TRUEBLUE, INC., 10-K filed on 2/26/2018
Annual Report
Document and Entity Information (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Feb. 1, 2018
Jul. 2, 2017
Document and Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2017 
 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
TBI 
 
 
Entity Registrant Name
TrueBlue, Inc. 
 
 
Entity Central Index Key
0000768899 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-Known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
41,089,329 
 
Entity Public Float
 
 
$ 1,080,384 
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2017
Jan. 1, 2017
Current assets:
 
 
Cash and cash equivalents
$ 28,780 
$ 34,970 
Accounts receivable, net of allowance for doubtful accounts of $4,344 and $5,160
374,273 
352,606 
Prepaid expenses, deposits and other current assets
20,605 
21,373 
Income tax receivable
4,621 
18,854 
Total current assets
428,279 
427,803 
Property and equipment, net
60,163 
63,998 
Restricted cash and investments
239,231 
231,193 
Deferred income taxes, net
3,783 
6,770 
Goodwill
226,694 
224,223 
Intangible assets, net
104,615 
125,671 
Other assets, net
46,266 
50,787 
Total assets
1,109,031 
1,130,445 
Current liabilities:
 
 
Accounts payable and other accrued expenses
55,091 
66,758 
Accrued wages and benefits
76,894 
79,782 
Current portion of workers’ compensation claims reserve
77,218 
79,126 
Contingent consideration
21,600 
Other current liabilities
3,216 
3,869 
Total current liabilities
212,419 
251,135 
Workers’ compensation claims reserve, less current portion
197,105 
198,225 
Long-term debt, less current portion
116,489 
135,362 
Long-term deferred compensation liabilities
21,866 
14,946 
Other long-term liabilities
6,305 
5,598 
Total liabilities
554,184 
605,266 
Commitments and contingencies (Note 9)
   
   
Shareholders’ equity:
 
 
Preferred stock, $0.131 par value, 20,000 shares authorized; No shares issued and outstanding
Common stock, no par value, 100,000 shares authorized; 41,098 and 42,171 shares issued and outstanding
Accumulated other comprehensive loss
(6,804)
(11,433)
Retained earnings
561,650 
536,611 
Total shareholders’ equity
554,847 
525,179 
Total liabilities and shareholders’ equity
$ 1,109,031 
$ 1,130,445 
CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Dec. 31, 2017
Jan. 1, 2017
Dec. 25, 2015
Allowance for doubtful accounts
$ 4,344 
$ 5,160 
 
Preferred stock, par value (in dollars per share)
$ 0.131 
$ 0.131 
 
Preferred stock, shares authorized
20,000 
20,000 
 
Preferred stock, shares issued
 
Preferred stock, shares outstanding
 
Common stock, par value (in dollars per share)
$ 0 
 
$ 0 
Common stock, shares authorized
100,000 
100,000 
 
Common stock, shares issued
41,098 
42,171 
 
Common stock, shares outstanding
41,098 
42,171 
 
CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (LOSS) (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Jan. 1, 2017
Dec. 25, 2015
Revenue from services
$ 2,508,771 
$ 2,750,640 
$ 2,695,680 
Cost of services
1,874,298 
2,070,922 
2,060,007 
Gross profit
634,473 
679,718 
635,673 
Selling, general and administrative expense
510,794 
546,477 
495,988 
Depreciation and amortization
46,115 
46,692 
41,843 
Goodwill and intangible asset impairment charge
103,544 
Income (loss) from operations
77,564 
(16,995)
97,842 
Interest expense
(5,494)
(7,166)
(4,160)
Interest and other income
5,480 
3,821 
2,765 
Interest and other income (expense), net
(14)
(3,345)
(1,395)
Income (loss) before tax expense
77,550 
(20,340)
96,447 
Income tax expense (benefit)
22,094 
(5,089)
25,200 
Net income (loss)
55,456 
(15,251)
71,247 
Net income (loss) per common share:
 
 
 
Basic (in dollars per share)
$ 1.35 
$ (0.37)
$ 1.73 
Diluted (in dollars per share)
$ 1.34 
$ (0.37)
$ 1.71 
Weighted average shares outstanding:
 
 
 
Basic (in shares)
41,202 
41,648 
41,226 
Diluted (in shares)
41,441 
41,648 
41,622 
Other comprehensive income (loss):
 
 
 
Total other comprehensive income (loss), net of tax
4,629 
2,580 
(14,884)
Comprehensive income (loss)
60,085 
(12,671)
56,363 
Foreign currency translation adjustment
 
 
 
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustment, net of tax
3,355 
1,830 
(14,362)
Unrealized gain (loss) on investments, net of tax
 
 
 
Other comprehensive income (loss):
 
 
 
Unrealized gain (loss) on investments, net of tax
$ 1,274 
$ 750 
$ (522)
CONSOLIDATED STATEMENTS OF SHARHOLDERS' EQUITY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $)
In Thousands, unless otherwise specified
Total
Common stock
Retained earnings
Accumulated other comprehensive income
Beginning balance at Dec. 26, 2014
$ 469,334 
$ 1 
$ 468,462 
$ 871 
Beginning balance (in shares) at Dec. 26, 2014
 
41,530 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
Net income (loss)
71,247 
 
71,247 
 
Other comprehensive income (loss), net of tax
(14,884)
 
 
(14,884)
Issuances under equity plans, including tax benefits (in shares)
 
494 
 
 
Issuances under equity plans, including tax benefits
(1,227)
 
(1,227)
 
Stock-based compensation (in shares)
 
 
 
Stock-based compensation
11,103 
 
11,103 
 
Ending balance at Dec. 25, 2015
535,573 
549,585 
(14,013)
Ending balance (in shares) at Dec. 25, 2015
 
42,024 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
Net income (loss)
(15,251)
 
(15,251)
 
Other comprehensive income (loss), net of tax
2,580 
 
 
2,580 
Purchases and retirement of common stock (in shares)
 
(332)
 
 
Purchases and retirement of common stock
(5,748)
 
(5,748)
 
Issuances under equity plans, including tax benefits (in shares)
 
445 
 
 
Issuances under equity plans, including tax benefits
(1,338)
 
(1,338)
 
Stock-based compensation (in shares)
 
34 
 
 
Stock-based compensation
9,363 
 
9,363 
 
Ending balance at Jan. 01, 2017
525,179 
536,611 
(11,433)
Ending balance (in shares) at Jan. 01, 2017
42,171 
42,171 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
Net income (loss)
55,456 
 
55,456 
 
Other comprehensive income (loss), net of tax
4,629 
 
 
4,629 
Purchases and retirement of common stock (in shares)
 
(1,530)
 
 
Purchases and retirement of common stock
(36,680)
 
(36,680)
 
Issuances under equity plans, including tax benefits (in shares)
 
418 
 
 
Issuances under equity plans, including tax benefits
(1,481)
 
(1,481)
 
Stock-based compensation (in shares)
 
39 
 
 
Stock-based compensation
7,744 
 
7,744 
 
Ending balance at Dec. 31, 2017
$ 554,847 
$ 1 
$ 561,650 
$ (6,804)
Ending balance (in shares) at Dec. 31, 2017
41,098 
41,098 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Jan. 1, 2017
Dec. 25, 2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$ 55,456 
$ (15,251)
$ 71,247 
Adjustments to reconcile net income (loss) to net cash from operating activities:
 
 
 
Depreciation and amortization
46,115 
46,692 
41,843 
Goodwill and intangible asset impairment charge
103,544 
Provision for doubtful accounts
6,808 
8,308 
7,132 
Stock-based compensation
7,744 
9,363 
11,103 
Deferred income taxes
2,440 
(25,355)
5,176 
Other operating activities
2,066 
7,910 
446 
Changes in operating assets and liabilities, net of effects of business acquisitions:
 
 
 
Accounts receivable
(28,483)
112,785 
(89,474)
Income tax receivable
14,875 
9,450 
(16,678)
Other assets
5,289 
470 
(6,398)
Accounts payable and other accrued expenses
(10,569)
(4,101)
23,261 
Accrued wages and benefits
(2,888)
(7,313)
12,203 
Workers’ compensation claims reserve
(1,048)
11,070 
14,736 
Other liabilities
2,046 
4,182 
(2,525)
Net cash provided by operating activities
99,851 
261,754 
72,072 
Cash flows from investing activities:
 
 
 
Capital expenditures
(21,958)
(29,042)
(18,394)
Acquisitions of businesses
(72,476)
(67,500)
Sales and maturities of marketable securities
1,500 
Change in restricted cash
21,505 
(19,773)
18,374 
Purchases of restricted investments
(50,601)
(37,173)
(51,516)
Maturities of restricted investments
20,157 
15,248 
12,510 
Net cash used in investing activities
(30,897)
(143,216)
(105,026)
Cash flows from financing activities:
 
 
 
Purchases and retirement of common stock
(36,680)
(5,748)
Net proceeds from stock option exercises and employee stock purchase plans
1,646 
1,542 
1,563 
Common stock repurchases for taxes upon vesting of restricted stock
(3,127)
(2,851)
(3,869)
Net change in Revolving Credit Facility
(16,607)
(105,579)
46,091 
Payments on debt
(2,267)
(2,456)
(2,078)
Payment of contingent consideration at acquisition date fair value
(18,300)
Other
(29)
1,079 
Net cash provided by (used in) financing activities
(75,335)
(115,121)
42,786 
Effect of exchange rate changes on cash and cash equivalents
191 
1,772 
283 
Net change in cash and cash equivalents
(6,190)
5,189 
10,115 
CASH AND CASH EQUIVALENTS, beginning of period
34,970 
29,781 
19,666 
CASH AND CASH EQUIVALENTS, end of period
28,780 
34,970 
29,781 
Interest
3,811 
4,083 
3,504 
Income taxes
4,593 
10,312 
34,401 
Property and equipment purchased but not yet paid
375 
1,471 
341 
Non-cash acquisition adjustments
$ 0 
$ 3,783 
$ 0 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies [Text Block]
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business
TrueBlue, Inc. (“TrueBlue,” “we,” “us,” and “our”) is a leading provider of specialized workforce solutions and services, helping customers improve growth and performance by providing contingent staffing, recruitment process outsourcing solutions and management of contingent staffing. Our workforce solutions meet customers’ needs for a reliable, efficient workforce in a wide variety of industries. Through our workforce solutions, we help businesses be more productive and we connect people to work each year. We are headquartered in Tacoma, Washington.
We operate our workforce solutions through three reportable segments, PeopleReady, PeopleManagement and PeopleScout. For additional information on our segments see Note 16: Segment Information.
Basis of presentation
The consolidated financial statements include the accounts of TrueBlue and all of its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Fiscal period end
On December 15, 2016, we changed our fiscal period end day from the last Friday to the Sunday closest to the last day of December. Our fiscal quarters also ended on the Sunday closest to the last day in March, June and September in fiscal 2017. In prior years, the consolidated financial statements were presented with the last day of the fiscal year ending on the last Friday of December. The change in fiscal year end and quarter end did not have a material effect on the comparability of the periods presented.
The consolidated financial statements are presented on a 52/53-week fiscal year-end basis, with the last day of the fiscal year ending on the Sunday closest to the last day of December. In fiscal years consisting of 53 weeks, the final quarter will consist of 14 weeks while fiscal years consisting of 52 weeks, all quarters will consist of 13 weeks. Of the three most recent years ended on December 31, 2017, the 2016 fiscal year included 53 weeks, with the 53rd week falling in our fourth quarter. All other years presented include 52 weeks.
Revenue recognition
Revenue is recognized at the time the service is provided by the temporary worker. Revenue from permanent placement services is recognized at the time the permanent placement candidate begins full-time employment. Revenue from other staffing fee-based services is recognized when the services are provided. Revenue also includes billable travel and other reimbursable costs. Customer discounts or other incentives are recognized in the period the related revenue is earned. Revenues are reported net of sales, use, or other transaction taxes collected from customers and remitted to taxing authorities.
We primarily record revenue on a gross basis as a principal versus on a net basis as an agent in the Consolidated Statements of Operations and Comprehensive Income (Loss). We have determined that gross reporting as a principal is the appropriate treatment based upon the following key factors:
We maintain the direct contractual relationship with the customer.
We have discretion in selecting and assigning the temporary worker to a particular job and establishing their billing rate.
We bear the risk and rewards of the transaction, including credit risk, if the customer fails to pay for services performed.
Cost of services
Cost of services refers to costs directly associated with the earning of revenue and primarily includes wages and related payroll taxes and workers’ compensation expenses. Cost of services also includes billable travel as well as other reimbursable and non-reimbursable expenses.
Advertising costs
Advertising costs consist primarily of print and other promotional activities. We expense advertisements as of the first date the advertisements take place. Advertising expenses included in selling, general and administrative expense were $7.3 million, $7.8 million and $9.1 million in fiscal 2017, 2016 and 2015, respectively.
Cash, cash equivalents and marketable securities
We consider all highly liquid instruments purchased with an original maturity of three months or less at date of purchase to be cash equivalents. Investments with original maturities greater than three months are classified as marketable securities. We do not buy and hold securities principally for the purpose of selling them in the near future. Our investment policy is focused on the preservation of capital, liquidity and return. From time to time, we may sell certain securities but the objective is generally not to generate profits on short-term differences in price. We manage our cash equivalents and marketable securities as a single portfolio of highly liquid securities.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are recorded at the invoiced amount. We establish an allowance for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments. The allowance for doubtful accounts is determined based on current collection efforts, historical collection trends, write-off experience, customer credit risk and current economic data. The allowance for doubtful accounts is reviewed quarterly and represents our best estimate of the amount of probable credit losses. Past due balances are written off when it is probable the receivable will not be collected.
Restricted cash and investments
Cash and investments pledged as collateral and restricted to use for workers’ compensation insurance programs are included as restricted cash and investments on our Consolidated Balance Sheets. Our investments consist of highly-rated investment grade debt securities, which are rated A1/P1 or higher for short-term securities and A or higher for long-term securities, by nationally recognized rating organizations. We have the positive intent and ability to hold our restricted investments until maturity in accordance with our investment policy and, accordingly, all of our restricted investments are classified as held-to-maturity. In the event that an investment is downgraded, it is replaced with a highly-rated investment grade security. We review for impairment on a quarterly basis and do not consider temporary unrealized losses to be an impairment.
We have an agreement with American International Group, Inc. and the Bank of New York Mellon Corporation creating a trust (“Trust”), which holds the majority of our collateral obligations under existing workers’ compensation insurance policies. Placing the collateral in the Trust allows us to manage the investment of the assets and provides greater protection of those assets.
Fair value of financial instruments and investments
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For assets and liabilities recorded or disclosed at fair value on a recurring basis, we determine fair value based on the following:
Level 1: The carrying value of cash and cash equivalents and mutual funds approximates fair value because of the short-term nature of these instruments. Inputs are valued using quoted market prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices in active markets for identical assets and liabilities. Instead we use quoted prices for similar instruments in active markets or quoted prices or we estimate the fair value using a variety of valuation methodologies, which include observable inputs for comparable instruments and unobservable inputs.
Level 3: For assets and liabilities with unobservable inputs, we typically rely on management’s estimates of assumptions that market participants would use in pricing the asset or liability.
The carrying value of our cash and cash equivalents and restricted cash approximates fair value because of the short-term maturity of those instruments. There are inherent limitations when estimating the fair value of financial instruments, and the fair values reported are not necessarily indicative of the amounts that would be realized in current market transactions.
The carrying value of our accounts receivable, accounts payable and other accrued expenses, and accrued wages and benefits approximates fair value due to their short-term nature. We also hold certain restricted investments which collateralize workers’ compensation programs and are classified as held-to-maturity and carried at amortized cost on our Consolidated Balance Sheets.
Certain items such as goodwill and other intangible assets are recognized or disclosed at fair value on a non-recurring basis. We determine the fair value of these items using level 3 inputs.
Property and equipment
Property and equipment are recorded at cost. We compute depreciation using the straight-line method over the estimated useful lives of the assets as follows:
 
Years
Buildings
40
Computers and software
3 - 10  
Furniture and equipment
3 - 10  

Leasehold improvements are amortized over the shorter of the related non-cancelable lease term or their estimated useful lives.
Non-capital expenditures associated with opening new locations are expensed as incurred.
When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss, net of proceeds, is reflected on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Repairs and maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated.
Costs associated with the acquisition or development of software for internal use are capitalized and amortized over the expected useful life of the software, from three to ten years. A subsequent addition, modification or upgrade to internal-use software is capitalized to the extent that it enhances the software’s functionality or extends its useful life. Software maintenance and training costs are expensed in the period incurred.
Leases
We conduct our branch office operations from leased locations. Many leases require payment of real estate taxes, insurance and common area maintenance, in addition to rent. The terms of our lease agreements generally range from three to five years with options to cancel, typically within 90 days of notification.
For leases that contain predetermined fixed escalations of the minimum rent, we recognize the related rent expense on a straight-line basis from the date we take possession of the property to the end of the minimum lease term. We record any difference between the straight-line rent amounts and amounts payable under the leases as part of deferred rent, in accrued liabilities or long-term liabilities, as appropriate.
Cash or lease incentives received upon entering into certain leases (“tenant allowances”) are recognized on a straight-line basis as a reduction to rent from the date we take possession of the property through the end of the initial lease term. We record the unamortized portion of tenant allowances as a part of deferred rent, in accrued liabilities or long-term liabilities, as appropriate.
Intangible assets and other long-lived assets
We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. Based on our review there was no impairment loss recognized for the year ended December 31, 2017 nor December 25, 2015. In the prior year, we recorded an impairment to our acquired trade names/trademarks intangible assets of $4.3 million and an impairment to our customer relationships intangible assets of $28.9 million.
Goodwill
We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our second quarter, and more frequently if an event occurs or circumstances change that would indicate impairment may exist. These events or circumstances could include a significant change in the business climate, operating performance indicators, competition, customer engagement, legal factors or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year.
Based on our annual goodwill impairment test performed as of the first day of our second quarter, all reporting units’ fair values were substantially in excess of their respective carrying values for fiscal 2017. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater. Accordingly, no impairment loss was recognized for fiscal 2017. In the prior year, we recorded a goodwill impairment charge of $65.9 million. There was no goodwill impairment charge recorded in fiscal 2015.
Long-lived asset impairment
Long-lived assets include property and equipment, and finite-lived intangible assets. Property and equipment are tested for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. 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 indications 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. There were no triggering events during fiscal 2017 nor 2015 that would require us to perform an impairment test over our long-lived assets. Accordingly, there were no impairment charges recorded during fiscal 2017 nor 2015.
During fiscal 2016, we recognized an impairment charge on indefinite-lived intangible assets of $4.5 million.
Business combinations
We account for our business acquisitions using the purchase method of accounting. The fair value of the net assets acquired and the results of the acquired business are included in the financial statements from the acquisition date forward. We are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and results of operations during the reporting period. Estimates are used in accounting for, among other things, the fair value of acquired net operating assets, property and equipment, intangible assets, useful lives of property and equipment, and amortizable lives for acquired intangible assets. Any excess of the purchase consideration over the identified fair value of the assets and liabilities acquired is recognized as goodwill. Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date. We estimate the fair value of acquired assets and liabilities as of the date of the acquisition based on information available at that time. The valuation of these tangible and identifiable intangible assets and liabilities is subject to further management review and may change between the preliminary allocation and the final allocation. Any changes to these estimates may have a material impact on our operating results or financial condition.
All acquisition-related costs are expensed as incurred and recorded in selling, general and administrative expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). Additionally, we recognize liabilities for anticipated restructuring costs that will be necessary due to the elimination of excess capacity, redundant assets or unnecessary functions, and record them as selling, general and administrative expense.
Workers’ compensation claims reserves
We maintain reserves for workers’ compensation claims using actuarial estimates of the future cost of claims and related expenses. These estimates include claims that have been reported but not settled and claims that have been incurred but not reported. These reserves, which reflect potential liabilities to be paid in future periods based on estimated payment patterns, are discounted to estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments, which are evaluated on a quarterly basis. We evaluate the reserves regularly throughout the year and make adjustments accordingly. If the actual cost of such claims and related expenses exceeds the amounts estimated, additional reserves may be required. Changes in reserve estimates are reflected in the Consolidated Statements of Operations and Comprehensive Income (Loss) in the period when the changes in estimates are made.
Our workers’ compensation reserves include estimated expenses related to claims above our self-insured limits (“excess claims”) and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance companies. We discount the liability and its corresponding receivable to its estimated net present value using the “risk-free” rates associated with the actuarially determined weighted average lives of our excess claims. When appropriate, based on our best estimate, we record a valuation allowance against the insurance receivable to reflect amounts that may not be realized.
Legal contingency reserves and regulatory liabilities
From time to time we are subject to compliance audits by federal, state and local authorities relating to a variety of regulations including wage and hour laws, taxes, workers’ compensation, immigration and safety. In addition, we are subject to legal proceedings in the ordinary course of our operations. We establish accruals for contingent legal and regulatory liabilities when management determines that it is probable that a legal claim will result in an adverse outcome and the amount of liability can be reasonably estimated. To the extent that an insurance company is contractually obligated to reimburse us for a liability, we record a receivable for the amount of the probable reimbursement. We evaluate our reserve regularly throughout the year and make adjustments as needed. If the actual outcome of these matters is different than expected, an adjustment is charged or credited to expense in the period the outcome occurs or the period in which the estimate changes.
Income taxes and related valuation allowance
We account for income taxes by recording taxes payable or receivable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. These expected future tax consequences are measured based on provisions of tax law as currently enacted; the effects of future changes in tax laws are not anticipated. Future tax law changes, such as changes to the federal and state corporate tax rates and the mix of states and their taxable income, could have a material impact on our financial condition or results of operations. When appropriate, we record a valuation allowance against deferred tax assets to offset future tax benefits that may not be realized. In determining whether a valuation allowance is appropriate, we consider whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results. Based on that analysis, we have determined that a valuation allowance is appropriate for certain net operating losses and tax credits that we expect will not be utilized within the permitted carryforward periods as of December 31, 2017 and January 1, 2017.
A significant driver of fluctuations in our effective income tax rate is the Work Opportunity Tax Credit (“WOTC”). WOTC is designed to encourage hiring of workers from certain disadvantaged targeted categories, and is generally calculated as a percentage of wages over a twelve month period up to worker maximum by targeted category. Based on historical results and business trends, we estimate the amount of WOTC we expect to earn related to wages of the current year. However, the estimate is subject to variation because 1) a small percentage of our workers qualify for one or more of the many targeted categories; 2) the targeted categories are subject to different incentive credit rates and limitations; 3) credits fluctuate depending on economic conditions and qualified worker retention periods; and 4) state and federal offices can delay their credit certification processing and have inconsistent certification rates. We recognize additional prior year hiring credits if credits in excess of original estimates have been certified by government offices.
Stock-based compensation
Under various plans, officers, employees and non-employee directors have received or may receive grants of stock, restricted stock awards, performance share units or options to purchase common stock. We also have an employee stock purchase plan.
Compensation expense for restricted stock awards and performance share units is generally recognized on a straight-line basis over the vesting period, based on the stock’s fair market value on the grant date. For restricted stock and performance share unit grants issued with performance conditions, compensation expense is recognized over each vesting period based on assessment of the likelihood of meeting these conditions. We recognize compensation expense for only the portion of restricted stock and performance share units that is expected to vest, rather than record forfeitures when they occur. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in the future periods. We determine the fair value of options to purchase common stock using the Black-Scholes valuation model, which requires the input of subjective assumptions. We recognize expense over the service period for options that are expected to vest and record adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.
Foreign currency
Our consolidated financial statements are reported in U.S. dollars. Assets and liabilities of international subsidiaries with non-U.S. dollar functional currencies are translated to U.S. dollars at the exchange rates in effect on the balance sheet date. Revenues and expenses for each subsidiary are translated to U.S. dollars using a weighted average rate for the relevant reporting period. Translation adjustments resulting from this process are included, net of tax, in other comprehensive income (“OCI”), where applicable. Currency gains and losses on intercompany loans intended to be a permanent investments in international subsidiaries are included, net of tax, in OCI.
Purchases and retirement of our common stock
We may purchase our common stock under a program authorized by our Board of Directors. Under applicable Washington State law, shares purchased are not displayed separately as treasury stock on the 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.
Net income (loss) per share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares include the dilutive effects of vested and non-vested restricted stock, performance share units and shares issued under the employee stock purchase plan, except where their inclusion would be anti-dilutive.
Anti-dilutive shares primarily include non-vested restricted stock and performance share units for which the sum of the assumed proceeds, including unrecognized compensation expense, exceeds the average stock price during the periods presented. Anti-dilutive shares associated with our stock options relate to those stock options with an exercise price higher than the average market value of our stock during the periods presented.
Use of estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates in our financial statements include, but are not limited to, purchase accounting, allowance for doubtful accounts, estimates for asset and goodwill impairments, stock-based performance awards, assumptions underlying self-insurance reserves, contingent legal and regulatory liabilities, and the potential outcome of future tax consequences of events that have been recognized in the financial statements. Actual results and outcomes may differ from these estimates and assumptions.
Recently adopted accounting standards
In January 2017, the Financial Accounting Standards Board (“FASB”) issued guidance to simplify the subsequent measurement of goodwill by eliminating the requirement to perform a Step 2 impairment test to compute the implied fair value of goodwill. As a result, companies will only compare the fair value of a reporting unit to its carrying value (Step 1) and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized may not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This amended guidance is effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We early adopted this guidance for our fiscal 2017 annual impairment test. The adoption of the new standard did not have any impact to our consolidated financial statements.
Recently issued accounting pronouncements not yet adopted
In February 2018, the FASB issued guidance to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018 (Q1 2019 for TrueBlue), with early adoption permitted. We plan to adopt this guidance on the effective date and do not expect the adoption to have a material impact on our financial statements.
In May 2017, the FASB issued guidance to provide clarity and reduce diversity in practice when accounting for a change to the terms or conditions of share-based payment awards. The objective is to reduce the scope of transactions that would require modification accounting. Disclosure requirements remain unchanged. This amended guidance is effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. We plan to adopt this guidance on the effective date and do not expect the adoption to have a material impact on our financial statements.
In November 2016, the FASB issued guidance to amend the presentation of restricted cash and restricted cash equivalents on the statement of cash flows. The standard requires restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This amended guidance is effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. We plan to adopt this guidance on the effective date. Changes in restricted cash recorded in cash flows from investing were $21.5 million, $19.8 million and $18.4 million for the years ended December 31, 2017, January 1, 2017 and December 25, 2015, respectively.
In October 2016, FASB issued guidance on the accounting for income tax effects of intercompany sales or transfers of assets other than inventory. The guidance requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. This guidance is effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. The guidance will require a modified retrospective application with a cumulative catch-up adjustment to opening retained earnings. We plan to adopt this guidance on the effective date and do not expect the adoption to have a material impact on our financial statements.
In August 2016, the FASB issued guidance relating to how certain cash receipts and cash payments should be presented and classified in the statement of cash flows. The update is intended to reduce the existing diversity in practice. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted, including adoption in an interim period. The adoption should be applied using the retrospective transition method, if practicable. We plan to adopt this guidance on the effective date and do not expect the adoption to have a material impact on our financial statements.
In June 2016, the FASB issued guidance on accounting for credit losses on financial instruments. This guidance sets forth a current expected credit loss model, which requires measurement of all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and some off-balance sheet exposures, as well as trade account receivables. This guidance is effective for fiscal years beginning after December 15, 2019 (Q1 2020 for TrueBlue) with early adoption permitted no sooner than Q1 2019. A modified retrospective approach is required for all investments, except debt securities for which an other-than-temporary impairment had been recognized prior to the effective date, which will require a prospective transition approach. We plan to adopt this guidance on the effective date and are currently assessing the impact of the adoption of this guidance on our financial statements.
In February 2016, the FASB issued guidance on lease accounting. The new guidance will continue to classify leases as either finance or operating and will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet with classification affecting the pattern of expense recognition in the statement of income. This guidance is effective for annual and interim periods beginning after December 15, 2018 (Q1 2019 for TrueBlue), and early adoption is permitted. A modified retrospective approach is required for all leases existing or entered into after the beginning of the earliest comparative period in the consolidated financial statements. We plan to adopt the guidance on the effective date. We are currently evaluating the impact of this guidance on our financial statements and expect that, upon adoption, a majority of our operating lease commitments will be recognized on our Consolidated Balance Sheets as operating lease liabilities and right-of-use assets. We do not expect the adoption to have a material impact on the pattern of expense recognition in our Consolidated Statements of Operations and Comprehensive Income (Loss).
In January 2016, the FASB issued guidance on the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The guidance is effective for annual and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). Early adoption of the amendments in the guidance is not permitted, with limited exceptions, and should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We plan to adopt the guidance on the effective date. We do not expect the adoption to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued guidance outlining a single comprehensive model for accounting for revenue arising from contracts with customers, which supersedes the current revenue recognition guidance. This guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments as well as assets recognized from costs incurred to obtain or fulfill a contract. The guidance provides two methods of initial adoption: retrospective for all periods presented (full retrospective), or a cumulative adjustment in the year of adoption (modified retrospective). Since the issuance of the original standard, the FASB has issued several other subsequent updates including the following: 1) clarification of the implementation guidance on principal versus agent considerations; 2) further guidance on identifying performance obligations in a contract as well as clarifications on the licensing implementation guidance; and 3) additional guidance and practical expedients in response to identified implementation issues. The effective date is for annual and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). We will adopt the guidance using the modified retrospective approach in the first quarter of 2018.
We utilized a cross-functional implementation team consisting of representatives from across our business segments and various departments. This included a bottoms-up analysis to determine the impact of the standard on our various revenue streams by reviewing our current contracts with customers, accounting policies and business practices to identify potential differences that would result from applying the requirements of the new standard.
We have completed our evaluation of the impact that adopting the new standard will have on our financial statements and have concluded that it will not have a material impact on our financial reporting other than expanded disclosures as a majority of our revenues are from contingent staffing and other staffing fee-based arrangements.  For such arrangements, the performance obligation transfer of control and revenue recognition occurs at the time when the service is provided, consistent with previous revenue recognition guidance. 
Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.
ACQUISITIONS
Acquisitions
ACQUISITIONS
2016 acquisition

Effective January 4, 2016, we acquired certain assets and assumed certain liabilities of the recruitment process outsourcing (“RPO”) business of Aon Hewitt for a cash purchase price of $72.5 million, net of the final working capital adjustment. We amended our existing credit facility to temporarily increase the borrowing capacity by $30.0 million, which was used to fund the acquisition. The RPO business of Aon Hewitt broadened our PeopleScout RPO services and has been fully integrated into our PeopleScout service line, which is part of our PeopleScout reportable segment.

We incurred acquisition and integration-related costs of $6.6 million in connection with the acquisition of the RPO business of Aon Hewitt, which are included in selling, general and administrative expense on the Consolidated Statements of Operations and Comprehensive Income (Loss) and cash flows from operating activities on the Consolidated Statements of Cash Flows for the year ended January 1, 2017.

The following table reflects our final allocation of the purchase price:
(in thousands)
Purchase price allocation
Cash purchase price, net of working capital adjustment
$
72,476

Purchase price allocated as follows:
 
Accounts receivable
$
12,272

Prepaid expenses, deposits and other current assets
894

Customer relationships
34,900

Technologies
400

  Total assets acquired
48,466

Accrued wages and benefits
1,025

Other long-term liabilities
456

  Total liabilities assumed
1,481

Net identifiable assets acquired
46,985

Goodwill (1)
25,491

Total consideration allocated
$
72,476


(1)
Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers and future cash flows after the acquisition of the RPO business of Aon Hewitt. Goodwill is deductible for income tax purposes over 15 years as of January 4, 2016.

Intangible assets include identifiable intangible assets for customer relationships and developed technologies. We estimated the fair value of the acquired identifiable intangible assets, which are subject to amortization, using the income approach for customer relationships and the cost approach for developed technologies. No residual value was estimated for any of the intangible assets.

The following table sets forth the components of identifiable intangible assets and their estimated useful lives as of January 4, 2016:
(in thousands, except for estimated useful lives, in years)
Estimated Fair Value
Estimated Useful Lives in Years
Customer relationships
$
34,900

9.0
Technologies
400

3.0
Total acquired identifiable intangible assets
$
35,300

 


The amount of revenue from the RPO business of Aon Hewitt included in our Consolidated Statements of Operations and Comprehensive Income (Loss) was $66.5 million for the period from the acquisition date to January 1, 2017. The acquired operations have been fully integrated with our existing PeopleScout operations.
The acquisition of the RPO business of Aon Hewitt was not material to our consolidated results of operations and as such, pro forma financial information was not required.
2015 acquisition

Effective December 1, 2015, we acquired SIMOS Insourcing Solutions Corporation (“SIMOS”), an Atlanta-based provider of on-premise workforce management solutions for a cash purchase price of $66.6 million, net of the final working capital adjustment, which was funded by our existing credit facility. An additional cash payment of $22.5 million of contingent consideration was paid during the second quarter of fiscal 2017 as a result of SIMOS achieving a fiscal 2016 earnings before interest, taxes, depreciation and amortization target. SIMOS broadened our on-premise contingent staffing solution, which is part of our PeopleManagement reportable segment. Refer to Note 3: Fair Value Measurement for further details regarding the contingent consideration.

The following table reflects our final allocation of the purchase price:
(in thousands)
Purchase price allocation
Purchase price:
 
Cash purchase price, net of working capital adjustment
$
66,603

Contingent consideration (1)
18,300

Total consideration
$
84,903

 
 
Purchase price allocated as follows:
 
Accounts receivable (2)
$
19,207

Prepaid expenses, deposits and other current assets
461

Property and equipment
464

Customer relationships
39,000

Trade name/trademarks
800

Technologies
100

Restricted cash
4,277

Other non-current assets
2,439

  Total assets acquired
66,748

 
 
Accounts payable and other accrued expenses
3,741

Accrued wages and benefits
4,075

Workers’ compensation liability
8,520

  Total liabilities assumed
16,336

 
 
Net identifiable assets acquired
50,412

Goodwill (3)
34,491

Total consideration allocated
$
84,903


(1)
The present value of the $22.5 million contingent consideration as of the acquisition date based on a probability-weighted fair value measurement.
(2)
The gross contractual amount of accounts receivable was $19.3 million of which $0.1 million was estimated to be uncollectible.
(3)
Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers and future cash flows after the acquisition of SIMOS. Goodwill is deductible for income tax purposes over 15 years as of December 1, 2015.

Intangible assets include identifiable intangible assets for customer relationships, trade name/trademarks and developed technologies. We estimated the fair value of the acquired identifiable intangible assets, which are subject to amortization, using the income approach for customer relationships and trade name/trademarks, and the cost approach for developed technologies.

The following table sets forth the components of identifiable intangible assets and their estimated useful lives as of December 1, 2015:
(in thousands, except for estimated useful lives, in years)
Estimated fair value
Estimated useful life in years
Customer relationships
$
39,000

9.0
Trade name/trademarks
800

3.0
Technologies
100

2.0
Total acquired identifiable intangible assets
$
39,900

 

The acquisition of SIMOS was not material to our consolidated results of operations and as such, pro forma financial information was not required.
FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT
Assets and liabilities measured at fair value on a recurring basis
Our assets and liabilities measured at fair value on a recurring basis consisted of the following:
 
December 31, 2017
(in thousands)
Total fair value
Quoted prices in active markets for identical assets (level 1)
Significant other observable inputs (level 2)
Significant unobservable inputs (level 3)
Financial assets:
 
 
 
 
Cash and cash equivalents (1)
$
28,780

$
28,780

$

$

Restricted cash and cash equivalents (1)
39,039

39,039



Other restricted assets (2)
28,440

28,440



Restricted investments classified as held-to-maturity
172,238


172,238


 
January 1, 2017
(in thousands)
Total fair value
Quoted prices in active markets for identical assets (level 1)
Significant other observable inputs (level 2)
Significant unobservable inputs (level 3)
Financial assets:
 
 
 
 
Cash and cash equivalents (1)
$
34,970

$
34,970

$

$

Restricted cash and cash equivalents (1)
67,751

67,751



Other restricted assets (2)
16,925

16,925



Restricted investments classified as held-to-maturity
145,953


145,953


 
 
 
 
 
Financial liabilities:
 
 
 
 
Contingent consideration (3)
21,600



21,600


(1)
Cash equivalents and restricted cash equivalents consist of money market funds, deposits and investments with original maturities of three months or less.
(2)
Other restricted assets primarily consist of deferred compensation plan accounts, which are comprised of mutual funds classified as available-for-sale securities.
(3)
The estimated fair value of the contingent consideration associated with the acquisition of SIMOS, which was estimated using a probability-adjusted discounted cash flow model. Refer to Note 2: Acquisitions for further details regarding the SIMOS acquisition.

The following table presents the change in the estimated fair value of our liability for contingent consideration measured using significant unobservable inputs (level 3) for the year ended December 31, 2017:
(in thousands)
 
Fair value measurement at beginning of period
$
21,600

Accretion on contingent consideration
900

Payment of contingent consideration
(22,500
)
Fair value measurement at end of period
$


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

Changes in the fair value of the contingent consideration are recorded in selling, general and administrative expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). Amortization of the present value discount was recorded in interest expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).

There were no material transfers between level 1, level 2 and level 3 of the fair value hierarchy during the years ended December 31, 2017 and January 1, 2017.
Assets measured at fair value on a nonrecurring basis

We measure certain non-financial assets on a non-recurring basis, including goodwill and certain intangible assets. As a result of those measurements, we recognized impairment charges of $103.5 million during the year ended January 1, 2017, as follows:
 
January 1, 2017
(in thousands)
Total fair value
Quoted prices in active markets for identical assets (level 1)
Significant other observable inputs (level 2)
Significant unobservable inputs (level 3)
Total impairment loss
Goodwill
$
42,629

$

$

$
42,629

$
(65,869
)
Customer relationships
11,100



11,100

(28,900
)
Trade names/trademarks
3,600



3,600

(8,775
)
Total
$
57,329

$

$

$
57,329

$
(103,544
)


Goodwill, finite-lived customer relationships, trade names/trademarks intangible assets and indefinite-lived intangible trade names/trademarks intangible assets with a total carrying value of $160.8 million were written down to their fair value of $57.3 million, resulting in an impairment charge of $103.5 million, which was recorded in earnings for the year ended January 1, 2017.

There were no goodwill or intangible asset impairment charges recorded during fiscal 2017 nor 2015.
RESTRICTED CASH AND INVESTMENTS
RESTRICTED CASH AND INVESTMENTS
RESTRICTED CASH AND INVESTMENTS

Restricted cash and investments consist principally of collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in municipal debt securities, corporate debt securities and asset-backed securities. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon (“Trust”). Our investments have not resulted in any other-than-temporary impairments.
The following is a summary of our restricted cash and investments:
(in thousands)
December 31,
2017
January 1,
2017
Cash collateral held by insurance carriers
$
22,926

$
34,910

Cash and cash equivalents held in Trust
16,113

32,841

Investments held in Trust
171,752

146,517

Other (1)
28,440

16,925

Total restricted cash and investments
$
239,231

$
231,193


(1)
Primarily consists of deferred compensation plan accounts, which are comprised of mutual funds classified as available-for-sale securities.
The following tables present fair value disclosures for our held-to-maturity investments, which are carried at amortized cost:
 
December 31, 2017
(in thousands)
Amortized cost
Gross unrealized gain
Gross unrealized loss
Fair value
Municipal debt securities
$
82,770

$
974

$
(378
)
$
83,366

Corporate debt securities
83,916

309

(434
)
83,791

Agency mortgage-backed securities
4,066

22

(26
)
4,062

U.S. government and agency securities
1,000

19


1,019

 
$
171,752

$
1,324

$
(838
)
$
172,238

 
January 1, 2017
(in thousands)
Amortized cost
Gross unrealized gain
Gross unrealized loss
Fair value
Municipal debt securities
$
71,618

$
443

$
(865
)
$
71,196

Corporate debt securities
68,934

212

(352
)
68,794

Agency mortgage-backed securities
5,965

30

(32
)
5,963

 
$
146,517

$
685

$
(1,249
)
$
145,953


The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows:
 
December 31, 2017
(in thousands)
Amortized cost
Fair value
Due in one year or less
$
17,265

$
17,248

Due after one year through five years
90,906

90,825

Due after five years through ten years
63,581

64,165

 
$
171,752

$
172,238


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.
PROPERTY AND EQUIPMENT, NET
PROPERTY AND EQUIPMENT, NET
PROPERTY AND EQUIPMENT, NET

Property and equipment are stated at cost and consist of the following:
(in thousands)
December 31,
2017
January 1,
2017
Buildings and land
$
37,672

$
35,514

Computers and software
149,835

130,317

Furniture and equipment
15,527

12,262

Construction in progress
7,157

12,073

Gross property and equipment
210,191

190,166

Less accumulated depreciation
(150,028
)
(126,168
)
Property and equipment, net
$
60,163

$
63,998


Capitalized software costs, net of accumulated depreciation, were $21.9 million and $19.2 million as of December 31, 2017 and January 1, 2017, respectively, excluding amounts in construction in progress. Construction in progress consists primarily of purchased and internally-developed software.

Depreciation expense of property and equipment totaled $24.7 million, $21.6 million and $21.9 million for the years ended December 31, 2017, January 1, 2017 and December 25, 2015, respectively.
GOODWILL AND INTANGIBLE ASSETS
Goodwill and Intangible Assets
GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table reflects changes in the carrying amount of goodwill by our reportable segments:
(in thousands)
PeopleReady
PeopleManagement
PeopleScout
Total company
Balance at December 25, 2015
 
 
 
 
Goodwill before impairment
$
106,304

$
103,977

$
104,424

$
314,705

Accumulated impairment loss
(46,210
)


(46,210
)
Goodwill, net
60,094

103,977

104,424

268,495

 
 
 
 
 
Acquired goodwill and other (1)

(3,831
)
25,491

21,660

Impairment loss

(50,700
)
(15,169
)
(65,869
)
Foreign currency translation


(63
)
(63
)
 
 
 
 
 
Balance at January 1, 2017
 
 
 
 
Goodwill before impairment
106,304

100,146

129,852

336,302

Accumulated impairment loss
(46,210
)
(50,700
)
(15,169
)
(112,079
)
Goodwill, net
60,094

49,446

114,683

224,223

 
 
 
 
 
Foreign currency translation


2,471

2,471

 
 
 
 
 
Balance at December 31, 2017
 
 
 
 
Goodwill before impairment
106,304

100,146

132,323

338,773

Accumulated impairment loss
(46,210
)
(50,700
)
(15,169
)
(112,079
)
Goodwill, net
$
60,094

$
49,446

$
117,154

$
226,694



(1) Effective January 4, 2016, we acquired the RPO business of Aon Hewitt, which is part of our PeopleScout reportable segment. Accordingly, the goodwill associated with the acquisition has been assigned to our PeopleScout reportable segment based on our purchase price allocation. Effective December 1, 2015, we acquired SIMOS, which is part of our PeopleManagement reportable segment. The amount presented includes year-to-date adjustments to the preliminary SIMOS purchase accounting for goodwill. For additional information see Note 2: Acquisitions.

Intangible assets
Finite-lived intangible assets

The following table presents our purchased finite-lived intangible assets:
 
December 31, 2017
 
January 1, 2017
(in thousands)
Gross carrying amount
Accumulated
amortization
Net
carrying
amount
 
Gross carrying amount
Accumulated
amortization
Net
carrying
amount
Finite-lived intangible assets (1):
 
 
 
 
 
 
 
Customer relationships (2)
$
148,114

$
(53,801
)
$
94,313

 
$
165,725

$
(54,676
)
$
111,049

Trade names/trademarks (3)
4,149

(3,736
)
413

 
4,378

(3,385
)
993

Non-compete agreements
1,400

(1,377
)
23

 
1,400

(1,097
)
303

Technologies
17,500

(13,588
)
3,912

 
17,009

(9,683
)
7,326

Total finite-lived intangible assets
$
171,163

$
(72,502
)
$
98,661

 
$
188,512

$
(68,841
)
$
119,671


(1)
Excludes assets that are fully amortized.
(2)
Balance at January 1, 2017, is net of impairment loss of $28.9 million.
(3)
Balance at January 1, 2017, is net of impairment loss of $4.3 million.

Amortization expense of our finite-lived intangible assets was $21.4 million, $25.1 million and $19.9 million for the years ended December 31, 2017, January 1, 2017 and December 25, 2015, respectively.
The following table provides the estimated future amortization of finite-lived intangible assets as of December 31, 2017:
(in thousands)
 
2018
$
19,821

2019
17,299

2020
15,736

2021
12,431

2022
12,128

Thereafter
21,246

Total future amortization
$
98,661


Indefinite-lived intangible assets

We also held indefinite-lived trade names/trademarks of $6.0 million as of December 31, 2017 and January 1, 2017.

Impairments
There were no goodwill or intangible asset impairment charges recorded during fiscal 2017 or 2015.
2016 impairments
We performed our annual goodwill impairment analysis as of the first day of our second quarter of fiscal 2016. This analysis required significant 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. The weighted average cost of capital used in our most recent annual impairment test was risk-adjusted to reflect the specific risk profile of the reporting units and ranged from 12.0% to 17.0%.
As a result of our test we recorded a goodwill impairment charge of $65.9 million relating to the Staff Management, PlaneTechs and hrX reporting units as follows:

Staff Management: In April 2016, we were notified by our former largest customer of its plans to reduce the use of contingent labor and realign its contingent labor vendors for warehousing. Our former largest customer announced it would be reducing the use of our services for its warehouse fulfillment centers in the United States and focusing our services on its planned expansion of distribution service sites to a national network for delivery direct to the customer.
Goodwill impairment - We estimated that the change in scope of our services would decrease revenues by approximately $125 million compared to the prior year. As a result, we lowered our future expectations, which resulted in a goodwill impairment charge of $33.7 million.
Intangible asset impairment - The significant decrease in scope of services by our former largest customer required us to lower our future expectations, which was the primary trigger of an impairment charge to our acquired customer relationships intangible asset of $28.9 million and indefinite-lived intangible assets trade name of $4.5 million. Considerable management judgment was necessary to determine key assumptions, including projected revenue, royalty rates, and an appropriate discount rate of 13.0% for the customer relationships intangibles asset and 17.0% for the indefinite-lived trade-name. In addition, we utilized the relief from royalty method to determine the fair value of Staff Management’s indefinite-lived trade name using a royalty rate of 10.0%.
PlaneTechs: Revenue declined significantly compared to fiscal 2015 as large projects were completed for a major aviation customer and its supply chain and anticipated projects did not occur to the extent expected. PlaneTechs has been diversifying from providing services to one primary customer without offsetting growth in the broader aviation and transportation marketplace. As a result of significantly underperforming against current year expectations and increased future uncertainty, we lowered our future expectations, which resulted in a goodwill impairment charge of $17.0 million.
hrX: Sales of this service line included our internally developed applicant tracking software (“ATS”). ATS sales and prospects have underperformed against our expectations. As a result of underperforming against our expectations and increased future uncertainty in customer demand, we lowered our future expectations, which resulted in a goodwill impairment charge of $15.2 million. Note, our PeopleScout and hrX service lines were combined during fiscal 2016 and now represent a single operating segment (PeopleScout).
Spartan and CLP Resources: In the third quarter of fiscal 2016, we finalized the changes to the organizational and reporting structure of our Labor Ready, Spartan Staffing and CLP Resources service lines, which resulted in them merging into one service line. The combined service line was re-branded as PeopleReady. As a result, we recognized an impairment charge of $4.3 million for the remaining net book value of the Spartan and CLP Resources trade name/trademarks intangible assets.
WORKERS' COMPENSATION INSURANCE AND RESERVES
WORKERS' COMPENSATION INSURANCE AND RESERVES
WORKERS’ COMPENSATION INSURANCE AND RESERVES

We provide workers’ compensation insurance for our temporary and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured.
For workers’ compensation claims originating in Washington, North Dakota, Ohio, Wyoming, Canada and Puerto Rico (our “monopolistic jurisdictions”), we pay workers’ compensation insurance premiums and obtain full coverage under government-administered programs (with the exception of our PeopleReady service lines in the state of Ohio where we have a self-insured policy). Accordingly, because we are not the primary obligor, our financial statements do not reflect the liability for workers’ compensation claims in these monopolistic jurisdictions. Our workers’ compensation reserve is established using estimates of the future cost of claims and related expenses that have been reported but not settled, as well as those that have been incurred but not reported.
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 1.6% at December 31, 2017 and January 1, 2017, respectively. Payments made against self-insured claims are made over a weighted average period of approximately five years at December 31, 2017.
The table below presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented as follows:
(in thousands)
December 31,
2017
January 1,
2017
Undiscounted workers’ compensation reserve
$
293,600

$
292,169

Less discount on workers’ compensation reserve
19,277

14,818

Workers’ compensation reserve, net of discount
274,323

277,351

Less current portion
77,218

79,126

Long-term portion
$
197,105

$
198,225


Payments made against self-insured claims were $66.8 million, $73.6 million and $70.7 million for the years ended December 31, 2017, January 1, 2017 and December 25, 2015, respectively.
Our workers’ compensation reserve includes estimated expenses related to claims above our self-insured limits (“excess claims”), and we record a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 15 years. The discounted workers’ compensation reserve for excess claims was $48.8 million and $52.9 million as of December 31, 2017 and January 1, 2017, respectively. The discounted receivables from insurance companies, net of valuation allowance, were $45.0 million and $48.9 million as of December 31, 2017 and January 1, 2017, respectively, and are included in other assets, net on the accompanying Consolidated Balance Sheets.
Management evaluates the adequacy of the workers’ compensation reserves in conjunction with an independent quarterly actuarial assessment. Factors considered in establishing and adjusting these reserves include, among other things:
changes in medical and time loss (“indemnity”) costs;
changes in mix between medical only and indemnity claims;
regulatory and legislative developments impacting benefits and settlement requirements;
type and location of work performed;
impact of safety initiatives; and
positive or adverse development of claims.
The table below presents the estimated future payout of our discounted workers’ compensation claims reserve for the next five years and thereafter as of December 31, 2017:
(in thousands)
 
2018
$
76,536

2019
42,611

2020
24,429

2021
15,227

2022
10,187

Thereafter
56,507

Sub-total
225,497

Excess claims (1)
48,826

Total
$
274,323

(1)
Estimated expenses related to claims above our self-insured limits for which we have a corresponding receivable for the insurance coverage based on contractual policy agreements.
Workers’ compensation expense consists primarily of changes in self-insurance reserves net of changes in discount, monopolistic jurisdictions’ premiums, insurance premiums and other miscellaneous expenses. Workers’ compensation expense of $83.7 million, $94.0 million and $98.2 million was recorded in cost of services for the years ended December 31, 2017, January 1, 2017 and December 25, 2015, respectively.
LONG-TERM DEBT
Long-term Debt
LONG-TERM DEBT

The components of our borrowings were as follows:
(in thousands)
December 31,
2017
January 1,
2017
Revolving Credit Facility
$
95,900

$
112,507

Term Loan
22,856

25,122

Total debt
118,756

137,629

Less current portion
2,267

2,267

Long-term debt, less current portion
$
116,489

$
135,362



Revolving credit facility

Effective June 30, 2014, we entered into a Second Amended and Restated Revolving Credit Agreement for a secured revolving credit facility of $300.0 million with Bank of America, N.A., Wells Fargo Bank, National Association, HSBC and PNC Capital Markets LLC (“Revolving Credit Facility”). The Revolving Credit Facility, which matures June 30, 2019, amended and restated our previous credit facility.

The maximum amount we can borrow under the Revolving Credit Facility is subject to certain borrowing limits. Specifically, we are limited to the sum of 90% of our eligible billed accounts receivable, plus 85% of our eligible unbilled accounts receivable limited to 15% of all our eligible receivables, plus the value of our Tacoma headquarters office building. The real estate lending limit is $17.4 million, and is reduced by $0.4 million on the first day of each calendar quarter. As of December 31, 2017, the Tacoma headquarters office building liquidation value totaled $11.8 million. The borrowing limit is further reduced by the sum of a reserve in an amount equal to the payroll and payroll taxes for our temporary employees for one payroll cycle and certain other reserves, if deemed applicable. Each borrowing has a stated maturity of 90 days or less. At December 31, 2017, $221.5 million was available under the Revolving Credit Facility, $95.9 million was utilized as a draw on the facility, and $8.3 million was utilized by outstanding standby letters of credit, leaving $117.4 million available for additional borrowings. The letters of credit are primarily used to collateralize a portion of our workers’ compensation obligation.

Excess liquidity is an amount equal to the unused borrowing capacity under the Revolving Credit Facility plus certain unrestricted cash, cash equivalents and marketable securities. We are required to satisfy a fixed charge coverage ratio in the event we do not meet the excess liquidity requirement. The additional amount available to borrow at December 31, 2017 was $117.4 million and the amount of cash and cash equivalents under control agreements was $19.0 million, for a total of $136.4 million, which was well in excess of the $37.5 million liquidity requirement in effect on December 31, 2017. We are currently in compliance with all covenants related to the Revolving Credit Facility.

Under the terms of the Revolving Credit Facility, we pay a variable rate of interest on funds borrowed that is based on London Interbank Offered Rate (LIBOR) plus an applicable spread between 1.25% and 2.00%. Alternatively, at our option, we may pay interest based upon a base rate plus an applicable spread between 0.25% and 1.00%. The applicable spread is determined by certain liquidity to debt ratios. The base rate is the greater of the prime rate (as announced by Bank of America), the federal funds rate plus 0.50%, or the one-month LIBOR rate plus 1.00%. At December 31, 2017, the applicable spread on LIBOR was 1.75% and the applicable spread on the base rate was 1.38%. As of December 31, 2017, the weighted average interest rate on outstanding borrowings was 3.13%.

A fee of 0.375% is applied against the Revolving Credit Facility’s unused borrowing capacity when utilization is less than 25%, or 0.25% when utilization is greater than or equal to 25%. Letters of credit are priced at the margin in effect for LIBOR loans, plus a fronting fee of 0.125%.

Obligations under the Revolving Credit Facility are guaranteed by TrueBlue and material U.S. domestic subsidiaries, and are secured by a pledge of substantially all of the assets of TrueBlue and material U.S. domestic subsidiaries. The Revolving Credit Facility has variable rate interest and approximates fair value as of December 31, 2017 and January 1, 2017.
Term loan agreement
On February 4, 2013, we entered into an unsecured Term Loan Agreement (“Term Loan”) with Synovus Bank in the principal amount of $34.0 million. The Term Loan has a five-year maturity with fixed monthly principal payments, which total $2.3 million annually based on a loan amortization term of 15 years. Interest accrues at the one-month LIBOR index rate plus an applicable spread of 1.50%, which is paid in addition to the principal payments. At our discretion, we may elect to extend the term of the Term Loan by five consecutive one-year extensions. In October 2017, we extended the term of the Term Loan for one year. At December 31, 2017, the interest rate for the Term Loan was 2.86%.
At December 31, 2017, the remaining balance of the Term Loan was $22.9 million, of which $2.3 million is current and is included in other current liabilities on our Consolidated Balance Sheets. The Term Loan has variable rate interest and approximates fair value as of December 31, 2017 and January 1, 2017.
The scheduled principal payments for debt are as follows:
(in thousands)
 
2018
$
2,267

2019
20,589

Total
$
22,856


Our obligations under the Term Loan may be accelerated upon the occurrence of an event of default under the Term Loan, which includes customary events of default, as well as cross-defaults related to indebtedness under our Revolving Credit Facility and other Term Loan specific defaults. The Term Loan contains customary negative covenants applicable to the company and our subsidiaries such as indebtedness, certain dispositions of property, the imposition of restrictions on payments under the Term Loan, and other Term Loan specific covenants. We are currently in compliance with all covenants related to the Term Loan.
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES

Workers’ compensation commitments
Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation, for which they become responsible should we become insolvent. The collateral typically takes the form of cash and cash equivalents, highly-rated investment grade debt securities, letters of credit, and/or surety bonds. On a regular basis these entities assess the amount of collateral they will require from us relative to our workers’ compensation obligation. The majority of our collateral obligations are held in the Trust.
We have provided our insurance carriers and certain states with commitments in the form and amounts listed below:
(in thousands)
December 31,
2017
January 1,
2017
Cash collateral held by workers’ compensation insurance carriers
$
22,148

$
28,066

Cash and cash equivalents held in Trust
16,113

32,841

Investments held in Trust
171,752

146,517

Letters of credit (1)
7,748

7,982

Surety bonds (2)
19,829

20,440

Total collateral commitments
$
237,590

$
235,846



(1)
We have agreements with certain financial institutions to issue letters of credit as collateral.
(2)
Our surety bonds are issued by independent insurance companies on our behalf and bear annual fees based on a percentage of the bond, which are determined by each independent surety carrier. These fees do not exceed 2.0% of the bond amount, subject to a minimum charge. The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days’ notice.

Operating leases

We have contractual commitments in the form of operating leases related to office space and equipment. Future non-cancelable minimum lease payments under our operating lease commitments as of December 31, 2017 are as follows for each of the next five years and thereafter:
(in thousands)
 
2018
$
8,779

2019
7,132

2020
6,370

2021
4,253

2022
1,218

Thereafter
502

Total future non-cancelable minimum lease payments
$
28,254


Operating leases are generally renewed in the normal course of business, and most of the options are negotiated at the time of renewal. However, for the majority of our office space leases, we have the right to cancel the lease, typically within 90 days of notification. Accordingly, we have not included the leases with these cancellation provisions in our disclosure of future minimum lease payments. Total rent expense for fiscal 2017, 2016 and 2015 was $25.9 million, $26.5 million and $23.1 million, respectively.

Purchase obligations
Purchase obligations include agreements to purchase goods and services in the ordinary course of business that are enforceable, legally binding and specify all significant terms. Purchase obligations do not include agreements that are cancelable without significant penalty. We had $27.6 million of purchase obligations as of December 31, 2017, of which $9.2 million are expected to be paid in 2018.

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.
SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
SHAREHOLDERS’ EQUITY
Common stock
During fiscal 2017, we repurchased shares using the remaining $29.4 million available under our $75.0 million share repurchase program. Under this program we repurchased and retired 4.8 million shares of our common stock at an average share price of $15.52, which excludes commissions. On September 15, 2017, our Board of Directors authorized a $100.0 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. During the year ended December 31, 2017, we used $7.3 million under this new program to repurchase shares at an average share price of $27.90.
Shares of common stock outstanding include shares of unvested restricted stock. Unvested restricted stock included in reportable shares outstanding was 0.8 million and 0.7 million shares as of December 31, 2017 and January 1, 2017, respectively.
Preferred stock
We have authorized 20 million shares of blank check preferred stock. The blank check preferred stock is issuable in one or more series, each with such designations, preferences, rights, qualifications, limitations and restrictions as our Board of Directors may determine and set forth in supplemental resolutions at the time of issuance, without further shareholder action. The initial series of blank check preferred stock authorized by the Board of Directors was designated as Series A Preferred Stock. We had no outstanding shares of preferred stock in any of the years presented.
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION

We record stock-based compensation expense for restricted and unrestricted stock awards, performance share units, and shares purchased under an employee stock purchase plan.
Our 2016 Omnibus Incentive Plan, effective May 11, 2016 (“Incentive Plan”), provides for the issuance or delivery of up to 1.54 million shares of our common stock over the full term of the Incentive Plan.

Restricted and unrestricted stock awards and performance share units
Under the Incentive Plan, restricted stock awards are granted to executive officers and key employees and vest annually over three or four years. Unrestricted stock awards granted to our Board of Directors vest immediately. Restricted and unrestricted stock-based compensation expense is calculated based on the grant-date market value. We recognize compensation expense on a straight-line basis over the vesting period, net of estimated forfeitures.
Performance share units have been granted to executive officers and certain key employees. Vesting of the performance share units is contingent upon the achievement of revenue and profitability growth goals at the end of each three-year performance period. Each performance share unit is equivalent to one share of common stock. Compensation expense is calculated based on the grant-date market value of our stock and is recognized ratably over the performance period for the performance share units which are expected to vest. Our estimate of the performance units expected to vest is reviewed and adjusted as appropriate each quarter.

Restricted and unrestricted stock awards and performance share units activity for the year ended December 31, 2017, was as follows:
(shares in thousands)
Shares
Weighted- average grant-date price
Non-vested at beginning of period
1,209

$
22.76

Granted
657

$
25.45

Vested
(438
)
$
23.73

Forfeited
(107
)
$
24.65

Non-vested at the end of the period
1,321

$
23.50


The weighted average grant-date price of restricted and unrestricted stock awards and performance share units granted during the years 2016 and 2015 was $21.53 and $23.03, respectively. As of December 31, 2017, total unrecognized stock-based compensation expense related to non-vested restricted stock was approximately $11.9 million, which is estimated to be recognized over a weighted average period of 1.7 years. As of December 31, 2017, total unrecognized stock-based compensation expense related to performance share units was approximately $2.1 million, which is estimated to be recognized over a weighted average period of 2.0 years. The total fair value of restricted shares vested during fiscal 2017, 2016 and 2015 was $6.9 million, $6.6 million and $6.2 million, respectively. The total fair value of performance shares vested during fiscal 2017, 2016 and 2015 was $2.9 million, $3.3 million and $4.0 million, respectively.
Stock options
Our Incentive Plan provides for both nonqualified stock options and incentive stock options (collectively, “stock options”) for directors, officers and certain employees. We issue new shares of common stock upon exercise of stock options. All of our stock options are vested and expire if not exercised within seven years from the date of grant. Stock option activity was de minimis for fiscal 2017, 2016 and 2015.
Employee Stock Purchase Plan

Our Employee Stock Purchase Plan (“ESPP”) reserves for purchase 1.0 million shares of common stock. The plan allows eligible employees to contribute up to 10% of their earnings toward the monthly purchase of the company’s common stock. The employee’s purchase price is 85% of the lesser of the fair market value of shares on either the first day or the last day of each month. We consider our ESPP to be a component of our stock-based compensation and accordingly we recognize compensation expense over the requisite service period for stock purchases made under the plan. The requisite service period begins on the enrollment date and ends on the purchase date, the duration of which is one month.
The following table summarizes transactions under our ESPP from fiscal 2017, 2016 and 2015:
(shares in thousands)
 
Shares
Average price per  
share
Issued during fiscal
2017
72

$
20.43

Issued during fiscal
2016
87

$
17.51

Issued during fiscal
2015
68

$
20.65


Stock-based compensation expense
Total stock-based compensation expense for fiscal years 2017, 2016 and 2015, which is included in Selling, general and administrative expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), was $7.7 million, $9.4 million and $11.1 million, respectively. The related tax benefit was $2.7 million, $3.3 million and $3.9 million for fiscal 2017, 2016 and 2015, respectively.
DEFINED CONTRIBUTION PLANS
DEFINED CONTRIBUTION PLANS
DEFINED CONTRIBUTION PLANS

We offer both qualified and non-qualified defined contribution plans to eligible employees. Participating employees may elect to defer and contribute a portion of their eligible compensation. The plans offer discretionary matching contributions. The liability for the non-qualified plans was $24.1 million and $17.8 million as of December 31, 2017 and January 1, 2017, respectively. The current and non-current portion of the deferred compensation liability is included in other current liabilities and other long-term liabilities, respectively, on our Consolidated Balance Sheets, and is largely offset by restricted investments recorded in restricted cash and investments on our Consolidated Balance Sheets. The expense for our qualified and non-qualified deferred compensation plans, including our discretionary matching contributions, totaled $6.1 million for fiscal 2017 and $2.8 million for 2016 and 2015, respectively, and is recorded in selling, general and administrative expense on our Consolidated Statements of Operations and Comprehensive Income (Loss).
INCOME TAXES
Income Taxes
INCOME TAXES

The provision for income taxes is comprised of the following:
 
Years ended
(in thousands)
2017
2016
2015
Current taxes:
 
 
 
Federal
$
12,134

$
12,082

$
12,665

State
3,979

5,448

5,611

Foreign
3,545

2,677

1,882

Total current taxes
19,658

20,207

20,158

Deferred taxes:
 
 
 
Federal
3,645

(20,693
)
4,963

State
(195
)
(4,064
)
81

Foreign
(1,014
)
(539
)
(2
)
Total deferred taxes
2,436

(25,296
)
5,042

Provision for income taxes
$
22,094

$
(5,089
)
$
25,200


The items accounting for the difference between income taxes computed at the statutory federal income tax rate and income taxes reported in the Consolidated Statements of Operations and Comprehensive Income (Loss) are as follows:
 
Years ended
(in thousands, except percentages)
2017
%
2016
%
2015
%
Income tax expense (benefit) based on statutory rate
$
27,140

35.0
 %
$
(7,119
)
35.0
 %
$
33,745

35.0
 %
Increase (decrease) resulting from:
 
 
 
 
 
 
State income taxes, net of federal benefit
2,667

3.4
 %
1,373

(6.8
)%
4,175

4.3
 %
Tax credits, net
(9,964
)
(12.9
)%
(17,141
)
84.3
 %
(14,483
)
(15.0
)%
Transition to the U.S. Tax Cuts and Job Act
2,466

3.2
 %

 %

 %
Non-deductible goodwill impairment charge

 %
17,694

(87.0
)%

 %
Non-deductible/non-taxable items
1,157

1.5
 %
630

(3.1
)%
2,456

2.5
 %
Foreign taxes
(342
)
(0.4
)%
993

(4.8
)%
(933
)
(1.0
)%
Other, net
(1,030
)
(1.3
)%
(1,519
)
7.4
 %
240

0.3
 %
Total taxes on income (loss)
$
22,094

28.5
 %
$
(5,089
)
25.0
 %
$
25,200

26.1
 %


Our effective tax rate for fiscal 2017 was 28.5%. The difference between the statutory federal income tax rate of 35.0% and our effective income tax rate results primarily from the federal Work Opportunity Tax Credit (“WOTC”). This tax credit is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. During fiscal 2017, we recognized $1.4 million of tax benefits from prior year WOTC. Other differences between the statutory federal income tax rate of 35.0% and our effective tax rate of 28.5% result from state and foreign income taxes, certain non-deductible expenses, tax exempt interest, and tax effects of share based compensation. Differences also result from the U.S. Tax Cuts and Job Act (the “Tax Act”) enacted December 22, 2017.
As a result of the Tax Act, we recognized $2.5 million of additional tax expense from a one-time transition tax on deemed repatriated earnings of foreign subsidiaries and from the revaluation of net deferred tax assets to reflect the federal tax rate reduction from 35.0% to 21.0%. Upon completion of our fiscal 2017 U.S. income tax return in 2018, we may identify adjustments to our recorded transition tax and remeasurement of our net deferred tax assets. We will continue to assess our provision for income taxes as future guidance is issued, but do not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outlined in Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.

The components of deferred tax assets and liabilities were as follows:
(in thousands)
December 31,
2017
January 1,
2017
Deferred tax assets:
 
 
Allowance for doubtful accounts
$
876

$
1,970

Workers’ compensation
1,420


Accounts payable and other accrued expenses
4,000

8,577

Net operating loss carryforwards
2,388

2,287

Tax credit carryforwards
1,615

2,835

Accrued wages and benefits
4,644

9,470

Deferred compensation
4,484

7,003

Other
841

1,090

Total
20,268

33,232

Valuation allowance
(2,508
)
(2,266
)
Total deferred tax asset, net of valuation allowance
17,760

30,966

Deferred tax liabilities:
 
 
Prepaid expenses, deposits and other current assets
(2,096
)
(2,697
)
Depreciation and amortization
(11,881
)
(18,330
)
Workers’ compensation

(3,169
)
Total deferred tax liabilities
(13,977
)
(24,196
)
Net deferred tax (liabilities) asset, end of year
$
3,783

$
6,770


Deferred taxes related to our foreign currency translation were de minimis for fiscal 2017, 2016 and 2015.

The following table summarizes our net operating losses (“NOLs”) and credit carryforwards along with their respective valuation allowance as of December 31, 2017:
(in thousands)
Carryover tax benefit
Valuation allowance
Expected benefit
Year expiration begins
Year-end tax attributes:
 
 
 
 
State NOLs
$
1,593

$
(349
)
$
1,244

Various
Foreign NOLs
795

(795
)

Various
California Enterprise Zone credits (1)
1,615

(1,364
)
251

2023
Total
$
4,003

$
(2,508
)
$
1,495

 
(1)
The California Enterprise Zone credits fully expire in 2023.
We have not provided for deferred income taxes relating to undistributed foreign earnings as we consider those earning to be permanently invested. Determination of the unrecognized deferred tax liability that would be incurred if such amounts were repatriated is not practicable.
As of December 31, 2017, our liability for unrecognized tax benefits was $2.2 million. If recognized, $1.7 million would impact our effective tax rate. We do not believe the amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the year ended December 31, 2017. This liability is recorded in other non-current liabilities on our Consolidated Balance Sheets. In general, the tax years 2014 through 2016 remain open to examination by the major taxing jurisdictions where we conduct business.
The following table summarizes the activity related to our unrecognized tax benefits:
 
Years ended
(in thousands)
2017
2016
2015
Balance, beginning of fiscal year
$
2,242

$
2,195

$
2,039

Increases for tax positions related to the current year
356

348

436

Reductions due to lapsed statute of limitations
(388
)
(301
)
(280
)
Balance, end of fiscal year
$
2,210

$
2,242

$
2,195


We recognize interest and penalties related to unrecognized tax benefits within income tax expense on the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). Accrued interest and penalties are included within other long-term liabilities on the Consolidated Balance Sheets. Related to the unrecognized tax benefits noted above, we accrued a de minimis amount for interest and penalties during fiscal 2017 and, in total, as of December 31, 2017, have recognized a liability for penalties of $0.2 million and interest of $0.9 million.
NET INCOME (LOSS) PER SHARE
NET INCOME (LOSS) PER SHARE
NET INCOME (LOSS) PER SHARE

Diluted common shares were calculated as follows:
 
Years ended
(in thousands, except per share data)
2017
2016
2015
Net income (loss)
$
55,456

$
(15,251
)
$
71,247

 
 
 
 
Weighted average number of common shares used in basic net income (loss) per common share
41,202

41,648

41,226

Dilutive effect of non-vested restricted stock
239


396

Weighted average number of common shares used in diluted net income (loss) per common share
41,441

41,648

41,622

Net income (loss) per common share:
 
 
 
Basic
$
1.35

$
(0.37
)
$
1.73

Diluted
$
1.34

$
(0.37
)
$
1.71

 
 
 
 
Anti-dilutive shares
418


89

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) is reflected as a net increase (decrease) to shareholders’ equity and consists of foreign currency translation adjustments and the unrealized gains and losses, net of taxes, on available-for-sale securities. Changes in the balance of each component of accumulated other comprehensive income (loss) during the years ended December 31, 2017 and January 1, 2017 were as follows:
 
Years ended
 
December 31, 2017
 
January 1, 2017
(in thousands)
Balance at beginning of period
Current period other comprehensive income
Balance at end of period
 
Balance at beginning of period
Current period other comprehensive income
Balance at end of period
Foreign currency translation adjustment
$
(11,684
)
$
3,355

$
(8,329
)
 
$
(13,514
)
$
1,830

$
(11,684
)
Unrealized gain (loss) on investments (1)
251

1,274

1,525

 
(499
)
750

251

Total other comprehensive income (loss), net of tax
$
(11,433
)
$
4,629

$
(6,804
)
 
$
(14,013
)
$
2,580

$
(11,433
)


(1)
Consists of deferred compensation plan accounts, which are comprised of mutual funds classified as available-for-sale securities. The tax impact on unrealized gain on available-for-sale securities was $0.5 million for fiscal 2017 and de minimis for fiscal 2016.

During the year ended December 31, 2017, $1.2 million ($0.8 million after tax) of unrealized gain on investments was reclassified out of accumulated other comprehensive income (loss) and recorded in interest and other income on the Consolidated Statements of Operations and Comprehensive Income (Loss). There were no material reclassifications out of accumulated other comprehensive loss during 2016 nor 2015.
SEGMENT INFORMATION
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 service lines, which are our operating segments, and our reportable segments are described below:
Our PeopleReady reportable segment provides blue-collar, contingent staffing through the PeopleReady service line. PeopleReady provides on-demand and skilled labor in 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 customer’s facility, through the following operating segments, which we aggregated into one reportable segment in accordance with U.S. GAAP:
Staff Management | SMX: Exclusive recruitment and on-premise management of a facility’s contingent industrial workforce;
SIMOS Insourcing Solutions: On-premise management and recruitment of warehouse/distribution operations;
Centerline Drivers: Recruitment and management of temporary and dedicated drivers to the transportation and distribution industries; and
PlaneTechs: Recruitment and on-premise management of skilled mechanics and technicians to the aviation and transportation industries.
Our PeopleScout reportable segment provides high-volume, permanent employee recruitment process outsourcing and management of outsourced labor service providers through the following operating segments, which we aggregated into one reportable segment in accordance with U.S. GAAP:
PeopleScout: Outsourced recruitment of permanent employees on behalf of customers; and
PeopleScout MSP: Management of multiple third party staffing vendors on behalf of customers.
We have two primary measures of segment performance: revenue from services and segment earnings before interest, taxes, depreciation and amortization (“segment EBITDA”). Segment EBITDA includes net sales to third parties, related cost of sales, selling, general and administrative expense, and goodwill and intangible impairment charges directly attributable to the reportable segment together with certain allocated corporate general and administrative expense. Segment EBITDA excludes unallocated corporate general and administrative expense.

The following table presents a reconciliation of segment revenue from services to total company revenue:
 
Years ended
(in thousands)
2017
2016
2015
Revenue from services:
 
 
 
PeopleReady
$
1,511,360

$
1,629,455

$
1,625,817

PeopleManagement
807,273

940,453

965,331

PeopleScout
190,138

180,732

104,532

Total company
$
2,508,771

$
2,750,640

$
2,695,680


The following table presents a reconciliation of segment EBITDA to income (loss) before tax expense:
 
Years ended
(in thousands)
2017
2016
2015
Segment EBITDA (1):
 
 
 
PeopleReady
$
78,372

$
101,270

$
123,899

PeopleManagement
27,043

(60,452
)
36,512

PeopleScout
39,232

19,116

9,324

 
144,647

59,934

169,735

Corporate unallocated
(20,968
)
(30,237
)
(30,050
)
Depreciation and amortization
(46,115
)
(46,692
)
(41,843
)
Income (loss) from operations
77,564

(16,995
)
97,842

Interest and other expense, net
(14
)
(3,345
)
(1,395
)
Income (loss) before tax expense
$
77,550

$
(20,340
)
$
96,447


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

Our international operations are primarily in Canada and Australia. Revenues by region were as follows:
 
Years ended
(in thousands, except percentages)
2017
%
2016
%
2015
%
United States
$
2,387,992

95.2
%
$
2,644,414

96.1
%
$
2,603,085

96.6
%
International operations
120,779

4.8
%
106,226

3.9
%
92,595

3.4
%
Total revenue from services
$
2,508,771

100.0
%
$
2,750,640

100.0
%
$
2,695,680

100.0
%


No single customer represented more than 10% of total company revenue for fiscal 2017 nor 2016. One customer represented 13.1% of total company revenue for fiscal 2015. Customer concentration for our reportable segments is as follows:

No single customer represented more than 10.0% of our PeopleReady reportable segment revenue for fiscal 2017, 2016, nor 2015.
No single customer represented more than 10.0% of our PeopleManagement reportable segment revenue for fiscal 2017. One customer represented 18.2% and 36.7% of our PeopleManagement reportable segment revenue in fiscal 2016 and 2015, respectively.
Two customers represented 14.4% and 10.1%, respectively of our PeopleScout reportable segment revenue for fiscal 2017, and 12.8% and 10.0%, respectively for fiscal 2016. Two different customers represented 10.6% and 10.2%, respectively of our PeopleScout reportable segment revenue for fiscal 2015.

Net property and equipment located in international operations was approximately 9.1% and 7.1% of total property and equipment as of December 31, 2017 and January 1, 2017, respectively.
SELECTED QUARTERLY FINANCIAL DATA (Notes)
Selected Quarterly Financial Data
SELECTED QUARTERLY FINANCIAL DATA
(unaudited; in thousands, except per share data)
First
Second
Third
Fourth
2017
 
 
 
 
Revenue from services
$
568,244

$
610,122

$
660,780

$
669,625

Cost of services
428,815

454,842

488,761

501,880

Gross profit
139,429

155,280

172,019

167,745

Selling, general and administrative expense
121,844

124,754

131,552

132,644

Depreciation and amortization
11,174

12,287

11,189

11,465

Income from operations
6,411

18,239

29,278

23,636

Interest expense
(1,232
)
(1,296
)
(1,365
)
(1,601
)
Interest and other income
1,306

1,451

1,146

1,577

Interest and other income (expense), net
74

155

(219
)
(24
)
Income before tax expense
6,485

18,394

29,059

23,612

Income tax expense
1,811

5,260

7,838

7,185

Net income
$
4,674

$
13,134

$
21,221

$
16,427

Net income per common share:
 
 
 
 
Basic
$
0.11

$
0.32

$
0.52

$
0.41

Diluted
$
0.11

$
0.31

$
0.51

$
0.40

 
 
 
 
 
2016
 
 
 
 
Revenue from services
$
645,980

$
672,612

$
697,097

$
734,951

Cost of services
495,468

502,688

518,702

554,064

Gross profit
150,512

169,924

178,395

180,887

Selling, general and administrative expense
130,624

135,787

134,679

145,387

Depreciation and amortization
11,289

11,694

11,690

12,019

Goodwill and intangible asset impairment charge

99,269

4,275


Income (loss) from operations
8,599

(76,826
)
27,751

23,481

Interest expense
(1,969
)
(1,740
)
(1,721
)
(1,736
)
Interest and other income
950

853

854

1,164

Interest and other income (expense), net
(1,019
)
(887
)
(867
)
(572
)
Income (loss) before tax expense
7,580

(77,713
)
26,884

22,909

Income tax expense (benefit)
612

(13,978
)
3,455

4,822

Net income (loss)
$
6,968

$
(63,735
)
$
23,429

$
18,087

Net income (loss) per common share:
 
 
 
 
Basic
$
0.17

$
(1.53
)
$
0.56

$
0.43

Diluted
$
0.17

$
(1.53
)
$
0.56

$
0.43

SUBSEQUENT EVENTS
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS
We evaluated events and transactions occurring after the balance sheet date through the date the financial statements were issued, and identified no other events that were subject to recognition or disclosure.
Schedule II - Valuation and Qualifying Accounts (Notes)
Schedule of Valuation and Qualifying Accounts Disclosure [Text Block]
FINANCIAL STATEMENT SCHEDULES
Schedule II, Valuation and Qualifying Accounts
Allowance for doubtful accounts activity was as follows:
 
(in thousands)
2017
2016
2015
Balance, beginning of the year
$
5,160

$
5,902

$
7,603

Charged to expense
6,903

8,171

7,132

Write-offs
(7,719
)
(8,913
)
(8,833
)
Balance, end of year
$
4,344

$
5,160

$
5,902

Insurance receivable valuation allowance activity was as follows:
 
(in thousands)
2017
2016
2015
Balance, beginning of the year
$
4,019

$
3,874

$
3,933

Charged to expense
1,153

207

48

Release of allowance
(1,394
)
(62
)
(107
)
Balance, end of year
$
3,778

$
4,019

$
3,874

Income tax valuation allowance activity was as follows:
 
(in thousands)
2017
2016
2015
Balance, beginning of the year
$
2,266

$
3,227

$
2,844

Charged to expense
2

579

383

Transition to the U.S. Tax Cuts and Jobs Act
240



Release of allowance

(1,540
)

Balance, end of year
$
2,508

$
2,266

$
3,227

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
Basis of presentation
The consolidated financial statements include the accounts of TrueBlue and all of its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Fiscal period end
On December 15, 2016, we changed our fiscal period end day from the last Friday to the Sunday closest to the last day of December. Our fiscal quarters also ended on the Sunday closest to the last day in March, June and September in fiscal 2017. In prior years, the consolidated financial statements were presented with the last day of the fiscal year ending on the last Friday of December. The change in fiscal year end and quarter end did not have a material effect on the comparability of the periods presented.
The consolidated financial statements are presented on a 52/53-week fiscal year-end basis, with the last day of the fiscal year ending on the Sunday closest to the last day of December. In fiscal years consisting of 53 weeks, the final quarter will consist of 14 weeks while fiscal years consisting of 52 weeks, all quarters will consist of 13 weeks. Of the three most recent years ended on December 31, 2017, the 2016 fiscal year included 53 weeks, with the 53rd week falling in our fourth quarter. All other years presented include 52 weeks.
Revenue recognition
Revenue is recognized at the time the service is provided by the temporary worker. Revenue from permanent placement services is recognized at the time the permanent placement candidate begins full-time employment. Revenue from other staffing fee-based services is recognized when the services are provided. Revenue also includes billable travel and other reimbursable costs. Customer discounts or other incentives are recognized in the period the related revenue is earned. Revenues are reported net of sales, use, or other transaction taxes collected from customers and remitted to taxing authorities.
We primarily record revenue on a gross basis as a principal versus on a net basis as an agent in the Consolidated Statements of Operations and Comprehensive Income (Loss). We have determined that gross reporting as a principal is the appropriate treatment based upon the following key factors:
We maintain the direct contractual relationship with the customer.
We have discretion in selecting and assigning the temporary worker to a particular job and establishing their billing rate.
We bear the risk and rewards of the transaction, including credit risk, if the customer fails to pay for services performed.
Cost of services
Cost of services refers to costs directly associated with the earning of revenue and primarily includes wages and related payroll taxes and workers’ compensation expenses. Cost of services also includes billable travel as well as other reimbursable and non-reimbursable expenses.
Advertising costs
Advertising costs consist primarily of print and other promotional activities. We expense advertisements as of the first date the advertisements take place. Advertising expenses included in selling, general and administrative expense were $7.3 million, $7.8 million and $9.1 million in fiscal 2017, 2016 and 2015, respectively.
Cash, cash equivalents and marketable securities
We consider all highly liquid instruments purchased with an original maturity of three months or less at date of purchase to be cash equivalents. Investments with original maturities greater than three months are classified as marketable securities. We do not buy and hold securities principally for the purpose of selling them in the near future. Our investment policy is focused on the preservation of capital, liquidity and return. From time to time, we may sell certain securities but the objective is generally not to generate profits on short-term differences in price. We manage our cash equivalents and marketable securities as a single portfolio of highly liquid securities.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are recorded at the invoiced amount. We establish an allowance for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments. The allowance for doubtful accounts is determined based on current collection efforts, historical collection trends, write-off experience, customer credit risk and current economic data. The allowance for doubtful accounts is reviewed quarterly and represents our best estimate of the amount of probable credit losses. Past due balances are written off when it is probable the receivable will not be collected.
Restricted cash and investments
Cash and investments pledged as collateral and restricted to use for workers’ compensation insurance programs are included as restricted cash and investments on our Consolidated Balance Sheets. Our investments consist of highly-rated investment grade debt securities, which are rated A1/P1 or higher for short-term securities and A or higher for long-term securities, by nationally recognized rating organizations. We have the positive intent and ability to hold our restricted investments until maturity in accordance with our investment policy and, accordingly, all of our restricted investments are classified as held-to-maturity. In the event that an investment is downgraded, it is replaced with a highly-rated investment grade security. We review for impairment on a quarterly basis and do not consider temporary unrealized losses to be an impairment.
We have an agreement with American International Group, Inc. and the Bank of New York Mellon Corporation creating a trust (“Trust”), which holds the majority of our collateral obligations under existing workers’ compensation insurance policies. Placing the collateral in the Trust allows us to manage the investment of the assets and provides greater protection of those assets.
Fair value of financial instruments and investments
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For assets and liabilities recorded or disclosed at fair value on a recurring basis, we determine fair value based on the following:
Level 1: The carrying value of cash and cash equivalents and mutual funds approximates fair value because of the short-term nature of these instruments. Inputs are valued using quoted market prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices in active markets for identical assets and liabilities. Instead we use quoted prices for similar instruments in active markets or quoted prices or we estimate the fair value using a variety of valuation methodologies, which include observable inputs for comparable instruments and unobservable inputs.
Level 3: For assets and liabilities with unobservable inputs, we typically rely on management’s estimates of assumptions that market participants would use in pricing the asset or liability.
The carrying value of our cash and cash equivalents and restricted cash approximates fair value because of the short-term maturity of those instruments. There are inherent limitations when estimating the fair value of financial instruments, and the fair values reported are not necessarily indicative of the amounts that would be realized in current market transactions.
The carrying value of our accounts receivable, accounts payable and other accrued expenses, and accrued wages and benefits approximates fair value due to their short-term nature. We also hold certain restricted investments which collateralize workers’ compensation programs and are classified as held-to-maturity and carried at amortized cost on our Consolidated Balance Sheets.
Certain items such as goodwill and other intangible assets are recognized or disclosed at fair value on a non-recurring basis. We determine the fair value of these items using level 3 inputs.
Property and equipment
Property and equipment are recorded at cost. We compute depreciation using the straight-line method over the estimated useful lives of the assets as follows:
 
Years
Buildings
40
Computers and software
3 - 10  
Furniture and equipment
3 - 10  

Leasehold improvements are amortized over the shorter of the related non-cancelable lease term or their estimated useful lives.
Non-capital expenditures associated with opening new locations are expensed as incurred.
When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss, net of proceeds, is reflected on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Repairs and maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated.
Costs associated with the acquisition or development of software for internal use are capitalized and amortized over the expected useful life of the software, from three to ten years. A subsequent addition, modification or upgrade to internal-use software is capitalized to the extent that it enhances the software’s functionality or extends its useful life. Software maintenance and training costs are expensed in the period incurred.
Leases
We conduct our branch office operations from leased locations. Many leases require payment of real estate taxes, insurance and common area maintenance, in addition to rent. The terms of our lease agreements generally range from three to five years with options to cancel, typically within 90 days of notification.
For leases that contain predetermined fixed escalations of the minimum rent, we recognize the related rent expense on a straight-line basis from the date we take possession of the property to the end of the minimum lease term. We record any difference between the straight-line rent amounts and amounts payable under the leases as part of deferred rent, in accrued liabilities or long-term liabilities, as appropriate.
Cash or lease incentives received upon entering into certain leases (“tenant allowances”) are recognized on a straight-line basis as a reduction to rent from the date we take possession of the property through the end of the initial lease term. We record the unamortized portion of tenant allowances as a part of deferred rent, in accrued liabilities or long-term liabilities, as appropriate.
Intangible assets and other long-lived assets
We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. Based on our review there was no impairment loss recognized for the year ended December 31, 2017 nor December 25, 2015. In the prior year, we recorded an impairment to our acquired trade names/trademarks intangible assets of $4.3 million and an impairment to our customer relationships intangible assets of $28.9 million.