TRUEBLUE, INC., 10-Q filed on 10/26/2020
Quarterly Report
v3.20.2
DOCUMENT AND ENTITY INFORMATION - shares
9 Months Ended
Sep. 27, 2020
Oct. 12, 2020
Entity Addresses [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 27, 2020  
Document Transition Report false  
Entity File Number 001-14543  
Entity Registrant Name TrueBlue, Inc.  
Entity Incorporation, State or Country Code WA  
Entity Tax Identification Number 91-1287341  
Entity Address, Address Line One 1015 A Street  
Entity Address, City or Town Tacoma  
Entity Address, State or Province WA  
Entity Address, Postal Zip Code 98402  
City Area Code 253  
Local Phone Number 383-9101  
Title of 12(b) Security Common stock, no par value  
Trading Symbol TBI  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Common Stock Shares Outstanding (in shares)   35,472,768
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Entity Central Index Key 0000768899  
Current Fiscal Year End Date --12-27  
v3.20.2
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Sep. 27, 2020
Dec. 29, 2019
Current assets:    
Cash and cash equivalents $ 28,233 $ 37,608
Accounts receivable, net of allowance of $5,447 and $4,288 279,812 342,303
Prepaid expenses, deposits and other current assets 27,008 30,717
Income tax receivable 15,696 11,105
Total current assets 350,749 421,733
Property and equipment, net 66,994 66,150
Restricted cash and investments 229,815 230,932
Deferred income taxes, net 28,766 3,228
Goodwill 94,212 237,498
Intangible assets, net 30,704 73,673
Operating lease right-of-use assets, net 37,645 41,082
Workers’ compensation claims receivable, net 51,970 44,624
Other assets, net 17,343 17,235
Total assets 908,198 1,136,155
Current liabilities:    
Accounts payable and other accrued expenses 56,303 68,406
Accrued wages and benefits 60,209 67,604
Current portion of workers’ compensation claims reserve 65,860 73,020
Current operating lease liabilities 13,670 14,358
Other current liabilities 6,385 7,418
Total current liabilities 202,427 230,806
Workers’ compensation claims reserve, less current portion 188,934 182,598
Long-term debt, less current portion 1,500 37,100
Long-term deferred compensation liabilities 25,044 26,765
Long-term operating lease liabilities 25,950 28,849
Deferred employer payroll taxes 36,312 0
Other long-term liabilities 3,849 4,064
Total liabilities 484,016 510,182
Commitments and contingencies (Note 7)
Shareholders’ equity:    
Preferred stock, $0.131 par value, 20,000 shares authorized; No shares issued and outstanding 0 0
Common stock, no par value, 100,000 shares authorized; 35,450 and 38,593 shares issued and outstanding 1 1
Accumulated other comprehensive loss (17,379) (13,238)
Retained earnings 441,560 639,210
Total shareholders’ equity 424,182 625,973
Total liabilities and shareholders’ equity $ 908,198 $ 1,136,155
v3.20.2
CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($)
$ in Thousands
Sep. 27, 2020
Dec. 29, 2019
Allowance for credit loss $ 5,447 $ 4,288
Preferred stock, par value (in dollars per share) $ 0.131 $ 0.131
Preferred stock, shares authorized 20,000,000 20,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 35,450,000 38,593,000
Common stock, shares outstanding 35,450,000 38,593,000
v3.20.2
CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (LOSS) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 27, 2020
Sep. 29, 2019
Sep. 27, 2020
Sep. 29, 2019
Income Statement [Abstract]        
Revenue from services $ 474,530 $ 636,793 $ 1,327,726 $ 1,777,739
Cost of services 364,066 469,058 1,007,878 1,306,626
Gross profit 110,464 167,735 319,848 471,113
Selling, general and administrative expense 90,100 129,800 304,681 383,745
Depreciation and amortization 7,652 8,749 24,002 28,528
Goodwill and intangible asset impairment charge 0 0 175,189 0
Income (loss) from operations 12,712 29,186 (184,024) 58,840
Interest expense (628) (715) (3,104) (2,097)
Interest and other income 454 1,186 2,781 3,948
Interest and other income (expense), net (174) 471 (323) 1,851
Income (loss) before tax expense (benefit) 12,538 29,657 (184,347) 60,691
Income tax expense (benefit) 3,743 2,981 (34,480) 6,333
Net income (loss) $ 8,795 $ 26,676 $ (149,867) $ 54,358
Net income (loss) per common share:        
Basic (in dollars per share) $ 0.25 $ 0.69 $ (4.20) $ 1.39
Diluted (in dollars per share) $ 0.25 $ 0.68 $ (4.20) $ 1.38
Weighted average shares outstanding:        
Basic (in shares) 34,597 38,741 35,643 39,090
Diluted (in shares) 34,904 39,213 35,643 39,479
Other Comprehensive Income (Loss):        
Foreign currency translation adjustment $ 386 $ (1,657) $ (4,141) $ (1,024)
Comprehensive income (loss) $ 9,181 $ 25,019 $ (154,008) $ 53,334
v3.20.2
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
9 Months Ended
Sep. 27, 2020
Sep. 29, 2019
Cash flows from operating activities:    
Net income (loss) $ (149,867) $ 54,358
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation and amortization 24,002 28,528
Goodwill and intangible asset impairment charge 175,189 0
Provision for doubtful accounts 6,582 5,997
Stock-based compensation 6,762 8,119
Deferred income taxes (25,955) 1,058
Non-cash lease expense 11,115 11,087
Other operating activities 1,944 (1,701)
Changes in operating assets and liabilities:    
Accounts receivable 55,408 (17,616)
Income tax receivable (4,928) (3,982)
Other assets (2,646) (9,449)
Accounts payable and other accrued expenses (12,723) (6,970)
Accrued wages and benefits (7,395) (141)
Workers’ compensation claims reserve (824) (7,176)
Operating lease liabilities (11,410) (11,297)
Deferred employer payroll taxes 36,312 0
Other liabilities (2,798) 1,723
Net cash provided by operating activities 98,768 52,538
Cash flows from investing activities:    
Capital expenditures (16,244) (18,297)
Divestiture of business 0 215
Purchases of restricted available-for-sale investments (2,310) (5,299)
Sales of restricted available-for-sale investments 3,212 3,881
Purchases of restricted held-to-maturity investments (32,495) (17,298)
Maturities of restricted held-to-maturity investments 24,358 25,095
Net cash used in investing activities (23,479) (11,703)
Cash flows from financing activities:    
Purchases and retirement of common stock (52,346) (31,316)
Net proceeds from employee stock purchase plans 734 1,023
Common stock repurchases for taxes upon vesting of restricted stock (2,331) (1,934)
Net change in revolving credit facility (35,600) (36,200)
Other (1,436) (203)
Net cash used in financing activities (90,979) (68,630)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (466) 732
Net change in cash, cash equivalents and restricted cash (16,156) (27,063)
Cash, cash equivalents and restricted cash, beginning of period 92,371 102,450
Cash, cash equivalents and restricted cash, end of period 76,215 75,387
Supplemental Disclosure of Cash Flow Information [Abstract]    
Interest 2,672 1,767
Income taxes (3,414) 9,230
Operating lease liabilities 13,147 13,280
Property and equipment purchased but not yet paid 1,614 945
Right-of-use assets obtained in exchange for new operating lease liabilities $ 8,672 $ 10,825
v3.20.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 27, 2020
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial statement preparation
The accompanying unaudited consolidated financial statements (“financial statements”) of TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us,” and “our”) are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The financial statements reflect all adjustments which, in the opinion of management, are necessary to fairly state the financial statements for the interim periods presented. We follow the same accounting policies for preparing both quarterly and annual financial statements.
We also considered COVID-19 related impacts to our estimates, as appropriate, within our financial statements and there may be changes to those estimates in future periods. However, we believe that the accounting estimates used are appropriate after considering the increased uncertainties surrounding the severity and duration of COVID-19. These estimates and assumptions are subject to inherent uncertainties, which may result in actual future amounts differing from reported estimated amounts.

These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019. The results of operations for the thirteen and thirty-nine weeks ended September 27, 2020 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.
Recently adopted accounting standards
Credit losses
In June 2016, the Financial Accounting Standards Board issued guidance on accounting for credit losses on financial instruments. This guidance sets forth a current expected credit loss model (“CECL”), which requires the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. Under this model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions, and forecasted information rather than the previous methodology of delaying recognition of credit losses until it is probable a loss has been incurred. This guidance was adopted at the beginning of the first quarter of 2020. We were required to apply the new standard by means of a cumulative-effect adjustment to opening retained earnings as of the beginning of the first quarter of 2020. The total impact upon adoption to opening retained earnings was immaterial to both the individual financial assets affected as well as in the aggregate.
The following policies have been updated to reflect our adoption of the new standard on accounting for credit losses on financial instruments.
Accounts receivable and allowance for credit losses
Accounts receivable are recorded at the invoiced amount. We establish an estimate for the allowance for credit losses resulting from the failure of our clients to make required payments by applying an aging schedule to pools of assets with similar risk characteristics. Based on an analysis of the risk characteristics of our clients and associated receivables, we have concluded our pools are as follows:
PeopleReady and Centerline Drivers (“Centerline”) have a large, diverse set of clients, generally with frequent, low dollar invoices due to the daily nature of the work we perform. This results in high turnover in accounts receivable and lower rates of non-payment.
PeopleManagement On-Site has a smaller number of clients, and follows a contractual billing schedule. The invoice amounts are higher than that of PeopleReady and Centerline, with longer payment terms.
PeopleScout has a smaller number of clients, and generally sends invoices on a consolidated basis for a client. Invoice amounts are generally higher for PeopleScout than for PeopleManagement On-Site, with similar payment terms.
When specific clients are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately. The credit loss rates applied to each aging category by pool are based on current collection
efforts, historical collection trends, write-off experience, client credit risk, current economic data and forecasted information. The allowance for credit loss is reviewed quarterly and represents our best estimate of the amount of expected credit losses. Each month, past due or delinquent balances are identified based upon a review of aged receivables performed by collections and operations. Past due balances are written off when it is probable the receivable will not be collected. Changes in the allowance for credit losses are recorded in selling, general and administrative (“SG&A”) expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Due to the uncertain economic environment, it is difficult to estimate the impact caused by COVID–19 on our clients. However, the allowance for credit loss for accounts receivable as of September 27, 2020 is our best estimate of the amount of expected credit losses. Should actual results deviate from what we have currently estimated, our allowance for credit losses could change significantly.
The activity related to the allowance for credit losses for accounts receivable during the thirty-nine weeks ended September 27, 2020 was as follows:
(in thousands)
Beginning balance$4,288 
Cumulative-effect adjustment (1)524 
Current period provision6,582 
Write-offs(5,925)
Foreign currency translation(22)
Ending balance$5,447 
(1)As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to our account receivable allowance of $0.5 million as of the beginning of the first quarter of 2020.
Restricted cash and investments
We establish an allowance for credit loss for our held-to-maturity debt securities using a discounted cash flow method including a probability of default rate based on the issuer’s credit rating. We report the entire change in present value as credit loss expense (or reversal of credit loss expense) in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our held-to-maturity debt securities as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of September 27, 2020.
Workers’ compensation claims reserves
We establish an allowance for credit loss for our insurance receivables using a probability of default and losses expected upon default method, with the probability of default rate based on the third-party insurance carrier’s credit rating. Changes in the allowance for credit losses are recorded in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our workers’ compensation insurance receivables as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of September 27, 2020.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the current presentation. Specifically, the company has made certain reclassifications between cost of services and SG&A expense to more accurately reflect the costs of delivering our services. Such reclassifications did not have a significant impact on the company’s gross profit or SG&A expense.
Certain immaterial prior year amounts have also been reclassified within cash flows from investing activities on our Consolidated Statements of Cash Flows to conform to current year presentation.
Recently issued accounting pronouncements not yet adopted
There are no accounting pronouncements which have not yet been adopted that are expected to have a significant impact on our financial statements and related disclosures.
v3.20.2
FAIR VALUE MEASUREMENT
9 Months Ended
Sep. 27, 2020
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENT FAIR VALUE MEASUREMENT
Assets measured at fair value on a recurring basis
Our assets measured at fair value on a recurring basis consisted of the following:
September 27, 2020
(in thousands)Total fair valueQuoted prices in active markets for identical assets (level 1)Significant other observable inputs (level 2)Significant unobservable inputs (level 3)
Cash and cash equivalents$28,233 $28,233 $— $— 
Restricted cash and cash equivalents47,982 47,982 — — 
Cash, cash equivalents and restricted cash (1)$76,215 $76,215 $— $— 
Municipal debt securities$72,354 $— $72,354 $— 
Corporate debt securities88,136 — 88,136 — 
Agency mortgage-backed securities713 — 713 — 
U.S. government and agency securities1,139 — 1,139 — 
Restricted investments classified as held-to-maturity$162,342 $— $162,342 $— 
Deferred compensation investments (2)$12,950 $12,950 $— $— 
December 29, 2019
(in thousands)Total fair valueQuoted prices in active markets for identical assets (level 1)Significant other observable inputs (level 2)Significant unobservable inputs (level 3)
Cash and cash equivalents$37,608 $37,608 $— $— 
Restricted cash and cash equivalents54,763 54,763 — — 
Cash, cash equivalents and restricted cash (1)$92,371 $92,371 $— $— 
Municipal debt securities$74,236 $— $74,236 $— 
Corporate debt securities76,068 — 76,068 — 
Agency mortgage-backed securities1,376 — 1,376 — 
U.S. government and agency securities1,051 — 1,051 — 
Restricted investments classified as held-to-maturity$152,731 $— $152,731 $— 
Deferred compensation investments (2)$13,670 $13,670 $— $— 
(1)Cash, cash equivalents and restricted cash consist of money market funds, deposits and investments with original maturities of three months or less.
(2)Deferred compensation investments consist of mutual funds and money market funds.
Assets measured at fair value on a nonrecurring basis
We measure the fair value of certain non-financial assets on a nonrecurring basis, including goodwill and certain intangible assets. During the first quarter of 2020, we performed an interim impairment test as of the last day of our first fiscal quarter (March 29, 2020) due to market conditions. As a result of the test, goodwill and client relationship intangible assets with a total carrying value of $221.6 million were written down to their fair value, and an impairment charge of $175.2 million was recognized on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirty-nine weeks ended September 27, 2020. Refer to Note 4: Goodwill and Intangible Assets for additional details on the impairment charge and valuation methodologies.
The impairment was comprised as follows:
March 29, 2020
(in thousands)Total fair valueQuoted prices in active markets for identical assets (level 1)Significant other observable inputs (level 2)Significant unobservable inputs (level 3)Total impairment loss
Goodwill$31,705 $— $— $31,705 $(140,489)
Client relationships14,700 — — 14,700 (34,700)
Total$46,405 $— $— $46,405 $(175,189)
v3.20.2
RESTRICTED CASH AND INVESTMENTS
9 Months Ended
Sep. 27, 2020
Restricted Cash and Investments [Abstract]  
RESTRICTED CASH AND INVESTMENTS RESTRICTED CASH AND INVESTMENTS
The following is a summary of the carrying value of our restricted cash and investments:
(in thousands)September 27,
2020
December 29,
2019
Cash collateral held by insurance carriers$25,843 $24,612 
Cash and cash equivalents held in Trust 18,543 23,681 
Investments held in Trust156,030 149,373 
Deferred compensation investments12,950 13,670 
Company owned life insurance policies12,853 13,126 
Other restricted cash and cash equivalents3,596 6,470 
Total restricted cash and investments$229,815 $230,932 
Held-to-maturity
Restricted cash and investments include collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in debt and asset-backed securities. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon (“Trust”).
The amortized cost and estimated fair value of our held-to-maturity investments held in Trust, aggregated by investment category as of September 27, 2020 and December 29, 2019, were as follows:
September 27, 2020
(in thousands)Amortized costGross unrealized gainsGross unrealized lossesFair value
Municipal debt securities$68,716 $3,638 $— $72,354 
Corporate debt securities85,629 2,605 (98)88,136 
Agency mortgage-backed securities686 27 — 713 
U.S. government and agency securities999 140 — 1,139 
Total held-to-maturity investments$156,030 $6,410 $(98)$162,342 
December 29, 2019
(in thousands)Amortized costGross unrealized gainsGross unrealized lossesFair value
Municipal debt securities$72,017 $2,219 $— $74,236 
Corporate debt securities75,000 1,102 (34)76,068 
Agency mortgage-backed securities1,357 21 (2)1,376 
U.S. government and agency securities999 52 — 1,051 
Total held-to-maturity investments$149,373 $3,394 $(36)$152,731 
The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows:
September 27, 2020
(in thousands)Amortized costFair value
Due in one year or less$21,395 $21,605 
Due after one year through five years111,992 116,813 
Due after five years through ten years22,643 23,924 
Total held-to-maturity investments$156,030 $162,342 
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.
Deferred compensation investments and company owned life insurance policies
We hold mutual funds, money market funds and company owned life insurance policies to support our deferred compensation liability. Unrealized gains and losses related to these investments still held at September 27, 2020 and September 29, 2019, included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), were as follows:
Thirteen weeks endedThirty-nine weeks ended
(in thousands)September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Unrealized gains (losses)$1,452 $(115)$(258)$3,078 
v3.20.2
GOODWILL AND INTANGIBLE ASSETS
9 Months Ended
Sep. 27, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
GOODWILL AND INTANGIBLE ASSETS GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table reflects changes in the carrying amount of goodwill during the period by reportable segments:
(in thousands)PeopleReadyPeopleManagementPeopleScoutTotal company
Balance atDecember 29, 2019
Goodwill before impairment$106,304 $81,092 $145,181 $332,577 
Accumulated impairment loss(46,210)(33,700)(15,169)(95,079)
Goodwill, net60,094 47,392 130,012 237,498 
Impairment loss— (45,901)(94,588)(140,489)
Foreign currency translation— — (2,797)(2,797)
Balance atSeptember 27, 2020
Goodwill before impairment106,304 81,092 142,384 329,780 
Accumulated impairment loss(46,210)(79,601)(109,757)(235,568)
Goodwill, net$60,094 $1,491 $32,627 $94,212 
Intangible assets
Finite-lived intangible assets
The following table presents our purchased finite-lived intangible assets:
 September 27, 2020December 29, 2019
(in thousands)Gross carrying amountAccumulated
amortization
Net
carrying
amount
Gross carrying amountAccumulated
amortization
Net
carrying
amount
Finite-lived intangible assets (1):
Client relationships (2)$96,978 $(73,725)$23,253 $149,299 $(83,317)$65,982 
Trade names/trademarks1,978 (527)1,451 2,052 (441)1,611 
Technologies— — — 600 (520)80 
Total finite-lived intangible assets$98,956 $(74,252)$24,704 $151,951 $(84,278)$67,673 
(1)Excludes assets that are fully amortized.
(2)Balance at September 27, 2020 is net of impairment loss of $34.7 million recorded in the thirty-nine weeks ended September 27, 2020.
Amortization expense of our finite-lived intangible assets was $2.0 million and $3.9 million for the thirteen weeks ended September 27, 2020 and September 29, 2019, respectively, and $8.1 million and $13.9 million for the thirty-nine weeks ended September 27, 2020 and September 29, 2019, respectively.
Indefinite-lived intangible assets
We also held indefinite-lived trade names/trademarks of $6.0 million as of September 27, 2020 and December 29, 2019.
Impairments
Goodwill
We evaluate goodwill for impairment on an annual basis as of the first day of our fiscal second quarter, and whenever events or circumstances make it more likely than not that an impairment may have occurred. These events or circumstances could include a significant change in the business climate, operating performance indicators, competition, client engagement, legal factors, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year.
Interim impairment test
During the first quarter of 2020, the following events made it more likely than not that an impairment had occurred and accordingly, we performed an interim impairment test as of the last day of our fiscal first quarter.
We experienced a significant decline in our stock price during the first quarter of 2020. As a result of the decline in stock price, our market capitalization fell significantly below the recorded value of our consolidated net assets. The reduced market capitalization reflected the expected continued weakness in pricing and demand for our staffing services in a volatile economic climate. This was further impacted in March 2020 by COVID-19, which created a sudden global economic shock. We experienced a significant drop in client demand associated with government and societal actions taken to address COVID-19. We expected significant decreases to our revenues and corresponding operating results to continue due to weakness in pricing and demand for our services during the severe economic downturn. While demand was expected to recover in the future, the rate of recovery was expected to vary by geography and industry depending on the economic impact caused by COVID-19 and the rate at which infections would decline to a contained level.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions to evaluate the impact of operating and macroeconomic changes on each reporting unit. The fair value of each reporting unit was estimated using a combination of a discounted cash flow methodology and the market valuation approach using publicly traded company multiples in similar businesses. This analysis required significant judgments, including estimation of future cash flows, which was dependent on internally developed forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows would occur, and determination of our weighted average cost of capital, which was risk-adjusted to reflect the specific risk profile of the reporting unit being tested. The weighted average cost of capital used ranged from 11.5% to 12.0%. The combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of common stock on the date of valuation, while considering a
reasonable control premium. As a result of this impairment test, we concluded that the carrying amounts of goodwill for our PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units exceeded their implied fair values and we recorded a non-cash impairment loss of $140.5 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirty-nine weeks ended September 27, 2020. The goodwill carrying value of $45.9 million for our PeopleManagement On-Site reporting unit was fully impaired. The goodwill impairment charge for PeopleScout RPO and PeopleScout MSP was $92.2 million and $2.4 million, respectively.
Annual impairment test
Given the proximity of our interim impairment measurement date (last day of our fiscal first quarter - March 29, 2020) to our annual goodwill impairment measurement date (first day of our fiscal second quarter - March 30, 2020), we performed a qualitative assessment to determine whether it was more likely than not that the fair value of any of our reporting units is less than the carrying value. We considered the current and expected future economic and market conditions surrounding COVID-19 and concluded that it was not more likely than not that the goodwill associated with our reporting units were impaired as of the first day of our fiscal second quarter. Therefore, a quantitative assessment was not performed as of March 30, 2020.
Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the period from March 30, 2020 to September 27, 2020. The remaining goodwill balances for PeopleScout RPO and PeopleScout MSP were $22.9 million and $9.7 million, respectively, as of September 27, 2020. Should actual results decline further or longer than we have currently estimated, the remaining goodwill balances may be further impaired. We will continue to closely monitor the operational performance of these reporting units.
Finite-lived intangible assets
We generally record acquired intangible assets that have finite useful lives, such as client relationships, in connection with business combinations. We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. Factors considered important that could result in an impairment review include, but are not limited to, significant underperformance relative to historical or planned operating results or significant changes in business strategies. We estimate the recoverability of these assets by comparing the carrying amount of the asset to the future undiscounted cash flows that we expect the asset to generate. An impairment loss is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on discounted cash flow analysis or other valuation techniques.
Interim impairment test
With the decrease in demand for our services due to the economic impact caused by the response to COVID-19, we lowered our future expectations, which was the primary trigger of the impairment test as of the last day of our fiscal first quarter for certain of our acquired client relationships intangible assets. As a result of this impairment test, we recorded a non-cash impairment loss for our PeopleScout RPO and PeopleManagement On-Site client relationship intangible assets of $34.7 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirty-nine weeks ended September 27, 2020. The impairment charge for PeopleScout RPO and PeopleManagement On-Site client relationship intangible assets was $25.0 million and $9.7 million, respectively. Considerable management judgment was necessary to determine key assumptions, including projected revenue of acquired clients and an appropriate discount rate of 12.0%. Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the period from March 30, 2020 to September 27, 2020. The remaining client relationship intangible asset balances related to assets impaired for PeopleScout RPO and PeopleManagement On-Site were $5.5 million and $7.6 million, respectively, as of September 27, 2020.
Indefinite-lived intangible assets
We have indefinite-lived intangible assets related to our Staff Management and PeopleScout trade names. We test our trade names annually for impairment, and when indicators of potential impairment exist. We utilize the relief from royalty method to determine the fair value of each of our trade names. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates.
Interim impairment test
We performed an interim impairment test of our indefinite-lived intangible assets as of the last day of our first fiscal quarter for 2020 and determined that the estimated fair values exceeded the carrying amounts for our indefinite-lived trade names. Accordingly, no impairment loss was recognized.
Annual impairment test
Given the proximity of our interim impairment measurement date (last day of our fiscal first quarter - March 29, 2020) to our annual indefinite-lived trade names impairment measurement date (first day of our fiscal second quarter - March 30, 2020), we performed a qualitative assessment to determine whether it was more likely than not that the fair value of any of our indefinite-lived trade names is less than the carrying value. We concluded that it was not more likely than not that the indefinite-lived intangible assets associated with our Staff Management and PeopleScout trade names were impaired as of the first day of our fiscal second quarter. Therefore, a quantitative assessment was not performed as of March 30, 2020.
Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the period from March 30, 2020 to September 27, 2020.
v3.20.2
WORKERS' COMPENSATION INSURANCE AND RESERVES
9 Months Ended
Sep. 27, 2020
Workers' Compensation Insurance and Reserves [Abstract]  
WORKERS' COMPENSATION INSURANCE AND RESERVES WORKERS’ COMPENSATION INSURANCE AND RESERVES
We provide workers’ compensation insurance for our contingent and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured.
Our workers’ compensation reserve for claims below the deductible limit is discounted to its estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. The weighted average discount rate was 1.8% and 2.0% at September 27, 2020 and December 29, 2019, respectively. Payments made against self-insured claims are made over a weighted average period of approximately 5 years as of September 27, 2020.
The following table presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented:
(in thousands)September 27,
2020
December 29,
2019
Undiscounted workers’ compensation reserve$272,467 $274,934 
Less discount on workers’ compensation reserve17,673 19,316 
Workers’ compensation reserve, net of discount254,794 255,618 
Less current portion65,860 73,020 
Long-term portion$188,934 $182,598 
Payments made against self-insured claims were $40.6 million and $47.3 million for the thirty-nine weeks ended September 27, 2020 and September 29, 2019, respectively.
Our workers’ compensation reserve includes estimated expenses related to claims above our self-insured limits (“excess claims”), and we record a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. At September 27, 2020 and December 29, 2019, the weighted average rate was 1.5% and 2.4%, respectively. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 16 years. The discounted workers’ compensation reserve for excess claims was $53.1 million and $45.3 million, and the corresponding gross receivable for the insurance on excess claims was $52.1 million and $45.3 million as of September 27, 2020 and December 29, 2019, respectively.
Workers’ compensation cost consists primarily of changes in self-insurance reserves net of changes in discount, monopolistic jurisdictions’ premiums, insurance premiums and other miscellaneous expenses. Workers’ compensation cost of $14.4 million and $18.0 million was recorded in cost of services on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended September 27, 2020 and September 29, 2019, respectively, and $38.0 million and $46.2 million or the thirty-nine weeks ended September 27, 2020 and September 29, 2019, respectively.
v3.20.2
LONG-TERM DEBT
9 Months Ended
Sep. 27, 2020
Debt Disclosure [Abstract]  
LONG-TERM DEBT LONG-TERM DEBT
On March 16, 2020, we entered into a first amendment to our credit agreement with Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, N.A., KeyBank, N.A. and HSBC Bank USA, N.A. dated as of July 13, 2018, which extended the maturity of the revolving credit facility established thereunder (the “Revolving Credit Facility”) to March 16, 2025 and modified certain other terms. On June 24, 2020, we entered into a second amendment to our credit agreement (the “Second Amendment”), which modified terms of our financial covenants as well as certain other provisions of the Revolving Credit Facility.
The amended credit agreement provides for a revolving line of credit of up to $300.0 million with an option, subject to lender approval, to increase the amount to $450.0 million. Included in the Revolving Credit Facility is a $30.0 million sub-limit for “Swingline” loans and a $125.0 million sub-limit for letters of credit. At September 27, 2020, $1.5 million was drawn on the Revolving Credit Facility as a Swingline loan and $6.1 million was utilized by outstanding standby letters of credit, leaving $292.4 million unused under the Revolving Credit Facility, which is constrained by our most restrictive covenant at this time making $138.5 million available for additional borrowings. At December 29, 2019, $37.1 million was drawn on the Revolving Credit Facility, which included a $17.1 million Swingline loan.
Under the terms of the Revolving Credit Facility, we pay a variable rate of interest on funds borrowed under the revolving line of credit in excess of the Swingline loans, based on the London Interbank Offered Rate (“LIBOR”) plus an applicable spread between 1.25% and 3.50%. Alternatively, at our option, we may pay interest based on a base rate plus an applicable spread between 0.25% and 1.50%. The base rate is the greater of the prime rate (as announced by Bank of America), or the federal funds rate plus 0.50%. The applicable spread on LIBOR is 3.50% through the end of fiscal 2020, and will be determined by the consolidated leverage ratio thereafter, as defined in the amended credit agreement.
Under the terms of the Revolving Credit Facility, we are required to pay a variable rate of interest on funds borrowed under the Swingline loan based on the base rate plus applicable spread between 0.25% and 1.50%, as described above. At September 27, 2020, the applicable spread on the base rate was 1.50% and the base rate was 3.25%, resulting in an interest rate of 4.75%.
A commitment fee between 0.25% and 0.50% is applied against the Revolving Credit Facility’s unused borrowing capacity, with the specific rate determined by the consolidated leverage ratio, as defined in the amended credit agreement. Letters of credit are priced at a margin between 1.00% and 3.25%, plus a fronting fee of 0.50%.
Obligations under the Revolving Credit Facility are guaranteed by TrueBlue and material U.S. domestic subsidiaries, and are secured by substantially all of the assets of TrueBlue and material U.S. domestic subsidiaries. The amended credit agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including, among others, financial covenants.
The following financial covenants, as defined in the Second Amendment, are in effect through the second quarter of 2021:
Asset Coverage Ratio of greater than 1.00, defined as the ratio of 60% of accounts receivable to the difference of total debt outstanding and unrestricted cash in excess of $50 million. As of September 27, 2020, our asset coverage ratio was greater than 1.00 at 22.1.
Liquidity greater than $150 million, defined as the sum of unrestricted cash and availability under the aggregate revolving commitments. As of September 27, 2020, our liquidity was greater than the $150 million at $320.6 million.
The following financial covenant, as defined in the Second Amendment, will be in effect for the first and second quarter of 2021:
EBITDA, as defined in the amended credit agreement, greater than $12 million for the trailing three quarters ending Q1 2021 and greater than $15 million for the trailing four quarters ending Q2 2021.
The following financial covenants, as defined in the Second Amendment, will be in effect starting the third quarter of 2021 and thereafter:
Consolidated leverage ratio greater than 4.00 for the third and fourth quarters of 2021 and greater than 3.00 thereafter, defined as our funded indebtedness divided by trailing twelve months consolidated EBITDA, as defined in the amended credit agreement.
Consolidated fixed charge coverage ratio greater than 1.25, defined as the trailing twelve months bank-adjusted cash flow divided by cash interest expense.
As of September 27, 2020, we were in compliance with all effective covenants related to the Revolving Credit Facility.
v3.20.2
COMMITMENTS AND CONTINGENCIES
9 Months Ended
Sep. 27, 2020
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES COMMITMENTS AND CONTINGENCIES
Workers’ compensation commitments
We have provided our insurance carriers and certain states with commitments in the form and amounts listed below:
(in thousands)September 27,
2020
December 29,
2019
Cash collateral held by workers’ compensation insurance carriers$22,076 $22,256 
Cash and cash equivalents held in Trust18,543 23,681 
Investments held in Trust156,030 149,373 
Letters of credit (1)6,109 6,202 
Surety bonds (2)20,616 20,731 
Total collateral commitments$223,374 $222,243 
(1)We have agreements with certain financial institutions to issue letters of credit as collateral.
(2)Our surety bonds are issued by independent insurance companies on our behalf and bear annual fees based on a percentage of the bond, which are determined by each independent surety carrier. These fees do not exceed 2.0% of the bond amount, subject to a minimum charge. The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days’ notice.
Legal contingencies and developments
We are involved in various proceedings arising in the normal course of conducting business. We believe the liabilities included in our financial statements reflect the probable loss that can be reasonably estimated. The amounts recorded are immaterial and resolution of those proceedings are not expected to have a material effect on our results of operations, financial condition or cash flows.
v3.20.2
SHAREHOLDERS' EQUITY
9 Months Ended
Sep. 27, 2020
Shareholders' Equity [Abstract]  
SHAREHOLDER’S EQUITY SHAREHOLDERS’ EQUITY
Changes in the balance of each component of shareholders’ equity during the reporting periods were as follows:
Thirteen weeks endedThirty-nine weeks ended
(in thousands)September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Common stock shares
Beginning balance36,052 40,058 38,593 40,054 
Purchases and retirement of common stock(627)(1,115)(3,557)(1,505)
Net issuance under equity plans, including tax benefits48 (11)387 355 
Stock-based compensation(23)— 27 28 
Ending balance35,450 38,932 35,450 38,932 
Common stock amount
Beginning balance$$$$
Current period activity— — — — 
Ending balance
Retained earnings
Beginning balance430,525 629,022 639,210 606,087 
Net income (loss)8,795 26,676 (149,867)54,358 
Purchases and retirement of common stock (1)— (22,239)(52,346)(31,316)
Net issuance under equity plans, including tax benefits(177)19 (1,597)(911)
Stock-based compensation2,417 2,859 6,762 8,119 
Change in accounting standard cumulative-effect adjustment (2)— — (602)— 
Ending balance441,560 636,337 441,560 636,337 
Accumulated other comprehensive loss
Beginning balance, net of tax(17,765)(14,016)(13,238)(14,649)
Foreign currency translation adjustment386 (1,657)(4,141)(1,024)
Ending balance, net of tax(17,379)(15,673)(17,379)(15,673)
Total shareholders’ equity ending balance$424,182 $620,665 $424,182 $620,665 
(1)Under applicable Washington State law, shares purchased are not displayed separately as treasury stock on our Consolidated Balance Sheets and are treated as authorized but unissued shares. It is our accounting policy to first record these purchases as a reduction to our common stock account. Once the common stock account has been reduced to a nominal balance, remaining purchases are recorded as a reduction to our retained earnings. Furthermore, activity in our common stock account related to stock-based compensation is also recorded to retained earnings until such time as the reduction to retained earnings due to stock repurchases has been recovered.
(2)As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to retained earnings of $0.6 million in the first quarter of 2020.
Share repurchase plan

On October 16, 2019, our Board of Directors authorized a $100.0 million share repurchase program of our outstanding common stock. The share repurchase program does not obligate us to acquire any particular amount of common stock and does not have an expiration date. We may choose to purchase shares in the open market, from individual holders, through an accelerated share repurchase program or otherwise. As of September 27, 2020, $66.7 million remains available for repurchase of common stock under the existing authorization. The second amendment to our credit agreement prohibits us from repurchasing shares until July 1, 2021.
As part of the existing share repurchase plan, on February 28, 2020 we entered into an accelerated share repurchase (“ASR”) agreement with a third-party financial institution to repurchase $40.0 million of our common stock. Under the ASR agreement, we paid $40.0 million to the financial institution and received an initial delivery of 2,150,538 shares in the first quarter of 2020, which represented 80% of the total shares we expected to receive based on the market price at the time of the initial delivery. This transaction was initiated prior to the medical community’s acknowledgment of the expected severity of the impact COVID-19 would have on the United States.
The final number of shares delivered upon settlement of the agreement was determined by the volume weighted average price of our shares over the term of the ASR agreement, less the agreed-upon discount. On July 2, 2020, we settled our ASR agreement resulting in the receipt of 626,948 additional shares from the third-party financial institution. The total number of shares delivered under the ASR agreement was 2,777,486 with a volume weighted average price over the term of the ASR agreement of $14.40.
v3.20.2
INCOME TAXES
9 Months Ended
Sep. 27, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES 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.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in the United States. The CARES Act is an emergency economic aid package to help mitigate the impact of COVID-19. Among other things, the CARES Act provides certain changes to tax laws, including the ability to carry back losses to obtain refunds related to prior year tax returns.
Our effective tax rate for the thirty-nine weeks ended September 27, 2020 was 18.7%. The difference between the statutory federal income tax rate of 21% and our effective income tax rate results primarily from a non-deductible goodwill and intangible asset impairment charge and the impact of the CARES Act and the federal Work Opportunity Tax Credit (“WOTC”). WOTC is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. Other differences between the statutory federal income tax rate result from state and foreign income taxes, certain non-deductible expenses, tax exempt interest, and tax effects of stock-based compensation.
v3.20.2
NET INCOME (LOSS) PER SHARE
9 Months Ended
Sep. 27, 2020
Earnings Per Share [Abstract]  
NET INCOME (LOSS) PER SHARE NET INCOME (LOSS) PER SHARE
Diluted common shares were calculated as follows:
Thirteen weeks endedThirty-nine weeks ended
(in thousands, except per share data)September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Net income (loss)$8,795 $26,676 $(149,867)$54,358 
Weighted average number of common shares used in basic net income (loss) per common share34,597 38,741 35,643 39,090 
Dilutive effect of non-vested restricted stock307 472 — 389 
Weighted average number of common shares used in diluted net income (loss) per common share34,904 39,213 35,643 39,479 
Net income (loss) per common share:
Basic$0.25 $0.69 $(4.20)$1.39 
Diluted$0.25 $0.68 $(4.20)$1.38 
Anti-dilutive shares595 220 1,006 245 
v3.20.2
SEGMENT INFORMATION
9 Months Ended
Sep. 27, 2020
Segment Reporting [Abstract]  
SEGMENT INFORMATION SEGMENT INFORMATION
Our operating segments and reportable segments are described below:
Our PeopleReady reportable segment provides blue-collar, contingent staffing through the PeopleReady operating segment. PeopleReady provides on-demand and skilled labor in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, retail, waste and recycling, energy, hospitality, general labor and others.
Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-site at the client’s facility, through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:
On-Site: On-site management and recruitment for the contingent industrial workforce of manufacturing, warehouse, and distribution facilities; and
Centerline: Recruitment and management of contingent and dedicated commercial drivers to the transportation and distribution industries.
Our PeopleScout reportable segment provides high-volume, permanent employee recruitment process outsourcing, employer branding services and management of outsourced labor service providers through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:
PeopleScout RPO: Outsourced recruitment of permanent employees on behalf of clients and employer branding services; and
PeopleScout MSP: Management of multiple third-party staffing vendors on behalf of clients.
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 endedThirty-nine weeks ended
(in thousands)September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Revenue from services (1):
Contingent staffing
PeopleReady$293,546 $413,132 $801,991 $1,109,261 
PeopleManagement147,241 159,315 407,516 470,889 
Human resource outsourcing
PeopleScout33,743 64,346 118,219 197,589 
Total company$474,530 $636,793 $1,327,726 $1,777,739 
(1)Inter-segment revenue is minimal.
The following table presents a reconciliation of segment profit to income (loss) before tax expense (benefit):
Thirteen weeks endedThirty-nine weeks ended
(in thousands)September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Segment profit:
PeopleReady$18,714 $30,878 $27,002 $64,143 
PeopleManagement4,574 3,381 6,063 9,815 
PeopleScout349 10,774 75 32,424 
Total segment profit23,637 45,033 33,140 106,382 
Corporate unallocated (5,968)(5,769)(16,106)(16,680)
Work Opportunity Tax Credit processing fees(174)(240)(309)(720)
Acquisition/integration costs— (362)— (1,612)
Goodwill and intangible asset impairment charge— — (175,189)— 
Other benefits (costs)2,869 (727)(1,558)(2)
Depreciation and amortization (7,652)(8,749)(24,002)(28,528)
Income (loss) from operations12,712 29,186 (184,024)58,840 
Interest and other income (expense), net(174)471 (323)1,851 
Income (loss) before tax expense (benefit)$12,538 $29,657 $(184,347)$60,691 
Asset information by reportable segment is not presented since we do not manage our segments on a balance sheet basis.
v3.20.2
SUBSEQUENT EVENT
9 Months Ended
Sep. 27, 2020
Subsequent Event [Line Items]  
Subsequent Event SUBSEQUENT EVENTOn October 1, 2020, we took possession of office space we are under contract to lease. The location requires construction and retrofitting before it will be available to serve as our Chicago Headquarters. The lease has a term of 15 years, commencing on April 1, 2021. As a result, we recorded a $29.5 million right-of-use asset and corresponding lease liability as of the date of possession.
v3.20.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
9 Months Ended
Sep. 27, 2020
Accounting Policies [Abstract]  
Basis of presentation
Financial statement preparation
The accompanying unaudited consolidated financial statements (“financial statements”) of TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us,” and “our”) are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The financial statements reflect all adjustments which, in the opinion of management, are necessary to fairly state the financial statements for the interim periods presented. We follow the same accounting policies for preparing both quarterly and annual financial statements.
We also considered COVID-19 related impacts to our estimates, as appropriate, within our financial statements and there may be changes to those estimates in future periods. However, we believe that the accounting estimates used are appropriate after considering the increased uncertainties surrounding the severity and duration of COVID-19. These estimates and assumptions are subject to inherent uncertainties, which may result in actual future amounts differing from reported estimated amounts.

These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019. The results of operations for the thirteen and thirty-nine weeks ended September 27, 2020 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.
Recently adopted accounting standards and recently issued accounting pronouncements not yet adopted
Recently adopted accounting standards
Credit losses
In June 2016, the Financial Accounting Standards Board issued guidance on accounting for credit losses on financial instruments. This guidance sets forth a current expected credit loss model (“CECL”), which requires the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. Under this model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions, and forecasted information rather than the previous methodology of delaying recognition of credit losses until it is probable a loss has been incurred. This guidance was adopted at the beginning of the first quarter of 2020. We were required to apply the new standard by means of a cumulative-effect adjustment to opening retained earnings as of the beginning of the first quarter of 2020. The total impact upon adoption to opening retained earnings was immaterial to both the individual financial assets affected as well as in the aggregate.
The following policies have been updated to reflect our adoption of the new standard on accounting for credit losses on financial instruments.
Accounts receivable and allowance for credit losses
Accounts receivable are recorded at the invoiced amount. We establish an estimate for the allowance for credit losses resulting from the failure of our clients to make required payments by applying an aging schedule to pools of assets with similar risk characteristics. Based on an analysis of the risk characteristics of our clients and associated receivables, we have concluded our pools are as follows:
PeopleReady and Centerline Drivers (“Centerline”) have a large, diverse set of clients, generally with frequent, low dollar invoices due to the daily nature of the work we perform. This results in high turnover in accounts receivable and lower rates of non-payment.
PeopleManagement On-Site has a smaller number of clients, and follows a contractual billing schedule. The invoice amounts are higher than that of PeopleReady and Centerline, with longer payment terms.
PeopleScout has a smaller number of clients, and generally sends invoices on a consolidated basis for a client. Invoice amounts are generally higher for PeopleScout than for PeopleManagement On-Site, with similar payment terms.
When specific clients are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately. The credit loss rates applied to each aging category by pool are based on current collection
efforts, historical collection trends, write-off experience, client credit risk, current economic data and forecasted information. The allowance for credit loss is reviewed quarterly and represents our best estimate of the amount of expected credit losses. Each month, past due or delinquent balances are identified based upon a review of aged receivables performed by collections and operations. Past due balances are written off when it is probable the receivable will not be collected. Changes in the allowance for credit losses are recorded in selling, general and administrative (“SG&A”) expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Due to the uncertain economic environment, it is difficult to estimate the impact caused by COVID–19 on our clients. However, the allowance for credit loss for accounts receivable as of September 27, 2020 is our best estimate of the amount of expected credit losses. Should actual results deviate from what we have currently estimated, our allowance for credit losses could change significantly.
The activity related to the allowance for credit losses for accounts receivable during the thirty-nine weeks ended September 27, 2020 was as follows:
(in thousands)
Beginning balance$4,288 
Cumulative-effect adjustment (1)524 
Current period provision6,582 
Write-offs(5,925)
Foreign currency translation(22)
Ending balance$5,447 
(1)As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to our account receivable allowance of $0.5 million as of the beginning of the first quarter of 2020.
Restricted cash and investments
We establish an allowance for credit loss for our held-to-maturity debt securities using a discounted cash flow method including a probability of default rate based on the issuer’s credit rating. We report the entire change in present value as credit loss expense (or reversal of credit loss expense) in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our held-to-maturity debt securities as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of September 27, 2020.
Workers’ compensation claims reserves
We establish an allowance for credit loss for our insurance receivables using a probability of default and losses expected upon default method, with the probability of default rate based on the third-party insurance carrier’s credit rating. Changes in the allowance for credit losses are recorded in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our workers’ compensation insurance receivables as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of September 27, 2020.
Recently issued accounting pronouncements not yet adopted
There are no accounting pronouncements which have not yet been adopted that are expected to have a significant impact on our financial statements and related disclosures.
Accounts receivable and allowance for credit losses
Accounts receivable and allowance for credit losses
Accounts receivable are recorded at the invoiced amount. We establish an estimate for the allowance for credit losses resulting from the failure of our clients to make required payments by applying an aging schedule to pools of assets with similar risk characteristics. Based on an analysis of the risk characteristics of our clients and associated receivables, we have concluded our pools are as follows:
PeopleReady and Centerline Drivers (“Centerline”) have a large, diverse set of clients, generally with frequent, low dollar invoices due to the daily nature of the work we perform. This results in high turnover in accounts receivable and lower rates of non-payment.
PeopleManagement On-Site has a smaller number of clients, and follows a contractual billing schedule. The invoice amounts are higher than that of PeopleReady and Centerline, with longer payment terms.
PeopleScout has a smaller number of clients, and generally sends invoices on a consolidated basis for a client. Invoice amounts are generally higher for PeopleScout than for PeopleManagement On-Site, with similar payment terms.
When specific clients are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately. The credit loss rates applied to each aging category by pool are based on current collection
efforts, historical collection trends, write-off experience, client credit risk, current economic data and forecasted information. The allowance for credit loss is reviewed quarterly and represents our best estimate of the amount of expected credit losses. Each month, past due or delinquent balances are identified based upon a review of aged receivables performed by collections and operations. Past due balances are written off when it is probable the receivable will not be collected. Changes in the allowance for credit losses are recorded in selling, general and administrative (“SG&A”) expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Restricted cash and investments
Restricted cash and investments
We establish an allowance for credit loss for our held-to-maturity debt securities using a discounted cash flow method including a probability of default rate based on the issuer’s credit rating. We report the entire change in present value as credit loss expense (or reversal of credit loss expense) in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our held-to-maturity debt securities as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of September 27, 2020.
Workers' compensation claims reserves
Workers’ compensation claims reserves
We establish an allowance for credit loss for our insurance receivables using a probability of default and losses expected upon default method, with the probability of default rate based on the third-party insurance carrier’s credit rating. Changes in the allowance for credit losses are recorded in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our workers’ compensation insurance receivables as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of September 27, 2020.
Reclassifications
Reclassifications
Certain previously reported amounts have been reclassified to conform to the current presentation. Specifically, the company has made certain reclassifications between cost of services and SG&A expense to more accurately reflect the costs of delivering our services. Such reclassifications did not have a significant impact on the company’s gross profit or SG&A expense.
Certain immaterial prior year amounts have also been reclassified within cash flows from investing activities on our Consolidated Statements of Cash Flows to conform to current year presentation.
v3.20.2
Intangible Assets, Goodwill and Other (Policies)
9 Months Ended
Sep. 27, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets, Finite-Lived, Policy
Goodwill
We evaluate goodwill for impairment on an annual basis as of the first day of our fiscal second quarter, and whenever events or circumstances make it more likely than not that an impairment may have occurred. These events or circumstances could include a significant change in the business climate, operating performance indicators, competition, client engagement, legal factors, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year.
Finite-lived intangible assets
We generally record acquired intangible assets that have finite useful lives, such as client relationships, in connection with business combinations. We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. Factors considered important that could result in an impairment review include, but are not limited to, significant underperformance relative to historical or planned operating results or significant changes in business strategies. We estimate the recoverability of these assets by comparing the carrying amount of the asset to the future undiscounted cash flows that we expect the asset to generate. An impairment loss is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on discounted cash flow analysis or other valuation techniques.
Goodwill and Intangible Assets, Intangible Assets, Indefinite-Lived, Policy
Indefinite-lived intangible assets
We have indefinite-lived intangible assets related to our Staff Management and PeopleScout trade names. We test our trade names annually for impairment, and when indicators of potential impairment exist. We utilize the relief from royalty method to determine the fair value of each of our trade names. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates.
v3.20.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
9 Months Ended
Sep. 27, 2020
Accounting Policies [Abstract]  
Allowance for credit losses
The activity related to the allowance for credit losses for accounts receivable during the thirty-nine weeks ended September 27, 2020 was as follows:
(in thousands)
Beginning balance$4,288 
Cumulative-effect adjustment (1)524 
Current period provision6,582 
Write-offs(5,925)
Foreign currency translation(22)
Ending balance$5,447 
(1)As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to our account receivable allowance of $0.5 million as of the beginning of the first quarter of 2020.
v3.20.2
FAIR VALUE MEASUREMENT (Tables)
9 Months Ended
Sep. 27, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements, Recurring and Nonrecurring
Our assets measured at fair value on a recurring basis consisted of the following:
September 27, 2020
(in thousands)Total fair valueQuoted prices in active markets for identical assets (level 1)Significant other observable inputs (level 2)Significant unobservable inputs (level 3)
Cash and cash equivalents$28,233 $28,233 $— $— 
Restricted cash and cash equivalents47,982 47,982 — — 
Cash, cash equivalents and restricted cash (1)$76,215 $76,215 $— $— 
Municipal debt securities$72,354 $— $72,354 $— 
Corporate debt securities88,136 — 88,136 — 
Agency mortgage-backed securities713 — 713 — 
U.S. government and agency securities1,139 — 1,139 — 
Restricted investments classified as held-to-maturity$162,342 $— $162,342 $— 
Deferred compensation investments (2)$12,950 $12,950 $— $— 
December 29, 2019
(in thousands)Total fair valueQuoted prices in active markets for identical assets (level 1)Significant other observable inputs (level 2)Significant unobservable inputs (level 3)
Cash and cash equivalents$37,608 $37,608 $— $— 
Restricted cash and cash equivalents54,763 54,763 — — 
Cash, cash equivalents and restricted cash (1)$92,371 $92,371 $— $— 
Municipal debt securities$74,236 $— $74,236 $— 
Corporate debt securities76,068 — 76,068 — 
Agency mortgage-backed securities1,376 — 1,376 — 
U.S. government and agency securities1,051 — 1,051 — 
Restricted investments classified as held-to-maturity$152,731 $— $152,731 $— 
Deferred compensation investments (2)$13,670 $13,670 $— $— 
(1)Cash, cash equivalents and restricted cash consist of money market funds, deposits and investments with original maturities of three months or less.
(2)Deferred compensation investments consist of mutual funds and money market funds.
The impairment was comprised as follows:
March 29, 2020
(in thousands)Total fair valueQuoted prices in active markets for identical assets (level 1)Significant other observable inputs (level 2)Significant unobservable inputs (level 3)Total impairment loss
Goodwill$31,705 $— $— $31,705 $(140,489)
Client relationships14,700 — — 14,700 (34,700)
Total$46,405 $— $— $46,405 $(175,189)
v3.20.2
RESTRICTED CASH AND INVESTMENTS (Tables)
9 Months Ended
Sep. 27, 2020
Restricted Cash and Investments [Abstract]  
Schedule of restricted cash and investments
The following is a summary of the carrying value of our restricted cash and investments:
(in thousands)September 27,
2020
December 29,
2019
Cash collateral held by insurance carriers$25,843 $24,612 
Cash and cash equivalents held in Trust 18,543 23,681 
Investments held in Trust156,030 149,373 
Deferred compensation investments12,950 13,670 
Company owned life insurance policies12,853 13,126 
Other restricted cash and cash equivalents3,596 6,470 
Total restricted cash and investments$229,815 $230,932 
Schedule of held-to-maturity investments
The amortized cost and estimated fair value of our held-to-maturity investments held in Trust, aggregated by investment category as of September 27, 2020 and December 29, 2019, were as follows:
September 27, 2020
(in thousands)Amortized costGross unrealized gainsGross unrealized lossesFair value
Municipal debt securities$68,716 $3,638 $— $72,354 
Corporate debt securities85,629 2,605 (98)88,136 
Agency mortgage-backed securities686 27 — 713 
U.S. government and agency securities999 140 — 1,139 
Total held-to-maturity investments$156,030 $6,410 $(98)$162,342 
December 29, 2019
(in thousands)Amortized costGross unrealized gainsGross unrealized lossesFair value
Municipal debt securities$72,017 $2,219 $— $74,236 
Corporate debt securities75,000 1,102 (34)76,068 
Agency mortgage-backed securities1,357 21 (2)1,376 
U.S. government and agency securities999 52 — 1,051 
Total held-to-maturity investments$149,373 $3,394 $(36)$152,731 
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:
September 27, 2020
(in thousands)Amortized costFair value
Due in one year or less$21,395 $21,605 
Due after one year through five years111,992 116,813 
Due after five years through ten years22,643 23,924 
Total held-to-maturity investments$156,030 $162,342 
Schedule of unrealized gain (loss) on equity investments Unrealized gains and losses related to these investments still held at September 27, 2020 and September 29, 2019, included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), were as follows:
Thirteen weeks endedThirty-nine weeks ended
(in thousands)September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Unrealized gains (losses)$1,452 $(115)$(258)$3,078