605
Income tax receivable 7,964 4,621
Total current assets 432,966 428,279
Property and equipment, net 57,055 60,163
Restricted cash and investments 239,390 239,231
Deferred income taxes, net 1,005 3,783
Goodwill 239,380 226,694
Intangible assets, net 102,075 104,615
Other assets, net 52,349 46,266
Total assets 1,124,220 1,109,031
Current liabilities:    
Accounts payable and other accrued expenses 69,515 55,091
Accrued wages and benefits 77,113 76,894
Current portion of workers’ compensation claims reserve 69,848 77,218
Other current liabilities 2,653 3,216
Total current liabilities 219,129 212,419
Workers’ compensation claims reserve, less current portion 195,240 197,105
Long-term debt, less current portion 117,199 116,489
Long-term deferred compensation liabilities 23,268 21,866
Other long-term liabilities 6,083 6,305
Total liabilities 560,919 554,184
Commitments and contingencies (Note 9)
Shareholders’ equity:    
Preferred stock, $0.131 par value, 20,000 shares authorized; No shares issued and outstanding 0 0
Common stock, no par value, 100,000 shares authorized; 40,595 and 41,098 shares issued and outstanding 1 1
Accumulated other comprehensive loss (11,634) (6,804)
Retained earnings 574,934 561,650
Total shareholders’ equity 563,301 554,847
Total liabilities and shareholders’ equity $ 1,124,220 $ 1,109,031
v3.10.0.1
CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($)
$ in Thousands
Jul. 01, 2018
Dec. 31, 2017
Allowance for doubtful accounts $ 6,153  
Preferred stock, par value (in dollars per share) $ 0.131 $ 0.131
Preferred stock, shares authorized 20,000,000 20,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value (in dollars per share) $ 0 $ 0
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 40,595,000  
Common stock, shares outstanding 40,595,000  
v3.10.0.1
CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jul. 01, 2018
Jul. 02, 2017
Jul. 01, 2018
Jul. 02, 2017
Revenue from services $ 614,301 $ 610,122 $ 1,168,689 $ 1,178,366
Cost of Goods and Services Sold 448,717 454,842 859,837 883,657
Gross profit 165,584 155,280 308,852 294,709
Selling, general and administrative expense 134,207 124,754 259,970 246,598
Depreciation and amortization 10,101 12,287 20,191 23,461
Income from operations 21,276 18,239 28,691 24,650
Interest expense (1,355) (1,296) (2,245) (2,528)
Interest and other income 387 1,451 3,481 2,757
Interest and other income (expense), net (968) 155 1,236 229
Income before tax expense 20,308 18,394 29,927 24,879
Income tax expense 2,576 5,260 3,440 7,071
Net income $ 17,732 $ 13,134 $ 26,487 $ 17,808
Net income per common share:        
Basic (in dollars per share) $ 0.44 $ 0.32 $ 0.66 $ 0.43
Diluted (in dollars per share) $ 0.44 $ 0.31 $ 0.65 $ 0.43
Weighted average shares outstanding:        
Basic (in shares) 40,227 41,579 40,335 41,608
Diluted (in shares) 40,469 41,856 40,576 41,875
Other comprehensive income:        
Total other comprehensive income (loss), net of tax $ (1,921) $ 449 $ (3,305) $ 2,986
Comprehensive income 15,811 13,583 23,182 20,794
Foreign currency translation adjustment        
Other comprehensive income:        
Foreign currency translation adjustment (1,921) 540 (3,305) 2,340
Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]        
Other comprehensive income:        
Unrealized gain (loss) on investments, net of tax $ 0 $ (91) $ 0 $ 646
v3.10.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
6 Months Ended
Jul. 01, 2018
Jul. 02, 2017
Cash flows from operating activities:    
Net income $ 26,487 $ 17,808
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 20,191 23,461
Provision for doubtful accounts 5,571 3,619
Stock-based compensation 5,983 5,146
Deferred income taxes 1,373 2,975
Other operating activities 102 2,022
Changes in operating assets and liabilities:    
Accounts receivable 888 11,925
Income tax receivable (3,641) 8,828
Other assets (3,522) 5,977
Accounts payable and other accrued expenses 3,767 (13,181)
Accrued wages and benefits (1,423) (4,560)
Workers’ compensation claims reserve (9,235) 767
Other liabilities 2,900 (580)
Net cash provided by operating activities 49,441 64,207
Cash flows from investing activities:    
Capital expenditures (6,468) (9,137)
Acquisition of business (22,742) 0
Divestiture of business 8,800 0
Purchases of restricted investments (10,730) (20,712)
Maturities of restricted investments 13,044 13,546
Net cash used in investing activities (18,096) (16,303)
Cash flows from financing activities:    
Payments for Repurchase of Common Stock (19,065) (15,530)
Net proceeds from stock option exercises and employee stock purchase plans 757 858
Common stock repurchases for taxes upon vesting of restricted stock (2,403) (2,873)
Net change in revolving credit facility 21,300 (25,303)
Payments on debt (22,856) (1,133)
Payment of contingent consideration at acquisition date fair value 0 (18,300)
Net cash used in financing activities (22,267) (62,281)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (919) (154)
Net change in cash, cash equivalents and restricted cash 8,159 (14,531)
Cash, cash equivalents and restricted cash, beginning of period 73,831 103,222
Cash, cash equivalents and restricted cash, end of period 81,990 88,691
Supplemental Cash Flow Information [Abstract]    
Interest 1,892 1,549
Income taxes 5,696 (4,740)
Property, plant, and equipment purchased but not yet paid 726 2,888
Divestiture non-cash consideration $ 1,657 $ 0
v3.10.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Jul. 01, 2018
Accounting Policies [Abstract]  
Significant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial statement preparation
The accompanying unaudited consolidated financial statements (“financial statements”) of TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us,” and “our”) are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The financial statements reflect all adjustments which, in the opinion of management, are necessary to fairly state the financial statements for the interim periods presented. We follow the same accounting policies for preparing both quarterly and annual financial statements.
These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The results of operations for the thirteen and twenty-six weeks ended July 1, 2018, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.
Goodwill and indefinite-lived intangible assets
We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter, and more frequently if an event occurs or circumstances change that would indicate impairment may exist. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, customer engagement, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year.
Based on our annual goodwill impairment test performed as of the first day of our fiscal second quarter, all reporting units’ fair values were substantially in excess of their respective carrying values. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater. Accordingly, no impairment loss was recognized for the thirteen weeks ended July 1, 2018 nor July 2, 2017.
We performed our annual indefinite-lived intangible asset impairment test as of the first day of our fiscal second quarter and determined that the estimated fair values exceeded the carrying amounts for our indefinite-lived trade names. Accordingly, no impairment loss was recognized for the thirteen weeks ended July 1, 2018 nor July 2, 2017.
Recently adopted accounting standards
In May 2017, the Financial Accounting Standing Board (“FASB”) issued guidance to provide clarity and reduce diversity in practice when accounting for a change to the terms or conditions of share-based payment awards. The objective was to reduce the scope of transactions that would require modification accounting. Disclosure requirements remain unchanged. This amended guidance was effective for our fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. We adopted this guidance for our fiscal first quarter of 2018. The adoption of the new standard did not have a material impact on our financial statements.
In January 2017, the FASB issued guidance clarifying the definition of a business, which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. This guidance was effective for fiscal years and interim periods beginning December 15, 2017 (Q1 2018 for TrueBlue) on a prospective basis. This standard did not have a material impact on our financial statements. In Q2 2018, we acquired all of the outstanding equity interests of TMP Holdings LTD (“TMP”) and concluded that TMP represents a business based on this new guidance. See Note 3: Acquisition and divestiture, for further discussion of our acquisition of TMP.
In November 2016, the FASB issued guidance to amend the presentation of restricted cash and restricted cash equivalents on the statement of cash flows. The standard requires restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This amended guidance was effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). We adopted this guidance for our fiscal first quarter of 2018 using the retrospective transition method. Accordingly, the change in restricted cash and cash equivalents is no longer segregated in our statement of cash flows, and the $8.8 million previously presented in the investing section for the twenty-six weeks ended July 2, 2017 is now included when reconciling the beginning-of-period and end-of-period cash, cash equivalents and restricted cash shown on the statement of cash flows.
In October 2016, the FASB issued guidance on the accounting for income tax effects of intercompany sales or transfers of assets other than inventory. The guidance requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. This guidance was effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). The guidance requires a modified retrospective application with a cumulative catch-up adjustment to opening retained earnings. We adopted this guidance for our fiscal first quarter of 2018. The adoption of the new standard did not have a material impact on our financial statements.
In August 2016, the FASB issued guidance relating to how certain cash receipts and cash payments should be presented and classified in the statement of cash flows. The update was intended to reduce the existing diversity in practice. The amended guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 (Q1 2018 for TrueBlue). We adopted this guidance for our fiscal first quarter of 2018. The adoption of the new standard did not have an impact on our financial statements.
In January 2016, the FASB issued guidance on the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The guidance was effective for annual and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). Early adoption of the amendments in the guidance was not permitted, with limited exceptions. The guidance required a cumulative-effect adjustment be made to reclassify unrealized gains and losses related to available-for-sale equity securities from accumulated other comprehensive income, to retained earnings as of the beginning of the fiscal year of adoption. We adopted this guidance as of the first day of our fiscal first quarter of 2018 and reclassified from accumulated other comprehensive loss to retained earnings, $1.5 million in unrealized gains, net of tax on available-for-sale equity securities. Beginning in Q1 2018, change in market value for our available-for-sale equity securities is included in selling, general and administrative expense in the Consolidated Statements of Operation and Comprehensive Income.
In May 2014, the FASB issued guidance outlining a single comprehensive model for accounting for revenue arising from contracts with clients, which supersedes the current revenue recognition guidance. This guidance requires an entity to recognize revenue when it transfers promised goods or services to clients in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted this new guidance as of January 1, 2018 using the modified retrospective transition method. The adoption of this new guidance did not have a material impact on our consolidated financial statements as of the adoption date, nor for the thirteen and twenty-six weeks ended July 1, 2018, except for expanded disclosures. Refer to Note 2: Revenue recognition for additional accounting policy and transition disclosures.
Recently issued accounting pronouncements not yet adopted
In February 2016, the FASB issued guidance on lease accounting. The new guidance will continue to classify leases as either finance or operating, but will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet, with classification affecting the pattern of expense recognition in the statement of operations. This guidance is effective for annual and interim periods beginning after December 15, 2018 (Q1 2019 for TrueBlue), and early adoption is permitted. A modified retrospective approach is required for all leases existing or entered into after the beginning of the earliest comparative period in the consolidated financial statements. We plan to adopt the guidance on the effective date. We established a cross-functional implementation team consisting of representatives from various departments to review our current contracts, accounting policies and business practices to identify and quantify the potential impact of the new standard on our financial statements. We are completing this evaluation and expect that, upon adoption, a majority of our operating lease commitments will be recognized on our Consolidated Balance Sheets as operating lease liabilities and right-of-use assets. We do not expect the adoption to have a material impact on the pattern of expense recognition in our Consolidated Statements of Operations and Comprehensive Income.
Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.
v3.10.0.1
REVENUE RECOGNITION
6 Months Ended
Jul. 01, 2018
Revenue Recognition [Abstract]  
Revenue Recognition
REVENUE RECOGNITION
Adoption of new revenue recognition guidance
On January 1, 2018, we adopted new revenue recognition guidance using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue recognition guidance, while prior period amounts were not adjusted and continue to be reported in accordance with historic accounting guidance. The adoption of this new guidance did not have a material impact on our consolidated financial statements as of the adoption date, nor for the thirteen and twenty-six weeks ended July 1, 2018, except for expanded disclosures.
Revenue recognition
We account for a contract when both parties to the contract have approved the contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenues are recognized over time, using an output measure, as the control of the promised services is transferred to the client in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The majority of our contracts are short-term in nature as they are filling the temporary staffing needs of our clients, or include termination clauses that allow either party to cancel within a short termination period, without cause. Revenue includes billable travel and other reimbursable costs and are reported net of sales, use, or other transaction taxes collected from clients and remitted to taxing authorities. Payment terms vary by client and the services offered. We consider payment terms that exceed one year to be extended payment terms, however we do not extend payment terms beyond one year. Substantially all of our contracts include payment terms of 90 days or less.
We primarily record revenue on a gross basis as a principal versus on a net basis as an agent in the Consolidated Statements of Operations and Comprehensive Income. We have determined that gross reporting as a principal is the appropriate treatment based upon the following key factors:
We maintain the direct contractual relationship with the client and are responsible for fulfilling the service promised to the client.
We maintain control over our workers while the services to the client are being performed.
We establish our worker’s billing rate.
Contingent staffing
We recognize revenue for our contingent staffing services over time as services are performed in an amount that reflects the consideration we expect to be entitled to in exchange for our services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill rate. The client simultaneously receives and consumes the benefits of the services as they are provided. We do not incur costs to obtain our contingent staffing contracts. Costs are incurred to fulfill some contingent staffing contracts, however these costs are not material and are expensed as incurred.
Human resource outsourcing
We primarily recognize revenue for our outsourced recruitment of permanent employees over time in an amount that reflects the consideration we expect to be entitled to in exchange for our services. The client simultaneously receives and consumes the benefits of the services as they are provided. We do not incur costs to obtain our outsourced recruitment of permanent employees’ contracts. The costs to fulfill these contracts are not material and are expensed as incurred.
Unsatisfied performance obligations
As a practical expedient, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an expected original duration of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Disaggregated revenue
The following table presents our revenue disaggregated by major source:
 
Thirteen weeks ended
 
July 1, 2018
(in thousands)
PeopleReady
PeopleManagement
PeopleScout
Consolidated
Revenue from services:
 
 
 
 
Contingent staffing
$
377,460

$
178,839

$

$
556,299

Human resource outsourcing


58,002

58,002

Total company
$
377,460

$
178,839

$
58,002

$
614,301

 
Twenty-six weeks ended
 
July 1, 2018
(in thousands)
PeopleReady
PeopleManagement
PeopleScout
Consolidated
Revenue from services:
 
 
 
 
Contingent staffing
$
694,295

$
362,731

$

$
1,057,026

Human resource outsourcing


111,663

111,663

Total company
$
694,295

$
362,731

$
111,663

$
1,168,689

v3.10.0.1
ACQUISITION AND DIVESTITURE
6 Months Ended
Jul. 01, 2018
Business Combinations [Abstract]  
ACQUISITION AND DIVESTITURE
ACQUISITION AND DIVESTITURE
Acquisition
Effective June 12, 2018, the company acquired all of the outstanding equity interests of TMP Holdings LTD (“TMP”), through its subsidiary PeopleScout, Inc. for a cash purchase price of $22.7 million, net of cash acquired of $7.0 million. TMP is a mid-sized recruitment process outsourcing (“RPO”) and employer branding service provider operating in the United Kingdom, which is the second largest RPO market in the world. This acquisition increases our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients and employer branding capabilities.
We incurred acquisition and integration-related costs of $0.5 million, which are included in selling, general and administrative expense on the Consolidated Statements of Operations and Comprehensive Income for the thirteen and twenty-six weeks ended July 1, 2018 and cash flows from operating activities on the Consolidated Statements of Cash Flows for the twenty-six weeks ended July 1, 2018.
The following table reflects our preliminary allocation of the purchase price, net of cash acquired, to the fair value of the assets acquired and liabilities assumed:
(in thousands)
Purchase price allocation
Cash purchase price, net of cash acquired
$
22,742

Purchase price allocated as follows:
 
Accounts receivable
9,770

Prepaid expenses, deposits and other current assets
337

Property and equipment
435

Customer relationships
6,286

Trade names/trademarks
1,738

Total assets acquired
18,566

Accounts payable and other accrued expenses
9,139

Accrued wages and benefits
1,642

Income tax payable
205

Deferred income tax liability
1,444

Total liabilities assumed
12,430

Net identifiable assets acquired
6,136

Goodwill (1)
16,606

Total consideration allocated
$
22,742


(1) Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers and future cash flows after the acquisition of TMP, and is non-deductible for income tax purposes.
Intangible assets include identifiable intangible assets for customer relationships and trade names/trademarks. We estimated the fair value of the acquired identifiable intangible assets, which are subject to amortization, using the income approach.
The following table sets forth the components of identifiable intangible assets, their estimated fair values and useful lives as of June 12, 2018:
(in thousands, except for estimated useful lives, in years)
Estimated fair value
Estimated useful life in years
Customer relationships
$
6,286

3-7
Trade names/trademarks
1,738

14
Total acquired identifiable intangible assets
$
8,024

 

The acquired assets and assumed liabilities of TMP are included on our Consolidated Balance Sheet as of July 1, 2018, and the results of its operations and cash flows are reported on our Consolidated Statements of Operations and Comprehensive Income and Consolidated Statements of Cash Flows for the period from June 12, 2018 to July 1, 2018. The amount of revenue from TMP included in our Consolidated Statements of Operations and Comprehensive Income was $2.9 million from the acquisition date to July 1, 2018. The acquisition of TMP was not material to our consolidated results of operations and as such, pro forma financial information was not required.
Divestiture
Effective March 12, 2018, the company entered into an asset purchase agreement to sell substantially all the assets and certain liabilities of the PlaneTechs business to Launch Technical Workforce Solutions (“Launch”) for a purchase price of $11.4 million, of which $8.5 million was paid in cash, and $1.6 million in a note receivable due within six months following the closing date. The note receivable has monthly principal payments of $0.1 million beginning April 2018 with the remainder due in September 2018, which is included in prepaid expenses, deposits and other current assets on the Consolidated Balance Sheets. The remaining purchase price balance consists of the preliminary working capital adjustment, which is expected to be paid in cash during the fiscal third quarter of 2018 and is included in prepaid expenses, deposit and other current assets on the Consolidated Balance Sheets. The company recognized a preliminary pre-tax gain on the divestiture of $1.1 million, which is included in interest and other income on the Consolidated Statements of Operations and Comprehensive Income for the twenty-six weeks ended July 1, 2018. Fiscal first quarter revenue through the closing date of the divestiture for the PlaneTechs business of $8.0 million was reported in the PeopleManagement reportable segment.
The divestiture of PlaneTechs did not represent a strategic shift with a major effect on the company’s operations and financial results and, therefore was not reported as discontinued operations in the Consolidated Balance Sheets or Consolidated Statements of Operations and Comprehensive Income for the periods presented.
The company has agreed to provide certain transition services to Launch for a period not to exceed seven months, which includes various back office services to support the PlaneTechs branch offices until personnel and systems are transferred to Launch.
v3.10.0.1
FAIR VALUE MEASUREMENT
6 Months Ended
Jul. 01, 2018
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT
Our assets and liabilities measured at fair value on a recurring basis consisted of the following:
 
July 1, 2018
(in thousands)
Total fair value
Quoted prices in active markets for identical assets (level 1)
Significant other observable inputs (level 2)
Significant unobservable inputs (level 3)
Financial assets:
 
 
 
 
Cash and cash equivalents
$
33,408

$
33,408

$

$

Restricted cash and cash equivalents
48,582

48,582



Cash, cash equivalents and restricted cash (1)
$
81,990

$
81,990

$

$

 
 
 
 
 
Deferred compensation mutual funds classified as available-for-sale
$
24,384

$
24,384

$

$

 
 
 
 
 
Municipal debt securities
$
78,190

$

$
78,190

$

Corporate debt securities
82,238


82,238


Agency mortgage-backed securities
3,229


3,229


U.S. government and agency securities
975


975


Restricted investments classified as held-to-maturity
$
164,632

$

$
164,632

$

 
December 31, 2017
(in thousands)
Total fair value
Quoted prices in active markets for identical assets (level 1)
Significant other observable inputs (level 2)
Significant unobservable inputs (level 3)
Financial assets:
 
 
 
 
Cash and cash equivalents
$
28,780

$
28,780

$

$

Restricted cash and cash equivalents
45,051

45,051



Cash, cash equivalents and restricted cash (1)
$
73,831

$
73,831

$

$

 
 
 
 
 
Deferred compensation mutual funds classified as available-for-sale
$
22,428

$
22,428

$

$

 
 
 
 
 
Municipal debt securities
$
83,366

$

$
83,366

$

Corporate debt securities
83,791


83,791


Agency mortgage-backed securities
4,062


4,062


U.S. government and agency securities
1,019


1,019


Restricted investments classified as held-to-maturity
$
172,238

$

$
172,238

$

(1)
Cash, cash equivalents and restricted cash consist of money market funds, deposits, and investments with original maturities of three months or less.
There were no material transfers between Level 1, Level 2 and Level 3 of the fair value hierarchy during the twenty-six weeks ended July 1, 2018 nor July 2, 2017.
v3.10.0.1
RESTRICTED CASH AND INVESTMENTS
6 Months Ended
Jul. 01, 2018
Restricted Cash and Investments [Abstract]  
RESTRICTED CASH AND INVESTMENTS
RESTRICTED CASH AND INVESTMENTS
Restricted cash and investments consist principally of collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in debt and asset-backed securities. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon (“Trust”).
The following is a summary of the carrying value of our restricted cash and investments:
(in thousands)
July 1,
2018
December 31,
2017
Cash collateral held by insurance carriers
$
22,726

$
22,926

Cash and cash equivalents held in Trust
25,447

16,113

Investments held in Trust
166,424

171,752

Deferred compensation mutual funds
24,384

22,428

Other restricted cash and cash equivalents
409

6,012

Total restricted cash and investments
$
239,390

$
239,231


The amortized cost and estimated fair value of our held-to-maturity investments held in trust, aggregated by investment category are as follows:
 
July 1, 2018
(in thousands)
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Municipal debt securities
$
78,675

$
304

$
(789
)
$
78,190

Corporate debt securities
83,481

5

(1,248
)
82,238

Agency mortgage-backed securities
3,269

6

(46
)
3,229

U.S. government and agency securities
999


(24
)
975

Total held-to-maturity investments
$
166,424

$
315

$
(2,107
)
$
164,632

 
December 31, 2017
(in thousands)
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Municipal debt securities
$
82,770

$
974

$
(378
)
$
83,366

Corporate debt securities
83,916

309

(434
)
83,791

Agency mortgage-backed securities
4,066

22

(26
)
4,062

U.S. government and agency securities
1,000

19


1,019

Total held-to-maturity investments
$
171,752

$
1,324

$
(838
)
$
172,238


The estimated fair value and gross unrealized losses of all investments classified as held-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of July 1, 2018 and December 31, 2017, were as follows:
 
July 1, 2018
 
Less than 12 months
 
12 months or more
 
Total
(in thousands)
Estimated fair value
Unrealized losses
 
Estimated fair value
Unrealized losses
 
Estimated fair value
Unrealized losses
Municipal debt securities
$
37,263

$
(350
)
 
$
9,329

$
(439
)
 
$
46,592

$
(789
)
Corporate debt securities
69,369

(1,042
)
 
8,980

(206
)
 
78,349

(1,248
)
Agency mortgage-backed securities
1,397

(15
)
 
976

(31
)
 
2,373

(46
)
U.S. government and agency securities
975

(24
)
 


 
975

(24
)
Total held-to-maturity investments
$
109,004

$
(1,431
)
 
$
19,285

$
(676
)
 
$
128,289

$
(2,107
)
 
December 31, 2017
 
Less than 12 months
 
12 months or more
 
Total
(in thousands)
Estimated fair value
Unrealized losses
 
Estimated fair value
Unrealized losses
 
Estimated fair value
Unrealized losses
Municipal debt securities
$
23,078

$
(124
)
 
$
9,631

$
(254
)
 
$
32,709

$
(378
)
Corporate debt securities
48,952

(311
)
 
10,081

(123
)
 
59,033

(434
)
Agency mortgage-backed securities
1,362

(10
)
 
888

(16
)
 
2,250

(26
)
Total held-to-maturity investments
$
73,392

$
(445
)

$
20,600

$
(393
)

$
93,992

$
(838
)

The total number of held-to-maturity securities in an unrealized loss position as of July 1, 2018 and December 31, 2017 were 114 and 83, respectively. The unrealized losses were the result of interest rate increases. Since the decline in estimated fair value is attributable to changes in interest rates and not credit quality, and the company has the intent and ability to hold these debt securities until recovery of amortized cost or maturity, we do not consider these investments other than temporarily impaired.
The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows:
 
July 1, 2018
(in thousands)
Amortized cost
Fair value
Due in one year or less
$
24,233

$
24,101

Due after one year through five years
91,941

91,148

Due after five years through ten years
50,250

49,383

Total held-to-maturity investments
$
166,424

$
164,632


Actual maturities may differ from contractual maturities because the issuers of certain debt securities have the right to call or prepay their obligations without penalty. We have no significant concentrations of counterparties in our held-to-maturity investment portfolio.
v3.10.0.1
GOODWILL AND INTANGIBLE ASSETS
6 Months Ended
Jul. 01, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and intangible assets
GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table reflects changes in the carrying amount of goodwill during the period by reportable segments:
(in thousands)
PeopleReady
PeopleManagement
PeopleScout
Total company
Balance at December 31, 2017
 
 
 
 
Goodwill before impairment
$
106,304

$
100,146

$
132,323

$
338,773

Accumulated impairment loss
(46,210
)
(50,700
)
(15,169
)
(112,079
)
Goodwill, net
60,094

49,446

117,154

226,694

 
 
 
 
 
Divested goodwill before impairment (1)

(19,054
)

(19,054
)
Divested accumulated impairment loss (1)

17,000


17,000

Acquired goodwill (2)


16,606

16,606

Foreign currency translation


(1,866
)
(1,866
)
 
 
 
 
 
Balance at July 1, 2018
 
 
 
 
Goodwill before impairment
106,304

81,092

147,063

334,459

Accumulated impairment loss
(46,210
)
(33,700
)
(15,169
)
(95,079
)
Goodwill, net
$
60,094

$
47,392

$
131,894

$
239,380

(1)
Effective March 12, 2018, the company entered into an asset purchase agreement for the sale of its PlaneTechs business to Launch Technical Workforce Solutions. As a result of this divestiture, we eliminated the remaining goodwill balance of the PlaneTechs business, which was a part of our PeopleManagement reportable segment. For additional information, see Note 3: Acquisition and divestiture.
(2)
Effective June 12, 2018, the company acquired TMP Holdings LTD, through its PeopleScout subsidiary. Accordingly, the goodwill associated with the acquisition has been assigned to our PeopleScout reportable segment based on our preliminary purchase price allocation. For additional information, see Note 3: Acquisition and divestiture.
Intangible Assets
Finite-lived intangible Assets
The following table presents our purchased finite-lived intangible assets:
 
July 1, 2018
 
December 31, 2017
(in thousands)
Gross carrying amount
Accumulated
amortization
Net
carrying
amount
 
Gross carrying amount
Accumulated
amortization
Net
carrying
amount
Finite-lived intangible assets (1):
 
 
 
 
 
 
 
Customer relationships
$
154,060

$
(62,048
)
$
92,012

 
$
148,114

$
(53,801
)
$
94,313

Trade names/trademarks
2,865

(889
)
1,976

 
4,149

(3,736
)
413

Non-compete agreements



 
1,400

(1,377
)
23

Technologies
15,771

(13,684
)
2,087

 
17,500

(13,588
)
3,912

Total finite-lived intangible assets
$
172,696

$
(76,621
)
$
96,075

 
$
171,163

$
(72,502
)
$
98,661

(1)
Excludes assets that are fully amortized.
Finite-lived intangible assets include customer relationships and trade names/trademarks of $6.3 million and $1.7 million, respectively, based on our preliminary purchase price allocation relating to our acquisition of TMP Holdings LTD. For additional information, see Note 3: Acquisition and divestiture.
Amortization expense of our finite-lived intangible assets was $5.2 million and $10.4 million for the thirteen and twenty-six weeks ended July 1, 2018, respectively, and $5.3 million and $10.7 million for the thirteen and twenty-six weeks ended July 2, 2017, respectively.
Indefinite-lived intangible assets
We also held indefinite-lived trade names/trademarks of $6.0 million as of July 1, 2018 and December 31, 2017.
v3.10.0.1
WORKERS' COMPENSATION INSURANCE AND RESERVES
6 Months Ended
Jul. 01, 2018
Workers' Compensation Insurance and Reserves [Abstract]  
WORKERS' COMPENSATION INSURANCE AND RESERVES
WORKERS’ COMPENSATION INSURANCE AND RESERVES
We provide workers’ compensation insurance for our temporary and permanent employees. 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.
Our workers’ compensation reserve for claims below the deductible limit is discounted to its estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. The weighted average discount rate was 1.9% and 1.8% at July 1, 2018 and December 31, 2017, respectively. Payments made against self-insured claims are made over a weighted average period of approximately five years as of July 1, 2018.
The following table presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented:
(in thousands)
July 1,
2018
December 31,
2017
Undiscounted workers’ compensation reserve
$
284,399

$
293,600

Less discount on workers’ compensation reserve
19,311

19,277

Workers’ compensation reserve, net of discount
265,088

274,323

Less current portion
69,848

77,218

Long-term portion
$
195,240

$
197,105


Payments made against self-insured claims were $36.1 million and $31.5 million for the twenty-six weeks ended July 1, 2018 and July 2, 2017, respectively.
Our workers’ compensation reserve includes estimated expenses related to claims above our self-insured limits (“excess claims”), and we record a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. At July 1, 2018 and December 31, 2017, the weighted average rate was 2.6% and 2.5%, respectively. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 15 years. The discounted workers’ compensation reserve for excess claims was $48.6 million and $48.8 million as of July 1, 2018 and December 31, 2017, respectively. The discounted receivables from insurance companies, net of valuation allowance, were $45.0 million as of July 1, 2018 and December 31, 2017, and are included in other assets, net on the accompanying Consolidated Balance Sheets.
Workers’ compensation expense of $17.8 million and $22.3 million was recorded in cost of services for the thirteen weeks ended July 1, 2018 and July 2, 2017, respectively. Workers’ compensation expense of $34.4 million and $42.1 million was recorded in cost of services for the twenty-six weeks ended July 1, 2018 and July 2, 2017, respectively.
v3.10.0.1
LONG-TERM DEBT
6 Months Ended
Jul. 01, 2018
Debt Disclosure [Abstract]  
Long-term Debt
LONG-TERM DEBT

The components of our borrowings were as follows:
(in thousands)
July 1,
2018
December 31,
2017
Revolving Credit Facility
$
117,199

$
95,900

Term Loan

22,856

Total debt
117,199

118,756

Less current portion

2,267

Long-term debt, less current portion
$
117,199

$
116,489


Revolving credit facility
Effective June 30, 2014, we entered into a Second Amended and Restated Revolving Credit Agreement for a secured revolving credit facility of $300.0 million with Bank of America, N.A., Wells Fargo Bank, National Association, HSBC and PNC Capital Markets LLC (“Revolving Credit Facility”). The maximum amount we could borrow under the Revolving Credit Facility was subject to certain borrowing limits. Specifically, we were limited to the sum of 90% of our eligible billed accounts receivable, plus 85% of our eligible unbilled accounts receivable limited to 15% of all our eligible receivables, plus the value of our Tacoma headquarters office building. The borrowing limit was 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 certain other reserves, if deemed applicable. As of July 1, 2018, we were in compliance with all covenants related to the Revolving Credit Facility.
Revolving credit facility subsequent event
On July 13, 2018, we entered into a credit agreement with Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, N.A., KeyBank, N.A. and HSBC Bank USA, N.A. (“New Revolving Credit Facility”), and replaced the Revolving Credit Facility. The agreement provides for a revolving line of credit of up to $300 million with an option, subject to lender approval, to increase the amount to $450 million, and matures in five years. Under the terms of the agreement, we will pay a variable rate of interest on funds borrowed that is based on the London Interbank Offered Rate (LIBOR) plus an applicable spread between 1.25% and 2.50%. Alternatively, at our option, we may pay interest based upon a base rate plus an applicable spread between 0.25% and 1.50%. The applicable spread will be determined by the consolidated leverage ratio, as defined in the credit agreement. The base rate is the greater of the prime rate (as announced by Bank of America), the federal funds rate plus 0.50%, or the one-month LIBOR rate plus 1.00%.
A commitment fee between 0.250% and 0.375% will be applied against the New Revolving Credit Facility’s unused borrowing capacity, with the specific rate determined by the consolidated leverage ratio, as defined in the credit agreement. Letters of credit are priced at a margin between 1.00% and 2.25%, plus a fronting fee of 0.50%. Obligations under the agreement are guaranteed by TrueBlue and material U.S. domestic subsidiaries, and are secured by certain collateral of TrueBlue and material U.S. domestic subsidiaries. The agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including, among others, financial covenants based on our leverage and fixed charge coverage ratios, as defined in the credit agreement.
Accordingly, we classified the Revolving Credit Facility as long-term as of July 1, 2018, since the New Revolving Credit Facility replaced the Revolving Credit Facility on a long-term basis.
Term loan agreement
On June 25, 2018, we pre-paid in full our outstanding obligations of approximately $22.0 million with Synovus Bank, terminating all commitments under this term loan (the “Term Loan”) dated February 4, 2013 (as subsequently amended). We did not incur any early termination penalties in connection with the termination of the Term Loan.
v3.10.0.1
COMMITMENTS AND CONTINGENCIES
6 Months Ended
Jul. 01, 2018
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
Workers’ compensation commitments
We have provided our insurance carriers and certain states with commitments in the form and amounts listed below:
(in thousands)
July 1,
2018
December 31,
2017
Cash collateral held by workers’ compensation insurance carriers
$
21,946

$
22,148

Cash and cash equivalents held in Trust
25,447

16,113

Investments held in Trust
166,424

171,752

Letters of credit (1)
7,618

7,748

Surety bonds (2)
22,014

19,829

Total collateral commitments
$
243,449

$
237,590


(1)
We have agreements with certain financial institutions to issue letters of credit as collateral.
(2)
Our surety bonds are issued by independent insurance companies on our behalf and bear annual fees based on a percentage of the bond, which are determined by each independent surety carrier. These fees do not exceed 2.0% of the bond amount, subject to a minimum charge. The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days’ notice.
Legal contingencies and developments
We are involved in various proceedings arising in the normal course of conducting business. We believe the liabilities included in our financial statements reflect the probable loss that can be reasonably estimated. The resolution of those proceedings is not expected to have a material effect on our results of operations or financial condition.
v3.10.0.1
INCOME TAXES
6 Months Ended
Jul. 01, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
Our income tax provision or benefit for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes we make a cumulative adjustment. Our quarterly tax provision and quarterly estimate of our annual effective tax rate are subject to variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss by jurisdiction, tax credits, government audit developments, changes in laws, regulations and administrative practices, and relative changes in expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income. For example, the impact of discrete items, tax credits, and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower. Except as required under U.S. tax law, we do not provide for U.S. taxes on undistributed earnings of our foreign subsidiaries since we consider those earnings to be permanently invested outside of the U.S.
Our effective tax rate for the twenty-six weeks ended July 1, 2018 was 11.5%. The difference between the statutory federal income tax rate of 21.0% and our effective income tax rate results primarily from the federal Work Opportunity Tax Credit. This tax credit is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. Other differences between the statutory federal income tax rate of 21.0% and our effective tax rate result from state and foreign income taxes, certain non-deductible expenses, tax exempt interest, and tax effects of share based compensation.
On December 22, 2017, Staff Accounting Bulletin No. 118 was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act. For the twenty-six weeks ended July 1, 2018, we have not identified any needed adjustments to our transition tax and revaluation of net deferred tax assets recorded at December 31, 2017. Any subsequent adjustment to these amounts will be recorded to current tax expense in the fiscal 2018 quarter in which the analysis is complete.
v3.10.0.1
NET INCOME (LOSS) PER SHARE
6 Months Ended
Jul. 01, 2018
Earnings Per Share [Abstract]  
NET INCOME (LOSS) PER SHARE
NET INCOME PER SHARE
Diluted common shares were calculated as follows:
 
Thirteen weeks ended
 
Twenty-six weeks ended
(in thousands, except per share data)
July 1,
2018
July 2,
2017
 
July 1,
2018
July 2,
2017
Net income
$
17,732

$
13,134

 
$
26,487

$
17,808

 
 
 
 
 
 
Weighted average number of common shares used in basic net income per common share
40,227

41,579

 
40,335

41,608

Dilutive effect of non-vested restricted stock
242

277

 
241

267

Weighted average number of common shares used in diluted net income per common share
40,469

41,856


40,576

41,875

Net income per common share:
 
 
 
 
 
Basic
$
0.44

$
0.32

 
$
0.66

$
0.43

Diluted
$
0.44

$
0.31

 
$
0.65

$
0.43

 
 
 
 
 
 
Anti-dilutive shares
254

60

 
218

183

v3.10.0.1
ACCUMULATED OTHER COMPREHENSIVE LOSS
6 Months Ended
Jul. 01, 2018
Equity [Abstract]  
ACCUMULATED OTHER COMPREHENSIVE LOSS
ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in the balance of each component of accumulated other comprehensive loss during the reporting periods were as follows:
 
Thirteen weeks ended
 
July 1, 2018
July 2, 2017
(in thousands)
Foreign currency translation adjustment
Unrealized gain (loss) on investments, net of tax (1)
Total other comprehensive (loss), net of tax
 
Foreign currency translation adjustment
Unrealized gain on investments, net of tax (1)
Total other comprehensive income (loss), net of tax
Balance at beginning of period
$
(9,713
)
$

$
(9,713
)
 
$
(9,884
)
$
988

$
(8,896
)
Current period other comprehensive income
(1,921
)

(1,921
)
 
540

(91
)
449

Balance at end of period
$
(11,634
)
$

$
(11,634
)
 
$
(9,344
)
$
897

$
(8,447
)

 
Twenty-six weeks ended
 
July 1, 2018
July 2, 2017
(in thousands)
Foreign currency translation adjustment
Unrealized gain on investments, net of tax (1)
Total other comprehensive (loss), net of tax
 
Foreign currency translation adjustment
Unrealized gain on investments, net of tax (1)
Total other comprehensive income (loss), net of tax
Balance at beginning of period
$
(8,329
)
$
1,525

$
(6,804
)
 
$
(11,684
)
$
251

$
(11,433
)
Current period other comprehensive income
(3,305
)

(3,305
)
 
2,340

646

2,986

Change in accounting standard cumulative-effect adjustment (2)

(1,525
)
(1,525
)
 



Balance at end of period
$
(11,634
)
$

$
(11,634
)
 
$
(9,344
)
$
897

$
(8,447
)
(1)
Consisted of deferred compensation plan accounts, comprised of mutual funds classified as available-for-sale securities, prior to our adoption of the new accounting standard for equity investments in the fiscal first quarter of 2018. The tax impact on the unrealized gain on available-for-sale securities was de minimis for the thirteen and twenty-six weeks ended July 2, 2017.
(2)
As a result of our adoption of the new accounting standard for equity investments, $1.5 million in unrealized gains, net of tax on available-for-sale equity securities were reclassified from accumulated other comprehensive loss to retained earnings as of the beginning of fiscal 2018. There were no material reclassifications out of accumulated other comprehensive loss during the thirteen and twenty-six weeks ended July 2, 2017. For additional information, see Note 1: Summary of significant accounting policies.
v3.10.0.1
SEGMENT INFORMATION
6 Months Ended
Jul. 01, 2018
Segment Reporting [Abstract]  
SEGMENT INFORMATION
SEGMENT INFORMATION
Our operating segments are based on the organizational structure for which financial results are regularly reviewed by our chief operating decision-maker, our Chief Executive Officer, to determine resource allocation and assess performance. Our operating segments, also referred to as service lines, and reportable segments are described below:
Our PeopleReady reportable segment provides blue-collar, contingent staffing through the PeopleReady operating segment. PeopleReady provides on-demand and skilled labor in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, waste and recycling, hospitality, general labor and others.
Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-premise at the client’s facility, through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:
Staff Management | SMX: Exclusive recruitment and on-premise management of a facility’s contingent industrial workforce;
SIMOS Insourcing Solutions: On-premise management and recruitment of warehouse/distribution operations; and
Centerline Drivers: Recruitment and management of temporary and dedicated drivers to the transportation and distribution industries.
Effective March 12, 2018, we divested the PlaneTechs operating segment within our PeopleManagement reportable segment to Launch Technical Workforce Solutions. For additional information, see Note 3: Acquisition and divestiture.
Our PeopleScout reportable segment provides high-volume, permanent employee recruitment process outsourcing, and management of outsourced labor service providers through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:
PeopleScout: Outsourced recruitment of permanent employees on behalf of clients; and
PeopleScout MSP: Management of multiple third party staffing vendors on behalf of clients.
Effective June 12, 2018, we acquired TMP Holdings LTD, through our PeopleScout subsidiary. Accordingly, the results associated with the acquisition are included in our PeopleScout operating segment. TMP is a mid-sized RPO and employer branding service provider operating in the United Kingdom which is the second largest RPO market in the world. This acquisition increases our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients and employer branding capabilities. For additional information, see Note 3: Acquisition and divestiture.
We evaluate performance based on segment revenue and segment profit. Inter-segment revenue is minimal. Commencing in the fiscal first quarter of 2018, we revised our internal segment performance measure to be segment profit, rather than the previously reported segment earnings before interest, taxes, depreciation and amortization (segment EBITDA). Segment profit includes revenue, related cost of services, and ongoing operating expenses directly attributable to the reportable segment. Segment profit excludes goodwill and intangible impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest, other income and expense, income taxes, and costs not considered to be ongoing costs of the segment. The prior year amounts have been recast to reflect this change for consistency purposes.
The following table presents a reconciliation of segment revenue from services to total company revenue:
 
Thirteen weeks ended
 
Twenty-six weeks ended
(in thousands)
July 1,
2018
July 2,
2017
 
July 1,
2018
July 2,
2017
Revenue from services:
 
 
 
 
 
PeopleReady
$
377,460

$
370,712

 
$
694,295

$
703,336

PeopleManagement
178,839

192,887

 
362,731

384,573

PeopleScout
58,002

46,523

 
111,663

90,457

Total company
$
614,301

$
610,122

 
$
1,168,689

$
1,178,366


The following table presents a reconciliation of Segment profit to income before tax expense:
 
Thirteen weeks ended
 
Twenty-six weeks ended
(in thousands)
July 1,
2018
July 2,
2017
 
July 1,
2018
July 2,
2017
Segment profit:
 
 
 
 
 
PeopleReady
$
23,198

$
19,170

 
$
32,723

$
29,164

PeopleManagement
4,712

6,286

 
10,361

11,819

PeopleScout
11,320

10,129

 
23,225

18,794

 
39,230

35,585

 
66,309

59,777

Corporate unallocated
(5,868
)
(5,043
)
 
(13,532
)
(11,378
)
Work Opportunity Tax Credit processing fees
(264
)
(16
)
 
(459
)
(288
)
Acquisition/integration costs
(457
)

 
(457
)

Other costs
(1,264
)

 
(2,979
)

Depreciation and amortization
(10,101
)
(12,287
)
 
(20,191
)
(23,461
)
Income from operations
21,276

18,239

 
28,691

24,650

Interest and other income (expense), net
(968
)
155

 
1,236

229

Income before tax expense
$
20,308

$
18,394

 
$
29,927

$
24,879


Asset information by reportable segment is not presented since we do not manage our segments on a balance sheet basis.
v3.10.0.1
SUBSEQUENT EVENTS
6 Months Ended
Jul. 01, 2018
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS
New credit agreement
On July 13, 2018, we entered into a new credit agreement with Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, N.A., KeyBank, N.A. and HSBC Bank USA, N.A. Refer to Note 8: Long-term debt for additional information on this credit agreement.
In connection with entering into the new credit agreement, we also replaced the Second Amended and Restated Credit Agreement, which was set to expire in June 2019. We did not incur any early termination penalties in connection with the termination of the prior credit agreement.
CEO transition
On July 30, 2018, TrueBlue, Inc. announced that Chief Executive Officer Steven C. Cooper will become Executive Chairman of the Board of Directors, succeeding Joe Sambataro Jr.  This transition will take place effective September 1, 2018. Mr. Sambataro will remain on the board of directors. Mr. Cooper will be succeeded as CEO by current President and Chief Operating Officer Patrick Beharelle, who has been named CEO and a member of the board of directors, effective September 1, 2018. Mr. Cooper will also retire as an executive of the company at year-end and continue to serve as Chairman of the Board of Directors thereafter. The board of directors also appointed and elected Mr. Beharelle to the company’s board of directors, effective September 1, 2018.
We evaluated events and transactions occurring after the balance sheet date through the date the financial statements were issued, and identified no other events that were subject to recognition or disclosure.
v3.10.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
6 Months Ended
Jul. 01, 2018
Accounting Policies [Abstract]  
Basis of presentation
Financial statement preparation
The accompanying unaudited consolidated financial statements (“financial statements”) of TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us,” and “our”) are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The financial statements reflect all adjustments which, in the opinion of management, are necessary to fairly state the financial statements for the interim periods presented. We follow the same accounting policies for preparing both quarterly and annual financial statements.
These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The results of operations for the thirteen and twenty-six weeks ended July 1, 2018, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.
Goodwill and Intangible Assets, Policy
Goodwill and indefinite-lived intangible assets
We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter, and more frequently if an event occurs or circumstances change that would indicate impairment may exist. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, customer engagement, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year.
Based on our annual goodwill impairment test performed as of the first day of our fiscal second quarter, all reporting units’ fair values were substantially in excess of their respective carrying values. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater. Accordingly, no impairment loss was recognized for the thirteen weeks ended July 1, 2018 nor July 2, 2017.
We performed our annual indefinite-lived intangible asset impairment test as of the first day of our fiscal second quarter and determined that the estimated fair values exceeded the carrying amounts for our indefinite-lived trade names. Accordingly, no impairment loss was recognized for the thirteen weeks ended July 1, 2018 nor July 2, 2017.
New accounting pronouncements and changes in accounting principles
Recently adopted accounting standards
In May 2017, the Financial Accounting Standing Board (“FASB”) issued guidance to provide clarity and reduce diversity in practice when accounting for a change to the terms or conditions of share-based payment awards. The objective was to reduce the scope of transactions that would require modification accounting. Disclosure requirements remain unchanged. This amended guidance was effective for our fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. We adopted this guidance for our fiscal first quarter of 2018. The adoption of the new standard did not have a material impact on our financial statements.
In January 2017, the FASB issued guidance clarifying the definition of a business, which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. This guidance was effective for fiscal years and interim periods beginning December 15, 2017 (Q1 2018 for TrueBlue) on a prospective basis. This standard did not have a material impact on our financial statements. In Q2 2018, we acquired all of the outstanding equity interests of TMP Holdings LTD (“TMP”) and concluded that TMP represents a business based on this new guidance. See Note 3: Acquisition and divestiture, for further discussion of our acquisition of TMP.
In November 2016, the FASB issued guidance to amend the presentation of restricted cash and restricted cash equivalents on the statement of cash flows. The standard requires restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This amended guidance was effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). We adopted this guidance for our fiscal first quarter of 2018 using the retrospective transition method. Accordingly, the change in restricted cash and cash equivalents is no longer segregated in our statement of cash flows, and the $8.8 million previously presented in the investing section for the twenty-six weeks ended July 2, 2017 is now included when reconciling the beginning-of-period and end-of-period cash, cash equivalents and restricted cash shown on the statement of cash flows.
In October 2016, the FASB issued guidance on the accounting for income tax effects of intercompany sales or transfers of assets other than inventory. The guidance requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. This guidance was effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). The guidance requires a modified retrospective application with a cumulative catch-up adjustment to opening retained earnings. We adopted this guidance for our fiscal first quarter of 2018. The adoption of the new standard did not have a material impact on our financial statements.
In August 2016, the FASB issued guidance relating to how certain cash receipts and cash payments should be presented and classified in the statement of cash flows. The update was intended to reduce the existing diversity in practice. The amended guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 (Q1 2018 for TrueBlue). We adopted this guidance for our fiscal first quarter of 2018. The adoption of the new standard did not have an impact on our financial statements.
In January 2016, the FASB issued guidance on the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The guidance was effective for annual and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). Early adoption of the amendments in the guidance was not permitted, with limited exceptions. The guidance required a cumulative-effect adjustment be made to reclassify unrealized gains and losses related to available-for-sale equity securities from accumulated other comprehensive income, to retained earnings as of the beginning of the fiscal year of adoption. We adopted this guidance as of the first day of our fiscal first quarter of 2018 and reclassified from accumulated other comprehensive loss to retained earnings, $1.5 million in unrealized gains, net of tax on available-for-sale equity securities. Beginning in Q1 2018, change in market value for our available-for-sale equity securities is included in selling, general and administrative expense in the Consolidated Statements of Operation and Comprehensive Income.
In May 2014, the FASB issued guidance outlining a single comprehensive model for accounting for revenue arising from contracts with clients, which supersedes the current revenue recognition guidance. This guidance requires an entity to recognize revenue when it transfers promised goods or services to clients in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted this new guidance as of January 1, 2018 using the modified retrospective transition method. The adoption of this new guidance did not have a material impact on our consolidated financial statements as of the adoption date, nor for the thirteen and twenty-six weeks ended July 1, 2018, except for expanded disclosures. Refer to Note 2: Revenue recognition for additional accounting policy and transition disclosures.
Recently issued accounting pronouncements not yet adopted
In February 2016, the FASB issued guidance on lease accounting. The new guidance will continue to classify leases as either finance or operating, but will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet, with classification affecting the pattern of expense recognition in the statement of operations. This guidance is effective for annual and interim periods beginning after December 15, 2018 (Q1 2019 for TrueBlue), and early adoption is permitted. A modified retrospective approach is required for all leases existing or entered into after the beginning of the earliest comparative period in the consolidated financial statements. We plan to adopt the guidance on the effective date. We established a cross-functional implementation team consisting of representatives from various departments to review our current contracts, accounting policies and business practices to identify and quantify the potential impact of the new standard on our financial statements. We are completing this evaluation and expect that, upon adoption, a majority of our operating lease commitments will be recognized on our Consolidated Balance Sheets as operating lease liabilities and right-of-use assets. We do not expect the adoption to have a material impact on the pattern of expense recognition in our Consolidated Statements of Operations and Comprehensive Income.
Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.
Revenue Recognition, Policy
Revenue recognition
We account for a contract when both parties to the contract have approved the contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenues are recognized over time, using an output measure, as the control of the promised services is transferred to the client in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The majority of our contracts are short-term in nature as they are filling the temporary staffing needs of our clients, or include termination clauses that allow either party to cancel within a short termination period, without cause. Revenue includes billable travel and other reimbursable costs and are reported net of sales, use, or other transaction taxes collected from clients and remitted to taxing authorities. Payment terms vary by client and the services offered. We consider payment terms that exceed one year to be extended payment terms, however we do not extend payment terms beyond one year. Substantially all of our contracts include payment terms of 90 days or less.
We primarily record revenue on a gross basis as a principal versus on a net basis as an agent in the Consolidated Statements of Operations and Comprehensive Income. We have determined that gross reporting as a principal is the appropriate treatment based upon the following key factors:
We maintain the direct contractual relationship with the client and are responsible for fulfilling the service promised to the client.
We maintain control over our workers while the services to the client are being performed.
We establish our worker’s billing rate.
Contingent staffing
We recognize revenue for our contingent staffing services over time as services are performed in an amount that reflects the consideration we expect to be entitled to in exchange for our services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill rate. The client simultaneously receives and consumes the benefits of the services as they are provided. We do not incur costs to obtain our contingent staffing contracts. Costs are incurred to fulfill some contingent staffing contracts, however these costs are not material and are expensed as incurred.
Human resource outsourcing
We primarily recognize revenue for our outsourced recruitment of permanent employees over time in an amount that reflects the consideration we expect to be entitled to in exchange for our services. The client simultaneously receives and consumes the benefits of the services as they are provided. We do not incur costs to obtain our outsourced recruitment of permanent employees’ contracts. The costs to fulfill these contracts are not material and are expensed as incurred.
Unsatisfied performance obligations
As a practical expedient, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an expected original duration of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
v3.10.0.1
REVENUE RECOGNITION Revenue Recognition (Policies)
6 Months Ended
Jul. 01, 2018
Revenue Recognition [Abstract]  
Revenue Recognition, Policy
Revenue recognition
We account for a contract when both parties to the contract have approved the contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenues are recognized over time, using an output measure, as the control of the promised services is transferred to the client in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The majority of our contracts are short-term in nature as they are filling the temporary staffing needs of our clients, or include termination clauses that allow either party to cancel within a short termination period, without cause. Revenue includes billable travel and other reimbursable costs and are reported net of sales, use, or other transaction taxes collected from clients and remitted to taxing authorities. Payment terms vary by client and the services offered. We consider payment terms that exceed one year to be extended payment terms, however we do not extend payment terms beyond one year. Substantially all of our contracts include payment terms of 90 days or less.
We primarily record revenue on a gross basis as a principal versus on a net basis as an agent in the Consolidated Statements of Operations and Comprehensive Income. We have determined that gross reporting as a principal is the appropriate treatment based upon the following key factors:
We maintain the direct contractual relationship with the client and are responsible for fulfilling the service promised to the client.
We maintain control over our workers while the services to the client are being performed.
We establish our worker’s billing rate.
Contingent staffing
We recognize revenue for our contingent staffing services over time as services are performed in an amount that reflects the consideration we expect to be entitled to in exchange for our services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill rate. The client simultaneously receives and consumes the benefits of the services as they are provided. We do not incur costs to obtain our contingent staffing contracts. Costs are incurred to fulfill some contingent staffing contracts, however these costs are not material and are expensed as incurred.
Human resource outsourcing
We primarily recognize revenue for our outsourced recruitment of permanent employees over time in an amount that reflects the consideration we expect to be entitled to in exchange for our services. The client simultaneously receives and consumes the benefits of the services as they are provided. We do not incur costs to obtain our outsourced recruitment of permanent employees’ contracts. The costs to fulfill these contracts are not material and are expensed as incurred.
Unsatisfied performance obligations
As a practical expedient, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an expected original duration of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
v3.10.0.1
REVENUE RECOGNITION (Tables)
6 Months Ended
Jul. 01, 2018
Revenue Recognition [Abstract]  
Disaggregation Of Revenue
The following table presents our revenue disaggregated by major source:
 
Thirteen weeks ended
 
July 1, 2018
(in thousands)
PeopleReady
PeopleManagement
PeopleScout
Consolidated
Revenue from services:
 
 
 
 
Contingent staffing
$
377,460

$
178,839

$

$
556,299

Human resource outsourcing


58,002

58,002

Total company
$
377,460

$
178,839

$
58,002

$
614,301

 
Twenty-six weeks ended
 
July 1, 2018
(in thousands)
PeopleReady
PeopleManagement
PeopleScout
Consolidated
Revenue from services:
 
 
 
 
Contingent staffing
$
694,295

$
362,731

$

$
1,057,026

Human resource outsourcing


111,663

111,663

Total company
$
694,295

$
362,731

$
111,663

$
1,168,689

v3.10.0.1
ACQUISITION AND DIVESTITURE (Tables)
6 Months Ended
Jul. 01, 2018
Business Combinations [Abstract]  
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed
The following table reflects our preliminary allocation of the purchase price, net of cash acquired, to the fair value of the assets acquired and liabilities assumed:
(in thousands)
Purchase price allocation
Cash purchase price, net of cash acquired
$
22,742

Purchase price allocated as follows:
 
Accounts receivable
9,770

Prepaid expenses, deposits and other current assets
337

Property and equipment
435

Customer relationships
6,286

Trade names/trademarks
1,738

Total assets acquired
18,566

Accounts payable and other accrued expenses
9,139

Accrued wages and benefits
1,642

Income tax payable
205

Deferred income tax liability
1,444

Total liabilities assumed
12,430

Net identifiable assets acquired
6,136

Goodwill (1)
16,606

Total consideration allocated
$
22,742

Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination
The following table sets forth the components of identifiable intangible assets, their estimated fair values and useful lives as of June 12, 2018:
(in thousands, except for estimated useful lives, in years)
Estimated fair value
Estimated useful life in years
Customer relationships
$
6,286

3-7
Trade names/trademarks
1,738

14
Total acquired identifiable intangible assets
$
8,024

 
v3.10.0.1
FAIR VALUE MEASUREMENT (Tables)
6 Months Ended
Jul. 01, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements, Recurring and Nonrecurring
Our assets and liabilities measured at fair value on a recurring basis consisted of the following:
 
July 1, 2018
(in thousands)
Total fair value
Quoted prices in active markets for identical assets (level 1)
Significant other observable inputs (level 2)
Significant unobservable inputs (level 3)
Financial assets:
 
 
 
 
Cash and cash equivalents
$
33,408

$
33,408

$

$

Restricted cash and cash equivalents
48,582

48,582



Cash, cash equivalents and restricted cash (1)
$
81,990

$
81,990

$

$

 
 
 
 
 
Deferred compensation mutual funds classified as available-for-sale
$
24,384

$
24,384

$

$

 
 
 
 
 
Municipal debt securities
$
78,190

$

$
78,190

$

Corporate debt securities
82,238


82,238


Agency mortgage-backed securities
3,229


3,229


U.S. government and agency securities
975


975


Restricted investments classified as held-to-maturity
$
164,632

$

$
164,632

$

 
December 31, 2017
(in thousands)
Total fair value
Quoted prices in active markets for identical assets (level 1)
Significant other observable inputs (level 2)
Significant unobservable inputs (level 3)
Financial assets:
 
 
 
 
Cash and cash equivalents
$
28,780

$
28,780

$

$

Restricted cash and cash equivalents
45,051

45,051



Cash, cash equivalents and restricted cash (1)
$
73,831

$
73,831

$

$

 
 
 
 
 
Deferred compensation mutual funds classified as available-for-sale
$
22,428

$
22,428

$

$

 
 
 
 
 
Municipal debt securities
$
83,366

$

$
83,366

$

Corporate debt securities
83,791


83,791


Agency mortgage-backed securities
4,062


4,062


U.S. government and agency securities
1,019


1,019


Restricted investments classified as held-to-maturity
$
172,238

$

$
172,238

$

(1)
Cash, cash equivalents and restricted cash consist of money market funds, deposits, and investments with original maturities of three months or less.
v3.10.0.1
RESTRICTED CASH AND INVESTMENTS (Tables)
6 Months Ended
Jul. 01, 2018
Restricted Cash and Investments [Abstract]  
Schedule of restricted cash and investments
The following is a summary of the carrying value of our restricted cash and investments:
(in thousands)
July 1,
2018
December 31,
2017
Cash collateral held by insurance carriers
$
22,726

$
22,926

Cash and cash equivalents held in Trust
25,447

16,113

Investments held in Trust
166,424

171,752

Deferred compensation mutual funds
24,384

22,428

Other restricted cash and cash equivalents
409

6,012

Total restricted cash and investments
$
239,390

$
239,231

Schedule of held-to-maturity investments
The amortized cost and estimated fair value of our held-to-maturity investments held in trust, aggregated by investment category are as follows:
 
July 1, 2018
(in thousands)
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Municipal debt securities
$
78,675

$
304

$
(789
)
$
78,190

Corporate debt securities
83,481

5

(1,248
)
82,238

Agency mortgage-backed securities
3,269

6

(46
)
3,229

U.S. government and agency securities
999


(24
)
975

Total held-to-maturity investments
$
166,424