|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
NOTE 1:
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Description of business
TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us” and “our”) is a leading provider of specialized workforce solutions that help clients achieve growth and improve productivity. We serve clients in a wide variety of industries through our PeopleReady segment which offers industrial staffing services, our PeopleManagement segment which offers contingent and productivity-based on-site industrial staffing services, and our PeopleScout segment which offers recruitment process outsourcing and managed service provider services. We are headquartered in Tacoma, Washington.
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
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. The fiscal year ended 2016 included 53 weeks, with the 53rd week falling in our fourth quarter. All other years presented include 52 weeks.
Revenue recognition
We account for a contract when both parties to the contract have approved the contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Revenues are recognized over time using an output measure, as the control of the promised services is transferred to the client, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The majority of our contracts are short-term in nature as they are filling the temporary staffing needs of our clients, or include termination clauses that allow either party to cancel within a short notice period, without cause. Revenue includes billable travel and other reimbursable costs and are reported net of sales, use or other transaction taxes collected from clients and remitted to taxing authorities. Payment terms vary by client and the services offered, however we do not extend payment terms beyond one year. Substantially all of our contracts include payment terms of 90 days or less.
We primarily record revenue on a gross basis as a principal versus on a net basis as an agent on 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 client and are responsible for fulfilling the service promised to the client.
|
|
|
•
|
We demonstrate control over the services provided to our clients by being the employer of record for the individuals performing the service.
|
|
|
•
|
We establish our worker’s billing rate.
|
Contingent staffing
We recognize revenue for our PeopleReady and PeopleManagement contingent staffing services over time as services are performed in an amount that reflects the consideration we expect to be entitled to in exchange for our services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill rate. The client simultaneously receives and consumes the benefits of the services as they are provided. We do not incur costs to obtain our contingent staffing contracts. Costs are incurred to fulfill some contingent staffing contracts, however these costs are not material and are expensed as incurred.
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Human resource outsourcing
We primarily recognize revenue for our PeopleScout outsourced recruitment of permanent employees over time in an amount that reflects the consideration we expect to be entitled to in exchange for our services. The client simultaneously receives and consumes the benefits of the services as they are provided. We do not incur costs to obtain our outsourced recruitment of permanent employees’ contracts. The costs to fulfill these contracts are not material and are expensed as incurred.
Unsatisfied performance obligations
As a practical expedient, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an expected original duration of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice 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
$8.1 million
,
$7.3 million
and
$7.8 million
in fiscal
2018
,
2017
and
2016
, 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 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 clients to make required payments. The allowance for doubtful accounts is determined based on current collection efforts, historical collection trends, write-off experience, client 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.
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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 are used. 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. We hold mutual funds classified as available-for-sale to support our deferred compensation liability, which are carried at fair value based on quoted market prices in active markets for identical assets. 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. We also lease office spaces for our centralized support functions, vehicles and equipment. Many leases require payment of property taxes, insurance and common area maintenance, in addition to
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
rent. The terms of our lease agreements generally range from
three
to
five
years, majority containing options to renew or cancel with
90 days
notice.
Operating lease expense is included within selling, general and administrative expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). For operating 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 operating 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
Long-lived assets include property and equipment, and finite-lived intangible assets. These assets 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 | SMX (“Staff Management”) and PeopleScout trade names. We test our trade names annually for impairment, and when indications of potential impairment exist.
Goodwill
We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our second quarter, or 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, client engagement, legal factors or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year.
Business combinations
We account for our business acquisitions using the acquisition 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.
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 on the Consolidated Statements of Operations and Comprehensive Income (Loss).
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 on 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
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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. 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 30, 2018
and
December 31, 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.
Deferred compensation plan
We offer a non-qualified defined contribution plan (the “Plan”) to eligible employees. Participating employees may elect to defer and contribute a portion of their eligible compensation. The Plan allows participants to direct their account based on the investment options determined by TrueBlue and offers discretionary matching contributions.
The current portion of the deferred compensation liability is included in other current liabilities on our Consolidated Balance Sheets. The total deferred compensation liability is largely offset by deferred compensation mutual funds classified as available-for-sale recorded in restricted cash and investments on our Consolidated Balance Sheets. These mutual funds are measured at fair value, with changes in market value recognized in selling, general and administrative expense on our Consolidated Statements of Operations and Comprehensive Income (Loss).
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 ("ESPP").
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.
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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”), when applicable. Currency gains and losses on intercompany loans with international subsidiaries are included, net of tax, in OCI.
Purchases and retirement of our common stock
We 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 per share is calculated by dividing net income 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 ESPP, 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
Stock compensation
In May 2017, the Financial Accounting Standing Board (“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 was to reduce the scope of transactions that would require modification accounting. Disclosure requirements remain unchanged. This amended guidance was effective for our fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. We adopted this guidance for our fiscal first quarter of 2018. The adoption of the new standard did not have a material impact on our financial statements.
Business combinations
In January 2017, the FASB issued guidance clarifying the definition of a business, which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. This guidance was effective for fiscal years and interim periods beginning December 15, 2017 (Q1 2018 for TrueBlue) on a prospective basis. This standard did not have a material impact on our financial statements.
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Restricted cash and cash equivalents
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 was effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). We adopted this guidance for our fiscal first quarter of 2018 using the retrospective transition method. Accordingly, the change in restricted cash and cash equivalents is no longer segregated on our Consolidated Statements of Cash Flows, and the
$21.5 million
and
$19.8 million
previously presented in the investing section for the years ended December 31, 2017 and January 1, 2017, respectively, are now included when reconciling the beginning-of-period and end-of-period cash, cash equivalents and restricted cash shown on our Consolidated Statements of Cash Flows.
Accounting for income taxes - intra-entity asset transfers
In October 2016, the 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 was effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). The guidance requires a modified retrospective application with a cumulative catch-up adjustment to opening retained earnings. We adopted this guidance for our fiscal first quarter of 2018. The adoption of the new standard did not have a material impact on our financial statements.
Statement of cash flows classification
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 was intended to reduce the existing diversity in practice. The amended guidance was effective for fiscal years, and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). We adopted this guidance for our fiscal first quarter of 2018. The adoption of the new standard did not have an impact on our financial statements.
Financial instruments – recognition, measurement, presentation, and disclosure
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 was effective for annual and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). Early adoption of the amendments in the guidance was not permitted, with limited exceptions. The guidance required a cumulative-effect adjustment be made to reclassify unrealized gains and losses related to available-for-sale equity securities from accumulated other comprehensive income, to retained earnings as of the beginning of the fiscal year of adoption. We adopted this guidance as of the first day of our fiscal first quarter of 2018 and reclassified from accumulated other comprehensive loss to retained earnings,
$1.5 million
in unrealized gains, net of tax on available-for-sale equity securities. Beginning in Q1 2018, change in market value for our available-for-sale equity securities is included in selling, general and administrative expense on our Consolidated Statements of Operation and Comprehensive Income (Loss).
Revenue from contracts with customers
In May 2014, the FASB issued guidance outlining a single comprehensive model for accounting for revenue arising from contracts with clients, which supersedes the previous revenue recognition accounting guidance. The guidance was effective for annual and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). This guidance required an entity to recognize revenue when it transfers promised goods or services to clients in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted this new guidance as of January 1, 2018 using the modified retrospective transition method. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue recognition guidance, while prior period amounts were not adjusted and continue to be reported in accordance with previous accounting guidance. The adoption of this new guidance did not have a material impact on our consolidated financial statements as of the adoption date, or for the year ended
December 30, 2018
, except for expanded disclosures.
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Recently issued accounting pronouncements not yet adopted
Intangibles-goodwill and other-internal-use software
In August 2018, the FASB issued guidance on accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This new standard is intended to reduce complexity for the accounting for costs of implementing a cloud computing service arrangement. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Currently, we expense internal development labor as incurred. The new guidance will require those costs to be capitalized with the related amortization recorded in selling, general and administrative expense. In addition, capitalized development costs are required to be recorded as a prepaid asset (other asset) rather than a fixed asset, and license fees incurred during the development period should be expensed as incurred. We intend to early adopt the standard prospectively in Q1 2019, which will not have an impact on our consolidated financial statements.
Leases
In February 2016, the FASB issued guidance on lease accounting. The new guidance will continue to classify leases as either finance or operating, but will result in the lessee recognizing most operating leases on the balance sheet as right-of-use assets and lease liabilities. This guidance is effective for annual and interim periods beginning after December 15, 2018 (Q1 2019 for TrueBlue), with early adoption permitted. In July 2018, the FASB amended the standard to provide transition relief for comparative reporting, allowing companies to adopt the provisions of the new standard using a modified retrospective transition method on the adoption date, with a cumulative-effect adjustment to retained earnings recorded on the date of adoption. We have elected to adopt the standard using the transition relief provided in the July amendment. In preparation for adoption of the standard, we have implemented internal controls and key system functionality to enable the preparation of financial information.
We expect adoption of the standard to result in the recognition of operating lease right-of-use assets of approximately
$33 million
and corresponding lease liabilities of approximately
$34 million
as of the first day of our fiscal first quarter in 2019. The difference between the right-of-use asset and lease liability relates to the existing deferred rent liability associated with the leases to be capitalized. The existing deferred rent liability, which is the difference between the straight-line lease expense and cash paid, will reduce the right-of-use asset, upon adoption. Our accounting for capital leases will remain substantially unchanged. Adoption of the standard will not have a material impact on our Consolidated Statements of Operation and Comprehensive Income (Loss).
Financial instruments – credit losses
In June 2016, the FASB issued guidance on accounting for credit losses on financial instruments. This guidance sets forth a current expected credit loss model, 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 guidance replaces the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We will be required to use a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for annual and interim periods 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 evaluating the impact of this standard on our consolidated financial statements, including accounting policies, processes and systems.
Other
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.
NOTE 2: REVENUE RECOGNITION
The following table presents our revenue disaggregated by major source:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
December 30, 2018
|
(in thousands)
|
PeopleReady
|
PeopleManagement
|
PeopleScout
|
Consolidated
|
Revenue from services:
|
|
|
|
|
Contingent staffing
|
$
|
1,522,076
|
|
$
|
728,254
|
|
$
|
—
|
|
$
|
2,250,330
|
|
Human resource outsourcing
|
—
|
|
—
|
|
248,877
|
|
248,877
|
|
Total company
|
$
|
1,522,076
|
|
$
|
728,254
|
|
$
|
248,877
|
|
$
|
2,499,207
|
|
NOTE 3: ACQUISITIONS AND DIVESTITURE
2018 acquisition
Effective June 12, 2018, we acquired all of the outstanding equity interests of TMP Holdings LTD (“TMP”), through PeopleScout, for a cash purchase price of
$22.7 million
, net of cash acquired of
$7.0 million
. TMP is a mid-sized recruitment process outsourcing (“RPO”) and employer branding service provider operating in the United Kingdom. This acquisition increases our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients and employer branding capabilities.
We incurred acquisition and integration-related costs of
$2.7 million
for the year ended
December 30, 2018
, 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
December 30, 2018
.
The following table reflects our final allocation of the purchase price, net of cash acquired, to the fair value of the assets acquired and liabilities assumed:
|
|
|
|
|
(in thousands)
|
Purchase price allocation
|
Cash purchase price, net of cash acquired
|
$
|
22,742
|
|
Purchase price allocated as follows:
|
|
Accounts receivable
|
$
|
9,770
|
|
Prepaid expenses, deposits and other current assets
|
337
|
|
Property and equipment
|
435
|
|
Customer relationships
|
6,286
|
|
Trade names/trademarks
|
1,738
|
|
Total assets acquired
|
18,566
|
|
Accounts payable and other accrued expenses
|
9,139
|
|
Accrued wages and benefits
|
1,642
|
|
Income tax payable
|
205
|
|
Deferred income tax liability
|
1,444
|
|
Total liabilities assumed
|
12,430
|
|
Net identifiable assets acquired
|
6,136
|
|
Goodwill (1)
|
16,606
|
|
Total consideration allocated
|
$
|
22,742
|
|
(1) Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new clients and future cash flows after the acquisition of TMP, and is non-deductible for income tax purposes.
Intangible assets include identifiable intangible assets for customer relationships and trade names/trademarks. We estimated the fair value of the acquired identifiable intangible assets, which are subject to amortization, using the income approach.
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
The following table sets forth the components of identifiable intangible assets, their estimated fair values and useful lives as of
June 12, 2018
:
|
|
|
|
|
|
(in thousands, except for estimated useful lives, in years)
|
Estimated fair value
|
Estimated useful life in years
|
Customer relationships
|
$
|
6,286
|
|
3,7
|
Trade names/trademarks
|
1,738
|
|
14
|
Total acquired identifiable intangible assets
|
$
|
8,024
|
|
|
The acquired assets and assumed liabilities of TMP are included on our Consolidated Balance Sheet as of
December 30, 2018
, and the results of its operations and cash flows are reported on our Consolidated Statements of Operations and Comprehensive Income (Loss) and Consolidated Statements of Cash Flows for the period from
June 12, 2018
to
December 30, 2018
. The amount of revenue from TMP included on our Consolidated Statements of Operations and Comprehensive Income (Loss) was
$31.0 million
from the acquisition date to
December 30, 2018
. The acquisition of TMP was not material to our consolidated results of operations and as such, pro forma financial information was not required.
2018 divestiture
Effective March 12, 2018, we divested substantially all the assets and certain liabilities of PlaneTechs, LLC (“PlaneTechs”) for a purchase price of
$11.4 million
, of which
$8.5 million
was paid in cash, and
$1.6 million
in a note receivable, with monthly principal payments of
$0.1 million
, which began in April 2018. The outstanding balance is included in prepaid expenses, deposits and other current assets on the Consolidated Balance Sheets. The remaining purchase price balance consists of the preliminary working capital adjustment, which is included in prepaid expenses, deposits and other current assets on the Consolidated Balance Sheets. The company recognized a pre-tax gain on the divestiture of
$0.7 million
, which is included in interest and other income on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended
December 30, 2018
.
Fiscal first quarter revenue through the closing date of the divestiture for the PlaneTechs business of
$8.0 million
was reported in the PeopleManagement reportable segment.
The divestiture of PlaneTechs did not represent a strategic shift with a major effect on the company’s operations and financial results and, therefore was not reported as discontinued operations in the Consolidated Balance Sheets or Consolidated Statements of Operations and Comprehensive Income (Loss) for the periods presented.
2016 acquisition
Effective January 4, 2016, we acquired certain assets and assumed certain liabilities of the 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 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.
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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 clients 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
|
Technologies
|
400
|
|
3
|
Total acquired identifiable intangible assets
|
$
|
35,300
|
|
|
The amount of revenue from the RPO business of Aon Hewitt included on 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.
NOTE 4: 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 30, 2018
|
(in thousands)
|
Total fair value
|
Quoted prices in active markets for identical assets (level 1)
|
Significant other observable inputs (level 2)
|
Significant unobservable inputs (level 3)
|
Financial assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
46,988
|
|
$
|
46,988
|
|
$
|
—
|
|
$
|
—
|
|
Restricted cash and cash equivalents
|
55,462
|
|
55,462
|
|
—
|
|
—
|
|
Cash, cash equivalents and restricted cash (1)
|
$
|
102,450
|
|
$
|
102,450
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
Deferred compensation mutual funds classified as available-for-sale
|
$
|
23,363
|
|
$
|
23,363
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
Municipal debt securities
|
$
|
76,690
|
|
$
|
—
|
|
$
|
76,690
|
|
$
|
—
|
|
Corporate debt securities
|
75,432
|
|
—
|
|
75,432
|
|
—
|
|
Agency mortgage-backed securities
|
2,531
|
|
—
|
|
2,531
|
|
—
|
|
U.S. government and agency securities
|
988
|
|
—
|
|
988
|
|
—
|
|
Restricted investments classified as held-to-maturity
|
$
|
155,641
|
|
$
|
—
|
|
$
|
155,641
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
28,780
|
|
$
|
28,780
|
|
$
|
—
|
|
$
|
—
|
|
Restricted cash and cash equivalents
|
45,051
|
|
45,051
|
|
—
|
|
—
|
|
Cash, cash equivalents and restricted cash (1)
|
$
|
73,831
|
|
$
|
73,831
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
Deferred compensation mutual funds classified as available-for-sale
|
$
|
22,428
|
|
$
|
22,428
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
Municipal debt securities
|
$
|
83,366
|
|
$
|
—
|
|
$
|
83,366
|
|
$
|
—
|
|
Corporate debt securities
|
83,791
|
|
—
|
|
83,791
|
|
—
|
|
Agency mortgage-backed securities
|
4,062
|
|
—
|
|
4,062
|
|
—
|
|
U.S. government and agency securities
|
1,019
|
|
—
|
|
1,019
|
|
—
|
|
Restricted investments classified as held-to-maturity
|
$
|
172,238
|
|
$
|
—
|
|
$
|
172,238
|
|
$
|
—
|
|
|
|
(1)
|
Cash, cash equivalents and restricted cash consist of money market funds, deposits, and investments with original maturities of three months or less.
|
There were no material transfers between level 1, level 2 and level 3 of the fair value hierarchy during the years ended
December 30, 2018
and
December 31, 2017
.
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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, finite-lived trade names/trademarks intangible assets and indefinite-lived 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 2018 or 2017.
NOTE 5: RESTRICTED CASH AND INVESTMENTS
The following is a summary of the carrying value of our restricted cash and investments:
|
|
|
|
|
|
|
|
(in thousands)
|
December 30,
2018
|
December 31,
2017
|
Cash collateral held by insurance carriers
|
$
|
24,182
|
|
$
|
22,926
|
|
Restricted cash and cash equivalents
|
28,021
|
|
16,113
|
|
Restricted investments classified as held-to-maturity
|
156,618
|
|
171,752
|
|
Deferred compensation mutual funds, classified as available-for-sale
|
23,363
|
|
22,428
|
|
Other restricted cash and cash equivalents
|
3,259
|
|
6,012
|
|
Total restricted cash and investments
|
$
|
235,443
|
|
$
|
239,231
|
|
Held-to-maturity
Restricted cash and investments include collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in debt and asset-backed securities. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon (“Trust”).
The amortized cost and estimated fair value of our held-to-maturity investments held in trust, aggregated by investment category as of
December 30, 2018
and
December 31, 2017
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
(in thousands)
|
Amortized cost
|
Gross unrealized gain
|
Gross unrealized loss
|
Fair value
|
Municipal debt securities
|
$
|
76,750
|
|
$
|
456
|
|
$
|
(516
|
)
|
$
|
76,690
|
|
Corporate debt securities
|
76,310
|
|
30
|
|
(908
|
)
|
75,432
|
|
Agency mortgage-backed securities
|
2,559
|
|
5
|
|
(33
|
)
|
2,531
|
|
U.S. government and agency securities
|
999
|
|
—
|
|
(11
|
)
|
988
|
|
|
$
|
156,618
|
|
$
|
491
|
|
$
|
(1,468
|
)
|
$
|
155,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
The estimated fair value and gross unrealized losses of all investments classified as held-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of
December 30, 2018
and
December 31, 2017
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
(in thousands)
|
Estimated fair value
|
Unrealized losses
|
|
Estimated fair value
|
Unrealized losses
|
|
Estimated fair value
|
Unrealized losses
|
Municipal debt securities
|
$
|
12,803
|
|
$
|
(74
|
)
|
|
$
|
22,638
|
|
$
|
(442
|
)
|
|
$
|
35,441
|
|
$
|
(516
|
)
|
Corporate debt securities
|
22,567
|
|
(277
|
)
|
|
44,463
|
|
(631
|
)
|
|
67,030
|
|
(908
|
)
|
Agency mortgage-backed securities
|
385
|
|
—
|
|
|
1,375
|
|
(33
|
)
|
|
1,760
|
|
(33
|
)
|
U.S. government and agency securities
|
988
|
|
(11
|
)
|
|
—
|
|
—
|
|
|
988
|
|
(11
|
)
|
Total held-to-maturity investments
|
$
|
36,743
|
|
$
|
(362
|
)
|
|
$
|
68,476
|
|
$
|
(1,106
|
)
|
|
$
|
105,219
|
|
$
|
(1,468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
(in thousands)
|
Estimated fair value
|
Unrealized losses
|
|
Estimated fair value
|
Unrealized losses
|
|
Estimated fair value
|
Unrealized losses
|
Municipal debt securities
|
$
|
23,078
|
|
$
|
(124
|
)
|
|
$
|
9,631
|
|
$
|
(254
|
)
|
|
$
|
32,709
|
|
$
|
(378
|
)
|
Corporate debt securities
|
48,952
|
|
(311
|
)
|
|
10,081
|
|
(123
|
)
|
|
59,033
|
|
(434
|
)
|
Agency mortgage-backed securities
|
1,362
|
|
(10
|
)
|
|
888
|
|
(16
|
)
|
|
2,250
|
|
(26
|
)
|
Total held-to-maturity investments
|
$
|
73,392
|
|
$
|
(445
|
)
|
|
$
|
20,600
|
|
$
|
(393
|
)
|
|
$
|
93,992
|
|
$
|
(838
|
)
|
The total number of held-to-maturity securities that had unrealized losses as of
December 30, 2018
and
December 31, 2017
were
93
and
83
, respectively. The unrealized losses were the result of interest rate increases. Since the decline in estimated fair value is attributable to changes in interest rates and not credit quality, and the company has the intent and ability to hold these debt securities until recovery of amortized cost or maturity, the company does not consider these investments other than temporarily impaired.
The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows:
|
|
|
|
|
|
|
|
|
December 30, 2018
|
(in thousands)
|
Amortized cost
|
Fair value
|
Due in one year or less
|
$
|
27,158
|
|
$
|
27,014
|
|
Due after one year through five years
|
86,606
|
|
86,107
|
|
Due after five years through ten years
|
42,854
|
|
42,520
|
|
|
$
|
156,618
|
|
$
|
155,641
|
|
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.
Available-for-sale
We hold mutual funds classified as available-for-sale to support our deferred compensation liability. Unrealized losses of
$3.4 million
, related to equity investments still held at
December 30, 2018
, were included in selling, general and administrative expense on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended
December 30, 2018
.
NOTE 6: PROPERTY AND EQUIPMENT, NET
Property and equipment are stated at cost and consist of the following:
|
|
|
|
|
|
|
|
(in thousands)
|
December 30,
2018
|
December 31,
2017
|
Buildings and land
|
$
|
41,300
|
|
$
|
37,672
|
|
Computers and software
|
154,724
|
|
149,835
|
|
Furniture and equipment
|
16,632
|
|
15,527
|
|
Construction in progress
|
8,350
|
|
7,157
|
|
Gross property and equipment
|
221,006
|
|
210,191
|
|
Less accumulated depreciation
|
(163,335
|
)
|
(150,028
|
)
|
Property and equipment, net
|
$
|
57,671
|
|
$
|
60,163
|
|
Capitalized software costs, net of accumulated depreciation, were
$19.4 million
and
$21.9 million
as of
December 30, 2018
and
December 31, 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
$20.3 million
,
$24.7 million
and
$21.6 million
for the years ended
December 30, 2018
,
December 31, 2017
and
January 1, 2017
, respectively.
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 7: GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table reflects changes in the carrying amount of goodwill during the period
by reportable segments
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
PeopleReady
|
PeopleManagement
|
PeopleScout
|
Total company
|
Balance at 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
|
|
|
|
|
|
|
Divested goodwill before impairment (1)
|
—
|
|
(19,054
|
)
|
—
|
|
(19,054
|
)
|
Divested accumulated impairment loss (1)
|
—
|
|
17,000
|
|
—
|
|
17,000
|
|
Acquired goodwill (2)
|
—
|
|
—
|
|
16,606
|
|
16,606
|
|
Foreign currency translation
|
—
|
|
—
|
|
(3,959
|
)
|
(3,959
|
)
|
|
|
|
|
|
Balance at December 30, 2018
|
|
|
|
|
Goodwill before impairment
|
106,304
|
|
81,092
|
|
144,970
|
|
332,366
|
|
Accumulated impairment loss
|
(46,210
|
)
|
(33,700
|
)
|
(15,169
|
)
|
(95,079
|
)
|
Goodwill, net
|
$
|
60,094
|
|
$
|
47,392
|
|
$
|
129,801
|
|
$
|
237,287
|
|
|
|
(1)
|
Effective March 12, 2018, we entered divested our PlaneTechs business. As a result of this divestiture, we eliminated the remaining goodwill balance of the PlaneTechs business, which was a part of our PeopleManagement reportable segment. For additional information, see Note 3:
Acquisitions and Divestiture
.
|
|
|
(2)
|
Effective June 12, 2018,
we acquired TMP Holdings LTD, through PeopleScout. Accordingly, the goodwill associated with the acquisition has been assigned to our PeopleScout reportable segment based on our final purchase price allocation.
For additional information, see Note 3:
Acquisitions and Divestiture
.
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Intangible assets
Finite-lived intangible assets
The following table presents our purchased finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 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
|
$
|
153,704
|
|
$
|
(70,887
|
)
|
$
|
82,817
|
|
|
$
|
148,114
|
|
$
|
(53,801
|
)
|
$
|
94,313
|
|
Trade names/trademarks
|
2,580
|
|
(1,069
|
)
|
1,511
|
|
|
4,149
|
|
(3,736
|
)
|
413
|
|
Non-compete agreements
|
—
|
|
—
|
|
—
|
|
|
1,400
|
|
(1,377
|
)
|
23
|
|
Technologies
|
9,800
|
|
(8,720
|
)
|
1,080
|
|
|
17,500
|
|
(13,588
|
)
|
3,912
|
|
Total finite-lived intangible assets
|
$
|
166,084
|
|
$
|
(80,676
|
)
|
$
|
85,408
|
|
|
$
|
171,163
|
|
$
|
(72,502
|
)
|
$
|
98,661
|
|
|
|
(1)
|
Excludes assets that are fully amortized.
|
Finite-lived intangible assets include customer relationships and trade names/trademarks of
$6.3 million
and
$1.7 million
, respectively, as of the acquisition date, based on our final purchase price allocation relating to our acquisition of TMP Holdings LTD.
For additional information, see Note 3:
Acquisitions and Divestiture
.
Amortization expense of our finite-lived intangible assets was
$20.8 million
,
$21.4 million
and
$25.1 million
for the years ended
December 30, 2018
,
December 31, 2017
and
January 1, 2017
, respectively.
The following table provides the estimated future amortization of finite-lived intangible assets as of
December 30, 2018
:
|
|
|
|
|
(in thousands)
|
|
2019
|
$
|
18,986
|
|
2020
|
17,354
|
|
2021
|
14,049
|
|
2022
|
13,201
|
|
2023
|
11,593
|
|
Thereafter
|
10,225
|
|
Total future amortization
|
$
|
85,408
|
|
Indefinite-lived intangible assets
We also held indefinite-lived trade names/trademarks of
$6.0 million
as of
December 30, 2018
and
December 31, 2017
.
Impairments
There were no goodwill or intangible asset impairment charges recorded during fiscal 2018 or 2017.
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%
.
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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 client of its plans to reduce the use of contingent labor and realign its contingent labor vendors for warehousing. Our former largest client 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 client.
|
|
|
◦
|
Goodwill impairmen
t - 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 client 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 client and its supply chain and anticipated projects did not occur to the extent expected. PlaneTechs had been diversifying from providing services to one primary client without offsetting growth in the broader aviation and transportation marketplace. As a result of significantly underperforming against 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 underperformed against our expectations. As a result of underperforming against our expectations and increased future uncertainty in client 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.
NOTE 8: 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
2.0%
and
1.8%
at
December 30, 2018
and
December 31, 2017
, respectively. Payments made against self-insured claims are made over a weighted average period of approximately
4.5 years
at
December 30, 2018
.
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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 30,
2018
|
December 31,
2017
|
Undiscounted workers’ compensation reserve
|
$
|
284,625
|
|
$
|
293,600
|
|
Less discount on workers’ compensation reserve
|
18,179
|
|
19,277
|
|
Workers’ compensation reserve, net of discount
|
266,446
|
|
274,323
|
|
Less current portion
|
76,421
|
|
77,218
|
|
Long-term portion
|
$
|
190,025
|
|
$
|
197,105
|
|
Payments made against self-insured claims were
$64.7 million
,
$66.8 million
and
$73.6 million
for the years ended
December 30, 2018
,
December 31, 2017
and
January 1, 2017
, respectively.
Our workers’ compensation reserve includes estimated expenses related to claims above our self-insured limits (“excess claims”), and we record a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. At
December 30, 2018
and
December 31, 2017
, the weighted average rate was
2.9%
and
2.5%
, respectively. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately
16 years
. The discounted workers’ compensation reserve for excess claims was
$48.2 million
and
$48.8 million
as of
December 30, 2018
and
December 31, 2017
, respectively. The discounted receivables from insurance companies, net of valuation allowance, were
$44.9 million
and
$45.0 million
as of
December 30, 2018
and
December 31, 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 30, 2018
:
|
|
|
|
|
(in thousands)
|
|
2019
|
$
|
76,421
|
|
2020
|
41,654
|
|
2021
|
23,690
|
|
2022
|
15,236
|
|
2023
|
10,309
|
|
Thereafter
|
50,907
|
|
Sub-total
|
218,217
|
|
Excess claims (1)
|
48,229
|
|
Total
|
$
|
266,446
|
|
|
|
(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.
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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
$69.2 million
,
$83.7 million
and
$94.0 million
was recorded in cost of services for the years ended
December 30, 2018
,
December 31, 2017
and
January 1, 2017
, respectively.
NOTE 9: LONG-TERM DEBT
The components of our borrowings were as follows:
|
|
|
|
|
|
|
|
(in thousands)
|
December 30,
2018
|
December 31,
2017
|
Revolving Credit Facility
|
$
|
80,000
|
|
$
|
95,900
|
|
Term Loan
|
—
|
|
22,856
|
|
Total debt
|
80,000
|
|
118,756
|
|
Less current portion
|
—
|
|
2,267
|
|
Long-term debt, less current portion
|
$
|
80,000
|
|
$
|
116,489
|
|
Revolving credit facility
On
July 13, 2018
, we entered into a credit agreement with Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, N.A., KeyBank, N.A. and HSBC Bank USA, N.A. (“Revolving Credit Facility”). The agreement provides for a revolving line of credit of up to
$300 million
with an option, subject to lender approval, to increase the amount to
$450 million
, and matures in five years. At
December 30, 2018
,
$80.0 million
was utilized as a draw on the facility and
$6.9 million
was utilized by outstanding standby letters of credit, leaving
$213.1 million
available under the Revolving Credit Facility for additional borrowings.
Under the terms of the agreement, we pay a variable rate of interest on funds borrowed based on the London Interbank Offered Rate (“LIBOR”) plus an applicable spread between
1.25%
and
2.50%
. Alternatively, at our option, we may pay interest based on a base rate plus an applicable spread between
0.25%
and
1.50%
. The applicable spread is determined by the consolidated leverage ratio, as defined in the credit agreement. 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 30, 2018
, the applicable spread on LIBOR was
1.50%
and the weighted average index rate was
2.46%
, resulting in a weighted average interest rate of
3.96%
.
A commitment fee between
0.250%
and
0.375%
is applied against the Revolving Credit Facility’s unused borrowing capacity, with the specific rate determined by the consolidated leverage ratio, as defined in the credit agreement. Letters of credit are priced at a margin between
1.00%
and
2.25%
, plus a fronting fee of
0.50%
. Obligations under the agreement are guaranteed by TrueBlue and material U.S. domestic subsidiaries, and are secured by substantially all of the assets of TrueBlue and material U.S. domestic subsidiaries. The agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including, among others, financial covenants based on our leverage and fixed charge coverage ratios, as defined in the credit agreement. We are currently in compliance with all covenants related to the Revolving Credit Facility.
Term loan agreement
On June 25, 2018, we pre-paid in full our outstandin
g obligations of approximately
$22.0 million
with Synovus Bank, terminating all commitments under this term loan (the “Term Loan”) dated February 4, 2013 (as subsequently amended). We did not incur any early termination penalties in connection with the termination of the Term Loan.
NOTE 10: 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.
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
We have provided our insurance carriers and certain states with commitments in the form and amounts listed below:
|
|
|
|
|
|
|
|
(in thousands)
|
December 30,
2018
|
December 31,
2017
|
Cash collateral held by workers’ compensation insurance carriers
|
$
|
22,264
|
|
$
|
22,148
|
|
Cash and cash equivalents held in Trust
|
28,021
|
|
16,113
|
|
Investments held in Trust
|
156,618
|
|
171,752
|
|
Letters of credit (1)
|
6,691
|
|
7,748
|
|
Surety bonds (2)
|
21,881
|
|
19,829
|
|
Total collateral commitments
|
$
|
235,475
|
|
$
|
237,590
|
|
|
|
(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 30, 2018
are as follows for each of the next five years and thereafter:
|
|
|
|
|
(in thousands)
|
|
2019
|
$
|
8,337
|
|
2020
|
7,192
|
|
2021
|
4,990
|
|
2022
|
2,442
|
|
2023
|
1,324
|
|
Thereafter
|
699
|
|
Total future non-cancelable minimum lease payments
|
$
|
24,984
|
|
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
2018
,
2017
and
2016
was
$27.3 million
,
$25.9 million
and
$26.5 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
$28.0 million
of purchase obligations as of
December 30, 2018
, of which
$14.7 million
are expected to be paid in
2019
.
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.
NOTE 11: SHAREHOLDERS’ EQUITY
Common stock
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 30, 2018
, we used
$34.8 million
under this program to repurchase shares at an average share price of
$25.40
.
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Shares of common stock outstanding include shares of unvested restricted stock. Unvested restricted stock included in reportable shares outstanding was
0.7 million
and
0.8 million
shares as of
December 30, 2018
and
December 31, 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.
NOTE 12: 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. Commencing in 2017, vesting of the performance share units is contingent upon the achievement of return on equity goals at the end of each
three
-year performance period, previously vesting was contingent upon the achievement of revenue and profitability growth goals. 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 30, 2018
, was as follows:
|
|
|
|
|
|
|
(shares in thousands)
|
Shares
|
Weighted- average grant-date price
|
Non-vested at beginning of period
|
1,321
|
|
$
|
23.50
|
|
Granted
|
719
|
|
$
|
26.87
|
|
Vested
|
(428
|
)
|
$
|
24.29
|
|
Forfeited
|
(296
|
)
|
$
|
23.01
|
|
Non-vested at the end of the period
|
1,316
|
|
$
|
26.05
|
|
The weighted average grant-date price of restricted and unrestricted stock awards and performance share units granted during the years
2018
,
2017
and
2016
was
$26.87
,
$25.45
and
$21.53
, respectively. As of
December 30, 2018
, total unrecognized stock-based compensation expense related to non-vested restricted stock was approximately
$12.6 million
, which is estimated to be recognized over a weighted average period of
1.7 years
. As of
December 30, 2018
, total unrecognized stock-based compensation expense related to performance share units was approximately
$3.8 million
, which is estimated to be recognized over a weighted average period of
1.8 years
. The total fair value of restricted shares vested during fiscal
2018
,
2017
and
2016
was
$9.9 million
,
$6.9 million
and
$6.6 million
, respectively.
No
performance shares vested during fiscal
2018
. The total fair value of performance shares vested during fiscal
2017
and
2016
was
$2.9 million
and
$3.3 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. We had no stock option activity for fiscal
2018
and de minimis activity for fiscal
2017
and
2016
.
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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
2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
(shares in thousands)
|
|
Shares
|
Average price per share
|
Issued during fiscal
|
2018
|
68
|
|
$
|
22.17
|
|
Issued during fiscal
|
2017
|
72
|
|
$
|
20.43
|
|
Issued during fiscal
|
2016
|
87
|
|
$
|
17.51
|
|
Stock-based compensation expense
Total stock-based compensation expense for fiscal years
2018
,
2017
and
2016
, which is included in selling, general and administrative expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), was
$13.9 million
,
$7.7 million
and
$9.4 million
, respectively. The related tax benefit was
$2.9 million
,
$2.7 million
and
$3.3 million
for fiscal
2018
,
2017
and
2016
, respectively.
NOTE 13: 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
$25.4 million
and
$24.1 million
as of
December 30, 2018
and
December 31, 2017
, respectively. The expense for our qualified and non-qualified deferred compensation plans, including our discretionary matching contributions, totaled
$5.3 million
,
$6.1 million
and
$2.8 million
for fiscal
2018
,
2017
and
2016
, respectively, and is recorded in selling, general and administrative expense on our Consolidated Statements of Operations and Comprehensive Income (Loss).
The provision for income taxes is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
(in thousands)
|
2018
|
2017
|
2016
|
Current taxes:
|
|
|
|
Federal
|
$
|
5,088
|
|
$
|
12,134
|
|
$
|
12,082
|
|
State
|
5,208
|
|
3,979
|
|
5,448
|
|
Foreign
|
1,542
|
|
3,545
|
|
2,677
|
|
Total current taxes
|
11,838
|
|
19,658
|
|
20,207
|
|
Deferred taxes:
|
|
|
|
Federal
|
(1,283
|
)
|
3,645
|
|
(20,693
|
)
|
State
|
120
|
|
(195
|
)
|
(4,064
|
)
|
Foreign
|
(766
|
)
|
(1,014
|
)
|
(539
|
)
|
Total deferred taxes
|
(1,929
|
)
|
2,436
|
|
(25,296
|
)
|
Provision for income taxes
|
$
|
9,909
|
|
$
|
22,094
|
|
$
|
(5,089
|
)
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
The items accounting for the difference between income taxes computed at the statutory federal income tax rate and income taxes reported on the Consolidated Statements of Operations and Comprehensive Income (Loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
(in thousands, except percentages)
|
2018
|
%
|
2017
|
%
|
2016
|
%
|
Income tax expense (benefit) based on statutory rate
|
$
|
15,889
|
|
21.0
|
%
|
$
|
27,140
|
|
35.0
|
%
|
$
|
(7,119
|
)
|
35.0
|
%
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
3,826
|
|
5.1
|
|
2,667
|
|
3.4
|
|
1,373
|
|
(6.8
|
)
|
Tax credits, net
|
(12,303
|
)
|
(16.3
|
)
|
(9,964
|
)
|
(12.9
|
)
|
(17,141
|
)
|
84.3
|
|
Transition to the U.S. Tax Cuts and Job Act
|
(194
|
)
|
(0.3
|
)
|
2,466
|
|
3.2
|
|
—
|
|
—
|
|
Non-deductible goodwill impairment charge
|
—
|
|
—
|
|
—
|
|
—
|
|
17,694
|
|
(87.0
|
)
|
Non-deductible/non-taxable items
|
1,191
|
|
1.6
|
|
1,157
|
|
1.5
|
|
630
|
|
(3.1
|
)
|
Foreign taxes
|
735
|
|
1.0
|
|
(342
|
)
|
(0.4
|
)
|
993
|
|
(4.8
|
)
|
Other, net
|
765
|
|
1.0
|
|
(1,030
|
)
|
(1.3
|
)
|
(1,519
|
)
|
7.4
|
|
Total taxes on income (loss)
|
$
|
9,909
|
|
13.1
|
%
|
$
|
22,094
|
|
28.5
|
%
|
$
|
(5,089
|
)
|
25.0
|
%
|
Our effective tax rate for fiscal
2018
was
13.1%
. The difference between the statutory federal income tax rate of
21.0%
and our effective income tax rate results primarily from the federal Work Opportunity Tax Credit (“WOTC”). This tax credit is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. During fiscal
2018
, we recognized
$1.1 million
of tax benefits from prior year WOTC. Other differences between the statutory federal income tax rate of
21.0%
and our effective tax rate of
13.1%
result from state and foreign income taxes, certain non-deductible expenses, tax exempt interest, and tax effects of stock-based compensation.
On December 22, 2017, Staff Accounting Bulletin No. 118 was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for income tax effects of the Tax Cuts and Jobs Act (the “Tax Act”). For the year ended
December 30, 2018
, we completed accounting for the Tax Act by recording immaterial adjustments to our transition tax and revaluation of net deferred tax assets at December 31, 2017. We also determined that unremitted earnings of our foreign subsidiaries should no longer remain subject to an indefinite reinvestment assertion and recorded a
$0.4 million
deferred tax liability related to foreign withholding taxes.
U.S. and international components of income (loss) before tax expense (benefit) was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
(in thousands)
|
2018
|
2017
|
2016
|
U.S.
|
$
|
73,051
|
|
$
|
69,119
|
|
$
|
(8,221
|
)
|
International
|
2,612
|
|
8,431
|
|
(12,119
|
)
|
Income (loss) before tax expense (benefit)
|
$
|
75,663
|
|
$
|
77,550
|
|
$
|
(20,340
|
)
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
The components of deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
(in thousands)
|
December 30,
2018
|
December 31,
2017
|
Deferred tax assets:
|
|
|
Allowance for doubtful accounts
|
$
|
1,049
|
|
$
|
876
|
|
Workers’ compensation
|
4,162
|
|
1,420
|
|
Accounts payable and other accrued expenses
|
3,957
|
|
4,000
|
|
Net operating loss carryforwards
|
2,103
|
|
2,388
|
|
Tax credit carryforwards
|
1,562
|
|
1,615
|
|
Accrued wages and benefits
|
7,016
|
|
4,644
|
|
Deferred compensation
|
5,438
|
|
4,484
|
|
Other
|
636
|
|
841
|
|
Total
|
25,923
|
|
20,268
|
|
Valuation allowance
|
(2,079
|
)
|
(2,508
|
)
|
Total deferred tax asset, net of valuation allowance
|
23,844
|
|
17,760
|
|
Deferred tax liabilities:
|
|
|
Prepaid expenses, deposits and other current assets
|
(2,054
|
)
|
(2,096
|
)
|
Depreciation and amortization
|
(17,402
|
)
|
(11,881
|
)
|
Total deferred tax liabilities
|
(19,456
|
)
|
(13,977
|
)
|
Net deferred tax asset, end of year
|
$
|
4,388
|
|
$
|
3,783
|
|
Deferred taxes related to our foreign currency translation were de minimis for fiscal
2018
,
2017
and
2016
.
The following table summarizes our net operating losses (“NOLs”) and credit carryforwards along with their respective valuation allowance as of
December 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Carryover tax benefit
|
Valuation allowance
|
Expected
benefit
|
Year expiration begins
|
Year-end tax attributes:
|
|
|
|
|
State NOLs
|
$
|
1,373
|
|
$
|
—
|
|
$
|
1,373
|
|
Various
|
Foreign NOLs
|
730
|
|
(730
|
)
|
—
|
|
Various
|
California Enterprise Zone credits
|
1,562
|
|
(1,349
|
)
|
213
|
|
2023
|
Total
|
$
|
3,665
|
|
$
|
(2,079
|
)
|
$
|
1,586
|
|
|
As of
December 30, 2018
, 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 30, 2018
. This liability is recorded in other non-current liabilities on our Consolidated Balance Sheets. In general, the tax years
2015
through
2017
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)
|
2018
|
2017
|
2016
|
Balance, beginning of fiscal year
|
$
|
2,210
|
|
$
|
2,242
|
|
$
|
2,195
|
|
Increases for tax positions related to the current year
|
377
|
|
356
|
|
348
|
|
Reductions due to lapsed statute of limitations
|
(397
|
)
|
(388
|
)
|
(301
|
)
|
Balance, end of fiscal year
|
$
|
2,190
|
|
$
|
2,210
|
|
$
|
2,242
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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
2018
and, in total, as of
December 30, 2018
, have recognized a liability for penalties of
$0.2 million
and interest of
$1.0 million
.
|
|
NOTE 15:
|
NET INCOME (LOSS) PER SHARE
|
Diluted common shares were calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
(in thousands, except per share data)
|
2018
|
2017
|
2016
|
Net income (loss)
|
$
|
65,754
|
|
$
|
55,456
|
|
$
|
(15,251
|
)
|
|
|
|
|
Weighted average number of common shares used in basic net income (loss) per common share
|
39,985
|
|
41,202
|
|
41,648
|
|
Dilutive effect of non-vested restricted stock
|
290
|
|
239
|
|
—
|
|
Weighted average number of common shares used in diluted net income (loss) per common share
|
40,275
|
|
41,441
|
|
41,648
|
|
Net income (loss) per common share:
|
|
|
|
Basic
|
$
|
1.64
|
|
$
|
1.35
|
|
$
|
(0.37
|
)
|
Diluted
|
$
|
1.63
|
|
$
|
1.34
|
|
$
|
(0.37
|
)
|
|
|
|
|
Anti-dilutive shares
|
538
|
|
418
|
|
—
|
|
|
|
NOTE 16:
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
Changes in the balance of each component of accumulated other comprehensive loss during the reporting periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
December 30, 2018
|
December 31, 2017
|
(in thousands)
|
Foreign currency translation adjustment, net of tax (2)
|
Unrealized gain on investments, net of tax
(1)
|
Total other comprehensive (loss), net of tax
|
|
Foreign currency translation adjustment, net of tax (2)
|
Unrealized gain on investments, net of tax
(1)
|
Total other comprehensive income (loss), net of tax
|
Balance at beginning of period
|
$
|
(8,329
|
)
|
$
|
1,525
|
|
$
|
(6,804
|
)
|
|
$
|
(11,684
|
)
|
$
|
251
|
|
$
|
(11,433
|
)
|
Current period other comprehensive income (loss)
|
(6,320
|
)
|
—
|
|
(6,320
|
)
|
|
3,355
|
|
1,274
|
|
4,629
|
|
Change in accounting standard cumulative-effect adjustment (3)
|
—
|
|
(1,525
|
)
|
(1,525
|
)
|
|
—
|
|
—
|
|
—
|
|
Balance at end of period
|
$
|
(14,649
|
)
|
$
|
—
|
|
$
|
(14,649
|
)
|
|
$
|
(8,329
|
)
|
$
|
1,525
|
|
$
|
(6,804
|
)
|
|
|
(1)
|
Consisted of deferred compensation plan accounts, comprised of mutual funds classified as available-for-sale securities, prior to our adoption of the new accounting standard for equity investments in the fiscal first quarter of 2018. The tax impact on the unrealized gain on available-for-sale securities was de minimis for the year ended
December 31, 2017
.
|
|
|
(2)
|
The tax impact on foreign currency translation adjustments for fiscal years
2018
and
2017
was de minimis.
|
|
|
(3)
|
As a result of our adoption of the new accounting standard for equity investments,
$1.5 million
in unrealized gains, net of tax on available-for-sale equity securities were reclassified from accumulated other comprehensive loss to retained earnings as of the beginning of fiscal 2018. There were no material reclassifications out of accumulated other comprehensive loss during the year ended
December 31, 2017
. For additional information, see Note 1:
Summary of Significant Accounting Policies
.
|
NOTE 17: SEGMENT INFORMATION
Our operating segments are based on the organizational structure for which financial results are regularly reviewed by our chief operating decision-maker, our Chief Executive Officer, to determine resource allocation and assess performance. Our operating segments, also referred to as service lines, and reportable segments are described below:
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Our
PeopleReady
reportable segment provides blue-collar, contingent staffing through the PeopleReady operating segment. PeopleReady provides on-demand and skilled labor in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, waste and recycling, hospitality, general labor and others.
Our
PeopleManagement
reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-premise at the client’s facility, through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:
|
|
•
|
Staff Management
: Exclusive recruitment and on-premise management of a facility’s contingent industrial workforce;
|
|
|
•
|
SIMOS Insourcing Solutions
: On-premise management and recruitment of warehouse/distribution operations; and
|
|
|
•
|
Centerline Drivers
: Recruitment and management of temporary and dedicated drivers to the transportation and distribution industries.
|
Effective March 12, 2018
, we divested the PlaneTechs business within our PeopleManagement reportable segment. For additional information, see Note 3:
Acquisitions and Divestiture.
Our
PeopleScout
reportable segment provides high-volume, permanent employee recruitment process outsourcing, and management of outsourced labor service providers through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:
|
|
•
|
PeopleScout
: Outsourced recruitment of permanent employees on behalf of clients; and
|
|
|
•
|
PeopleScout MSP
: Management of multiple third party staffing vendors on behalf of clients.
|
Effective June 12, 2018, we
acquired TMP through PeopleScout. Accordingly, the results associated with the acquisition are included in our PeopleScout operating segment. TMP is a mid-sized RPO and employer branding service provider operating in the United Kingdom which is the second largest RPO market in the world. This acquisition increases our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients and employer branding capabilities. F
or additional information, see Note 3:
Acquisitions and Divestiture
.
We evaluate performance based on segment revenue and segment profit. Inter-segment revenue is minimal. Commencing in the fiscal first quarter of 2018, we revised our internal segment performance measure to be segment profit, rather than the previously reported segment earnings before interest, taxes, depreciation and amortization (segment EBITDA). Segment profit includes revenue, related cost of services, and ongoing operating expenses directly attributable to the reportable segment. Segment profit excludes goodwill and intangible impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest, other income and expense, income taxes, and costs not considered to be ongoing costs of the segment. The prior year amounts have been recast to reflect this change for consistency purposes.
The following table presents a reconciliation of segment revenue from services to total company revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
(in thousands)
|
December 30,
2018
|
December 31,
2017
|
January 1,
2017
|
Revenue from services:
|
|
|
|
PeopleReady
|
$
|
1,522,076
|
|
$
|
1,511,360
|
|
$
|
1,629,455
|
|
PeopleManagement
|
728,254
|
|
807,273
|
|
940,453
|
|
PeopleScout
|
248,877
|
|
190,138
|
|
180,732
|
|
Total company
|
$
|
2,499,207
|
|
$
|
2,508,771
|
|
$
|
2,750,640
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
The following table presents a reconciliation of Segment profit to income before tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
(in thousands)
|
December 30,
2018
|
December 31,
2017
|
January 1,
2017
|
Segment profit:
|
|
|
|
PeopleReady
|
$
|
85,998
|
|
$
|
79,044
|
|
$
|
109,063
|
|
PeopleManagement
|
21,627
|
|
27,216
|
|
27,557
|
|
PeopleScout
|
47,383
|
|
39,354
|
|
34,285
|
|
|
155,008
|
|
145,614
|
|
170,905
|
|
Corporate unallocated
|
(26,066
|
)
|
(20,968
|
)
|
(23,583
|
)
|
Goodwill and intangible asset impairment charge
|
—
|
|
—
|
|
(103,544
|
)
|
Work Opportunity Tax Credit processing fees
|
(985
|
)
|
(805
|
)
|
(1,858
|
)
|
Acquisition/integration costs
|
(2,672
|
)
|
—
|
|
(6,654
|
)
|
Other costs
|
(10,317
|
)
|
(162
|
)
|
(5,569
|
)
|
Depreciation and amortization
|
(41,049
|
)
|
(46,115
|
)
|
(46,692
|
)
|
Income (loss) from operations
|
73,919
|
|
77,564
|
|
(16,995
|
)
|
Interest and other income (expense), net
|
1,744
|
|
(14
|
)
|
(3,345
|
)
|
Income (loss) before tax expense (benefit)
|
$
|
75,663
|
|
$
|
77,550
|
|
$
|
(20,340
|
)
|
Asset information by reportable segment is not presented since we do not manage our segments on a balance sheet basis.
Our international operations are primarily in Canada, Australia and the United Kingdom. Revenue by region was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
(in thousands, except percentages)
|
2018
|
%
|
2017
|
%
|
2016
|
%
|
United States
|
$
|
2,369,024
|
|
94.8
|
%
|
$
|
2,387,992
|
|
95.2
|
%
|
$
|
2,644,414
|
|
96.1
|
%
|
International operations
|
130,183
|
|
5.2
|
|
120,779
|
|
4.8
|
|
106,226
|
|
3.9
|
|
Total revenue from services
|
$
|
2,499,207
|
|
100.0
|
%
|
$
|
2,508,771
|
|
100.0
|
%
|
$
|
2,750,640
|
|
100.0
|
%
|
No single client represented more than 10% of total company revenue for fiscal
2018
,
2017
or
2016
. Client concentration for our reportable segments is as follows:
|
|
•
|
No single client represented more than
10.0%
of our PeopleReady reportable segment revenue for fiscal
2018
,
2017
, or
2016
.
|
|
|
•
|
No single client represented more than
10.0%
of our PeopleManagement reportable segment revenue for fiscal
2018
, or
2017
. One client represented
18.2%
of our PeopleManagement reportable segment revenue for fiscal
2016
.
|
|
|
•
|
One client represented
13.3%
of our PeopleScout reportable segment revenue for fiscal
2018
, two clients represented
14.4%
and
10.1%
, respectively for fiscal
2017
and
12.8%
and
10.0%
, respectively for fiscal
2016
.
|
Net property and equipment located in international operations was approximately
7.3%
and
9.1%
of total property and equipment as of
December 30, 2018
and
December 31, 2017
, respectively.
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 18: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
First
|
Second
|
Third
|
Fourth
|
2018
|
|
|
|
|
Revenue from services
|
$
|
554,388
|
|
$
|
614,301
|
|
$
|
680,371
|
|
$
|
650,147
|
|
Cost of services
|
411,120
|
|
448,717
|
|
496,053
|
|
477,717
|
|
Gross profit
|
143,268
|
|
165,584
|
|
184,318
|
|
172,430
|
|
Selling, general and administrative expense
|
125,763
|
|
134,207
|
|
145,382
|
|
145,280
|
|
Depreciation and amortization
|
10,090
|
|
10,101
|
|
10,586
|
|
10,272
|
|
Income from operations
|
7,415
|
|
21,276
|
|
28,350
|
|
16,878
|
|
Interest expense
|
(890
|
)
|
(1,355
|
)
|
(1,357
|
)
|
(1,279
|
)
|
Interest and other income
|
3,094
|
|
387
|
|
1,017
|
|
2,127
|
|
Interest and other income (expense), net
|
2,204
|
|
(968
|
)
|
(340
|
)
|
848
|
|
Income before tax expense
|
9,619
|
|
20,308
|
|
28,010
|
|
17,726
|
|
Income tax expense
|
864
|
|
2,576
|
|
3,630
|
|
2,839
|
|
Net income
|
$
|
8,755
|
|
$
|
17,732
|
|
$
|
24,380
|
|
$
|
14,887
|
|
Net income per common share:
|
|
|
|
|
Basic
|
$
|
0.22
|
|
$
|
0.44
|
|
$
|
0.61
|
|
$
|
0.38
|
|
Diluted
|
$
|
0.22
|
|
$
|
0.44
|
|
$
|
0.61
|
|
$
|
0.37
|
|
|
|
|
|
|
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
|
|