TRUEBLUE, INC., 10-Q filed on 7/30/2019
Quarterly Report
v3.19.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Jul. 15, 2019
Entity Addresses [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2019  
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)   40,070,067
Amendment Flag false  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Entity Central Index Key 0000768899  
Current Fiscal Year End Date --12-29  
v3.19.2
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 30, 2018
Current assets:    
Cash and cash equivalents $ 23,124 $ 46,988
Accounts receivable, net of allowance for doubtful accounts of $4,392 and $5,026 335,488 355,373
Prepaid expenses, deposits and other current assets 22,664 22,141
Income tax receivable 11,066 5,325
Total current assets 392,342 429,827
Property and equipment, net 58,647 57,671
Restricted cash and investments 222,556 235,443
Deferred income taxes, net 2,106 4,388
Goodwill 237,126 237,287
Intangible assets, net 81,358 91,408
Operating lease right-of-use assets 37,978 0
Workers’ compensation claims receivable, net 46,372 44,915
Other assets, net 16,402 13,905
Total assets 1,094,887 1,114,844
Current liabilities:    
Accounts payable and other accrued expenses 45,229 62,045
Accrued wages and benefits 72,431 77,098
Current portion of workers’ compensation claims reserve 72,336 76,421
Operating lease current liabilities 14,453 0
Other current liabilities 8,269 9,962
Total current liabilities 212,718 225,526
Workers’ compensation claims reserve, less current portion 187,001 190,025
Long-term debt 24,700 80,000
Long-term deferred compensation liabilities 25,069 21,747
Operating lease long-term liabilities 25,995 0
Other long-term liabilities 4,397 6,107
Total liabilities 479,880 523,405
Commitments and contingencies (Note 6)
Shareholders’ equity:    
Preferred stock, $0.131 par value, 20,000 shares authorized; No shares issued and outstanding 0 0
Common stock, no par value, 100,000 shares authorized; 40,058 and 40,054 shares issued and outstanding 1 1
Accumulated other comprehensive loss (14,016) (14,649)
Retained earnings 629,022 606,087
Total shareholders’ equity 615,007 591,439
Total liabilities and shareholders’ equity $ 1,094,887 $ 1,114,844
v3.19.2
CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 30, 2018
Allowance for doubtful accounts $ 4,392 $ 5,026
Preferred stock, par value (in dollars per share) $ 0.131 $ 0.131
Preferred stock, shares authorized 20,000,000 20,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value (in dollars per share) $ 0 $ 0
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 40,058,000 40,054,000
Common stock, shares outstanding 40,058,000 40,054,000
v3.19.2
CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jul. 01, 2018
Jun. 30, 2019
Jul. 01, 2018
Revenue from services $ 588,594 $ 614,301 $ 1,140,946 $ 1,168,689
Cost of services 430,277 448,717 834,253 859,837
Gross profit 158,317 165,584 306,693 308,852
Selling, general and administrative expense 127,599 134,207 257,260 259,970
Depreciation and amortization 9,827 10,101 19,779 20,191
Income from operations 20,891 21,276 29,654 28,691
Interest expense (660) (1,355) (1,382) (2,245)
Interest and other income 1,487 387 2,762 3,481
Interest and other income (expense), net 827 (968) 1,380 1,236
Income before tax expense 21,718 20,308 31,034 29,927
Income tax expense 2,312 2,576 3,352 3,440
Net income $ 19,406 $ 17,732 $ 27,682 $ 26,487
Net income per common share:        
Basic (in dollars per share) $ 0.50 $ 0.44 $ 0.71 $ 0.66
Diluted (in dollars per share) $ 0.49 $ 0.44 $ 0.70 $ 0.65
Weighted average shares outstanding:        
Basic (in shares) 39,163 40,227 39,264 40,335
Diluted (in shares) 39,554 40,469 39,619 40,576
Other Comprehensive Income (Loss), Net of Tax [Abstract]        
Comprehensive income $ 18,713 $ 15,811 $ 28,315 $ 23,182
Accumulated other comprehensive loss        
Other Comprehensive Income (Loss), Net of Tax [Abstract]        
Foreign currency translation adjustment $ (693) $ (1,921) $ 633 $ (3,305)
v3.19.2
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jul. 01, 2018
Cash flows from operating activities:    
Net income $ 27,682 $ 26,487
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 19,779 20,191
Provision for doubtful accounts 3,761 5,571
Stock-based compensation 5,260 5,983
Deferred income taxes 2,393 1,373
Non-cash lease expense 6,934 0
Other operating activities (2,072) 102
Changes in operating assets and liabilities:    
Accounts receivable 16,162 888
Income tax receivable (6,347) (3,641)
Other assets (4,472) (3,522)
Accounts payable and other accrued expenses (16,542) 3,468
Accrued wages and benefits (4,667) (1,528)
Workers’ compensation claims reserve (7,109) (9,235)
Operating lease liabilities (6,957) 0
Other liabilities 3,174 3,304
Net cash provided by operating activities 36,979 49,441
Cash flows from investing activities:    
Capital expenditures (11,064) (6,468)
Payments to Acquire Businesses, Gross 0 (22,742)
Divestiture of business 0 8,800
Purchases of restricted investments (11,315) (10,730)
Maturities of restricted investments 19,685 13,044
Net cash used in investing activities (2,694) (18,096)
Cash flows from financing activities:    
Payments for Repurchase of Common Stock (9,077) (19,065)
Net proceeds from employee stock purchase plans 700 757
Common stock repurchases for taxes upon vesting of restricted stock (1,631) (2,403)
Net change in revolving credit facility (55,300) 21,300
Payments on debt 0 (22,856)
Other (119) 0
Net cash used in financing activities (65,427) (22,267)
Effect of exchange rate changes on cash, cash equivalents and restricted cash 560 (919)
Net change in cash, cash equivalents and restricted cash (30,582) 8,159
Cash, cash equivalents and restricted cash, beginning of period 102,450 73,831
Cash, cash equivalents and restricted cash, end of period 71,868 81,990
Supplemental Cash Flow Information [Abstract]    
Interest 1,199 1,892
Income taxes 7,277 5,696
Operating lease liabilities 8,798 0
Property and equipment purchased but not yet paid 1,227 726
Divestiture non-cash consideration 0 1,657
Right-of-use assets obtained in exchange for new operating lease liabilities $ 7,711 $ 0
v3.19.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Significant Accounting Policies SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial statement preparation
The accompanying unaudited consolidated financial statements (“financial statements”) of TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us,” and “our”) are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 30, 2018. The results of operations for the thirteen and twenty-six weeks ended June 30, 2019, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.
Reclassifications
Certain immaterial prior year amounts have been reclassified within current liabilities on our Consolidated Balance Sheets and Consolidated Statements of Cash Flows to conform to current year presentation.
Leases
We conduct our branch office operations from leased locations. We also lease office spaces for our centralized support functions, vehicles and equipment. Many leases require variable payments of property taxes, insurance, and common area maintenance, in addition to base rent. The variable portion of these lease payments is not included in our right-of-use assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred and are included in lease expense in selling, general and administrative (“SG&A”) expense on our Consolidated Statements of Operations and Comprehensive Income. The terms of our lease agreements generally range from three to five years, some containing options to renew or cancel. We determine if an arrangement meets the definition of a lease at inception, at which time we also perform an analysis to determine whether the lease qualifies as operating or financing.
Operating leases are included in operating lease right-of-use assets and operating lease current and long-term liabilities on our Consolidated Balance Sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term, and is included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income.
Financing leases are included in property and equipment, net, other current liabilities, and other long-term liabilities on our Consolidated Balance Sheets. Lease expense for financing leases is recognized as depreciation of the right-of-use asset and interest expense.
Lease right-of-use assets and lease liabilities are measured using the present value of future minimum lease payments over the lease term at commencement date. The right-of-use asset also includes any lease payments made on or before the commencement date of the lease, less any lease incentives received. As the rate implicit in the lease is not readily determinable in our leases, we use our incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rates used are estimated based on what we would be required to pay for a collateralized loan over a similar term. We have lease agreements with lease and non-lease components, which are accounted for as a single lease component.
For leases with an initial non-cancelable lease term of less than one year and no option to purchase, we have elected not to recognize the lease on our Consolidated Balance Sheets and instead recognize rent payments on a straight-line basis over the lease term in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income. In addition, for those leases where the right to cancel the lease is available to both TrueBlue (as the lessee) and the lessor, the lease term is the initial non-cancelable period plus the notice period, which is typically 90 days, and not greater than one year.
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, legal factors, operating performance indicators, competition, client 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. We test for goodwill impairment at the reporting unit level. We consider our operating segments to be our reporting units for goodwill impairment testing. Our operating segments are PeopleReady, Centerline, Staff Management, SIMOS, PeopleScout, and PeopleScout MSP. The impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds the carrying value, we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value of the goodwill.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions to evaluate the impact of operational and macroeconomic changes on each reporting unit. The fair value of each reporting unit is a weighted average of the income and market valuation approaches. The income approach applies a fair value methodology based on discounted cash flows. This analysis requires significant estimates and judgments, including estimation of future cash flows, which is dependent on internal 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. We also apply a market approach, which identifies similar publicly traded companies and develops a correlation, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples to which we compare are revenue and earnings before interest, taxes, depreciation, and amortization. The income and market approaches were equally weighted in our most recent annual impairment test. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater.
Based on our 2019 annual impairment test, the estimated fair value of our SIMOS reporting unit was in excess of its carrying value of $35 million by approximately 10%. There are two key clients that individually account for more than 10% of revenue for the SIMOS reporting unit. For each client we service multiple sites. The loss of a key client, or a significant number of key sites, could give rise to an impairment. Should any one of these events occur, we may need to record an impairment loss to goodwill for the amount by which the carrying value exceeds the reporting unit's fair value, not to exceed the total amount of goodwill. We will continue to closely monitor the operational performance of this reporting unit. All other reporting units’ fair values were substantially in excess of their respective carrying values. Accordingly, there was no impairment loss recognized for the twenty-six weeks ended June 30, 2019.
Recently adopted accounting standards
Intangibles-goodwill and other-internal-use software
In August 2018, the Financial Accounting Standards Board (“FASB”) issued new guidance on accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Previously, we expensed the cost of internal development labor as incurred.
The new guidance now requires these costs be capitalized with the related amortization recorded in SG&A expense. In addition, capitalized development costs are required to be recorded as a prepaid asset rather than a fixed asset, and license fees incurred during the development period are expensed as incurred.
The standard is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We elected to early adopt this new standard prospectively as of the first day of our fiscal first quarter in 2019. There was no impact on our consolidated financial statements upon adoption.
Leases
In February 2016, the FASB issued guidance on lease accounting. The new guidance continues to classify leases as either finance or operating, but results in the lessee recognizing most operating leases on the balance sheet as right-of-use assets and lease liabilities. This guidance was effective for annual and interim periods beginning after December 15, 2018 (Q1 2019 for TrueBlue), with early adoption permitted. In July 2018, the FASB amended the standard to provide transition relief for comparative reporting, allowing companies to adopt the provisions of the new standard using a modified retrospective transition method on the adoption date, with a cumulative-effect adjustment to retained earnings recorded on the date of adoption. We have elected to adopt the standard using the transition relief provided in the July amendment. In preparation for adoption of the standard, we have implemented internal controls and key system functionality to enable the preparation of financial information.
We have elected the three practical expedients allowed for implementation of the new standard, but have not utilized the hindsight practical expedient. Accordingly, we did not reassess: 1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired or existing leases; 3) initial direct costs for any existing leases. We have also elected the practical expedient to not separate non-lease components from the lease components to which they relate, and instead account for each as a single lease component, for all underlying asset classes. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses.
Adoption of the new standard resulted in the recording of operating right-of-use assets and lease liabilities of $39 million and $41 million, respectively, as of the first day of our fiscal first quarter of 2019. The difference between the right-of-use assets and lease liabilities relates to the deferred rent liability balance as of the end of fiscal 2018 associated with the leases capitalized. The deferred rent liability, which was the difference between the straight-line lease expense and cash paid, reduced the right-of-use asset upon adoption. Our accounting for finance leases remained substantially unchanged. The standard did not materially impact our Consolidated Statements of Operations and Comprehensive Income or our Consolidated Statements of Cash Flows.
Recently issued accounting pronouncements not yet adopted
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 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 current methodology of delaying recognition of credit losses until it is probable a loss has been incurred. This guidance is effective for fiscal years beginning after December 15, 2019 (Q1 2020 for TrueBlue) with early adoption permitted. Although the impact upon adoption will depend on the financial instruments held at that time, we do not anticipate a significant impact on our consolidated financial statements based on the instruments currently held and our historical trend of bad debt expense relating to trade accounts receivable. We plan to adopt this guidance on the effective date and are currently evaluating the impact on our accounting policies, processes, systems, and internal controls.
No other new accounting pronouncement issued or effective during the fiscal year had, or is expected to have, a significant impact on our consolidated financial statements and related disclosures.
v3.19.2
ACQUISITION
6 Months Ended
Jun. 30, 2019
Business Combinations [Abstract]  
ACQUISITION ACQUISITION
Effective June 12, 2018, the company acquired all of the outstanding equity interests of TMP Holdings LTD (“TMP”), through its subsidiary PeopleScout, Inc. for a cash purchase price of $22.7 million, net of cash acquired of $7.0 million. TMP is a mid-sized recruitment process outsourcing (“RPO”) and employer branding service provider operating in the United Kingdom, which is the second largest RPO market in the world. This acquisition increases our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients and employer branding capabilities.
We incurred acquisition and integration-related costs of $0.5 million, which are included in SG&A expense on the Consolidated Statements of Operations and Comprehensive Income for the thirteen and twenty-six weeks ended July 1, 2018 and cash flows from operating activities on the Consolidated Statements of Cash Flows for the twenty-six weeks ended July 1, 2018.
The following table reflects the allocation of the purchase price, net of cash acquired, to the fair value of the assets acquired and liabilities assumed:
(in thousands)
Purchase price allocation
Cash purchase price, net of cash acquired
$
22,742

 
 
Accounts receivable
9,770

Prepaid expenses, deposits and other current assets
337

Property and equipment
435

Customer relationships
6,286

Trade names/trademarks
1,738

Total assets acquired
18,566

 
 
Accounts payable and other accrued expenses
9,139

Accrued wages and benefits
1,642

Income tax payable
205

Deferred income tax liability
1,444

Total liabilities assumed
12,430

 
 
Net identifiable assets acquired
6,136

Goodwill (1)
16,606

Total consideration allocated
$
22,742

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

3, 7
Trade names/trademarks
1,738

14
Total acquired identifiable intangible assets
$
8,024

 

The results of TMP’s operations and cash flows reported for 2018 on our Consolidated Statements of Operations and Comprehensive Income and Consolidated Statements of Cash Flows relate to the period from June 12, 2018 to July 1, 2018. Revenue from TMP included in our Consolidated Statements of Operations and Comprehensive Income was $2.9 million from the acquisition date to July 1, 2018, and $12.6 million and $26.9 million for the thirteen and twenty-six weeks ended June 30, 2019. The acquisition of TMP was not material to our consolidated results of operations and as such, pro forma financial information was not required.
v3.19.2
FAIR VALUE MEASUREMENT
6 Months Ended
Jun. 30, 2019
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENT FAIR VALUE MEASUREMENT
Our assets measured at fair value on a recurring basis consisted of the following:
 
June 30, 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
$
23,124

$
23,124

$

$

Restricted cash and cash equivalents
48,744

48,744



Cash, cash equivalents and restricted cash (1)
$
71,868

$
71,868

$

$

 
 
 
 
 
Municipal debt securities
$
76,084

$

$
76,084

$

Corporate debt securities
69,081


69,081


Agency mortgage-backed securities
1,944


1,944


U.S. government and agency securities
1,045


1,045


Restricted investments classified as held-to-maturity
$
148,154

$

$
148,154

$

 
 
 
 
 
Deferred compensation mutual funds
$
28,416

$
28,416

$

$

 
December 30, 2018
(in thousands)
Total fair value
Quoted prices in active markets for identical assets (level 1)
Significant other observable inputs (level 2)
Significant unobservable inputs (level 3)
Cash and cash equivalents
$
46,988

$
46,988

$

$

Restricted cash and cash equivalents
55,462

55,462



Cash, cash equivalents and restricted cash (1)
$
102,450

$
102,450

$

$

 
 
 
 
 
Municipal debt securities
$
76,690

$

$
76,690

$

Corporate debt securities
75,432


75,432


Agency mortgage-backed securities
2,531


2,531


U.S. government and agency securities
988


988


Restricted investments classified as held-to-maturity
$
155,641

$

$
155,641

$

 
 
 
 
 
Deferred compensation mutual funds
$
23,363

$
23,363

$

$

(1)
Cash, cash equivalents and restricted cash consist of money market funds, deposits and investments with original maturities of three months or less.
There were no material transfers between Level 1, Level 2 and Level 3 of the fair value hierarchy during the twenty-six weeks ended June 30, 2019 nor July 1, 2018.
v3.19.2
RESTRICTED CASH AND INVESTMENTS
6 Months Ended
Jun. 30, 2019
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)
June 30,
2019
December 30,
2018
Cash collateral held by insurance carriers
$
23,877

$
24,182

Cash and cash equivalents held in Trust
24,721

28,021

Investments held in Trust
145,396

156,618

Deferred compensation mutual funds
28,416

23,363

Other restricted cash and cash equivalents
146

3,259

Total restricted cash and investments
$
222,556

$
235,443


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 June 30, 2019 and December 30, 2018, were as follows:
 
June 30, 2019
(in thousands)
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Municipal debt securities
$
74,206

$
1,883

$
(5
)
$
76,084

Corporate debt securities
68,262

883

(64
)
69,081

Agency mortgage-backed securities
1,929

21

(6
)
1,944

U.S. government and agency securities
999

46


1,045

Total held-to-maturity investments
$
145,396

$
2,833

$
(75
)
$
148,154

 
December 30, 2018
(in thousands)
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Municipal debt securities
$
76,750

$
456

$
(516
)
$
76,690

Corporate debt securities
76,310

30

(908
)
75,432

Agency mortgage-backed securities
2,559

5

(33
)
2,531

U.S. government and agency securities
999


(11
)
988

Total held-to-maturity investments
$
156,618

$
491

$
(1,468
)
$
155,641


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 June 30, 2019 and December 30, 2018, were as follows:
 
June 30, 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
Municipal debt securities
$

$

 
$
5,992

$
(5
)
 
$
5,992

$
(5
)
Corporate debt securities


 
23,378

(64
)
 
23,378

(64
)
Agency mortgage-backed securities


 
676

(6
)
 
676

(6
)
Total held-to-maturity investments
$

$

 
$
30,046

$
(75
)
 
$
30,046

$
(75
)
 
December 30, 2018
 
Less than 12 months
 
12 months or more
 
Total
(in thousands)
Estimated fair value
Unrealized losses
 
Estimated fair value
Unrealized losses
 
Estimated fair value
Unrealized losses
Municipal debt securities
$
12,803

$
(74
)
 
$
22,638

$
(442
)
 
$
35,441

$
(516
)
Corporate debt securities
22,567

(277
)
 
44,463

(631
)
 
67,030

(908
)
Agency mortgage-backed securities
385


 
1,375

(33
)
 
1,760

(33
)
U.S. government and agency securities
988

(11
)
 


 
988

(11
)
Total held-to-maturity investments
$
36,743

$
(362
)

$
68,476

$
(1,106
)

$
105,219

$
(1,468
)

The total number of held-to-maturity securities in an unrealized loss position as of June 30, 2019 and December 30, 2018 were 28 and 93, respectively. The unrealized losses were the result of interest rate increases. Since the decline in estimated fair value is attributable to changes in interest rates and not credit quality, and the company has the intent and ability to hold these debt securities until recovery of amortized cost or 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:
 
June 30, 2019
(in thousands)
Amortized cost
Fair value
Due in one year or less
$
10,453

$
10,442

Due after one year through five years
88,986

90,201

Due after five years through ten years
45,957

47,511

Total held-to-maturity investments
$
145,396

$
148,154


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 to support our deferred compensation liability. Unrealized gains related to equity investments still held at June 30, 2019 and July 1, 2018, were $0.8 million, and $0.1 million, for the thirteen weeks then ended, respectively, and are included in SG&A expense on the Consolidated Statements of Operations and Comprehensive Income. Unrealized gains and losses related to equity investments still held at June 30, 2019 and July 1, 2018, were a $3.2 million gain, and a $0.1 million loss, for the twenty-six weeks then ended, respectively.
v3.19.2
WORKERS' COMPENSATION INSURANCE AND RESERVES
6 Months Ended
Jun. 30, 2019
Workers' Compensation Insurance and Reserves [Abstract]  
WORKERS' COMPENSATION INSURANCE AND RESERVES WORKERS’ COMPENSATION INSURANCE AND RESERVES
We provide workers’ compensation insurance for our temporary and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured.
Our workers’ compensation reserve for claims below the deductible limit is discounted to its estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. The weighted average discount rate was 2.1% and 2.0% at June 30, 2019 and December 30, 2018, respectively. Payments made against self-insured claims are made over a weighted average period of approximately 4.5 years as of June 30, 2019.
The following table presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented:
(in thousands)
June 30,
2019
December 30,
2018
Undiscounted workers’ compensation reserve
$
277,449

$
284,625

Less discount on workers’ compensation reserve
18,112

18,179

Workers’ compensation reserve, net of discount
259,337

266,446

Less current portion
72,336

76,421

Long-term portion
$
187,001

$
190,025


Payments made against self-insured claims were $32.6 million and $36.1 million for the twenty-six weeks ended June 30, 2019 and July 1, 2018, 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 June 30, 2019 and December 30, 2018, the weighted average rate was 2.9%. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 16 years. The discounted workers’ compensation reserve for excess claims and the corresponding receivable for the insurance on excess claims was $47.3 million and $48.2 million as of June 30, 2019 and December 30, 2018, respectively.
Workers’ compensation expense of $16.3 million and $17.8 million was recorded in cost of services on our Consolidated Statements of Operations and Comprehensive Income for the thirteen weeks ended June 30, 2019 and July 1, 2018, respectively. Workers’ compensation expense of $28.2 million and $34.4 million was recorded in cost of services on our Consolidated Statements of Operations and Comprehensive Income for the twenty-six weeks ended June 30, 2019 and July 1, 2018, respectively.
v3.19.2
COMMITMENTS AND CONTINGENCIES
6 Months Ended
Jun. 30, 2019
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)
June 30,
2019
December 30,
2018
Cash collateral held by workers’ compensation insurance carriers
$
22,311

$
22,264

Cash and cash equivalents held in Trust
24,721

28,021

Investments held in Trust
145,396

156,618

Letters of credit (1)
6,677

6,691

Surety bonds (2)
21,881

21,881

Total collateral commitments
$
220,986

$
235,475


(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.
Operating leases
We have contractual commitments in the form of operating leases related to office space, vehicles and equipment. Our leases have remaining terms of up to 14 years. Most leases include one or more options to renew, which can extend the lease term up to 10 years. The exercise of lease renewal options are at our sole discretion. Typically, at the commencement of a lease, we are not reasonably certain we will exercise renewal options, and accordingly they are not considered in determining the initial lease term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We rent or sublease real estate to third parties in limited circumstances.
Operating lease costs were comprised of the following:
 
Thirteen weeks ended
 
Twenty-six weeks ended
(in thousands)
June 30, 2019
Operating lease costs
$
4,363

 
$
8,635

Short-term lease costs
1,773

 
3,663

Other lease costs (1)
1,602

 
3,088

Total lease costs
$
7,738

 
$
15,386

(1)
Other lease costs include immaterial variable lease costs and sublease income.

Other information related to our operating leases was as follows:
 
Thirteen weeks ended
 
June 30, 2019
Weighted average remaining lease term in years
3.5
Weighted average discount rate
4.9%


Future non-cancelable minimum lease payments under our operating lease commitments as of June 30, 2019, are as follows for each of the next five years and thereafter:
(in thousands)
 
Remainder of 2019
$
8,565

2020
15,008

2021
10,863

2022
6,064

2023
3,822

2024
1,302

Thereafter
1,442

Total undiscounted future non-cancelable minimum lease payments (1)
47,066

Less: Imputed interest (2)
6,618

Present value of lease liabilities
$
40,448

(1)
Operating lease payments exclude approximately $3.9 million of legally binding minimum lease payments for leases signed but not yet commenced.
(2)
Amount necessary to reduce net minimum lease payments to present value calculated using our incremental borrowing rates, which are consistent with the lease terms at adoption date (for those leases in existence as of the adoption date of the new lease standard) or lease inception (for those leases entered into after the adoption date).
Future non-cancelable minimum lease payments under our operating lease commitments as of December 30, 2018 were as follows for each of the next five years and thereafter:
(in thousands)
 
2019
$
8,337

2020
7,192

2021
4,990

2022
2,442

2023
1,324

Thereafter
699

Total future non-cancelable minimum lease payments
$
24,984


v3.19.2
SHAREHOLDERS' EQUITY
6 Months Ended
Jun. 30, 2019
Shareholders' Equity [Abstract]  
SHAREHOLDER’S EQUITY SHAREHOLDERS’ EQUITY
Changes in shareholders’ equity
Changes in the balance of each component of shareholders’ equity during the reporting periods were as follows:
 
Thirteen weeks ended
 
Twenty-six weeks ended
(in thousands)
June 30,
2019
July 1,
2018
 
June 30,
2019
July 1,
2018
 
 
 
 
 
 
Common stock shares
 
 
 
 
 
Beginning balance
40,152

41,334

 
40,054

41,098

Purchases and retirement of common stock
(156
)
(758
)
 
(390
)
(758
)
Issuances under equity plans, including tax benefits
58

11

 
366

229

Stock-based compensation
4

8

 
28

26

Ending balance
40,058

40,595

 
40,058

40,595

 
 
 
 
 
 
Common stock amount
 
 
 
 
 
Beginning balance
$
1

$
1

 
$
1

$
1

Current period activity


 


Ending balance
1

1


1

1

 
 
 
 
 
 
Retained earnings
 
 
 
 
 
Beginning balance
611,609

573,648

 
606,087

561,650

Net income
19,406

17,732

 
27,682

26,487

Purchases and retirement of common stock (1)
(3,774
)
(19,066
)
 
(9,077
)
(19,066
)
Issuances under equity plans, including tax benefits
127

46

 
(930
)
(1,645
)
Stock-based compensation
1,654

2,574

 
5,260

5,983

Change in accounting standard cumulative-effect adjustment (2)


 

1,525

Ending balance
629,022

574,934


629,022

574,934

 
 
 
 
 
 
Accumulated other comprehensive loss
 
 
 
 
 
Beginning balance, net of tax
(13,323
)
(9,713
)
 
(14,649
)
(6,804
)
Foreign currency translation adjustment
(693
)
(1,921
)
 
633

(3,305
)
Change in accounting standard cumulative-effect adjustment (2)


 

(1,525
)
Ending balance, net of tax
(14,016
)
(11,634
)

(14,016
)
(11,634
)
 
 
 
 
 
 
Total shareholders’ equity ending balance
$
615,007

$
563,301

 
$
615,007

$
563,301

(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 equity investments issued by the FASB in January 2016, $1.5 million in unrealized gains, net of tax on equity securities previously classified as available-for-sale were reclassified from accumulated other comprehensive loss to retained earnings as of the beginning of fiscal 2018. There were no material reclassifications out of accumulated other comprehensive loss during the thirteen and twenty-six weeks ended June 30, 2019.
v3.19.2
INCOME TAXES
6 Months Ended
Jun. 30, 2019
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 twenty-six weeks ended June 30, 2019 was 10.8%. The difference between the statutory federal income tax rate of 21.0% and our effective income tax rate results primarily from the federal Work Opportunity Tax Credit. This tax credit is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. Other differences between the statutory federal income tax rate of 21.0% and our effective tax rate result from state and foreign income taxes, certain non-deductible expenses, tax-exempt interest, and tax effects of stock-based compensation.
v3.19.2
NET INCOME PER SHARE
6 Months Ended
Jun. 30, 2019
Earnings Per Share [Abstract]  
NET INCOME PER SHARE
NET INCOME PER SHARE
Diluted common shares were calculated as follows:
 
Thirteen weeks ended
 
Twenty-six weeks ended
(in thousands, except per share data)
June 30,
2019
July 1,
2018
 
June 30,
2019
July 1,
2018
Net income
$
19,406

$
17,732

 
$
27,682

$
26,487

 
 
 
 
 
 
Weighted average number of common shares used in basic net income per common share
39,163

40,227

 
39,264

40,335

Dilutive effect of non-vested restricted stock
391

242

 
355

241

Weighted average number of common shares used in diluted net income per common share
39,554

40,469


39,619

40,576

 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
Basic
$
0.50

$
0.44

 
$
0.71

$
0.66

Diluted
$
0.49

$
0.44

 
$
0.70

$
0.65

 
 
 
 
 
 
Anti-dilutive shares
246

254

 
336

218


v3.19.2
SEGMENT INFORMATION
6 Months Ended
Jun. 30, 2019
Segment Reporting [Abstract]  
SEGMENT INFORMATION SEGMENT INFORMATION
Our operating segments are based on the organizational structure for which financial results are regularly reviewed by our chief operating decision-maker, our Chief Executive Officer, to determine resource allocation and assess performance. Our operating segments, also referred to as service lines, and reportable segments are described below:
Our PeopleReady reportable segment provides blue-collar, contingent staffing through the PeopleReady operating segment. PeopleReady provides on-demand and skilled labor in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, waste and recycling, hospitality, general labor and others.
Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-premise at the client’s facility, through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:
Staff Management | SMX: Exclusive recruitment and on-premise management of a facility’s contingent industrial workforce;
SIMOS Insourcing Solutions: On-premise management and recruitment of warehouse/distribution operations; and
Centerline Drivers: Recruitment and management of temporary and dedicated drivers to the transportation and distribution industries.
Effective March 12, 2018, we divested the PlaneTechs business within our PeopleManagement reportable segment.
Our PeopleScout reportable segment provides high-volume, permanent employee recruitment process outsourcing, and management of outsourced labor service providers through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:
PeopleScout: Outsourced recruitment of permanent employees on behalf of clients; and
PeopleScout MSP: Management of multiple third party staffing vendors on behalf of clients.
Effective June 12, 2018, we acquired TMP through PeopleScout. Accordingly, the results associated with the acquisition are included in our PeopleScout operating segment. TMP is a mid-sized RPO and employer branding service provider operating in the United Kingdom which is the second largest RPO market in the world. This acquisition increases our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients and employer branding capabilities.
We evaluate performance based on segment revenue and segment profit. Inter-segment revenue is minimal. Segment profit includes revenue, related cost of services, and ongoing operating expenses directly attributable to the reportable segment. Segment profit excludes goodwill and intangible impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest, other income and expense, income taxes, and 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
 
Twenty-six weeks ended
(in thousands)
June 30,
2019
July 1,
2018
 
June 30,
2019
July 1,
2018
Revenue from services:
 
 
 
 
 
Contingent staffing
 
 
 
 
 
PeopleReady
$
369,261

$
377,460

 
$
696,129

$
694,295

PeopleManagement
153,530

178,839

 
311,574

362,731

Human resource outsourcing
 
 
 
 
 
PeopleScout
65,803

58,002

 
133,243

111,663

Total company
$
588,594

$
614,301

 
$
1,140,946

$
1,168,689


The following table presents a reconciliation of Segment profit to income before tax expense:
 
Thirteen weeks ended
 
Twenty-six weeks ended
(in thousands)
June 30,
2019
July 1,
2018
 
June 30,
2019
July 1,
2018
Segment profit:
 
 
 
 
 
PeopleReady
$
21,795

$
23,198

 
$
33,265

$
32,723

PeopleManagement
4,128

4,712

 
6,434

10,361

PeopleScout
11,223

11,320

 
21,650

23,225

 
37,146

39,230

 
61,349

66,309

Corporate unallocated
(3,634
)
(5,868
)
 
(10,911
)
(13,532
)
Work Opportunity Tax Credit processing fees
(240
)
(264
)
 
(480
)
(459
)
Acquisition/integration costs
(673
)
(457
)
 
(1,250
)
(457
)
Other benefits (costs)
(1,881
)
(1,264
)
 
725

(2,979
)
Depreciation and amortization
(9,827
)
(10,101
)
 
(19,779
)
(20,191
)
Income from operations
20,891

21,276

 
29,654

28,691

Interest and other income (expense), net
827

(968
)
 
1,380

1,236

Income before tax expense
$
21,718

$
20,308

 
$
31,034

$
29,927


Asset information by reportable segment is not presented since we do not manage our segments on a balance sheet basis.
v3.19.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
6 Months Ended
Jun. 30, 2019
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 30, 2018. The results of operations for the thirteen and twenty-six weeks ended June 30, 2019, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.
Reclassifications
Certain immaterial prior year amounts have been reclassified within current liabilities on our Consolidated Balance Sheets and Consolidated Statements of Cash Flows to conform to current year presentation.
Leases
Leases
We conduct our branch office operations from leased locations. We also lease office spaces for our centralized support functions, vehicles and equipment. Many leases require variable payments of property taxes, insurance, and common area maintenance, in addition to base rent. The variable portion of these lease payments is not included in our right-of-use assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred and are included in lease expense in selling, general and administrative (“SG&A”) expense on our Consolidated Statements of Operations and Comprehensive Income. The terms of our lease agreements generally range from three to five years, some containing options to renew or cancel. We determine if an arrangement meets the definition of a lease at inception, at which time we also perform an analysis to determine whether the lease qualifies as operating or financing.
Operating leases are included in operating lease right-of-use assets and operating lease current and long-term liabilities on our Consolidated Balance Sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term, and is included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income.
Financing leases are included in property and equipment, net, other current liabilities, and other long-term liabilities on our Consolidated Balance Sheets. Lease expense for financing leases is recognized as depreciation of the right-of-use asset and interest expense.
Lease right-of-use assets and lease liabilities are measured using the present value of future minimum lease payments over the lease term at commencement date. The right-of-use asset also includes any lease payments made on or before the commencement date of the lease, less any lease incentives received. As the rate implicit in the lease is not readily determinable in our leases, we use our incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rates used are estimated based on what we would be required to pay for a collateralized loan over a similar term. We have lease agreements with lease and non-lease components, which are accounted for as a single lease component.
For leases with an initial non-cancelable lease term of less than one year and no option to purchase, we have elected not to recognize the lease on our Consolidated Balance Sheets and instead recognize rent payments on a straight-line basis over the lease term in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income. In addition, for those leases where the right to cancel the lease is available to both TrueBlue (as the lessee) and the lessor, the lease term is the initial non-cancelable period plus the notice period, which is typically 90 days, and not greater than one year.
Goodwill
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, legal factors, operating performance indicators, competition, client 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. We test for goodwill impairment at the reporting unit level. We consider our operating segments to be our reporting units for goodwill impairment testing. Our operating segments are PeopleReady, Centerline, Staff Management, SIMOS, PeopleScout, and PeopleScout MSP. The impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds the carrying value, we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value of the goodwill.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions to evaluate the impact of operational and macroeconomic changes on each reporting unit. The fair value of each reporting unit is a weighted average of the income and market valuation approaches. The income approach applies a fair value methodology based on discounted cash flows. This analysis requires significant estimates and judgments, including estimation of future cash flows, which is dependent on internal 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. We also apply a market approach, which identifies similar publicly traded companies and develops a correlation, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples to which we compare are revenue and earnings before interest, taxes, depreciation, and amortization. The income and market approaches were equally weighted in our most recent annual impairment test. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater.
Based on our 2019 annual impairment test, the estimated fair value of our SIMOS reporting unit was in excess of its carrying value of $35 million by approximately 10%. There are two key clients that individually account for more than 10% of revenue for the SIMOS reporting unit. For each client we service multiple sites. The loss of a key client, or a significant number of key sites, could give rise to an impairment. Should any one of these events occur, we may need to record an impairment loss to goodwill for the amount by which the carrying value exceeds the reporting unit's fair value, not to exceed the total amount of goodwill. We will continue to closely monitor the operational performance of this reporting unit. All other reporting units’ fair values were substantially in excess of their respective carrying values. Accordingly, there was no impairment loss recognized for the twenty-six weeks ended June 30, 2019.
New Accounting Pronouncements And Changes In Accounting Principles, Policy
Recently adopted accounting standards
Intangibles-goodwill and other-internal-use software
In August 2018, the Financial Accounting Standards Board (“FASB”) issued new guidance on accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Previously, we expensed the cost of internal development labor as incurred.
The new guidance now requires these costs be capitalized with the related amortization recorded in SG&A expense. In addition, capitalized development costs are required to be recorded as a prepaid asset rather than a fixed asset, and license fees incurred during the development period are expensed as incurred.
The standard is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We elected to early adopt this new standard prospectively as of the first day of our fiscal first quarter in 2019. There was no impact on our consolidated financial statements upon adoption.
Leases
In February 2016, the FASB issued guidance on lease accounting. The new guidance continues to classify leases as either finance or operating, but results in the lessee recognizing most operating leases on the balance sheet as right-of-use assets and lease liabilities. This guidance was effective for annual and interim periods beginning after December 15, 2018 (Q1 2019 for TrueBlue), with early adoption permitted. In July 2018, the FASB amended the standard to provide transition relief for comparative reporting, allowing companies to adopt the provisions of the new standard using a modified retrospective transition method on the adoption date, with a cumulative-effect adjustment to retained earnings recorded on the date of adoption. We have elected to adopt the standard using the transition relief provided in the July amendment. In preparation for adoption of the standard, we have implemented internal controls and key system functionality to enable the preparation of financial information.
We have elected the three practical expedients allowed for implementation of the new standard, but have not utilized the hindsight practical expedient. Accordingly, we did not reassess: 1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired or existing leases; 3) initial direct costs for any existing leases. We have also elected the practical expedient to not separate non-lease components from the lease components to which they relate, and instead account for each as a single lease component, for all underlying asset classes. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses.
Adoption of the new standard resulted in the recording of operating right-of-use assets and lease liabilities of $39 million and $41 million, respectively, as of the first day of our fiscal first quarter of 2019. The difference between the right-of-use assets and lease liabilities relates to the deferred rent liability balance as of the end of fiscal 2018 associated with the leases capitalized. The deferred rent liability, which was the difference between the straight-line lease expense and cash paid, reduced the right-of-use asset upon adoption. Our accounting for finance leases remained substantially unchanged. The standard did not materially impact our Consolidated Statements of Operations and Comprehensive Income or our Consolidated Statements of Cash Flows.
Recently issued accounting pronouncements not yet adopted
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 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 current methodology of delaying recognition of credit losses until it is probable a loss has been incurred. This guidance is effective for fiscal years beginning after December 15, 2019 (Q1 2020 for TrueBlue) with early adoption permitted. Although the impact upon adoption will depend on the financial instruments held at that time, we do not anticipate a significant impact on our consolidated financial statements based on the instruments currently held and our historical trend of bad debt expense relating to trade accounts receivable. We plan to adopt this guidance on the effective date and are currently evaluating the impact on our accounting policies, processes, systems, and internal controls.
No other new accounting pronouncement issued or effective during the fiscal year had, or is expected to have, a significant impact on our consolidated financial statements and related disclosures.
v3.19.2
ACQUISITION (Tables) - TMP
6 Months Ended
Jun. 30, 2019
Business Acquisition [Line Items]  
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed
The following table reflects the allocation of the purchase price, net of cash acquired, to the fair value of the assets acquired and liabilities assumed:
(in thousands)
Purchase price allocation
Cash purchase price, net of cash acquired
$
22,742

 
 
Accounts receivable
9,770

Prepaid expenses, deposits and other current assets
337

Property and equipment
435

Customer relationships
6,286

Trade names/trademarks
1,738

Total assets acquired
18,566

 
 
Accounts payable and other accrued expenses
9,139

Accrued wages and benefits
1,642

Income tax payable
205

Deferred income tax liability
1,444

Total liabilities assumed
12,430

 
 
Net identifiable assets acquired
6,136

Goodwill (1)
16,606

Total consideration allocated
$
22,742

(1) Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new clients and future cash flows after the acquisition of TMP, and is non-deductible for income tax purposes.
Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination
The following table sets forth the components of identifiable intangible assets, their estimated fair values and useful lives as of June 12, 2018:
(in thousands, except for estimated useful lives, in years)
Estimated fair value
Estimated useful life in years
Customer relationships
$
6,286

3, 7
Trade names/trademarks
1,738

14
Total acquired identifiable intangible assets
$
8,024

 

v3.19.2
FAIR VALUE MEASUREMENT (Tables)
6 Months Ended
Jun. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements, Recurring and Nonrecurring
Our assets measured at fair value on a recurring basis consisted of the following:
 
June 30, 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
$
23,124

$
23,124

$

$

Restricted cash and cash equivalents
48,744

48,744



Cash, cash equivalents and restricted cash (1)
$
71,868

$
71,868

$

$

 
 
 
 
 
Municipal debt securities
$
76,084

$

$
76,084

$

Corporate debt securities
69,081


69,081


Agency mortgage-backed securities
1,944


1,944


U.S. government and agency securities
1,045


1,045


Restricted investments classified as held-to-maturity
$
148,154

$

$
148,154

$

 
 
 
 
 
Deferred compensation mutual funds
$
28,416

$
28,416

$

$

 
December 30, 2018
(in thousands)
Total fair value
Quoted prices in active markets for identical assets (level 1)
Significant other observable inputs (level 2)
Significant unobservable inputs (level 3)
Cash and cash equivalents
$
46,988

$
46,988

$

$

Restricted cash and cash equivalents
55,462

55,462



Cash, cash equivalents and restricted cash (1)
$
102,450

$
102,450

$

$

 
 
 
 
 
Municipal debt securities
$
76,690

$

$
76,690

$

Corporate debt securities
75,432


75,432


Agency mortgage-backed securities
2,531


2,531


U.S. government and agency securities
988


988


Restricted investments classified as held-to-maturity
$
155,641

$

$
155,641

$

 
 
 
 
 
Deferred compensation mutual funds
$
23,363

$
23,363

$

$

(1)
Cash, cash equivalents and restricted cash consist of money market funds, deposits and investments with original maturities of three months or less.
v3.19.2
RESTRICTED CASH AND INVESTMENTS (Tables)
6 Months Ended
Jun. 30, 2019
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)
June 30,
2019
December 30,
2018
Cash collateral held by insurance carriers
$
23,877

$
24,182

Cash and cash equivalents held in Trust
24,721

28,021

Investments held in Trust
145,396

156,618

Deferred compensation mutual funds
28,416

23,363

Other restricted cash and cash equivalents
146

3,259

Total restricted cash and investments
$
222,556

$
235,443


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 June 30, 2019 and December 30, 2018, were as follows:
 
June 30, 2019
(in thousands)
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Municipal debt securities
$
74,206

$
1,883

$
(5
)
$
76,084

Corporate debt securities
68,262

883

(64
)
69,081

Agency mortgage-backed securities
1,929

21

(6
)
1,944

U.S. government and agency securities
999

46


1,045

Total held-to-maturity investments
$
145,396

$
2,833

$
(75
)
$
148,154

 
December 30, 2018
(in thousands)
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Municipal debt securities
$
76,750

$
456

$
(516
)
$
76,690

Corporate debt securities
76,310

30

(908
)
75,432

Agency mortgage-backed securities
2,559

5

(33
)
2,531

U.S. government and agency securities
999


(11
)
988

Total held-to-maturity investments
$
156,618

$
491

$
(1,468
)
$
155,641


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 June 30, 2019 and December 30, 2018, were as follows:
 
June 30, 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
Municipal debt securities
$

$

 
$
5,992

$
(5
)
 
$
5,992

$
(5
)
Corporate debt securities


 
23,378

(64
)
 
23,378

(64
)
Agency mortgage-backed securities


 
676

(6
)
 
676

(6
)
Total held-to-maturity investments
$

$

 
$
30,046

$
(75
)
 
$
30,046

$
(75
)
 
December 30, 2018
 
Less than 12 months
 
12 months or more
 
Total
(in thousands)
Estimated fair value
Unrealized losses
 
Estimated fair value
Unrealized losses
 
Estimated fair value
Unrealized losses
Municipal debt securities
$
12,803

$
(74
)
 
$
22,638

$
(442
)
 
$
35,441

$
(516
)
Corporate debt securities
22,567

(277
)
 
44,463

(631
)
 
67,030

(908
)
Agency mortgage-backed securities
385


 
1,375

(33
)
 
1,760

(33
)
U.S. government and agency securities
988

(11
)
 


 
988

(11
)
Total held-to-maturity investments
$
36,743

$
(362
)

$
68,476

$
(1,106
)

$
105,219

$
(1,468
)

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:
 
June 30, 2019
(in thousands)
Amortized cost
Fair value
Due in one year or less
$
10,453

$
10,442

Due after one year through five years
88,986

90,201

Due after five years through ten years
45,957

47,511

Total held-to-maturity investments
$
145,396

$
148,154


v3.19.2
WORKERS' COMPENSATION INSURANCE AND RESERVES (Tables)
6 Months Ended
Jun. 30, 2019
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)
June 30,
2019
December 30,
2018
Undiscounted workers’ compensation reserve
$
277,449

$
284,625

Less discount on workers’ compensation reserve
18,112

18,179

Workers’ compensation reserve, net of discount
259,337

266,446

Less current portion
72,336

76,421

Long-term portion
$
187,001

$
190,025


v3.19.2
COMMITMENTS AND CONTINGENCIES (Tables)
6 Months Ended
Jun. 30, 2019
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)
June 30,
2019
December 30,
2018
Cash collateral held by workers’ compensation insurance carriers
$
22,311

$
22,264

Cash and cash equivalents held in Trust
24,721

28,021

Investments held in Trust
145,396

156,618

Letters of credit (1)
6,677

6,691

Surety bonds (2)
21,881

21,881

Total collateral commitments
$
220,986

$
235,475


(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.
Components of operating lease costs
Operating lease costs were comprised of the following:
 
Thirteen weeks ended
 
Twenty-six weeks ended
(in thousands)
June 30, 2019
Operating lease costs
$
4,363

 
$
8,635

Short-term lease costs
1,773

 
3,663

Other lease costs (1)
1,602

 
3,088

Total lease costs
$
7,738

 
$
15,386

(1)
Other lease costs include immaterial variable lease costs and sublease income.

Other operating lease information
Other information related to our operating leases was as follows:
 
Thirteen weeks ended
 
June 30, 2019
Weighted average remaining lease term in years
3.5
Weighted average discount rate
4.9%

Maturities of Operating Lease Liabilities
Future non-cancelable minimum lease payments under our operating lease commitments as of June 30, 2019, are as follows for each of the next five years and thereafter:
(in thousands)
 
Remainder of 2019
$
8,565

2020
15,008

2021
10,863

2022
6,064

2023
3,822

2024
1,302

Thereafter
1,442

Total undiscounted future non-cancelable minimum lease payments (1)
47,066

Less: Imputed interest (2)
6,618

Present value of lease liabilities
$
40,448

(1)
Operating lease payments exclude approximately $3.9 million of legally binding minimum lease payments for leases signed but not yet commenced.
(2)
Amount necessary to reduce net minimum lease payments to present value calculated using our incremental borrowing rates, which are consistent with the lease terms at adoption date (for those leases in existence as of the adoption date of the new lease standard) or lease inception (for those leases entered into after the adoption date).
Future non-cancelable minimum lease payments under our operating lease commitments as of December 30, 2018 were as follows for each of the next five years and thereafter:
(in thousands)
 
2019
$
8,337

2020
7,192

2021
4,990

2022
2,442

2023
1,324

Thereafter
699

Total future non-cancelable minimum lease payments
$
24,984