TRUEBLUE, INC., 10-Q filed on 5/4/2020
Quarterly Report
v3.20.1
DOCUMENT AND ENTITY INFORMATION - shares
3 Months Ended
Mar. 29, 2020
Apr. 13, 2020
Entity Addresses [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Mar. 29, 2020  
Document Transition Report false  
Entity File Number 001-14543  
Entity Registrant Name TrueBlue, Inc.  
Entity Incorporation, State or Country Code WA  
Entity Tax Identification Number 91-1287341  
Entity Address, Address Line One 1015 A Street  
Entity Address, City or Town Tacoma  
Entity Address, State or Province WA  
Entity Address, Postal Zip Code 98402  
City Area Code 253  
Local Phone Number 383-9101  
Title of 12(b) Security Common stock, no par value  
Trading Symbol TBI  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Common Stock Shares Outstanding (in shares)   36,126,189
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Entity Central Index Key 0000768899  
Current Fiscal Year End Date --12-27  
v3.20.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Mar. 29, 2020
Dec. 29, 2019
Current assets:    
Cash and cash equivalents $ 265,260 $ 37,608
Accounts receivable, net of allowance for doubtful accounts of $6,379 and $4,288 292,988 342,303
Prepaid expenses, deposits and other current assets 24,987 30,717
Income tax receivable 10,169 11,105
Total current assets 593,404 421,733
Property and equipment, net 67,036 66,150
Restricted cash and investments 218,907 230,932
Deferred income taxes, net 26,665 3,228
Goodwill 93,290 237,498
Intangible assets, net 34,630 73,673
Operating lease right-of-use assets 39,234 41,082
Workers’ compensation claims receivable, net 44,572 44,624
Other assets, net 17,407 17,235
Total assets 1,135,145 1,136,155
Current liabilities:    
Accounts payable and other accrued expenses 39,291 68,406
Accrued wages and benefits 55,871 67,604
Current portion of workers’ compensation claims reserve 69,353 73,020
Operating lease current liabilities 14,554 14,358
Other current liabilities 7,980 7,418
Total current liabilities 187,049 230,806
Workers’ compensation claims reserve, less current portion 184,102 182,598
Long-term debt 293,500 37,100
Long-term deferred compensation liabilities 23,460 26,765
Operating lease long-term liabilities 26,744 28,849
Other long-term liabilities 4,348 4,064
Total liabilities 719,203 510,182
Commitments and contingencies (Note 7)
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; 36,128 and 38,593 shares issued and outstanding 1 1
Accumulated other comprehensive loss (19,863) (13,238)
Retained earnings 435,804 639,210
Total shareholders’ equity 415,942 625,973
Total liabilities and shareholders’ equity $ 1,135,145 $ 1,136,155
v3.20.1
CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($)
$ in Thousands
Mar. 29, 2020
Dec. 29, 2019
Allowance for doubtful accounts $ 6,379 $ 4,288
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 36,128,000 38,593,000
Common stock, shares outstanding 36,128,000 38,593,000
v3.20.1
CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (LOSS) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 29, 2020
Mar. 31, 2019
Income Statement [Abstract]    
Revenue from services $ 494,252 $ 552,352
Cost of services 368,093 405,657
Gross profit 126,159 146,695
Selling, general and administrative expense 117,381 127,980
Depreciation and amortization 9,094 9,952
Goodwill and intangible asset impairment charge 175,189 0
Income (loss) from operations (175,505) 8,763
Interest expense (543) (722)
Interest and other income 806 1,275
Interest and other income (expense), net 263 553
Income (loss) before tax expense (benefit) (175,242) 9,316
Income tax expense (benefit) (24,748) 1,040
Net income (loss) $ (150,494) $ 8,276
Net income (loss) per common share:    
Basic (in dollars per share) $ (4.04) $ 0.21
Diluted (in dollars per share) $ (4.04) $ 0.21
Weighted average shares outstanding:    
Basic (in shares) 37,255 39,366
Diluted (in shares) 37,255 39,735
Other Comprehensive Income (Loss):    
Foreign currency translation adjustment $ (6,625) $ 1,326
Comprehensive income (loss) $ (157,119) $ 9,602
v3.20.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
3 Months Ended
Mar. 29, 2020
Mar. 31, 2019
Cash flows from operating activities:    
Net income (loss) $ (150,494) $ 8,276
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation and amortization 9,094 9,952
Goodwill and intangible asset impairment charge 175,189 0
Provision for doubtful accounts 2,660  
Provision for doubtful accounts 3,289 1,778
Stock-based compensation 1,508 3,606
Deferred income taxes (23,432) 3,209
Non-cash lease expense 3,763 3,565
Other operating activities 5,375 (1,841)
Changes in operating assets and liabilities:    
Accounts receivable 45,407 26,558
Income tax receivable 435 (3,645)
Other assets 5,958 (5,274)
Accounts payable and other accrued expenses (28,443) (9,878)
Accrued wages and benefits (11,733) (10,266)
Workers’ compensation claims reserve (2,163) (4,380)
Operating lease liabilities (3,811) (3,414)
Other liabilities (2,334) 3,268
Net cash provided by operating activities 27,608 21,514
Cash flows from investing activities:    
Capital expenditures (7,028) (5,862)
Purchases of restricted available-for-sale investments (1,149) (3,070)
Sales of restricted available-for-sale investments 1,269 1,886
Maturities of restricted held-to-maturity investments 6,168 8,451
Net cash provided by (used in) investing activities (740) 1,405
Cash flows from financing activities:    
Purchases and retirement of common stock (52,348) (5,303)
Net proceeds from employee stock purchase plans 323 380
Common stock repurchases for taxes upon vesting of restricted stock (1,792) (1,438)
Net change in Revolving Credit Facility 256,400 (37,800)
Other (508) (69)
Net cash provided by (used in) financing activities 202,075 (44,230)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (1,738) 314
Net change in cash, cash equivalents and restricted cash 227,205 (20,997)
Cash, cash equivalents and restricted cash, beginning of period 92,371 102,450
Cash, cash equivalents and restricted cash, end of period 319,576 81,453
Supplemental Cash Flow Information [Abstract]    
Interest 394 667
Income taxes (1,751) 1,448
Operating lease liabilities 4,440 4,344
Property and equipment purchased but not yet paid 322 807
Right-of-use assets obtained in exchange for new operating lease liabilities $ 2,422 $ 4,698
v3.20.1
FAIR VALUE MEASUREMENT
3 Months Ended
Mar. 29, 2020
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENT FAIR VALUE MEASUREMENT
Assets measured at fair value on a recurring basis
Our assets measured at fair value on a recurring basis consisted of the following:
 
March 29, 2020
(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)
Cash and cash equivalents
$
265,260

$
265,260

$

$

Restricted cash and cash equivalents
54,316

54,316



Cash, cash equivalents and restricted cash (1)
$
319,576

$
319,576

$

$

 
 
 
 
 
Municipal debt securities
$
73,093

$

$
73,093

$

Corporate debt securities
70,136


70,136


Agency mortgage-backed securities
1,155


1,155


U.S. government and agency securities
1,068


1,068


Restricted investments classified as held-to-maturity
$
145,452

$

$
145,452

$

 
 
 
 
 
Deferred compensation investments (2)
$
11,546

$
11,546

$

$

 
December 29, 2019
(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)
Cash and cash equivalents
$
37,608

$
37,608

$

$

Restricted cash and cash equivalents
54,763

54,763



Cash, cash equivalents and restricted cash (1)
$
92,371

$
92,371

$

$

 
 
 
 
 
Municipal debt securities
$
74,236

$

$
74,236

$

Corporate debt securities
76,068


76,068


Agency mortgage-backed securities
1,376


1,376


U.S. government and agency securities
1,051


1,051


Restricted investments classified as held-to-maturity
$
152,731

$

$
152,731

$

 
 
 
 
 
Deferred compensation investments (2)
$
13,670

$
13,670

$

$

(1)
Cash, cash equivalents and restricted cash consist of money market funds, deposits and investments with original maturities of three months or less.
(2)
Deferred compensation investments consist of mutual funds and money market funds.
There were no material transfers between level 1, level 2 and level 3 of the fair value hierarchy during the thirteen weeks ended March 29, 2020 or March 31, 2019.
Assets measured at fair value on a nonrecurring basis
We measure the fair value of certain non-financial assets on a nonrecurring basis, including goodwill and certain intangible assets. During the first quarter of 2020, we performed an interim impairment test as of the last day of our first fiscal quarter due to current market conditions. As a result of that test, we recognized an impairment charge of $175.2 million during the thirteen weeks ended March 29, 2020, comprised as follows:
 
March 29, 2020
(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)
Total impairment loss
Goodwill
$
93,290

$

$

$
93,290

$
(140,489
)
Client relationships
$
27,108



27,108

(34,700
)
Total
$
120,398

$

$

$
120,398

$
(175,189
)
Goodwill and client relationship intangible assets with a total carrying value of $295.6 million were written down to their fair value of $120.4 million, resulting in an impairment charge of $175.2 million, which was recorded in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended March 29, 2020. Refer to Note 4: Goodwill and Intangible Assets for additional details on the impairment charge and valuation methodologies.
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Mar. 29, 2020
Accounting Policies [Abstract]  
SUMMARY OF 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”) and rules and regulations of the Securities and Exchange Commission for interim financial information. 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 29, 2019. The results of operations for the thirteen weeks ended March 29, 2020, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.

Going concern assessment and management's plans

Due to the adverse impacts of COVID-19 on our business operations, including anticipated future revenue and operating cash flow declines, we expect to fund operations over the next 12 months with funds borrowed on our revolving credit facility. However, if we continue to experience significant revenue declines, which is likely to occur, we would likely not meet one or more of our financial covenants under our revolving credit facility within the next 12 months. Our failure to comply with these covenants would result in an event of default, which, if not cured or waived, could require us to repay these borrowings before their due date. Refer to Note 6: Long-Term Debt for additional details of our revolving credit facility.

We are actively working with our banks to seek an amendment or waiver. In the event we are unsuccessful in these efforts with our banks, management plans to take further action to expand the current cost reduction programs, eliminate all nonessential capital expenditure projects, accelerate working capital improvement initiatives, and complete the sale of certain assets to provide supplemental liquidity. In the absence of an amendment or waiver of covenants related to the revolving credit facility we believe our plans, if executed, would result in adequate cash flows to support our ongoing operations.

Our financial statements have been prepared under the assumption that we will continue as a going concern.
Recently adopted accounting standards
Credit losses
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 (“CECL”), which requires the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. Under this model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions, and forecasted information rather than the previous methodology of delaying recognition of credit losses until it is probable a loss has been incurred. This guidance was adopted at the beginning of the first quarter of 2020. We were required to apply the new standard by means of a cumulative-effect adjustment to opening retained earnings as of the beginning of the first quarter of 2020. The total impact upon adoption to opening retained earnings was immaterial to both the individual financial assets affected as well as in the aggregate.
The following policies have been updated to reflect our adoption of the new standard on accounting for credit losses on financial instruments.
Accounts receivable and allowance for credit losses
Accounts receivable are recorded at the invoiced amount. We establish an allowance for credit loss of estimated losses resulting from the failure of our clients to make required payments by applying an aging schedule to pools of assets with similar risk characteristics. Based on an analysis of the risk characteristics of our clients and associated receivables, we have concluded our pools are as follows:
PeopleReady and Centerline Drivers (“Centerline”) have a large, diverse set of clients, generally with frequent, low dollar invoices due to the daily nature of the work we perform. This results in high turnover in accounts receivable and lower rates of non-payment.
PeopleManagement On-site has a smaller number of clients, and follows a contractual billing schedule. The invoice amounts are higher than that of PeopleReady and Centerline, with longer payment terms.
PeopleScout has a smaller number of clients, and generally sends invoices on a consolidated basis for a client. Invoice amounts are generally higher for PeopleScout than for PeopleManagement On-site, with similar payment terms.
When specific clients are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately. The credit loss rates applied to each aging category by pool are based on current collection efforts, historical collection trends, write-off experience, client credit risk and current economic data. The allowance for credit loss is reviewed quarterly and represents our best estimate of the amount of expected credit losses. Each month, past due or delinquent balances are identified based upon a review of aged receivables performed by collections and operations. Past due balances are written off when it is probable the receivable will not be collected. Changes in the allowance for credit losses are recorded in selling, general and administrative (“SG&A”) expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).
In response to the rapidly changing market conditions, we have taken all appropriate steps to assess the impact to our accounts receivable allowance for credit losses. Given the dynamic nature, it is difficult to estimate the economic impact caused by COVID–19 on this allowance. However, we believe the allowance for credit loss for accounts receivable as of March 29, 2020, is our best estimate of the amount of expected credit losses. Should actual results deviate from what we have currently estimated, our allowance for credit losses could change significantly.
The activity related to the allowance for credit losses for accounts receivable during the thirteen weeks ended March 29, 2020 was as follows:
(in thousands)
 
Beginning balance
$
4,288

Cumulative-effect adjustment (1)
524

Current period provision
2,660

Write-offs, net (2)
(1,093
)
Ending balance
$
6,379

(1)
As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to our account receivable allowance of $0.5 million as of the beginning of the first quarter of 2020.
(2)
Write-offs charged against the allowance are presented net of recoveries collected as the recoveries were immaterial for the thirteen weeks ended March 29, 2020.
Restricted cash and investments
We establish an allowance for credit loss for our held-to-maturity debt securities using a discounted cash flow method including a probability of default rate based on the issuer credit rating. We report the entire change in present value as credit loss expense (or reversal of credit loss expense) in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our held-to-maturity debt securities as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of March 29, 2020.
Workers’ compensation claims reserves
We establish an allowance for credit loss for our insurance receivables using a probability of default and loss given default method, with the probability of default rate based on the third-party insurance carrier credit rating. Changes in the allowance for credit losses are recorded in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our workers’ compensation insurance receivables as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of March 29, 2020.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the current presentation. Specifically, the company has made certain reclassifications between cost of services and SG&A expense to more accurately reflect the costs of delivering our services. Such reclassifications did not have a significant impact on the company’s gross profit or SG&A expense.
Certain immaterial prior year amounts have also been reclassified within cash flows from investing activities on our Consolidated Statements of Cash Flows to conform to current year presentation.
Recently issued accounting pronouncements not yet adopted
There are no accounting pronouncements which have not yet been adopted that are expected to have a significant impact on our financial statements and related disclosures.
v3.20.1
RESTRICTED CASH AND INVESTMENTS
3 Months Ended
Mar. 29, 2020
Restricted Cash and Investments [Abstract]  
RESTRICTED CASH AND INVESTMENTS RESTRICTED CASH AND INVESTMENTS
The following is a summary of the carrying value of our restricted cash and investments:
(in thousands)
March 29,
2020
December 29,
2019
Cash collateral held by insurance carriers
$
24,684

$
24,612

Cash and cash equivalents held in Trust
26,641

23,681

Investments held in Trust
142,761

149,373

Deferred compensation investments
11,546

13,670

Company owned life insurance policies
10,284

13,126

Other restricted cash and cash equivalents
2,991

6,470

Total restricted cash and investments
$
218,907

$
230,932


Held-to-maturity
Restricted cash and investments include 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 amortized cost and estimated fair value of our held-to-maturity investments held in Trust, aggregated by investment category as of March 29, 2020 and December 29, 2019, were as follows:
 
March 29, 2020
(in thousands)
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Municipal debt securities
$
71,124

$
1,969

$

$
73,093

Corporate debt securities
69,539

908

(311
)
70,136

Agency mortgage-backed securities
1,116

39


1,155

U.S. government and agency securities
1,000

68


1,068

Total held-to-maturity investments
$
142,779

$
2,984

$
(311
)
$
145,452

 
December 29, 2019
(in thousands)
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Municipal debt securities
$
72,017

$
2,219

$

$
74,236

Corporate debt securities
75,000

1,102

(34
)
76,068

Agency mortgage-backed securities
1,357

21

(2
)
1,376

U.S. government and agency securities
999

52


1,051

Total held-to-maturity investments
$
149,373

$
3,394

$
(36
)
$
152,731


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 March 29, 2020 and December 29, 2019, were as follows:
 
March 29, 2020
 
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
Corporate debt securities
$
23,488

$
(311
)
 
$

$

 
$
23,488

$
(311
)
Total held-to-maturity investments
$
23,488

$
(311
)
 
$

$

 
$
23,488

$
(311
)
 
December 29, 2019
 
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
Corporate debt securities
$
15,920

$
(32
)
 
$
2,765

$
(2
)
 
$
18,685

$
(34
)
Agency mortgage-backed securities


 
276

(2
)
 
276

(2
)
Total held-to-maturity investments
$
15,920

$
(32
)

$
3,041

$
(4
)

$
18,961

$
(36
)

The total number of held-to-maturity securities in an unrealized loss position as of March 29, 2020 and December 29, 2019 were 16 and 17, respectively. The unrealized losses were the result of net interest rate increases over the maturity of the respective securities. 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 until 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:
 
March 29, 2020
(in thousands)
Amortized cost
Fair value
Due in one year or less
$
26,080

$
26,145

Due after one year through five years
88,541

90,049

Due after five years through ten years
28,158

29,258

Total held-to-maturity investments
$
142,779

$
145,452


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.
Equity investments
We hold mutual funds and money market funds to support our deferred compensation liability. Unrealized gains and losses related to equity investments still held at March 29, 2020 and March 31, 2019, totaled a $2.9 million loss and a $2.4 million gain for the thirteen weeks then ended, respectively, and are included in SG&A expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).
v3.20.1
GOODWILL AND INTANGIBLE ASSETS
3 Months Ended
Mar. 29, 2020
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 29, 2019
 
 
 
 
Goodwill before impairment
106,304

81,092

145,181

332,577

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

47,392

130,012

237,498

 
 
 
 
 
 
Impairment loss

(45,901
)
(94,588
)
(140,489
)
Foreign currency translation


(3,719
)
(3,719
)
 
 
 
 
 
 
Balance at
March 29, 2020
 
 
 
 
Goodwill before impairment
106,304

81,092

141,462

328,858

Accumulated impairment loss
(46,210
)
(79,601
)
(109,757
)
(235,568
)
Goodwill, net
$
60,094

$
1,491

$
31,705

$
93,290


Intangible assets
Finite-lived intangible assets
The following table presents our purchased finite-lived intangible assets:
 
March 29, 2020
 
December 29, 2019
(in thousands)
Gross carrying amount
Accumulated
amortization
Net
carrying
amount
 
Gross carrying amount
Accumulated
amortization
Net
carrying
amount
Finite-lived intangible assets (1):
 
 
 
 
 
 
 
Client relationships (2)
$
98,181

$
(71,073
)
$
27,108

 
$
149,299

$
(83,317
)
$
65,982

Trade names/trademarks
1,939

(467
)
1,472

 
2,052

(441
)
1,611

Technologies
600

(550
)
50

 
600

(520
)
80

Total finite-lived intangible assets
$
100,720

$
(72,090
)
$
28,630

 
$
151,951

$
(84,278
)
$
67,673

(1)
Excludes assets that are fully amortized.
(2)
Balance at March 29, 2020 is net of impairment loss of $34.7 million recorded in the thirteen weeks ended March 29, 2020.
Amortization expense of our finite-lived intangible assets was $4.0 million and $5.1 million for the thirteen weeks ended March 29, 2020 and March 31, 2019, respectively.
Indefinite-lived intangible assets
We also held indefinite-lived trade names/trademarks of $6.0 million as of March 29, 2020 and December 29, 2019.
Impairments
Goodwill
We evaluate goodwill for impairment on an annual basis as of the first day of our fiscal second quarter, and whenever events or circumstances make it more likely than not that an impairment may have occurred. These events or circumstances could include a significant change in the business climate, operating performance indicators, competition, client 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. During the first quarter of 2020, the following events made it more likely than not that an impairment had occurred and accordingly, we performed an interim impairment test as of the last day of our fiscal first quarter.
We experienced a significant decline in our stock price during the first quarter of 2020. As a result of the decline in stock price, our market capitalization fell significantly below the recorded value of our consolidated net assets. The reduced market capitalization reflected the expected continued weakness in pricing and demand for our staffing services in a volatile economic climate. This was further impacted in March 2020 by the COVID-19 pandemic which created a sudden economic shock both globally and domestically. The response in the United States and Canada has generally been to require that the populous remain at home unless they are working in an “essential” role as defined by state governments. We are continuing to support our clients during this period of time, many of whom are essential businesses, but volumes have declined substantially. Most industries we serve have been impacted by a significant decrease in demand for their products and services, and as a result, demand for our services has decreased. We expect significant decreases to our revenues and corresponding operating results as we experience continued weakness in pricing and demand for our services during this severe economic downturn. While we expect to see demand recover in the future, our expectation is that the rate of recovery will vary by geography and industry depending on the economic impact caused by COVID-19 and the rate at which infections decline to a contained level.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions to evaluate the impact of operating and macroeconomic changes on each reporting unit. The fair value of each reporting unit was estimated using a combination of a discounted cash flow methodology and the market valuation approach using publicly traded company multiples in similar businesses. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internally developed forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. The weighted average cost of capital used in our most recent impairment test was risk-adjusted to reflect the specific risk profile of the reporting units and ranged from 11.5% to 12.0%. The combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of common stock on the date of valuation, while considering a reasonable control premium. As a result of this impairment test, we concluded that the carrying amounts of goodwill for PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units exceeded their implied fair values and we recorded a non-cash impairment loss of $140.5 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended March 29, 2020. The total goodwill carrying value of $45.9 million for PeopleManagement On-site reporting unit was fully impaired. The goodwill impairment charge for PeopleScout RPO and PeopleScout MSP was $92.2 million and $2.4 million, respectively, leaving a remaining goodwill balance of $22.0 million and $9.7 million, respectively as of March 29, 2020. Should actual results decline further or longer than we have currently estimated, the remaining goodwill balances may be further impaired. We will continue to closely monitor the operational performance of these reporting units as it relates to goodwill impairment.
Finite-lived intangible assets
We generally record acquired intangible assets that have finite useful lives, such as client relationships, 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. Factors considered important that could result in an impairment review include, but are not limited to, significant underperformance relative to historical or planned operating results or significant changes in business strategies. We estimate the recoverability of these assets by comparing the carrying amount of the asset to the future undiscounted cash flows that we expect the asset to generate. An impairment loss is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on discounted cash flow analysis or other valuation techniques. With the decrease in demand for our services due to the economic impact caused by the response to COVID-19, we lowered our future expectations, which was the primary trigger of an impairment to our acquired client relationships intangible assets for our PeopleScout RPO and PeopleManagement On-Site reporting units of $34.7 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the
thirteen weeks ended March 29, 2020. The impairment charge for PeopleScout RPO and PeopleManagement On-site reporting units was $25.0 million and $9.7 million, respectively, leaving a remaining client relationship balance of $6.2 million and $8.5 million, respectively as of March 29, 2020. Considerable management judgment was necessary to determine key assumptions, including projected revenue of acquired clients and an appropriate discount rate of 12.0%. Should actual results decline further or longer than we have currently estimated, the remaining goodwill balances may be further impaired.
Indefinite-lived intangible assets
We have indefinite-lived intangible assets related to our Staff Management and PeopleScout trade names. We test our trade names annually for impairment, and when indicators of potential impairment exist. We utilize the relief from royalty method to determine the fair value of each of our trade names. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates.
We performed an interim impairment test of our indefinite-lived intangible assets as of the last day of our first fiscal quarter for 2020 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 March 29, 2020.
v3.20.1
WORKERS' COMPENSATION INSURANCE AND RESERVES
3 Months Ended
Mar. 29, 2020
Workers' Compensation Insurance and Reserves [Abstract]  
WORKERS' COMPENSATION INSURANCE AND RESERVES WORKERS’ COMPENSATION INSURANCE AND RESERVES
We provide workers’ compensation insurance for our contingent 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 2.0% at March 29, 2020 and December 29, 2019. Payments made against self-insured claims are made over a weighted average period of approximately 5 years as of March 29, 2020.
The following table presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented:
(in thousands)
March 29,
2020
December 29,
2019
Undiscounted workers’ compensation reserve
$
272,179

$
274,934

Less discount on workers’ compensation reserve
18,724

19,316

Workers’ compensation reserve, net of discount
253,455

255,618

Less current portion
69,353

73,020

Long-term portion
$
184,102

$
182,598


Payments made against self-insured claims were $14.6 million and $15.3 million for the thirteen weeks ended March 29, 2020 and March 31, 2019, 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 March 29, 2020 and December 29, 2019, the weighted average rate was 2.2% and 2.4%, respectively. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 17 years. The discounted workers’ compensation reserve for excess claims was $45.6 million and $45.3 million, and the corresponding gross receivable for the insurance on excess claims was $44.6 million and $45.3 million as of March 29, 2020 and December 29, 2019, respectively.
Workers’ compensation cost consists primarily of changes in self-insurance reserves net of changes in discount, monopolistic jurisdictions’ premiums, insurance premiums and other miscellaneous expenses. Workers’ compensation cost of $14.3 million and $11.9 million was recorded in cost of services on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended March 29, 2020 and March 31, 2019, respectively.
v3.20.1
COMMITMENTS AND CONTINGENCIES
3 Months Ended
Mar. 29, 2020
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)
March 29,
2020
December 29,
2019
Cash collateral held by workers’ compensation insurance carriers
$
22,317

$
22,256

Cash and cash equivalents held in Trust
26,641

23,681

Investments held in Trust
142,761

149,373

Letters of credit (1)
6,202

6,202

Surety bonds (2)
20,731

20,731

Total collateral commitments
$
218,652

$
222,243


(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.
v3.20.1
LONG-TERM DEBT
3 Months Ended
Mar. 29, 2020
Debt Disclosure [Abstract]  
LONG-TERM DEBT LONG-TERM DEBT
On March 16, 2020, we entered into a first amendment to our 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. dated as of July 13, 2018 (the “Amendment,” the existing credit agreement as amended by the Amendment, the “Credit Agreement,” and the revolving credit facility established thereunder, the “Revolving Credit Facility”). The Amendment extended the maturity of the Revolving Credit Facility to March 16, 2025, and modified certain other terms.
The Credit Agreement provides for a revolving line of credit of up to $300.0 million with an option, subject to lender approval, to increase the amount to $450.0 million, and matures in five years. Included in the Credit Agreement is a $30.0 million sub-limit for Swingline loans and a $125.0 million sub-limit for letters of credit. At March 29, 2020, $293.5 million was drawn on the Revolving Credit Facility, which included a $10.0 million Swingline loan, and $6.2 million of standby letters of credit, leaving $0.3 million available under the Revolving Credit Facility for additional borrowings. At December 29, 2019, $37.1 million was drawn on the Revolving Credit Facility, which included a $17.1 million Swingline loan.
Under the terms of the Credit Agreement, we pay a variable rate of interest on funds borrowed under the revolving line of credit in excess of the Swingline loans, 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 on a base rate plus an applicable spread between 0.25% and 1.50%. The base rate is the greater of the prime rate (as announced by Bank of America), or the federal funds rate plus 0.50%. The applicable spread is determined by the consolidated leverage ratio, as defined in the credit agreement. At March 29, 2020, the applicable spread on LIBOR was 1.25% and the weighted average index rate was 1.00%, resulting in a weighted average interest rate of 2.25%.
Under the terms of the Credit Agreement, we are required to pay a variable rate of interest on funds borrowed under the Swingline loan based on the base rate plus applicable spread between 0.25% and 1.50%, as described above. At March 29, 2020, the applicable spread on the base rate was 0.25% and the base rate was 3.25%, resulting in an interest rate of 3.50%.
A commitment fee between 0.250% and 0.375% is applied against the 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 Credit Agreement are guaranteed by TrueBlue and material U.S. domestic subsidiaries, and are secured by substantially all of the assets of TrueBlue and material U.S. domestic subsidiaries. The Credit 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. The leverage coverage ratio is our funded indebtedness divided by trailing twelve months consolidated EBITDA, as defined in the Credit Agreement, and we are required to maintain a ratio of less than 3.0. The fixed charge coverage ratio is trailing twelve months bank-adjusted cash flow divided by cash interest expense which is required to be greater than 1.25. As of March 29, 2020, we were in compliance with all covenants related to the Revolving Credit Facility as our leverage coverage ratio was 2.7 and our fixed charge coverage ratio was 40.8. If we continue to experience significant revenue declines, which is likely to occur, we would not meet one or more of our financial covenants under our Revolving Credit Facility within the next 12 months. Our failure to comply with these restrictive covenants would result in an event of default, which, if not cured or waived, could require us to repay these borrowings before their due date. Refer to Note 1: Summary of Significant Accounting Policies - Going concern assessment and management’s plans for additional details.
v3.20.1
SHAREHOLDERS' EQUITY
3 Months Ended
Mar. 29, 2020
Shareholders' Equity [Abstract]  
SHAREHOLDER’S EQUITY SHAREHOLDERS’ EQUITY
Changes in the balance of each component of shareholders’ equity during the reporting periods were as follows:
 
Thirteen weeks ended
(in thousands)
March 29,
2020
March 31,
2019
 
 
 
Common stock shares
 
 
Beginning balance
38,593

40,054

Purchases and retirement of common stock
(2,930
)
(234
)
Issuances under equity plans, including tax benefits
415

308

Stock-based compensation
50

24

Ending balance
36,128

40,152

 
 
 
Common stock amount
 
 
Beginning balance
$
1

$
1

Current period activity


Ending balance
1

1

 
 
 
Retained earnings
 
 
Beginning balance
639,210

606,087

Net income (loss)
(150,494
)
8,276

Purchases and retirement of common stock (1)
(52,346
)
(5,303
)
Issuances under equity plans, including tax benefits
(1,471
)
(1,057
)
Stock-based compensation
1,507

3,606

Change in accounting standard cumulative-effect adjustment (2)
(602
)

Ending balance
435,804

611,609

 
 
 
Accumulated other comprehensive loss
 
 
Beginning balance, net of tax
(13,238
)
(14,649
)
Foreign currency translation adjustment
(6,625
)
1,326

Ending balance, net of tax
(19,863
)
(13,323
)
 
 
 
Total shareholders’ equity ending balance
$
415,942

$
598,287

(1)
Under applicable Washington State law, shares purchased are not displayed separately as treasury stock on our Consolidated Balance Sheets and are treated as authorized but unissued shares. It is our accounting policy to first record these purchases as a reduction to our common stock account. Once the common stock account has been reduced to a nominal balance, remaining purchases are recorded as a reduction to our retained earnings. Furthermore, activity in our common stock account related to stock-based compensation is also recorded to retained earnings until such time as the reduction to retained earnings due to stock repurchases has been recovered.
(2)
As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to retained earnings of $0.6 million in the first quarter of 2020.
Share repurchase plan

On October 16, 2019, our Board of Directors authorized a $100.0 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. We may choose to purchase shares in the open market, from individual holders, through an accelerated share repurchase program or otherwise. As of March 29, 2020, $66.7 million remains available for repurchase of common stock under the existing authorization.
As part of the existing share repurchase plan, on February 28, 2020 we entered into an accelerated share repurchase (“ASR”) agreement with a third-party financial institution to repurchase $40.0 million of our common stock. Under the ASR agreement, we paid $40.0 million to the financial institution and received an initial delivery of 2,150,538 shares, which represented 80% of the total shares we expect to receive based on the market price at the time of the initial delivery. This transaction was conducted prior to the medical community’s acknowledgment of the expected severity that COVID-19 would have on the United States.
The final number of shares delivered upon settlement of the agreement will be determined with reference to the volume weighted average price of our shares over the term of the ASR agreement, less the agreed-upon discount, which will end no later than July 2, 2020. Under the terms of the ASR agreement, upon settlement, we will either receive additional shares from the financial institution or be required to deliver additional shares or cash to the financial institution. We control the election to either deliver additional shares or cash to the financial institution, if required. As such, the forward stock purchase contract was considered indexed to our own stock and is classified as an equity instrument. The value of the initial shares received was recorded as a reduction to retained earnings, and the number of shares initially received was an immediate reduction in the weighted average common shares calculation for basic and diluted earnings per share.
v3.20.1
INCOME TAXES
3 Months Ended
Mar. 29, 2020
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.
Our effective tax rate for the thirteen weeks ended March 29, 2020 was 14.1%. The difference between the statutory federal income tax rate of 21.0% and our effective income tax rate results primarily from a non-deductible goodwill and intangible asset impairment charge, the Coronavirus Aid, Relief and Economic Security Act, and the federal Work Opportunity Tax Credit (“WOTC”). WOTC 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 of 14.1% result from state and foreign income taxes, certain non-deductible expenses, tax exempt interest, and tax effects of stock-based compensation.
v3.20.1
NET INCOME (LOSS) PER SHARE
3 Months Ended
Mar. 29, 2020
Earnings Per Share [Abstract]  
NET INCOME (LOSS) PER SHARE
NET INCOME (LOSS) PER SHARE
Diluted common shares were calculated as follows:
 
Thirteen weeks ended
(in thousands, except per share data)
March 29,
2020
March 31,
2019
Net income (loss)
$
(150,494
)
$
8,276

 
 
 
Weighted average number of common shares used in basic net income (loss) per common share
37,255

39,366

Dilutive effect of non-vested restricted stock

369

Weighted average number of common shares used in diluted net income (loss) per common share
37,255

39,735

 
 
 
Net income (loss) per common share:
 
 
Basic
$
(4.04
)
$
0.21

Diluted
$
(4.04
)
$
0.21

 
 
 
Anti-dilutive shares
602

336


v3.20.1
SEGMENT INFORMATION
3 Months Ended
Mar. 29, 2020
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 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, retail, waste and recycling, energy, hospitality, general labor and others.
Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-site at the client’s facility, through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:
On-site: On-site management and recruitment for the contingent industrial workforce of manufacturing, warehouse, and distribution facilities; and
Centerline Drivers: Recruitment and management of contingent and dedicated commercial drivers to the transportation and distribution industries.
Our PeopleScout reportable segment provides high-volume, permanent employee recruitment process outsourcing, employer branding services 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.
We evaluate performance based on segment revenue and segment profit (loss). Inter-segment revenue is minimal. Segment profit (loss) includes revenue, related cost of services, and ongoing operating expenses directly attributable to the reportable segment. Segment profit (loss) excludes goodwill and intangible impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest, other income and expense, income taxes, and other adjustments not considered to be ongoing.
The following table presents our revenue disaggregated by major source and segment and a reconciliation of segment revenue from services to total company revenue:
 
Thirteen weeks ended
(in thousands)
March 29,
2020
March 31,
2019
Revenue from services:
 
 
Contingent staffing
 
 
PeopleReady
$
299,294

$
326,868

PeopleManagement
141,614

158,044

Human resource outsourcing
 
 
PeopleScout
53,344

67,440

Total company
$
494,252

$
552,352


The following table presents a reconciliation of segment profit to income (loss) before tax expense (benefit):
 
Thirteen weeks ended
(in thousands)
March 29,
2020
March 31,
2019
Segment profit (loss):
 
 
PeopleReady
$
7,655

$
11,470

PeopleManagement
(314
)
2,306

PeopleScout
2,508

10,427

 
9,849

24,203

Corporate unallocated
(5,209
)
(7,277
)
Work Opportunity Tax Credit processing fees
(135
)
(240
)
Acquisition/integration costs

(577
)
Goodwill and intangible asset impairment charge
(175,189
)

Other costs
4,273

2,606

Depreciation and amortization
(9,094
)
(9,952
)
Income (loss) from operations
(175,505
)
8,763

Interest and other income (expense), net
263

553

Income (loss) before tax expense (benefit)
$
(175,242
)
$
9,316


Asset information by reportable segment is not presented since we do not manage our segments on a balance sheet basis.
v3.20.1
SUBSEQUENT EVENT
3 Months Ended
Mar. 29, 2020
Subsequent Event [Line Items]  
Subsequent Event SUBSEQUENT EVENT
On April 6, 2020, in connection with our plan to reduce costs as a result of the economic impact caused by the response to COVID-19, we announced a workforce reduction and notified approximately 645 employees of their termination and furloughed approximately 100 employees. We currently anticipate incurring severance-based charges of approximately $8 million. The severance expense related to the workforce reduction will be recognized in the second quarter of 2020.
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
3 Months Ended
Mar. 29, 2020
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”) and rules and regulations of the Securities and Exchange Commission for interim financial information. 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 29, 2019. The results of operations for the thirteen weeks ended March 29, 2020, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.
Going concern
Going concern assessment and management's plans

Due to the adverse impacts of COVID-19 on our business operations, including anticipated future revenue and operating cash flow declines, we expect to fund operations over the next 12 months with funds borrowed on our revolving credit facility. However, if we continue to experience significant revenue declines, which is likely to occur, we would likely not meet one or more of our financial covenants under our revolving credit facility within the next 12 months. Our failure to comply with these covenants would result in an event of default, which, if not cured or waived, could require us to repay these borrowings before their due date. Refer to Note 6: Long-Term Debt for additional details of our revolving credit facility.

We are actively working with our banks to seek an amendment or waiver. In the event we are unsuccessful in these efforts with our banks, management plans to take further action to expand the current cost reduction programs, eliminate all nonessential capital expenditure projects, accelerate working capital improvement initiatives, and complete the sale of certain assets to provide supplemental liquidity. In the absence of an amendment or waiver of covenants related to the revolving credit facility we believe our plans, if executed, would result in adequate cash flows to support our ongoing operations.

Our financial statements have been prepared under the assumption that we will continue as a going concern.
Recently adopted accounting standards and recently issued accounting pronouncements not yet adopted
Recently issued accounting pronouncements not yet adopted
There are no accounting pronouncements which have not yet been adopted that are expected to have a significant impact on our financial statements and related disclosures.
Recently adopted accounting standards
Credit losses
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 (“CECL”), which requires the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. Under this model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions, and forecasted information rather than the previous methodology of delaying recognition of credit losses until it is probable a loss has been incurred. This guidance was adopted at the beginning of the first quarter of 2020. We were required to apply the new standard by means of a cumulative-effect adjustment to opening retained earnings as of the beginning of the first quarter of 2020. The total impact upon adoption to opening retained earnings was immaterial to both the individual financial assets affected as well as in the aggregate.
The following policies have been updated to reflect our adoption of the new standard on accounting for credit losses on financial instruments.
Accounts receivable and allowance for credit losses
Accounts receivable are recorded at the invoiced amount. We establish an allowance for credit loss of estimated losses resulting from the failure of our clients to make required payments by applying an aging schedule to pools of assets with similar risk characteristics. Based on an analysis of the risk characteristics of our clients and associated receivables, we have concluded our pools are as follows:
PeopleReady and Centerline Drivers (“Centerline”) have a large, diverse set of clients, generally with frequent, low dollar invoices due to the daily nature of the work we perform. This results in high turnover in accounts receivable and lower rates of non-payment.
PeopleManagement On-site has a smaller number of clients, and follows a contractual billing schedule. The invoice amounts are higher than that of PeopleReady and Centerline, with longer payment terms.
PeopleScout has a smaller number of clients, and generally sends invoices on a consolidated basis for a client. Invoice amounts are generally higher for PeopleScout than for PeopleManagement On-site, with similar payment terms.
When specific clients are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately. The credit loss rates applied to each aging category by pool are based on current collection efforts, historical collection trends, write-off experience, client credit risk and current economic data. The allowance for credit loss is reviewed quarterly and represents our best estimate of the amount of expected credit losses. Each month, past due or delinquent balances are identified based upon a review of aged receivables performed by collections and operations. Past due balances are written off when it is probable the receivable will not be collected. Changes in the allowance for credit losses are recorded in selling, general and administrative (“SG&A”) expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).
In response to the rapidly changing market conditions, we have taken all appropriate steps to assess the impact to our accounts receivable allowance for credit losses. Given the dynamic nature, it is difficult to estimate the economic impact caused by COVID–19 on this allowance. However, we believe the allowance for credit loss for accounts receivable as of March 29, 2020, is our best estimate of the amount of expected credit losses. Should actual results deviate from what we have currently estimated, our allowance for credit losses could change significantly.
The activity related to the allowance for credit losses for accounts receivable during the thirteen weeks ended March 29, 2020 was as follows:
(in thousands)
 
Beginning balance
$
4,288

Cumulative-effect adjustment (1)
524

Current period provision
2,660

Write-offs, net (2)
(1,093
)
Ending balance
$
6,379

(1)
As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to our account receivable allowance of $0.5 million as of the beginning of the first quarter of 2020.
(2)
Write-offs charged against the allowance are presented net of recoveries collected as the recoveries were immaterial for the thirteen weeks ended March 29, 2020.
Restricted cash and investments
We establish an allowance for credit loss for our held-to-maturity debt securities using a discounted cash flow method including a probability of default rate based on the issuer credit rating. We report the entire change in present value as credit loss expense (or reversal of credit loss expense) in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our held-to-maturity debt securities as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of March 29, 2020.
Workers’ compensation claims reserves
We establish an allowance for credit loss for our insurance receivables using a probability of default and loss given default method, with the probability of default rate based on the third-party insurance carrier credit rating. Changes in the allowance for credit losses are recorded in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our workers’ compensation insurance receivables as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of March 29, 2020.
Accounts receivable and allowance for credit losses
Accounts receivable and allowance for credit losses
Accounts receivable are recorded at the invoiced amount. We establish an allowance for credit loss of estimated losses resulting from the failure of our clients to make required payments by applying an aging schedule to pools of assets with similar risk characteristics. Based on an analysis of the risk characteristics of our clients and associated receivables, we have concluded our pools are as follows:
PeopleReady and Centerline Drivers (“Centerline”) have a large, diverse set of clients, generally with frequent, low dollar invoices due to the daily nature of the work we perform. This results in high turnover in accounts receivable and lower rates of non-payment.
PeopleManagement On-site has a smaller number of clients, and follows a contractual billing schedule. The invoice amounts are higher than that of PeopleReady and Centerline, with longer payment terms.
PeopleScout has a smaller number of clients, and generally sends invoices on a consolidated basis for a client. Invoice amounts are generally higher for PeopleScout than for PeopleManagement On-site, with similar payment terms.
When specific clients are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately. The credit loss rates applied to each aging category by pool are based on current collection efforts, historical collection trends, write-off experience, client credit risk and current economic data. The allowance for credit loss is reviewed quarterly and represents our best estimate of the amount of expected credit losses. Each month, past due or delinquent balances are identified based upon a review of aged receivables performed by collections and operations. Past due balances are written off when it is probable the receivable will not be collected. Changes in the allowance for credit losses are recorded in selling, general and administrative (“SG&A”) expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Restricted cash and investments
Restricted cash and investments
We establish an allowance for credit loss for our held-to-maturity debt securities using a discounted cash flow method including a probability of default rate based on the issuer credit rating. We report the entire change in present value as credit loss expense (or reversal of credit loss expense) in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our held-to-maturity debt securities as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of March 29, 2020.
Workers' compensation claims reserves
Workers’ compensation claims reserves
We establish an allowance for credit loss for our insurance receivables using a probability of default and loss given default method, with the probability of default rate based on the third-party insurance carrier credit rating. Changes in the allowance for credit losses are recorded in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our workers’ compensation insurance receivables as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of March 29, 2020.
Reclassifications
Reclassifications
Certain previously reported amounts have been reclassified to conform to the current presentation. Specifically, the company has made certain reclassifications between cost of services and SG&A expense to more accurately reflect the costs of delivering our services. Such reclassifications did not have a significant impact on the company’s gross profit or SG&A expense.
Certain immaterial prior year amounts have also been reclassified within cash flows from investing activities on our Consolidated Statements of Cash Flows to conform to current year presentation.
v3.20.1
FAIR VALUE MEASUREMENT (Tables)
3 Months Ended
Mar. 29, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements, Recurring and Nonrecurring
Assets measured at fair value on a recurring basis
Our assets measured at fair value on a recurring basis consisted of the following:
 
March 29, 2020
(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)
Cash and cash equivalents
$
265,260

$
265,260

$

$

Restricted cash and cash equivalents
54,316

54,316



Cash, cash equivalents and restricted cash (1)
$
319,576

$
319,576

$

$

 
 
 
 
 
Municipal debt securities
$
73,093

$

$
73,093

$

Corporate debt securities
70,136


70,136


Agency mortgage-backed securities
1,155


1,155


U.S. government and agency securities
1,068


1,068


Restricted investments classified as held-to-maturity
$
145,452

$

$
145,452

$

 
 
 
 
 
Deferred compensation investments (2)
$
11,546

$
11,546

$

$

 
December 29, 2019
(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)
Cash and cash equivalents
$
37,608

$
37,608

$

$

Restricted cash and cash equivalents
54,763

54,763



Cash, cash equivalents and restricted cash (1)
$
92,371

$
92,371

$

$

 
 
 
 
 
Municipal debt securities
$
74,236

$

$
74,236

$

Corporate debt securities
76,068


76,068


Agency mortgage-backed securities
1,376


1,376


U.S. government and agency securities
1,051


1,051


Restricted investments classified as held-to-maturity
$
152,731

$

$
152,731

$

 
 
 
 
 
Deferred compensation investments (2)
$
13,670

$
13,670

$

$

(1)
Cash, cash equivalents and restricted cash consist of money market funds, deposits and investments with original maturities of three months or less.
(2)
Deferred compensation investments consist of mutual funds and money market funds.
There were no material transfers between level 1, level 2 and level 3 of the fair value hierarchy during the thirteen weeks ended March 29, 2020 or March 31, 2019.
Assets measured at fair value on a nonrecurring basis
We measure the fair value of certain non-financial assets on a nonrecurring basis, including goodwill and certain intangible assets. During the first quarter of 2020, we performed an interim impairment test as of the last day of our first fiscal quarter due to current market conditions. As a result of that test, we recognized an impairment charge of $175.2 million during the thirteen weeks ended March 29, 2020, comprised as follows:
 
March 29, 2020
(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)
Total impairment loss
Goodwill
$
93,290

$

$

$
93,290

$
(140,489
)
Client relationships
$
27,108



27,108

(34,700
)
Total
$
120,398

$

$

$
120,398

$
(175,189
)
Goodwill and client relationship intangible assets with a total carrying value of $295.6 million were written down to their fair value of $120.4 million, resulting in an impairment charge of $175.2 million, which was recorded in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended March 29, 2020. Refer to Note 4: Goodwill and Intangible Assets for additional details on the impairment charge and valuation methodologies.
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Allowance for credit losses (Tables)
3 Months Ended
Mar. 29, 2020
Accounting Policies [Abstract]  
Allowance for credit losses
The activity related to the allowance for credit losses for accounts receivable during the thirteen weeks ended March 29, 2020 was as follows:
(in thousands)
 
Beginning balance
$
4,288

Cumulative-effect adjustment (1)
524

Current period provision
2,660

Write-offs, net (2)
(1,093
)
Ending balance
$
6,379

(1)
As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to our account receivable allowance of $0.5 million as of the beginning of the first quarter of 2020.
(2)
Write-offs charged against the allowance are presented net of recoveries collected as the recoveries were immaterial for the thirteen weeks ended March 29, 2020.
v3.20.1
RESTRICTED CASH AND INVESTMENTS (Tables)
3 Months Ended
Mar. 29, 2020
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)
March 29,
2020
December 29,
2019
Cash collateral held by insurance carriers
$
24,684

$
24,612

Cash and cash equivalents held in Trust
26,641

23,681

Investments held in Trust
142,761

149,373

Deferred compensation investments
11,546

13,670

Company owned life insurance policies
10,284

13,126

Other restricted cash and cash equivalents
2,991

6,470

Total restricted cash and investments
$
218,907

$
230,932


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 as of March 29, 2020 and December 29, 2019, were as follows:
 
March 29, 2020
(in thousands)
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Municipal debt securities
$
71,124

$
1,969

$

$
73,093

Corporate debt securities
69,539

908

(311
)
70,136

Agency mortgage-backed securities
1,116

39


1,155

U.S. government and agency securities
1,000

68


1,068

Total held-to-maturity investments
$
142,779

$
2,984

$
(311
)
$
145,452

 
December 29, 2019
(in thousands)
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Municipal debt securities
$
72,017

$
2,219

$

$
74,236

Corporate debt securities
75,000

1,102

(34
)
76,068

Agency mortgage-backed securities
1,357

21

(2
)
1,376

U.S. government and agency securities
999

52


1,051

Total held-to-maturity investments
$
149,373

$
3,394

$
(36
)
$
152,731


Schedule of continuous unrealized loss position
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 March 29, 2020 and December 29, 2019, were as follows:
 
March 29, 2020
 
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
Corporate debt securities
$
23,488

$
(311
)
 
$

$

 
$
23,488

$
(311
)
Total held-to-maturity investments
$
23,488

$
(311
)
 
$

$

 
$
23,488

$
(311
)
 
December 29, 2019
 
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
Corporate debt securities
$
15,920

$
(32
)
 
$
2,765

$
(2
)
 
$
18,685

$
(34
)
Agency mortgage-backed securities


 
276

(2
)
 
276

(2
)
Total held-to-maturity investments
$
15,920

$
(32
)

$
3,041

$
(4
)

$
18,961

$
(36
)

Schedule of held-to-maturity investments by contractual maturity
The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows:
 
March 29, 2020
(in thousands)
Amortized cost
Fair value
Due in one year or less
$
26,080

$
26,145

Due after one year through five years
88,541

90,049

Due after five years through ten years
28,158

29,258

Total held-to-maturity investments
$
142,779

$
145,452


v3.20.1
GOODWILL AND INTANGIBLE ASSETS (Tables)
3 Months Ended
Mar. 29, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of 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 29, 2019
 
 
 
 
Goodwill before impairment
106,304

81,092

145,181

332,577

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

47,392

130,012

237,498

 
 
 
 
 
 
Impairment loss

(45,901
)
(94,588
)
(140,489
)
Foreign currency translation


(3,719
)
(3,719
)
 
 
 
 
 
 
Balance at
March 29, 2020
 
 
 
 
Goodwill before impairment
106,304

81,092

141,462

328,858

Accumulated impairment loss
(46,210
)
(79,601
)
(109,757
)
(235,568
)
Goodwill, net
$
60,094

$
1,491

$
31,705

$
93,290


Schedule of finite-lived intangible assets
The following table presents our purchased finite-lived intangible assets:
 
March 29, 2020
 
December 29, 2019
(in thousands)
Gross carrying amount
Accumulated
amortization
Net
carrying
amount
 
Gross carrying amount
Accumulated
amortization
Net
carrying
amount
Finite-lived intangible assets (1):
 
 
 
 
 
 
 
Client relationships (2)
$
98,181

$
(71,073
)
$
27,108

 
$
149,299

$
(83,317
)
$
65,982

Trade names/trademarks
1,939

(467
)
1,472

 
2,052

(441
)
1,611

Technologies
600

(550
)
50

 
600

(520
)
80

Total finite-lived intangible assets
$
100,720

$
(72,090
)
$
28,630

 
$
151,951

$
(84,278
)
$
67,673

(1)
Excludes assets that are fully amortized.
(2)
Balance at March 29, 2020 is net of impairment loss of $34.7 million recorded in the thirteen weeks ended March 29, 2020.
v3.20.1
WORKERS' COMPENSATION INSURANCE AND RESERVES (Tables)
3 Months Ended
Mar. 29, 2020
Workers' Compensation Insurance and Reserves [Abstract]  
Reconciliation of workers' compensation claims reserve
The following table presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented:
(in thousands)
March 29,
2020
December 29,
2019
Undiscounted workers’ compensation reserve
$
272,179

$
274,934

Less discount on workers’ compensation reserve
18,724

19,316

Workers’ compensation reserve, net of discount
253,455

255,618

Less current portion
69,353

73,020

Long-term portion
$
184,102

$
182,598


v3.20.1
COMMITMENTS AND CONTINGENCIES (Tables)
3 Months Ended
Mar. 29, 2020
Commitments and Contingencies Disclosure [Abstract]  
Schedule of workers’ compensation collateral commitments
We have provided our insurance carriers and certain states with commitments in the form and amounts listed below:
(in thousands)
March 29,
2020
December 29,
2019
Cash collateral held by workers’ compensation insurance carriers
$
22,317

$
22,256

Cash and cash equivalents held in Trust
26,641

23,681

Investments held in Trust
142,761

149,373

Letters of credit (1)
6,202

6,202

Surety bonds (2)
20,731

20,731

Total collateral commitments
$
218,652

$
222,243


(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.
v3.20.1
SHAREHOLDERS' EQUITY (Tables)
3 Months Ended
Mar. 29, 2020
Shareholders' Equity [Abstract]  
Schedule of Stockholders Equity