Document and Entity Information

9 Months Ended

Oct. 1, 2017

Oct. 16, 2017

Document and Entity Information [Abstract]

Document Type

10-Q

Amendment Flag

false

Document Period End Date

Oct. 01, 2017

Document Fiscal Year Focus

2017

Document Fiscal Period Focus

Q3

Trading Symbol

TBI

Entity Registrant Name

TrueBlue, Inc.

Entity Central Index Key

0000768899

Current Fiscal Year End Date

--12-31

Entity Well-Known Seasoned Issuer

Yes

Entity Voluntary Filers

No

Entity Current Reporting Status

Yes

Entity Filer Category

Large Accelerated Filer

Entity Common Stock, Shares Outstanding

41,361,507

CONSOLIDATED BALANCE SHEETS (USD $)

In Thousands, unless otherwise specified

Oct. 1, 2017

Jan. 1, 2017

Current assets:

Cash and cash equivalents

$ 35,055

$ 34,970

Accounts receivable, net of allowance for doubtful accounts of $5,741 and $5,160

380,473

352,606

Prepaid expenses, deposits and other current assets

18,923

21,373

Income tax receivable

5,945

18,854

Total current assets

440,396

427,803

Property and equipment, net

63,079

63,998

Restricted cash and investments

244,173

231,193

Deferred income taxes, net

1,037

6,770

Goodwill

226,771

224,223

Intangible assets, net

109,963

125,671

Other assets, net

46,931

50,787

Total assets

1,132,350

1,130,445

Current liabilities:

Accounts payable and other accrued expenses

67,364

66,758

Accrued wages and benefits

79,607

79,782

Current portion of workers’ compensation claims reserve

76,406

79,126

Contingent consideration

0

21,600

Current portion of long-term debt

23,422

2,267

Other current liabilities

1,408

1,602

Total current liabilities

248,207

251,135

Workers’ compensation claims reserve, less current portion

202,929

198,225

Long-term debt, less current portion

111,408

135,362

Other long-term liabilities

26,033

20,544

Total liabilities

588,577

605,266

Commitments and contingencies (Note 5)

Shareholders’ equity:

Preferred stock, $0.131 par value, 20,000 shares authorized; No shares issued and outstanding

0

Common stock, no par value, 100,000 shares authorized; 41,339 and 42,171 shares issued and outstanding

1

Accumulated other comprehensive loss

(6,880)

(11,433)

Retained earnings

550,652

536,611

Total shareholders’ equity

543,773

525,179

Total liabilities and shareholders’ equity

$ 1,132,350

$ 1,130,445

CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $)

In Thousands, except Share data, unless otherwise specified

Oct. 1, 2017

Jan. 1, 2017

Allowance for doubtful accounts

$ 5,741

$ 5,160

Preferred stock, par value (in dollars per share)

$ 0.131

Preferred stock, shares authorized

20,000,000

Preferred stock, shares issued

0

Preferred stock, shares outstanding

0

Common stock, par value (in dollars per share)

$ 0

Common stock, shares authorized

100,000,000

Common stock, shares issued

41,339,000

42,171,000

Common stock, shares outstanding

41,339,000

42,171,000

CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (USD $)

In Thousands, except Per Share data, unless otherwise specified

3 Months Ended

9 Months Ended

Oct. 1, 2017

Sep. 23, 2016

Oct. 1, 2017

Sep. 23, 2016

Revenue from services

$ 660,780

$ 697,097

$ 1,839,146

$ 2,015,689

Cost of services

488,761

518,702

1,372,418

1,516,858

Gross profit

172,019

178,395

466,728

498,831

Selling, general and administrative expense

131,552

134,679

378,150

401,090

Depreciation and amortization

11,189

11,690

34,650

34,673

Goodwill and intangible asset impairment charge

0

4,275

0

103,544

Income (loss) from operations

29,278

27,751

53,928

(40,476)

Interest expense

(1,365)

(1,721)

(3,893)

(5,430)

Interest and other income

1,146

854

3,903

2,657

Interest and other income (expense), net

(219)

(867)

10

(2,773)

Income (loss) before tax expense

29,059

26,884

53,938

(43,249)

Income tax expense (benefit)

7,838

3,455

14,909

(9,911)

Net income (loss)

21,221

23,429

39,029

(33,338)

Net income (loss) per common share:

Basic (in dollars per share)

$ 0.52

$ 0.56

$ 0.94

$ (0.80)

Diluted (in dollars per share)

$ 0.51

$ 0.56

$ 0.94

$ (0.80)

Weighted average shares outstanding:

Basic (in shares)

41,046

41,762

41,420

41,651

Diluted (in shares)

41,276

42,056

41,671

41,651

Other comprehensive income:

Total other comprehensive income, net of tax

1,567

2,031

4,553

4,287

Comprehensive income (loss)

22,788

25,460

43,582

(29,051)

Foreign currency translation adjustment

Other comprehensive income:

Foreign currency translation adjustment

1,143

1,247

3,483

3,341

Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]

Other comprehensive income:

Unrealized gain on investments, net of tax

$ 424

$ 784

$ 1,070

$ 946

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)

In Thousands, unless otherwise specified

9 Months Ended

Oct. 1, 2017

Sep. 23, 2016

Cash flows from operating activities:

Net income (loss)

$ 39,029

$ (33,338)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

34,650

34,673

Goodwill and intangible asset impairment charge

0

103,544

Provision for doubtful accounts

6,321

6,361

Stock-based compensation

6,161

7,443

Deferred income taxes

4,890

(23,874)

Other operating activities

2,563

5,603

Changes in operating assets and liabilities, net of effects of acquisition of business:

Accounts receivable

(34,198)

102,722

Income tax receivable

12,788

4,018

Other assets

6,306

(3,563)

Accounts payable and other accrued expenses

(784)

(3,764)

Accrued wages and benefits

(176)

(3,254)

Workers’ compensation claims reserve

1,985

11,938

Other liabilities

1,086

4,740

Net cash provided by operating activities

80,621

213,249

Cash flows from investing activities:

Capital expenditures

(16,303)

(17,766)

Acquisition of business

0

(71,863)

Change in restricted cash and cash equivalents

8,600

732

Purchases of restricted investments

(36,015)

(35,940)

Maturities of restricted investments

15,042

12,273

Net cash used in investing activities

(28,653)

(112,564)

Cash flows from financing activities:

Payments for Repurchase of Common Stock

(29,371)

0

Net proceeds from stock option exercises and employee stock purchase plans

1,179

1,183

Common stock repurchases for taxes upon vesting of restricted stock

(2,956)

(2,692)

Net change in Revolving Credit Facility

(1,099)

(104,586)

Payments on debt

(1,700)

Payment of contingent consideration at acquisition date fair value

(18,300)

0

Other

0

20

Net cash used in financing activities

(52,247)

(107,775)

Effect of exchange rate changes on cash and cash equivalents

364

2,090

Net change in cash and cash equivalents

85

(5,000)

Cash and cash equivalents, beginning of period

34,970

29,781

Cash and cash equivalents, end of period

35,055

24,781

Supplemental Cash Flow Information [Abstract]

Interest

2,612

3,071

Income taxes

(2,972)

8,801

Property, plant, and equipment purchased but not yet paid

2,863

2,244

Non-cash acquisition adjustments

$ 0

$ 3,783

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 January 1, 2017. The results of operations for the thirty-nine weeks ended October 1, 2017, 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 second fiscal 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,operating performance indicators, competition, customer engagement, legal factors, 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 second fiscal 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 thirty-nine weeks ended October 1, 2017. Based on our test performed in the prior year, we recorded a goodwill impairment charge of $65.9 million for the thirty-nine weeks ended September 23, 2016.

We performed our annual indefinite-lived intangible asset impairment test as of the first day of our second fiscal quarter and determined that the estimated fair values exceeded the carrying amounts for both of our indefinite-lived trade names. Accordingly, no impairment loss was recognized for the thirty-nine weeks ended October 1, 2017. Based on our test performed in the prior year, we recorded an impairment charge of $4.5 million for the thirty-nine weeks ended September 23, 2016.

Acquired intangible assets and other long-lived assets

We generally record acquired intangible assets that have finite useful lives, such as customer relationships and trade names/trademarks, in connection with business combinations. We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. Based on our review there was no impairment loss recognized for the thirty-nine weeks ended October 1, 2017. In the prior year, we recorded an impairment to our acquired trade names/trademarks intangible assets of $4.3 million during the thirteen weeks ended September 23, 2016, and also recorded an impairment to our customer relationships intangible assets of $28.9 million during the first half of fiscal 2016.

Stock repurchases

During the thirteen weeks ended October 1, 2017, we repurchased the remaining $13.9 million available under our $75.0 million share repurchase program. Under this program we repurchased and retired 4.8 million shares of our common stock at an average share price of $15.52, which excludes commissions. On September 15, 2017, our Board of Directors authorized a $100 million share repurchase program of our outstanding common stock. The share repurchase program does not obligate us to acquire any particular amount of common stock and does not have an expiration date. There have been no repurchases under this new program during the thirteen weeks ended October 1, 2017.

Recently adopted accounting standards

In January 2017, the Financial Accounting Standards Board (“FASB”) issued guidance to simplify the subsequent measurement of goodwill by eliminating the requirement to perform a Step 2 impairment test to compute the implied fair value of goodwill. Instead, companies will only compare the fair value of a reporting unit to its carrying value (Step 1) and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized may not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This amended guidance is effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We early adopted this guidance for our fiscal 2017 annual impairment test. The adoption of the new standard did not have any impact to our consolidated financial statements.

Recently issued accounting pronouncements not yet adopted

In May 2017, the 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 is to reduce the scope of transactions that would require modification accounting. Disclosure requirements remain unchanged. This amended guidance is effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. We plan to adopt this guidance on the effective date and do not expect the adoption to have a material impact on our financial statements.

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 is effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. We plan to adopt this guidance on the effective date. Changes in restricted cash and cash equivalents recorded in cash flows from investing were $8.6 million and $0.7 million for the thirty-nine weeks ended October 1, 2017 and September 23, 2016, respectively.

In October 2016, 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 is effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. The guidance will require a modified retrospective application with a cumulative catch-up adjustment to opening retained earnings. We plan to adopt this guidance on the effective date and do not expect the adoption to 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 is intended to reduce the existing diversity in practice. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted, including adoption in an interim period. The adoption should be applied using the retrospective transition method, if practicable. We plan to adopt this guidance on the effective date and do not expect the adoption to have a material impact on our financial statements.

In June 2016, the FASB issued guidance on accounting for credit losses on financial instruments. This guidance sets forth a current expected credit loss model, which requires measurement of all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and some off-balance sheet exposures, as well as trade account receivables. This guidance is effective for fiscal years beginning after December 15, 2019 (Q1 2020 for TrueBlue) with early adoption permitted no sooner than Q1 2019. A modified retrospective approach is required for all investments, except debt securities for which an other-than-temporary impairment had been recognized prior to the effective date, which will require a prospective transition approach. We plan to adopt this guidance on the effective date and are currently assessing the impact of the adoption of this guidance on our financial statements.

In February 2016, the FASB issued guidance on lease accounting. The new guidance will continue to classify leases as either finance or operating and 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 income. 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 are currently evaluating the impact of this guidance on our financial statements 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.

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 is effective for annual and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). Early adoption of the amendments in the guidance is not permitted, with limited exceptions, and should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We plan to adopt the guidance on the effective date. We do not expect the adoption to have a material impact on our consolidated financial statements.

In May 2014, the FASB issued guidance outlining a single comprehensive model for accounting for revenue arising from contracts with customers, which supersedes the current revenue recognition guidance. This guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. The guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments as well as assets recognized from costs incurred to obtain or fulfill a contract. The guidance provides two methods of initial adoption: retrospective for all periods presented (full retrospective), or a cumulative adjustment in the year of adoption (modified retrospective). Since the issuance of the original standard, the FASB has issued several other subsequent updates including the following: 1) clarification of the implementation guidance on principal versus agent considerations; 2) further guidance on identifying performance obligations in a contract as well as clarifications on the licensing implementation guidance; and 3) additional guidance and practical expedients in response to identified implementation issues. The effective date is for annual and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). We expect to adopt the guidance using the modified retrospective approach.

We established a cross-functional implementation team consisting of representatives from our business segments and various departments. We utilized a bottoms-up approach to analyze the impact of the standard on our various revenue streams by reviewing our current contracts with customers, accounting policies, and business practices to identify potential differences that would result from applying the requirements of the new standard. We are in the process of making appropriate changes to our business processes, and controls to support recognition and disclosure under the new standard. We are substantially complete with our evaluation of the potential impact that adopting the new standard will have on our financial statements. Revenue from substantially all of our contracts with customers will continue to be recognized over time as services are rendered. We do not anticipate the adoption of this guidance will have a material impact on our financial reporting other than expanded disclosures.

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.

Subsequent events

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.

FAIR VALUE MEASUREMENT

Our assets and liabilities measured at fair value on a recurring basis consisted of the following:



	October 1, 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 (1)	$	35,055	$	35,055	$	—	$	—
Restricted cash and cash equivalents (1)	59,788		59,788		—		—
Other restricted assets (2)	21,115		21,115		—		—
Restricted investments classified as held-to-maturity	165,053		—		165,053		—



	January 1, 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 (1)	$	34,970	$	34,970	$	—	$	—
Restricted cash and cash equivalents (1)	67,751		67,751		—		—
Other restricted assets (2)	16,925		16,925		—		—
Restricted investments classified as held-to-maturity	145,953		—		145,953		—

Financial liabilities:
Contingent consideration (3)	21,600		—		—		21,600


(1)	Cash equivalents and restricted cash equivalents consist of money market funds, deposits, and investments with original maturities of three months or less.


(2)	Other restricted assets primarily consist of deferred compensation plan accounts, which are comprised of mutual funds classified as available-for-sale securities.


(3)	The estimated fair value of the contingent consideration associated with the acquisition of SIMOS Insourcing Solutions Corporation (“SIMOS”), which was estimated using a probability-adjusted discounted cash flow model.

The following table presents the change in the estimated fair value of our liability for contingent consideration measured using significant unobservable inputs (Level 3) for the thirty-nine weeks ended October 1, 2017:



(in thousands)
Fair value measurement at beginning of period	$	21,600
Accretion on contingent consideration	900
Payment of contingent consideration	(22,500		)
Fair value measurement at end of period	$	—

During the second quarter of 2017, we paid $22.5 million relating to the contingent consideration associated with our acquisition of SIMOS. The purchase price fair value of the contingent consideration of $18.3 million is reflected in cash flows used in financing activities and the remaining balance of $4.2 million is recognized in cash flows used in operating activities as a decrease in Other assets and liabilities.

The preliminary achievement of the defined performance milestone occurred in the fourth quarter of 2016; however, the final determination was subject to a verification period through the payout date in the second quarter of 2017. Amortization of the present value discount was recorded in Interest expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).

There were no material transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the thirty-nine weeks ended October 1, 2017 or September 23, 2016.

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”). Our investments have not resulted in any other-than-temporary impairments for the thirteen and thirty-nine weeks ended October 1, 2017.

The following is a summary of our restricted cash and investments:



(in thousands)	October 1, 2017		January 1, 2017
Cash collateral held by insurance carriers	$	29,122	$	34,910
Cash and cash equivalents held in Trust	30,666		32,841
Investments held in Trust	163,270		146,517
Other (1)	21,115		16,925
Total restricted cash and investments	$	244,173	$	231,193


(1)	Primarily consists of deferred compensation plan accounts, which are comprised of mutual funds classified as available-for-sale securities.

The following tables present fair value disclosures for our held-to-maturity investments, which are carried at amortized cost:



	October 1, 2017
(in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Municipal debt securities	$	76,373	$	1,561	$	(233	)	$	77,701
Corporate debt securities	81,395		572		(166		)	81,801
Agency mortgage-backed securities	4,502		36		(13		)	4,525
U.S. government and agency securities	1,000		26		—			1,026
	$	163,270	$	2,195	$	(412	)	$	165,053



	January 1, 2017
(in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Municipal debt securities	$	71,618	$	443	$	(865	)	$	71,196
Corporate debt securities	68,934		212		(352		)	68,794
Agency mortgage-backed securities	5,965		30		(32		)	5,963
	$	146,517	$	685	$	(1,249	)	$	145,953

The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows:



	October 1, 2017
(in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	16,796	$	16,816
Due after one year through five years	83,156		83,764
Due after five years through ten years	63,318		64,473
	$	163,270	$	165,053

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.

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 1.6% at October 1, 2017 and January 1, 2017. Payments made against self-insured claims are made over a weighted average period of approximately 4.5 years at October 1, 2017.

The table below presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented (in thousands):



(in thousands)	October 1, 2017		January 1, 2017
Undiscounted workers’ compensation reserve	$	295,969	$	292,169
Less discount on workers’ compensation reserve	16,634		14,818
Workers' compensation reserve, net of discount	279,335		277,351
Less current portion	76,406		79,126
Long-term portion	$	202,929	$	198,225

Payments made against self-insured claims were $48.2 million and $55.6 million for the thirty-nine weeks ended October 1, 2017 and September 23, 2016, 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. 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 $50.7 million and $52.9 million as of October 1, 2017 and January 1, 2017, respectively. The discounted receivables from insurance companies, net of valuation allowance, were $45.7 million and $48.9 million as of October 1, 2017 and January 1, 2017, respectively, and are included in Other assets, net on the accompanying Consolidated Balance Sheets.

Workers’ compensation expense of $22.1 million and $23.4 million was recorded in Cost of services for the thirteen weeks ended October 1, 2017 and September 23, 2016, respectively. Workers’ compensation expense of $64.2 million and $72.1 million was recorded in Cost of services for the thirty-nine weeks ended October 1, 2017 and September 23, 2016, respectively.

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)	October 1, 2017		January 1, 2017
Cash collateral held by workers’ compensation insurance carriers	$	28,343	$	28,066
Cash and cash equivalents held in Trust	30,666		32,841
Investments held in Trust	163,270		146,517
Letters of credit (1)	7,748		7,982
Surety bonds (2)	19,524		20,440
Total collateral commitments	$	249,551	$	235,846


(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.

INCOME TAXES

Income Taxes

INCOME TAXES

Our tax provision or benefit from income taxes 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 our 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, audit developments, changes in law, regulations and administrative practices, and relative changes of 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 thirty-nine weeks ended October 1, 2017 was 27.6%. The difference between the statutory federal income tax rate of 35.0% 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 35.0% 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.

NET INCOME (LOSS) PER SHARE

Diluted common shares were calculated as follows:



	Thirteen weeks ended				Thirty-nine weeks ended
(in thousands, except per share amounts)	October 1, 2017		September 23, 2016		October 1, 2017		September 23, 2016
Net income (loss)	$	21,221	$	23,429	$	39,029	$	(33,338	)

Weighted average number of common shares used in basic net income (loss) per common share	41,046		41,762		41,420		41,651
Dilutive effect of non-vested restricted stock	230		294		251		—
Weighted average number of common shares used in diluted net income (loss) per common share	41,276		42,056		41,671		41,651
Net income (loss) per common share:
Basic	$	0.52	$	0.56	$	0.94	$	(0.80	)
Diluted	$	0.51	$	0.56	$	0.94	$	(0.80	)

Anti-dilutive shares	354		302		388		521

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
	October 1, 2017								September 23, 2016
(in thousands)	Balance at beginning of period			Current period other comprehensive income		Balance at end of period			Balance at beginning of period			Current period other comprehensive income		Balance at end of period
Foreign currency translation adjustment	$	(9,344	)	$	1,143	$	(8,201	)	$	(11,420	)	$	1,247	$	(10,173	)
Unrealized gain (loss) on investments (1)	897			424		1,321			(337		)	784		447
Total other comprehensive income (loss), net of tax	$	(8,447	)	$	1,567	$	(6,880	)	$	(11,757	)	$	2,031	$	(9,726	)



	Thirty-nine weeks ended
	October 1, 2017								September 23, 2016
(in thousands)	Balance at beginning of period			Current period other comprehensive income		Balance at end of period			Balance at beginning of period			Current period other comprehensive income		Balance at end of period
Foreign currency translation adjustment	$	(11,684	)	$	3,483	$	(8,201	)	$	(13,514	)	$	3,341	$	(10,173	)
Unrealized gain (loss) on investments (1)	251			1,070		1,321			(499		)	946		447
Total other comprehensive income (loss), net of tax	$	(11,433	)	$	4,553	$	(6,880	)	$	(14,013	)	$	4,287	$	(9,726	)


(1)	Consists of deferred compensation plan accounts, which are comprised of mutual funds classified as available-for-sale securities. The tax impact on unrealized gain (loss) on available-for-sale securities was de minimis for the thirteen and thirty-nine weeks ended October 1, 2017 and September 23, 2016, respectively.

There were no material reclassifications out of accumulated other comprehensive loss during the thirteen weeks ended October 1, 2017 or September 23, 2016, nor during the thirty-nine weeks ended October 1, 2017 or September 23, 2016.

SEGMENT INFORMATION

Commencing in the fourth quarter of 2016, we changed our internal reporting structure to better align our operations with customer needs and how our chief operating decision maker, our Chief Executive Officer, currently evaluates financial results to determine resource allocation and assess performance. As a result of this change, our former Staffing Services reportable segment has been separated into two reportable segments, PeopleReady and PeopleManagement, and our former Managed Services reportable segment has been renamed PeopleScout. In addition, we changed our methodology for allocating certain corporate costs to our segments, which decreased our corporate unallocated expenses. The prior year amounts have been recast to reflect this change for consistency purposes.

Our service lines, which are our operating segments, and our reportable segments are described below:

Our PeopleReady reportable segment provides blue-collar contingent staffing through the PeopleReady service line. PeopleReady provides on-demand and skilled labor in the retail, manufacturing, warehousing, logistics, energy, construction, hospitality, and other industries.

Our PeopleManagement reportable segment provides primarily on-premise contingent staffing and on-premise management of those contingent staffing services through the following operating segments, which we 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;


•	Centerline Drivers: Recruitment and management of temporary and dedicated drivers to the transportation and distribution industries; and


•	PlaneTechs: Recruitment and on-premise management of skilled mechanics and technicians to the aviation and transportation industries.

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 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.

We have two primary measures of segment performance: revenue from services and segment earnings before interest, taxes, depreciation and amortization (“Segment EBITDA”). Segment EBITDA includes net sales to third parties, related cost of sales, selling, general and administrative expenses, and goodwill and intangible impairment charges directly attributable to the reportable segment together with certain allocated corporate general and administrative expenses. Segment EBITDA excludes unallocated corporate general and administrative expenses.

The following table presents a reconciliation of segment revenue from services to total company revenue:



	Thirteen weeks ended				Thirty-nine weeks ended
(in thousands)	October 1, 2017		September 23, 2016		October 1, 2017		September 23, 2016
Revenue from services:
PeopleReady	$	414,995	$	435,783	$	1,118,331	$	1,198,067
PeopleManagement	196,835		216,834		581,408		682,605
PeopleScout	48,950		44,480		139,407		135,017
Total Company	$	660,780	$	697,097	$	1,839,146	$	2,015,689

The following table presents a reconciliation of Segment EBITDA to income (loss) before tax expense:



	Thirteen weeks ended						Thirty-nine weeks ended
(in thousands)	October 1, 2017			September 23, 2016			October 1, 2017			September 23, 2016
Segment EBITDA (1):
PeopleReady	$	28,572		$	34,100		$	57,448		$	75,198
PeopleManagement	6,940			3,520			18,759			(70,218		)
PeopleScout	10,277			8,358			29,071			12,527
	45,789			45,978			105,278			17,507
Corporate unallocated	(5,322		)	(6,537		)	(16,700		)	(23,310		)
Depreciation and amortization	(11,189		)	(11,690		)	(34,650		)	(34,673		)
Income (loss) from operations	29,278			27,751			53,928			(40,476		)
Interest and other income (expense), net	(219		)	(867		)	10			(2,773		)
Income (loss) before tax expense	$	29,059		$	26,884		$	53,938		$	(43,249	)


(1)	Segment EBITDA was previously referred to as segment income (loss) from operations. This change had no impact on the amounts reported.

Asset information by reportable segment is not presented since we do not manage our segments on a balance sheet basis.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

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 January 1, 2017. The results of operations for the thirty-nine weeks ended October 1, 2017, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.

Goodwill and intangible assets

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 second fiscal 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,operating performance indicators, competition, customer engagement, legal factors, 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 second fiscal 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 thirty-nine weeks ended October 1, 2017. Based on our test performed in the prior year, we recorded a goodwill impairment charge of $65.9 million for the thirty-nine weeks ended September 23, 2016.

We performed our annual indefinite-lived intangible asset impairment test as of the first day of our second fiscal quarter and determined that the estimated fair values exceeded the carrying amounts for both of our indefinite-lived trade names. Accordingly, no impairment loss was recognized for the thirty-nine weeks ended October 1, 2017. Based on our test performed in the prior year, we recorded an impairment charge of $4.5 million for the thirty-nine weeks ended September 23, 2016.

Intangible assets, finite-lived

Acquired intangible assets and other long-lived assets

We generally record acquired intangible assets that have finite useful lives, such as customer relationships and trade names/trademarks, in connection with business combinations. We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. Based on our review there was no impairment loss recognized for the thirty-nine weeks ended October 1, 2017. In the prior year, we recorded an impairment to our acquired trade names/trademarks intangible assets of $4.3 million during the thirteen weeks ended September 23, 2016, and also recorded an impairment to our customer relationships intangible assets of $28.9 million during the first half of fiscal 2016.

Treasury stock policy [Policy Text Block]

Stock repurchases

During the thirteen weeks ended October 1, 2017, we repurchased the remaining $13.9 million available under our $75.0 million share repurchase program. Under this program we repurchased and retired 4.8 million shares of our common stock at an average share price of $15.52, which excludes commissions. On September 15, 2017, our Board of Directors authorized a $100 million share repurchase program of our outstanding common stock. The share repurchase program does not obligate us to acquire any particular amount of common stock and does not have an expiration date. There have been no repurchases under this new program during the thirteen weeks ended October 1, 2017.

New accounting pronouncements and changes in accounting principles