TRUEBLUE, INC., 10-Q filed on 7/31/2017
Quarterly Report
Document and Entity Information
6 Months Ended
Jul. 2, 2017
Jul. 17, 2017
Document and Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Jul. 02, 2017 
 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q2 
 
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
 
42,001,799 
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Jul. 2, 2017
Jan. 1, 2017
Current assets:
 
 
Cash and cash equivalents
$ 29,123 
$ 34,970 
Accounts receivable, net of allowance for doubtful accounts of $5,186 and $5,160
337,058 
352,606 
Prepaid expenses, deposits and other current assets
18,430 
21,373 
Income tax receivable
10,094 
18,854 
Total current assets
394,705 
427,803 
Property and equipment, net
61,821 
63,998 
Restricted cash and investments
229,931 
231,193 
Deferred income taxes, net
3,229 
6,770 
Goodwill
226,191 
224,223 
Intangible assets, net
115,244 
125,671 
Other assets, net
47,752 
50,787 
Total assets
1,078,873 
1,130,445 
Current liabilities:
 
 
Accounts payable and other accrued expenses
54,992 
66,758 
Accrued wages and benefits
75,222 
79,782 
Current portion of workers' compensation claims reserve
75,410 
79,126 
Contingent consideration
21,600 
Current portion of long-term debt
23,989 
2,267 
Other current liabilities
1,194 
1,602 
Total current liabilities
230,807 
251,135 
Workers’ compensation claims reserve, less current portion
202,707 
198,225 
Long-term debt, less current portion
87,204 
135,362 
Other long-term liabilities
24,581 
20,544 
Total liabilities
545,299 
605,266 
Commitments and contingencies
   
   
Shareholders’ equity:
 
 
Preferred stock, $0.131 par value, 20,000 shares authorized; No shares issued and outstanding
Common stock, no par value, 100,000 shares authorized; 41,982 and 42,171 shares issued and outstanding
Accumulated other comprehensive loss
(8,447)
(11,433)
Retained earnings
542,020 
536,611 
Total shareholders’ equity
533,574 
525,179 
Total liabilities and shareholders’ equity
$ 1,078,873 
$ 1,130,445 
CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $)
In Thousands, except Share data, unless otherwise specified
Jul. 2, 2017
Jan. 1, 2017
Allowance for doubtful accounts
$ 5,186 
$ 5,160 
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
Preferred stock, shares outstanding
Common stock, par value (in dollars per share)
$ 0 
$ 0 
Common stock, shares authorized
100,000,000 
100,000,000 
Common stock, shares issued
41,982,000 
42,171,000 
Common stock, shares outstanding
41,982,000 
42,171,000 
CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jul. 2, 2017
Jun. 24, 2016
Jul. 2, 2017
Jun. 24, 2016
Revenue from services
$ 610,122 
$ 672,612 
$ 1,178,366 
$ 1,318,592 
Cost of services
454,842 
502,688 
883,657 
998,156 
Gross profit
155,280 
169,924 
294,709 
320,436 
Selling, general and administrative expense
124,754 
135,787 
246,598 
266,411 
Depreciation and amortization
12,287 
11,694 
23,461 
22,983 
Goodwill and Intangible Asset Impairment
99,269 
99,269 
Income (loss) from operations
18,239 
(76,826)
24,650 
(68,227)
Interest expense
(1,296)
(1,740)
(2,528)
(3,709)
Interest and other income
1,451 
853 
2,757 
1,803 
Interest and other income (expense), net
155 
(887)
229 
(1,906)
Income (loss) before tax expense
18,394 
(77,713)
24,879 
(70,133)
Income tax expense (benefit)
5,260 
(13,978)
7,071 
(13,366)
Net income (loss)
13,134 
(63,735)
17,808 
(56,767)
Net income (loss) per common share:
 
 
 
 
Basic (in dollars per share)
$ 0.32 
$ (1.53)
$ 0.43 
$ (1.36)
Diluted (in dollars per share)
$ 0.31 
$ (1.53)
$ 0.43 
$ (1.36)
Weighted average shares outstanding:
 
 
 
 
Basic (in shares)
41,579 
41,688 
41,608 
41,595 
Diluted (in shares)
41,856 
41,688 
41,875 
41,595 
Other comprehensive income (loss):
 
 
 
 
Total other comprehensive income (loss), net of tax
449 
(221)
2,986 
2,256 
Comprehensive income (loss)
13,583 
(63,956)
20,794 
(54,511)
Foreign currency translation adjustment
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustment
540 
(307)
2,340 
2,094 
Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
Unrealized gain (loss) on investments, net of tax
$ (91)
$ 86 
$ 646 
$ 162 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jul. 2, 2017
Jun. 24, 2016
Cash flows from operating activities:
 
 
Net income (loss)
$ 17,808 
$ (56,767)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
Depreciation and amortization
23,461 
22,983 
Goodwill and Intangible Asset Impairment
99,269 
Provision for doubtful accounts
3,619 
4,221 
Stock-based compensation
5,146 
6,042 
Deferred income taxes
2,975 
(21,404)
Other operating activities
1,877 
2,264 
Changes in operating assets and liabilities, net of effects of acquisition of business:
 
 
Accounts receivable
11,925 
116,112 
Income tax receivable
8,828 
11,238 
Other assets
5,977 
425 
Accounts payable and other accrued expenses
(13,181)
754 
Accrued wages and benefits
(4,560)
(10,897)
Workers’ compensation claims reserve
767 
7,838 
Other liabilities
(580)
2,258 
Net cash provided by operating activities
64,062 
184,336 
Cash flows from investing activities:
 
 
Capital expenditures
(9,137)
(11,430)
Acquisition of business
(71,863)
Change in restricted cash and cash equivalents
8,829 
(1,265)
Purchases of restricted investments
(20,712)
(21,076)
Maturities of restricted investments
13,546 
8,416 
Net cash used in investing activities
(7,474)
(97,218)
Cash flows from financing activities:
 
 
Payments for Repurchase of Common Stock
(15,530)
Net proceeds from stock option exercises and employee stock purchase plans
858 
840 
Common stock repurchases for taxes upon vesting of restricted stock
(2,873)
(2,321)
Net change in Revolving Credit Facility
(25,303)
(94,186)
Payments on debt
(1,133)
(1,133)
Payment of contingent consideration at acquisition date fair value
(18,300)
Other
25 
Net cash used in financing activities
(62,281)
(96,775)
Effect of exchange rate changes on cash and cash equivalents
(154)
1,648 
Net change in cash and cash equivalents
(5,847)
(8,009)
Cash and cash equivalents, beginning of period
34,970 
29,781 
Cash and cash equivalents, end of period
29,123 
21,772 
Supplemental Cash Flow Information [Abstract]
 
 
Interest
1,549 
1,981 
Income taxes
(4,740)
(3,845)
Property, plant, and equipment purchased but not yet paid
2,888 
1,961 
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 twenty-six weeks ended July 2, 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, legal factors, operating performance indicators, competition, customer engagement, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year.
Based on our annual goodwill impairment test performed as of the first day of our 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 thirteen weeks ended July 2, 2017. Based on our test performed in the prior year, we recorded a goodwill impairment charge of $65.9 million for the thirteen weeks ended June 24, 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 thirteen weeks ended July 2, 2017. Based on our test performed in the prior year, we recorded an impairment charge of $4.5 million for the thirteen weeks ended June 24, 2016.

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 of this guidance 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 $8.8 million and $1.3 million for the twenty-six weeks ended July 2, 2017 and June 24, 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 of this guidance to have a material impact on our financial statements.

In August 2016, the FASB issued an accounting standards update 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 of the amendment should be applied using the retrospective transition method, if practicable. We plan to adopt this amendment on the effective date and do not expect the adoption of this guidance 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 of this guidance to have a material impact on the pattern of expense recognition in our Consolidated Statements of Operations and Comprehensive Income (Loss).

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 of this guidance 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 across our business segments and various departments. We are utilizing 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 identifying appropriate changes to our business processes, systems, and controls to support recognition and disclosure under the new standard.

We have been closely monitoring FASB activity related to the new standard to conclude on specific interpretive issues. We are substantially complete with our evaluation of the potential impact that adopting the new standard will have on our financial statements. Revenue on the majority of our contracts with customers will continue to be recognized over time as services are rendered. The impact of adopting this new standard will result in deferring certain contract costs and will require estimating variable consideration. We do not anticipate this will have a material impact on our financial reporting other than expanded disclosures. However, the full extent of the impact is subject to the completion of our assessment.

Other accounting standards that have been issued or proposed 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
FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT
Our assets and liabilities measured at fair value on a recurring basis consisted of the following (in thousands):
 
July 2, 2017
 
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)
$
29,123

 
$
29,123

 
$

 
$

Restricted cash and cash equivalents (1)
59,316

 
59,316

 

 

Other restricted assets (2)
19,891

 
19,891

 

 

Restricted investments classified as held-to-maturity
152,370

 

 
152,370

 

 
January 1, 2017
 
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 twenty-six weeks ended July 2, 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 twenty-six weeks ended July 2, 2017 or June 24, 2016.
RESTRICTED CASH AND INVESTMENTS
RESTRICTED CASH AND INVESTMENTS
RESTRICTED CASH AND INVESTMENTS

Restricted cash and investments consist principally of collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in debt and asset-backed securities. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon (“Trust”). Our investments have not resulted in any other-than-temporary impairments.
The following is a summary of our restricted cash and investments (in thousands):
 
July 2,
2017
 
January 1,
2017
Cash collateral held by insurance carriers
$
28,737

 
$
34,910

Cash and cash equivalents held in Trust
30,579

 
32,841

Investments held in Trust
150,724

 
146,517

Other (1)
19,891

 
16,925

Total restricted cash and investments
$
229,931

 
$
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 (in thousands):
 
July 2, 2017
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Fair Value
Municipal debt securities
$
77,573

 
$
1,583

 
$
(297
)
 
$
78,859

Corporate debt securities
67,204

 
474

 
(158
)
 
67,520

Agency mortgage-backed securities
4,948

 
38

 
(18
)
 
4,968

U.S. government and agency securities
999

 
24

 

 
1,023

 
$
150,724

 
$
2,119

 
$
(473
)
 
$
152,370

 
January 1, 2017
 
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 (in thousands):
 
July 2, 2017
 
Amortized Cost
 
Fair Value
Due in one year or less
$
14,581

 
$
14,597

Due after one year through five years
72,477

 
73,070

Due after five years through ten years
63,666

 
64,703

 
$
150,724

 
$
152,370


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
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 July 2, 2017 and January 1, 2017. Payments made against self-insured claims are made over a weighted average period of approximately 4.5 years at July 2, 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):
 
July 2,
2017
 
January 1,
2017
Undiscounted workers’ compensation reserve
$
293,927

 
$
292,169

Less discount on workers’ compensation reserve
15,810

 
14,818

Workers' compensation reserve, net of discount
278,117

 
277,351

Less current portion
75,410

 
79,126

Long-term portion
$
202,707

 
$
198,225


Payments made against self-insured claims were $31.5 million and $37.2 million for the twenty-six weeks ended July 2, 2017 and June 24, 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 $51.0 million and $52.9 million as of July 2, 2017 and January 1, 2017, respectively. The discounted receivables from insurance companies, net of valuation allowance, were $46.3 million and $48.9 million as of July 2, 2017 and January 1, 2017, respectively, and are included in Other assets, net on the accompanying Consolidated Balance Sheets.
Workers’ compensation expense of $22.3 million and $24.6 million was recorded in Cost of services for the thirteen weeks ended July 2, 2017 and June 24, 2016, respectively. Workers’ compensation expense of $42.1 million and $48.7 million was recorded in Cost of services for the twenty-six weeks ended July 2, 2017 and June 24, 2016, respectively.
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES

Workers’ compensation commitments

We have provided our insurance carriers and certain states with commitments in the form and amounts listed below (in thousands):
 
July 2,
2017
 
January 1,
2017
Cash collateral held by workers’ compensation insurance carriers
$
28,098

 
$
28,066

Cash and cash equivalents held in Trust
30,579

 
32,841

Investments held in Trust
150,724

 
146,517

Letters of credit (1)
7,783

 
7,982

Surety bonds (2)
20,605

 
20,440

Total collateral commitments
$
237,789

 
$
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 and the mix of jurisdictions to which they relate, 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 twenty-six weeks ended July 2, 2017 was 28.4%. The principal 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
NET INCOME (LOSS) PER SHARE
NET INCOME (LOSS) PER SHARE

Diluted common shares were calculated as follows (in thousands, except per share amounts):
 
Thirteen weeks ended
 
Twenty-six weeks ended
 
July 2, 2017
 
June 24, 2016
 
July 2, 2017
 
June 24, 2016
Net income (loss)
$
13,134

 
$
(63,735
)
 
$
17,808

 
$
(56,767
)
 
 
 
 
 
 
 
 
Weighted average number of common shares used in basic net income (loss) per common share
41,579

 
41,688

 
41,608

 
41,595

Dilutive effect of non-vested restricted stock
277

 

 
267

 

Weighted average number of common shares used in diluted net income (loss) per common share
41,856


41,688


41,875

 
41,595

Net income (loss) per common share:
 
 
 
 
 
 
 
Basic
$
0.32

 
$
(1.53
)
 
$
0.43

 
$
(1.36
)
Diluted
$
0.31

 
$
(1.53
)
 
$
0.43

 
$
(1.36
)
 
 
 
 
 
 
 
 
Anti-dilutive shares
60

 
527

 
183

 
446

ACCUMULATED OTHER COMPREHENSIVE LOSS
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 (in thousands):
 
Thirteen weeks ended
 
July 2, 2017
 
June 24, 2016
 
Balance at beginning of period
 
Current period other comprehensive income (loss)
 
Balance at end of period
 
Balance at beginning of period
 
Current period other comprehensive income (loss)
 
Balance at end of period
Foreign currency translation adjustment
$
(9,884
)
 
$
540

 
$
(9,344
)
 
$
(11,113
)
 
$
(307
)
 
$
(11,420
)
Unrealized gain (loss) on investments (1)
988

 
(91
)
 
897

 
(423
)
 
86

 
(337
)
Total other comprehensive income (loss), net of tax
$
(8,896
)
 
$
449

 
$
(8,447
)
 
$
(11,536
)
 
$
(221
)
 
$
(11,757
)
 
Twenty-six weeks ended
 
July 2, 2017
 
June 24, 2016
 
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
)
 
$
2,340

 
$
(9,344
)
 
$
(13,514
)
 
$
2,094

 
$
(11,420
)
Unrealized gain (loss) on investments (1)
251

 
646

 
897

 
(499
)
 
162

 
(337
)
Total other comprehensive income (loss), net of tax
$
(11,433
)
 
$
2,986

 
$
(8,447
)
 
$
(14,013
)
 
$
2,256

 
$
(11,757
)


(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 twenty-six weeks ended July 2, 2017 and June 24, 2016, respectively.

There were no material reclassifications out of accumulated other comprehensive loss during the thirteen weeks ended July 2, 2017 or June 24, 2016, nor during the twenty-six weeks ended July 2, 2017 or June 24, 2016.
SEGMENT INFORMATION
SEGMENT INFORMATION
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: Skilled mechanics and technicians, including on-premise management thereof, 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, and selling, general and administrative expenses 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 (in thousands):
 
Thirteen weeks ended
 
Twenty-six weeks ended
 
July 2, 2017
 
June 24, 2016
 
July 2, 2017

June 24, 2016
Revenue from services:
 
 
 
 
 
 
 
PeopleReady
$
370,712

 
$
406,274

 
$
703,336

 
$
762,284

PeopleManagement
192,887

 
219,344

 
384,573

 
465,771

PeopleScout
46,523

 
46,994

 
90,457

 
90,537

Total Company
$
610,122


$
672,612


$
1,178,366

 
$
1,318,592



The following table presents a reconciliation of Segment EBITDA to income (loss) before tax expense (in thousands):
 
Thirteen weeks ended
 
Twenty-six weeks ended
 
July 2, 2017
 
June 24, 2016
 
July 2, 2017
 
June 24, 2016
Segment EBITDA (1):
 
 
 
 
 
 
 
PeopleReady
$
19,154

 
$
29,543

 
$
28,876

 
$
41,098

PeopleManagement
6,286

 
(80,091
)
 
11,819

 
(73,738
)
PeopleScout
10,129

 
(3,841
)
 
18,794

 
4,169

 
35,569

 
(54,389
)
 
59,489

 
(28,471
)
Corporate unallocated
(5,043
)
 
(10,743
)
 
(11,378
)
 
(16,773
)
Depreciation and amortization
(12,287
)
 
(11,694
)
 
(23,461
)
 
(22,983
)
Income (loss) from operations
18,239

 
(76,826
)
 
24,650

 
(68,227
)
Interest and other income (expense), net
155

 
(887
)
 
229

 
(1,906
)
Income (loss) before tax expense
$
18,394

 
$
(77,713
)
 
$
24,879

 
$
(70,133
)

(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)
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 twenty-six weeks ended July 2, 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, legal factors, operating performance indicators, competition, customer engagement, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year.
Based on our annual goodwill impairment test performed as of the first day of our 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 thirteen weeks ended July 2, 2017. Based on our test performed in the prior year, we recorded a goodwill impairment charge of $65.9 million for the thirteen weeks ended June 24, 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 thirteen weeks ended July 2, 2017. Based on our test performed in the prior year, we recorded an impairment charge of $4.5 million for the thirteen weeks ended June 24, 2016.
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 of this guidance 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 $8.8 million and $1.3 million for the twenty-six weeks ended July 2, 2017 and June 24, 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 of this guidance to have a material impact on our financial statements.

In August 2016, the FASB issued an accounting standards update 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 of the amendment should be applied using the retrospective transition method, if practicable. We plan to adopt this amendment on the effective date and do not expect the adoption of this guidance 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 of this guidance to have a material impact on the pattern of expense recognition in our Consolidated Statements of Operations and Comprehensive Income (Loss).

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 of this guidance 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 across our business segments and various departments. We are utilizing 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 identifying appropriate changes to our business processes, systems, and controls to support recognition and disclosure under the new standard.

We have been closely monitoring FASB activity related to the new standard to conclude on specific interpretive issues. We are substantially complete with our evaluation of the potential impact that adopting the new standard will have on our financial statements. Revenue on the majority of our contracts with customers will continue to be recognized over time as services are rendered. The impact of adopting this new standard will result in deferring certain contract costs and will require estimating variable consideration. We do not anticipate this will have a material impact on our financial reporting other than expanded disclosures. However, the full extent of the impact is subject to the completion of our assessment.

Other accounting standards that have been issued or proposed 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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Subsequent Events (Tables)
SUBSEQUENT EVENTS
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 (Tables)
Our assets and liabilities measured at fair value on a recurring basis consisted of the following (in thousands):
 
July 2, 2017
 
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)
$
29,123

 
$
29,123

 
$

 
$

Restricted cash and cash equivalents (1)
59,316

 
59,316

 

 

Other restricted assets (2)
19,891

 
19,891

 

 

Restricted investments classified as held-to-maturity
152,370

 

 
152,370

 

 
January 1, 2017
 
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 twenty-six weeks ended July 2, 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
 
$

RESTRICTED CASH AND INVESTMENTS (Tables)
The following is a summary of our restricted cash and investments (in thousands):
 
July 2,
2017
 
January 1,
2017
Cash collateral held by insurance carriers
$
28,737

 
$
34,910

Cash and cash equivalents held in Trust
30,579

 
32,841

Investments held in Trust
150,724

 
146,517

Other (1)
19,891

 
16,925

Total restricted cash and investments
$
229,931

 
$
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 (in thousands):
 
July 2, 2017
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Fair Value
Municipal debt securities
$
77,573

 
$
1,583

 
$
(297
)
 
$
78,859

Corporate debt securities
67,204

 
474

 
(158
)
 
67,520

Agency mortgage-backed securities
4,948

 
38

 
(18
)
 
4,968

U.S. government and agency securities
999

 
24

 

 
1,023

 
$
150,724

 
$
2,119

 
$
(473
)
 
$
152,370

 
January 1, 2017
 
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 (in thousands):
 
July 2, 2017
 
Amortized Cost
 
Fair Value
Due in one year or less
$
14,581

 
$
14,597

Due after one year through five years
72,477

 
73,070

Due after five years through ten years
63,666

 
64,703

 
$
150,724

 
$
152,370

WORKERS' COMPENSATION INSURANCE AND RESERVES (Tables)
Reconciliation of workers' compensation claims reserve
The table below presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented (in thousands):
 
July 2,
2017
 
January 1,
2017
Undiscounted workers’ compensation reserve
$
293,927

 
$
292,169

Less discount on workers’ compensation reserve
15,810

 
14,818

Workers' compensation reserve, net of discount
278,117

 
277,351

Less current portion
75,410

 
79,126

Long-term portion
$
202,707

 
$
198,225

COMMITMENTS AND CONTINGENCIES (Tables)
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):
 
July 2,
2017
 
January 1,
2017
Cash collateral held by workers’ compensation insurance carriers
$
28,098

 
$
28,066

Cash and cash equivalents held in Trust
30,579

 
32,841

Investments held in Trust
150,724

 
146,517

Letters of credit (1)
7,783

 
7,982

Surety bonds (2)
20,605

 
20,440

Total collateral commitments
$
237,789

 
$
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.
NET INCOME (LOSS) PER SHARE (Tables)
Schedule of adjusted net income and diluted common shares
Diluted common shares were calculated as follows (in thousands, except per share amounts):
 
Thirteen weeks ended
 
Twenty-six weeks ended
 
July 2, 2017
 
June 24, 2016
 
July 2, 2017
 
June 24, 2016
Net income (loss)
$
13,134

 
$
(63,735
)
 
$
17,808

 
$
(56,767
)
 
 
 
 
 
 
 
 
Weighted average number of common shares used in basic net income (loss) per common share
41,579

 
41,688

 
41,608

 
41,595

Dilutive effect of non-vested restricted stock
277

 

 
267

 

Weighted average number of common shares used in diluted net income (loss) per common share
41,856


41,688


41,875

 
41,595

Net income (loss) per common share:
 
 
 
 
 
 
 
Basic
$
0.32

 
$
(1.53
)
 
$
0.43

 
$
(1.36
)
Diluted
$
0.31

 
$
(1.53
)
 
$
0.43

 
$
(1.36
)
 
 
 
 
 
 
 
 
Anti-dilutive shares
60

 
527

 
183

 
446

ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables)
Schedule of Comprehensive Loss
Changes in the balance of each component of accumulated other comprehensive loss during the reporting periods were as follows (in thousands):
 
Thirteen weeks ended
 
July 2, 2017
 
June 24, 2016
 
Balance at beginning of period
 
Current period other comprehensive income (loss)
 
Balance at end of period
 
Balance at beginning of period
 
Current period other comprehensive income (loss)
 
Balance at end of period
Foreign currency translation adjustment
$
(9,884
)
 
$
540

 
$
(9,344
)
 
$
(11,113
)
 
$
(307
)
 
$
(11,420
)
Unrealized gain (loss) on investments (1)
988

 
(91
)
 
897

 
(423
)
 
86

 
(337
)
Total other comprehensive income (loss), net of tax
$
(8,896
)
 
$
449

 
$
(8,447
)
 
$
(11,536
)
 
$
(221
)
 
$
(11,757
)
 
Twenty-six weeks ended
 
July 2, 2017
 
June 24, 2016
 
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
)
 
$
2,340

 
$
(9,344
)
 
$
(13,514
)
 
$
2,094

 
$
(11,420
)
Unrealized gain (loss) on investments (1)
251

 
646

 
897

 
(499
)
 
162

 
(337
)
Total other comprehensive income (loss), net of tax
$
(11,433
)
 
$
2,986

 
$
(8,447
)
 
$
(14,013
)
 
$
2,256

 
$
(11,757
)


(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 twenty-six weeks ended July 2, 2017 and June 24, 2016, respectively.

SEGMENT INFORMATION (Tables)
Schedule of Segment Information
The following table presents a reconciliation of segment revenue from services to total company revenue (in thousands):
 
Thirteen weeks ended
 
Twenty-six weeks ended
 
July 2, 2017
 
June 24, 2016
 
July 2, 2017

June 24, 2016
Revenue from services:
 
 
 
 
 
 
 
PeopleReady
$
370,712

 
$
406,274

 
$
703,336

 
$
762,284

PeopleManagement
192,887

 
219,344

 
384,573

 
465,771

PeopleScout
46,523

 
46,994

 
90,457

 
90,537

Total Company
$
610,122


$
672,612


$
1,178,366

 
$
1,318,592



The following table presents a reconciliation of Segment EBITDA to income (loss) before tax expense (in thousands):
 
Thirteen weeks ended
 
Twenty-six weeks ended
 
July 2, 2017
 
June 24, 2016
 
July 2, 2017
 
June 24, 2016
Segment EBITDA (1):
 
 
 
 
 
 
 
PeopleReady
$
19,154

 
$
29,543

 
$
28,876

 
$
41,098

PeopleManagement
6,286

 
(80,091
)
 
11,819

 
(73,738
)
PeopleScout
10,129

 
(3,841
)
 
18,794

 
4,169

 
35,569

 
(54,389
)
 
59,489

 
(28,471
)
Corporate unallocated
(5,043
)
 
(10,743
)
 
(11,378
)
 
(16,773
)
Depreciation and amortization
(12,287
)
 
(11,694
)
 
(23,461
)
 
(22,983
)
Income (loss) from operations
18,239

 
(76,826
)
 
24,650

 
(68,227
)
Interest and other income (expense), net
155

 
(887
)
 
229

 
(1,906
)
Income (loss) before tax expense
$
18,394

 
$
(77,713
)
 
$
24,879

 
$
(70,133
)

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Summary of Significant Accounting Policies (Details) (USD $)
3 Months Ended 6 Months Ended
Jun. 24, 2016
Jul. 2, 2017
Jun. 24, 2016
Goodwill, Impairment Loss
$ 65,900,000 
 
 
Impairment of Intangible Assets, Indefinite-lived (Excluding Goodwill)
4,500,000 
 
 
Increase (Decrease) in Restricted Cash
 
$ (8,829,000)
$ 1,265,000 
Minimum [Member]
 
 
 
Reporting Unit, Percentage of Fair Value in Excess of Carrying Amount
 
20.00% 
 
FAIR VALUE MEASUREMENT (Details) (USD $)
In Thousands, unless otherwise specified
Jul. 2, 2017
Jan. 1, 2017
Fair Value Measurement [Line Items]
 
 
Other restricted assets
$ 19,891 
$ 16,925 
Restricted investments classified as held-to-maturity
152,370 
145,953 
Contingent consideration
21,600 
Total Fair Value
 
 
Fair Value Measurement [Line Items]
 
 
Cash and cash equivalents
29,123 
34,970 
Total Fair Value |
Restricted Assets
 
 
Fair Value Measurement [Line Items]
 
 
Restricted cash and cash equivalents
59,316 
67,751 
Other restricted assets
19,891 
16,925 
Restricted investments classified as held-to-maturity
152,370 
145,953 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 
Fair Value Measurement [Line Items]
 
 
Cash and cash equivalents
29,123 
34,970 
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Restricted Assets
 
 
Fair Value Measurement [Line Items]
 
 
Restricted cash and cash equivalents
59,316 
67,751 
Other restricted assets
19,891 
16,925 
Restricted investments classified as held-to-maturity
Significant Other Observable Inputs (Level 2)
 
 
Fair Value Measurement [Line Items]
 
 
Cash and cash equivalents
Significant Other Observable Inputs (Level 2) |
Restricted Assets
 
 
Fair Value Measurement [Line Items]
 
 
Restricted cash and cash equivalents
Other restricted assets
Restricted investments classified as held-to-maturity
152,370 
145,953 
Significant Unobservable Inputs (Level 3)
 
 
Fair Value Measurement [Line Items]
 
 
Cash and cash equivalents
Significant Unobservable Inputs (Level 3) |
Restricted Assets
 
 
Fair Value Measurement [Line Items]
 
 
Restricted cash and cash equivalents
Other restricted assets
Restricted investments classified as held-to-maturity
SIMOS Insourcing Solutions Corporation |
Total Fair Value
 
 
Fair Value Measurement [Line Items]
 
 
Contingent consideration
 
21,600 
SIMOS Insourcing Solutions Corporation |
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 
Fair Value Measurement [Line Items]
 
 
Contingent consideration
 
SIMOS Insourcing Solutions Corporation |
Significant Other Observable Inputs (Level 2)
 
 
Fair Value Measurement [Line Items]
 
 
Contingent consideration
 
SIMOS Insourcing Solutions Corporation |
Significant Unobservable Inputs (Level 3)
 
 
Fair Value Measurement [Line Items]
 
 
Contingent consideration
 
$ 21,600 
FAIR VALUE MEASUREMENT Changes in Fair Value of Recurring Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (Details) (SIMOS Insourcing Solutions Corporation, Significant Unobservable Inputs (Level 3), Fair Value by Liability Class [Domain], USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jul. 2, 2017
Jul. 2, 2017
Jul. 2, 2017
Total Fair Value
Jan. 1, 2017
Total Fair Value
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
 
 
 
 
Fair value measurement at beginning of period
 
 
 
$ 21,600 
Accretion on contingent consideration
 
900 
 
 
Payments for previous acquisition
(22,500)
(22,500)
 
 
Fair value measurement at end of period
 
 
$ 0 
 
FAIR VALUE MEASUREMENT - Narrative (Details) (USD $)
In Thousands, unless otherwise specified
6 Months Ended 3 Months Ended
Jul. 2, 2017
Jun. 24, 2016
Jul. 2, 2017
SIMOS Insourcing Solutions Corporation
Business Acquisition, Contingent Consideration [Line Items]
 
 
 
Payment of contingent consideration at acquisition date fair value
$ (18,300)
$ 0 
$ (18,300)
Other liabilities
$ (580)
$ 2,258 
$ 4,200 
RESTRICTED CASH AND INVESTMENTS (Details) (USD $)
In Thousands, unless otherwise specified
Jul. 2, 2017
Jan. 1, 2017
Restricted Cash and Investments [Line Items]
 
 
Cash collateral held by insurance carriers
$ 28,737 
$ 34,910 
Cash and cash equivalents held in Trust
30,579 
32,841 
Investments held in Trust
150,724 
146,517 
Other
19,891 
16,925 
Restricted cash and investments
229,931 
231,193 
Held-to-maturity Securities, Reconciliation to Fair Value [Abstract]
 
 
Gross Unrealized Gain
2,119 
685 
Gross Unrealized Loss
(473)
(1,249)
Fair Value
152,370 
145,953 
Held-to-maturity Securities, Investment Maturities, Fair Value [Abstract]
 
 
Fair Value
152,370 
145,953 
Municipal debt securities
 
 
Restricted Cash and Investments [Line Items]
 
 
Investments held in Trust
77,573 
71,618 
Held-to-maturity Securities, Reconciliation to Fair Value [Abstract]
 
 
Gross Unrealized Gain
1,583 
443 
Gross Unrealized Loss
(297)
(865)
Fair Value
78,859 
71,196 
Held-to-maturity Securities, Investment Maturities, Fair Value [Abstract]
 
 
Fair Value
78,859 
71,196 
Corporate debt securities
 
 
Restricted Cash and Investments [Line Items]
 
 
Investments held in Trust
67,204 
68,934 
Held-to-maturity Securities, Reconciliation to Fair Value [Abstract]
 
 
Gross Unrealized Gain
474 
212 
Gross Unrealized Loss
(158)
(352)
Fair Value
67,520 
68,794 
Held-to-maturity Securities, Investment Maturities, Fair Value [Abstract]
 
 
Fair Value
67,520 
68,794 
Agency mortgage-backed securities
 
 
Restricted Cash and Investments [Line Items]
 
 
Investments held in Trust
4,948 
5,965 
Held-to-maturity Securities, Reconciliation to Fair Value [Abstract]
 
 
Gross Unrealized Gain
38 
30 
Gross Unrealized Loss
(18)
(32)
Fair Value
4,968 
5,963 
Held-to-maturity Securities, Investment Maturities, Fair Value [Abstract]
 
 
Fair Value
4,968 
5,963 
U.S. government and agency securities
 
 
Restricted Cash and Investments [Line Items]
 
 
Investments held in Trust
999 
 
Held-to-maturity Securities, Reconciliation to Fair Value [Abstract]
 
 
Gross Unrealized Gain
24 
 
Gross Unrealized Loss
 
Fair Value
1,023 
 
Held-to-maturity Securities, Investment Maturities, Fair Value [Abstract]
 
 
Fair Value
1,023 
 
Restricted Cash and Investments [Member]
 
 
Restricted Cash and Investments [Line Items]
 
 
Investments held in Trust
150,724 
 
Held-to-maturity Securities, Reconciliation to Fair Value [Abstract]
 
 
Fair Value
152,370 
 
Held-to-maturity Securities, Investment Maturities, Amortized Cost [Abstract]
 
 
Due in one year or less
14,581 
 
Due after one year through five years
72,477 
 
Due after five years through ten years
63,666 
 
Held-to-maturity Securities, Investment Maturities, Fair Value [Abstract]
 
 
Due in one year or less
14,597 
 
Due after one year through five years
73,070 
 
Due after five years through ten years
64,703 
 
Fair Value
$ 152,370 
 
WORKERS' COMPENSATION INSURANCE AND RESERVES - Reconciliation of Workers' Compensation Claims Reserve (Details) (USD $)
In Thousands, unless otherwise specified
Jul. 2, 2017
Jan. 1, 2017
Workers' Compensation Deductible Limit [Line Items]
 
 
Undiscounted workers’ compensation reserve
$ 293,927 
$ 292,169 
Less discount on workers’ compensation reserve
15,810 
14,818 
Workers' compensation reserve, net of discount
278,117 
277,351 
Less current portion
75,410 
79,126 
Long-term portion
$ 202,707 
$ 198,225 
WORKERS' COMPENSATION INSURANCE AND RESERVES - Narrative (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended 6 Months Ended 12 Months Ended
Jul. 2, 2017
Jun. 24, 2016
Jul. 2, 2017
Jun. 24, 2016
Jan. 1, 2017
Jul. 2, 2017
Below limit
Jan. 1, 2017
Below limit
Workers' Compensation Deductible Limit [Line Items]
 
 
 
 
 
 
 
Workers' compensation claim deductible limit
 
 
$ 2.0 
 
 
 
 
Weighted average rate
 
 
 
 
 
1.60% 
1.60% 
Weighted average period - claim payments below deductible limit
 
 
4 years 6 months 0 days 
 
 
 
 
Payments made against self-insured claims
 
 
31.5 
37.2 
 
 
 
Weighted average period - claim payments and receivables above deductible limit
 
 
15 years 
 
 
 
 
Excess claims
51.0 
 
51.0 
 
52.9 
 
 
Workers' compensation claim receivables net of valuation allowance
46.3 
 
46.3 
 
48.9 
 
 
Workers' compensation expense
$ 22.3 
$ 24.6 
$ 42.1 
$ 48.7 
 
 
 
COMMITMENTS AND CONTINGENCIES - Workers' Compensation Commitments (Details) (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jul. 2, 2017
Jan. 1, 2017
Workers' Compensation Commitments [Line Items]
 
 
Cash collateral held by workers’ compensation insurance carriers
$ 28,098 
$ 28,066 
Cash and cash equivalents held in Trust
30,579 
32,841 
Investments held in Trust
150,724 
146,517 
Letters of credit
7,783 
7,982 
Surety bonds
20,605 
20,440 
Total collateral commitments
$ 237,789 
$ 235,846 
Surety bonds annual fee limit, % of bond amount
2.00% 
 
Surety bonds required cancellation notice
60 days 
 
Minimum
 
 
Workers' Compensation Commitments [Line Items]
 
 
Surety bonds review and renewal period if elected
1 year 
 
Maximum
 
 
Workers' Compensation Commitments [Line Items]
 
 
Surety bonds review and renewal period if elected
4 years 
 
INCOME TAXES - Narrative (Details)
6 Months Ended
Jul. 2, 2017
Income Tax Disclosure [Abstract]
 
Effective income tax rate reconciliation, percent
28.40% 
Income tax expense (benefit) based on statutory rate
35.00% 
NET INCOME (LOSS) PER SHARE (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jul. 2, 2017
Jun. 24, 2016
Jul. 2, 2017
Jun. 24, 2016
Earnings Per Share [Abstract]
 
 
 
 
Net income (loss)
$ 13,134 
$ (63,735)
$ 17,808 
$ (56,767)
Weighted average number of common shares used in basic net income (loss) per common share
41,579 
41,688 
41,608 
41,595 
Dilutive effect of non-vested restricted stock
277 
267 
Weighted average number of common shares used in diluted net income (loss) per common share
41,856 
41,688 
41,875 
41,595 
Net income (loss) per common share:
 
 
 
 
Basic (in dollars per share)
$ 0.32 
$ (1.53)
$ 0.43 
$ (1.36)
Diluted (in dollars per share)
$ 0.31 
$ (1.53)
$ 0.43 
$ (1.36)
Anti-dilutive shares
60 
527 
183 
446 
ACCUMULATED OTHER COMPREHENSIVE LOSS (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jul. 2, 2017
Jun. 24, 2016
Jul. 2, 2017
Jun. 24, 2016
Accumulated Other Comprehensive Loss, Net of Tax [Roll Forward]
 
 
 
 
Balance at beginning of period
$ (8,896)
$ (11,536)
$ (11,433)
$ (14,013)
Current-period other comprehensive income
449 
(221)
2,986 
2,256 
Balance at end of period
(8,447)
(11,757)
(8,447)
(11,757)
Foreign currency translation adjustment
 
 
 
 
Accumulated Other Comprehensive Loss, Net of Tax [Roll Forward]
 
 
 
 
Balance at beginning of period
(9,884)
(11,113)
(11,684)
(13,514)
Foreign currency translation adjustment, net of tax
540 
(307)
2,340 
2,094 
Balance at end of period
(9,344)
(11,420)
(9,344)
(11,420)
Unrealized gain (loss) on marketable securities
 
 
 
 
Accumulated Other Comprehensive Loss, Net of Tax [Roll Forward]
 
 
 
 
Balance at beginning of period
988 
(423)
251 
(499)
Unrealized gain (loss) on investments, net of tax
(91)
86 
646 
162 
Balance at end of period
$ 897 
$ (337)
$ 897 
$ (337)
SEGMENT INFORMATION (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jul. 2, 2017
Jun. 24, 2016
Jul. 2, 2017
Jun. 24, 2016
Segment Reporting Information [Line Items]
 
 
 
 
Revenue
$ 610,122 
$ 672,612 
$ 1,178,366 
$ 1,318,592 
Segment EBITDA
35,569 
(54,389)
59,489 
(28,471)
Corporate unallocated
124,754 
135,787 
246,598 
266,411 
Depreciation and amortization
(12,287)
(11,694)
(23,461)
(22,983)
Income (loss) from operations
18,239 
(76,826)
24,650 
(68,227)
Interest and other income (expense), net
155 
(887)
229 
(1,906)
Income (loss) before tax expense
18,394